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GAO_GAO-12-819
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{
"title": [
"Background",
"Fragmentation, Overlap, and Duplication",
"Defining Federal Economic Development Programs",
"GPRA Modernization Act of 2010",
"Fragmented Programs Overlap, and Agencies’ Efforts to Collaborate Have Been Limited",
"Many Programs Are Authorized to Provide Similar Types of Assistance and Target Similar Beneficiaries",
"Some Entrepreneurs Struggle to Navigate Technical Assistance Programs",
"Agencies’ Collaboration Has Been Limited",
"Agencies Lack Information to Track Program Activities and Measure Performance",
"Agencies Do Not Maintain Information to Enable Tracking of Activities for Most Programs",
"Some Programs Failed to Meet Their Goals",
"Agencies Have Not Evaluated the Majority of Programs That Support Entrepreneurs",
"Conclusions",
"Recommendations",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope and Methodology",
"Appendix II: Illustrative Examples of Economic Activities",
"Illustrative Examples of Economic Activities",
"Agency",
"Agency",
"Agency",
"Agency HUD",
"Agency HUD",
"Agency",
"Agency HUD",
"Agency SBA",
"Agency SBA",
"Agency SBA",
"Agency SBA",
"Agency",
"Agency",
"Agency SBA",
"Agency SBA",
"Agency SBA",
"Agency SBA",
"Agency",
"Agency USDA",
"Agency",
"Agency USDA",
"Appendix IV: Additional Federal Programs that Can Fund Economic Activities",
"Appendix V: Evaluations of Programs that Can Support Entrepreneurs, 2000-2012",
"Agency reviewed HUD",
"Author(s), title of evaluation",
"Appendix VI: Comments from the Department of Agriculture",
"Appendix VII: Comments from the Department of Commerce",
"Appendix VIII: Comments from the Department of Housing and Urban Development",
"Appendix XI: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"Fragmentation refers to circumstances in which more than one federal agency (or more than one organization within an agency) is involved in the same broad area of national interest. Overlap involves programs that have similar goals, devise similar strategies and activities to achieve those goals, or target similar users. Duplication occurs when two or more agencies or programs are engaged in the same activities or provide the same assistance to the same beneficiaries. In some instances, it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort. However, we have previously identified instances where multiple government programs or activities have led to inefficiencies, and we determined that greater efficiencies or effectiveness might be achievable.",
"In September 2000, we reported that there is no commonly accepted definition for economic development. Absent a common definition, we subsequently developed a list of nine activities most often associated with economic development. In general, we focused on economic activities that directly affected the overall development of an area, such as job creation, rather than on activities that improved individuals’ quality of life, such as housing and education. The nine economic activities are supporting business incubators and accelerators, constructing and renovating commercial buildings, constructing and renovating industrial parks and buildings, strategic planning and research, marketing and access to new markets for products and industries, supporting telecommunications and broadband infrastructure, supporting physical infrastructure, and supporting tourism.\nAppendix II provides illustrative examples of each of these economic activities. Appendix III provides more information on the 52 economic development programs we focused on for this report. Appendix IV includes a list of additional programs that are administered by federal agencies we identified that can fund at least one of these activities.",
"In January 2011, Congress updated the Government Performance and Results Act of 1993 (GPRA) with the GPRA Modernization Act of 2010 (GPRAMA). GPRAMA establishes a new framework aimed at taking a more crosscutting and integrated approach to focusing on results and improving government performance. Effective implementation of GPRAMA could play an important role in clarifying desired outcomes; addressing program performance spanning multiple organizations; and facilitating future actions to reduce unnecessary duplication, overlap, and fragmentation. Among other things, GPRAMA requires the Office of Management and Budget (OMB) to coordinate with agencies to establish outcome-oriented federal government priority goals covering a limited number of policy areas, as well as goals to improve management across the federal government. It also requires OMB—in conjunction with the agencies—to develop a federal government performance plan that outlines how they will make progress toward achieving goals, including federal government priority goals. The President’s 2013 budget submission includes the first interim federal government priority goals, including one to increase federal services to entrepreneurs and small businesses with an emphasis on start-ups and growing firms and underserved markets.",
"The identified economic development programs that support entrepreneurs overlap based on both the type of assistance they provide and the characteristics of the beneficiaries they target. This overlap among fragmented programs can make it difficult for entrepreneurs to navigate the services available to them. In addition, while agencies have taken steps to collaborate more in administering these programs, they have not implemented a number of good collaborative practices we have previously identified, and some entrepreneurs struggle to find the support they need.",
"Federal efforts to support entrepreneurs are fragmented, which occurs when more than one agency or program is involved in the same broad area of national interest. Commerce (8), HUD (12), SBA (19), and USDA (13) administered 52 programs that could support entrepreneurial efforts in fiscal year 2011. Several types of overlap—which occurs when programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries—exist among these programs, based on the type of assistance the programs offer and characteristics of the programs’ targeted beneficiaries.\nMany of the programs provide entrepreneurs with similar types of assistance. The programs generally can be grouped according to at least one of three types of assistance that address different entrepreneurial needs: help obtaining (1) technical assistance, (2) financial assistance, and (3) government contracts. Many of the programs can provide more than one type of assistance, and most focus on technical assistance, financial assistance, or both:\nTechnical assistance: Thirty-five programs distributed across the four agencies can provide technical assistance, including business training, counseling and research, and development support.\nFinancial assistance: Thirty programs distributed across the four agencies can support entrepreneurs through financial assistance in the form of grants and loans.\nGovernment contracting assistance: Five programs, all of which are administered by SBA, can support entrepreneurs by helping them qualify for federal procurement opportunities.\nWe reviewed the statutes and regulations for each program and found that overlap tends to be concentrated among programs that provide a broad range of technical and financial assistance. Within the technical assistance category, 24 of the 35 programs are authorized to provide or fund a broad range of technical assistance both to entrepreneurs with existing businesses and to nascent entrepreneurs—that is, entrepreneurs attempting to start a business—in any industry. This broad range of support can include any form of training or counseling, including start-up assistance, access to capital, and accounting. Examples of programs in this category include Commerce’s Minority Business Centers, five of HUD’s Community Development Block Grant (CDBG) programs, SBA’s Small Business Development Centers, and USDA’s Rural Business Opportunity Grants. Eight additional programs can support limited types of technical assistance or industries. For example, Commerce’s Trade Adjustment Assistance for Firms only supports existing businesses negatively affected by imports, and USDA’s Small Socially- Disadvantaged Producer Grants only serves agricultural businesses.\nSimilarly, 16 of the 30 financial assistance programs can provide or guarantee loans that can be used for a broad range of purposes to existing businesses and nascent entrepreneurs in any industry. Examples of programs in this category include Commerce’s Economic Adjustment Assistance programs, six of HUD’s CDBG programs, SBA’s 7(a) Loan Program, and USDA’s Business and Industry Loans. Five other programs can support loans for a more narrow range of purposes or industries, while the other nine programs can only support other types of financial assistance, such as grants, equity investments, and surety guarantees.\nIn addition, a number of programs overlap based on the characteristics of the targeted beneficiary. Most programs either target or exclusively serve one of four types of businesses: businesses in rural areas, businesses in economically distressed areas, disadvantaged businesses, and small businesses. support to entrepreneurs are focused on serving beneficiaries in economically distressed areas or target benefits at low- to moderate- income individuals. SBA’s 19 programs are all limited to serving small businesses, with several programs that either target or exclusively serve disadvantaged businesses and microenterprises. Eight of USDA’s 13 programs are limited to rural service areas, and four of these programs are limited to small businesses or microenterprises. Among Commerce’s eight programs, six are limited to serving beneficiaries in economically distressed areas, while two exclusively serve disadvantaged businesses.\nThe definition of rural varies among these programs, but according to USDA—the agency that administers many of the economic development programs that serve rural areas—the term rural typically covers areas with population limits ranging from less than 2,500 to 50,000. Based on statutory language, we characterize economically distressed areas as communities with high concentrations of low- and moderate-income families or high rates of unemployment and/or underemployment. See, e.g., 42 U.S.C. § 3141; 42 U.S.C. § 5301. Likewise, based on statutory language, we characterize disadvantaged businesses as those owned by women, minority groups, and veterans, among other factors. See, e.g., 15 U.S.C. § 637(a); 15 U.S.C. § 656. The definition of small business varies among these programs, but according to SBA—the agency that administers many of the economic development programs that serve small businesses—the term small business refers to businesses that have annual receipts or total employee numbers under an agency-defined value for their specific industry.\nEntrepreneurs may fall into more than one beneficiary category—for example, an entrepreneur may be in an area that is both rural and economically distressed. Therefore, these entrepreneurs would be eligible, based on program authority, for more than one subset of program. For example, a small business in a rural, economically distressed area, such as Susquehanna County, Pennsylvania, could, in terms of program authority, receive a broad range of technical assistance through at least nine programs at all four of the agencies, including:\nCommerce’s Economic Adjustment Assistance;\nHUD’s CDBG/States, Rural Innovation Fund, and Section 4 Capacity\nSBA’s SCORE and Small Business Development Centers;\nUSDA’s1890 Land Grant Institutions, Rural Business Enterprise Grants, and Rural Business Opportunity Grants.\nSimilarly, a small business that is both minority- and women-owned in an urban, noneconomically distressed area, such as Seattle, Washington, could in terms of program authority, receive a broad range of technical assistance through at least seven programs at three of the four agencies, including:\nCommerce’s Minority Business Centers;\nHUD’s CDBG/Entitlement and Section 4 Capacity Building; and\nSBA’s Program for Investment in Micro-entrepreneurs (PRIME), SCORE, Small Business Development Centers, and Women’s Business Centers.\nHUD’s Rural Innovation Fund program did not receive funding in fiscal year 2011 but is still active. USDA’s1890 Land Grant Institutions received an unspecified amount of funding through USDA’s Salaries and Expense account rather than program appropriations.\nEntrepreneurs may also be eligible for multiple subsets of financial assistance programs based on their specific characteristics. For example, a small business in a rural, economically distressed area, such as Bourbon County, Kansas, could in terms of authority, receive financial assistance in the form of guaranteed or direct loans for a broad range of uses through at least eight programs at the four agencies, including:\nCommerce’s Economic Adjustment Assistance;\nHUD’s CDBG/States, Rural Innovation Fund and Section 4 Capacity\nSBA’s 7(a) Loan Program and Small Business Investment\nUSDA’s Business and Industry Loans and Rural Business Enterprise Grants.\nA small business that is both minority and women-owned in an urban, noneconomically distressed area, such as Raleigh, North Carolina, could receive financial assistance in the form of guaranteed or direct loans for a broad range of uses through at least four programs at two of the four agencies, including:\nHUD’s CDBG/Entitlement and Section 4 Capacity Building; and\nSBA’s 7(a) Loan Program and Small Business Investment Companies.\nFive programs provide government contracting assistance to entrepreneurs, but our analysis did not identify significant overlap in the types of assistance these programs provide or the types of entrepreneurs they serve. While these five programs are all administered by SBA and can serve businesses in any industry, they tend to target specific types of entrepreneurs and provide unique types of assistance. For example, the Procurement Assistance to Small Businesses program coordinates access to government contracts for small and disadvantaged businesses with other federal agencies, while the 8(a) Business Development Program coordinates certification of eligible disadvantaged businesses for the contracts made available at these other agencies, in addition to providing business development assistance during their 9-year term.\nWhile many programs overlap in terms of statutory authority, entrepreneurs may in reality have fewer options to access assistance from multiple programs. Agencies often rely on intermediaries (that is, third-party entities such as nonprofit organizations, higher education institutions, or local governments that use federal grants to provide eligible assistance directly to entrepreneurs) to provide specific support to entrepreneurs, and these intermediaries vary in terms of their location and the types of assistance they provide. For example, while entrepreneurs seeking technical assistance in Susquehanna County, Pennsylvania, are eligible to receive this support through USDA’s1890 Land Grant Institutions program, the closest funded intermediary is in Delaware, making it unlikely that such an entrepreneur would utilize services through this program. Additionally, intermediaries we spoke to in several areas said they typically provide a more limited range of services to entrepreneurs than are allowed under their statutory authority. For example, two intermediaries that we interviewed in Texas that were authorized to provide a broad range of technical support to entrepreneurs through SBA’s Small Business Development Center and Commerce’s Minority Business Center noted that they each specialized in a narrower subset of services and referred beneficiaries to each other and other resources for some services outside of their niches. Specifically, the intermediary at the Small Business Development Center noted that they provide a range of long-term services to small businesses over different phases of development, while the intermediary at the Minority Business Center noted that they focused specifically on larger minority-owned firms as well as start-up companies.\nOverlapping programs may also employ different mechanisms to provide similar types of support to entrepreneurs. For example, programs may support technical assistance through different types of intermediaries that provide services to entrepreneurs. USDA’s Rural Business Opportunity Grants program can provide technical assistance through local governments, nonprofit corporations, Indian tribes, and cooperatives that are located in rural areas, while SBA’s SCORE program utilizes retired business professionals and others that volunteer their time to provide assistance. Additionally, programs may support financial assistance in the form of loans through loan guarantees, direct loans, or support for revolving loan funds. SBA’s 7(a) Loan program provides guarantees on loans made by private sector lenders, while USDA’s Intermediary Re- lending program provides financing to intermediaries to operate revolving loan funds.\nAdditionally, some programs distribute funding through multiple layers of intermediaries before it reaches entrepreneurs. For example, HUD’s Section 4 Capacity Building program is only authorized to provide grants to five national organizations, which pass funding on to a number of local grantees, including community development corporations that may use the funding to provide technical or financial assistance to entrepreneurs. HUD officials also noted that most of their programs allow local grantees discretion on whether to use funds to support entrepreneurs or for other authorized purposes. Other programs may competitively award grants to multiple intermediaries working jointly in the same community to serve entrepreneurs. For example, Commerce’s Economic Adjustment Assistance program can provide grants to intermediaries, such as consortiums of local governments and nonprofits, which in turn provide technical or financial assistance to entrepreneurs.\nAlthough we identified a number of examples of statutory overlap, we did not find evidence of duplication among these programs (that is, instances when two or more agencies or programs are engaged in the same activities to provide the same services to the same beneficiaries) based on available data. However, most agencies were not able to provide the programmatic information, such as data on users of the program that is necessary to determine whether or not duplication actually exists among the programs. The agencies’ data-collecting practices will be discussed at greater length later in this report.",
"As previously discussed, 35 programs distributed across the four agencies provide technical assistance, including business training and counseling. While the existence of multiple programs in and of itself is not a problem, the delivery system of these fragmented and overlapping technical assistance programs contains many components (see fig. 1). Several entrepreneurs and various technical assistance providers with whom we spoke—including agency field offices, intermediaries, and other local service providers—told us that the system can be confusing and that some entrepreneurs do not know what services are available or where to go for assistance. As discussed earlier, federal funds typically flow from the federal agencies to different eligible intermediaries, which are third- party entities that receive federal funds, such as nonprofits or universities. These intermediaries in turn may provide technical assistance to entrepreneurs by, for example, helping them to develop a business plan or put together a loan package to obtain financing. For instance, SBA’s Women’s Business Center and Commerce’s Minority Business Center programs can provide technical assistance through different intermediaries, such as the Arkansas Women’s Business Center and the University of Hawaii. Although intermediaries are the primary providers of technical assistance, agency field offices may also provide some technical assistance. For example, USDA’s Rural Development state offices may provide advice on how to complete their respective grant applications. SBA’s district offices may also discuss the different business structures available.\nTechnical assistance providers sometimes attempt to help entrepreneurs navigate the system by referring them to other programs, but these efforts are not consistently successful. Some of these providers told us that they assess the entrepreneur’s needs to determine whether to assist them or refer them to another entity that could provide the assistance more effectively. For example, if an 1890 Land Grant intermediary were not able to assist an entrepreneur, it might refer the entrepreneur to SBA, USDA, or a local provider. However, such referrals are not always successful. For example, an entrepreneur we spoke with described a case in which he needed assistance with developing a business plan but was unable to receive this assistance, even after several referrals. Some technical assistance providers that we spoke with either did not appear to fully understand other technical assistance programs or thought that others did not fully understand their programs. For example, one technical assistance provider told us that some technical assistance providers were focused on more established businesses, but when we reached out to some of these providers, they said they served all entrepreneurs. This lack of understanding could prevent providers from making helpful referrals and leveraging other programs and limit the effectiveness of the programs.\nIn addition, programs’ Internet resources can also be difficult to navigate. Each agency has its own separate website that provides information to entrepreneurs, but they often direct entrepreneurs to other websites for additional information. For example, the SBA website directs users to another website that lists the Small Business Development Centers, which then directs users to another website that provides some information on the centers’ available services. SBA, Commerce, USDA, and other agencies have recently collaborated to develop a joint website called BusinessUSA with the goal of making it easier for businesses to access services. However, the site was not fully operational as of June 2012, and none of the entrepreneurs and almost all the technical assistance providers we spoke with were not yet aware of it. As of June 2012, this website listed a number of potential technical assistance programs across different federal agencies with links to the programs’ websites. Some technical assistance providers and entrepreneurs suggested that a single source to help entrepreneurs quickly find information instead of sorting through different websites would be helpful.",
"Enhanced collaboration between agencies could potentially address some of the difficulties entrepreneurs experience and improve program efficiency. In prior work we identified practices that can help to enhance and sustain collaboration among federal agencies, which can help to maximize performance and results, and have recommended that the agencies follow them. These collaborative practices include identifying common outcomes, establishing joint strategies, leveraging resources, determining roles and responsibilities, and developing compatible policies and procedures. In addition, GPRAMA requires agencies to describe in annual performance plans how they are working with other agencies to achieve their performance goals and relevant federal government performance goals.\nThe agencies have taken initial steps to improve how they collaborate to provide technical assistance to entrepreneurs by, for example, entering into formal agreements with each other, but they have not pursued a number of other good collaborative practices we have previously identified, as the following examples illustrate:\nUSDA and SBA entered into a formal agreement in April 2010 to coordinate their efforts aimed at supporting businesses in rural areas. In April 2011, USDA began to survey its state offices to help the agency gauge the level of collaboration between its field staff and SBA, as well as to identify additional opportunities to enhance collaboration. However, the agencies’ business development programs that can support start-up businesses—USDA’s Rural Business Enterprise Grant and SBA’s Small Business Development Centers—have yet to determine roles and responsibilities, find ways to leverage each other’s resources, or establish compatible policies and procedures to collaboratively support rural businesses.\nThe Appalachian Regional Development Initiative is a formal agreement, which began in November 2010, among the Appalachian Regional Commission (which coordinates economic development activities in the Appalachian region), the four agencies, and other agencies.Appalachian economy through better deployment and coordination of federal resources. According to officials at the Appalachian Regional Commission, the agencies did participate in a joint workshop to present the locally available resources from business development to infrastructure in the fall 2011, and USDA is one of its stronger partners. However, the agencies have not established joint strategies, determined roles and responsibilities, or developed compatible policies and procedures for carrying out the common outcomes outlined in their agreements at the local level where technical assistance is provided.\nThis agreement is intended to strengthen and diversify the In August 2011 SBA and the Delta Regional Authority (which coordinates economic development activities in the Delta region) entered into a formal agreement to better deploy and coordinate resources for small businesses located in the Delta region. As part of this agreement, in April 2012 the two entities announced a joint effort to launch an program to support entrepreneurs called Operation JumpStart. Operation JumpStart is designed as a hands-on, microenterprise development program that is intended to help entrepreneurs test the feasibility of their business ideas and plan to launch new ventures. However, their effort thus far has been limited. While they entered into a formal agreement to launch the program, this agreement did not include any determinations of specific roles and responsibilities or establish compatible policies and procedures to collaboratively support these small businesses.\nIn June 2011, the President created the White House Rural Council to promote economic prosperity in rural areas. It is chaired by the Secretary of Agriculture and includes HUD, Commerce, SBA, and other agencies. The council is working to better coordinate federal programs in order to maximize the impact of federal investment in rural areas. Even though the council has announced a number of initiatives, such as helping rural small businesses access capital, the agencies have yet to implement many of our other good collaborative practices.\nIn addition, while most of these agencies at the headquarters level have agreed to work together by signing formal agreements to administer some of their similar programs, the agencies generally have yet to develop compatible guidance to implement these agreements in the field. As noted previously, some intermediaries we spoke with that provide technical assistance through agency programs collaborate by referring entrepreneurs to other federal programs and agencies that they believe may better meet their needs. However these efforts are inconsistent and do not always result in entrepreneurs obtaining the services they are seeking. OMB and the four agencies also have recently taken steps to implement GPRAMA, which requires them to coordinate better; however, implementation was still in the early phases as of May 2012 and had not yet affected how they administer their programs.\nImplementing additional good collaborative practices could improve how the federal government supports entrepreneurs by, for example, helping agencies make more useful referrals, meet more diverse needs of entrepreneurs, and present a more consistent delivery system to entrepreneurs:\nCollaborating agencies that agree upon roles and responsibilities can clarify who will do what, organize their joint and individual efforts, and facilitate coordinated decision making. This effort could help agencies not only initiate and sustain collaboration but also determine who is in the best position to support an entrepreneur based on the client’s need, which could lead to more effective referrals.\nBecause collaborating agencies bring different resources and capacities to their efforts, they can look for opportunities to leverage each other’s resources, thus obtaining additional benefits that would not be available if they were working separately. Being able to leverage each other’s resources could help agencies more effectively and efficiently support entrepreneurs because they may be able to meet more diverse needs by drawing on one another’s strengths.\nCompatible standards, policies, procedures, and data systems could help to sustain collaborative efforts. As agencies standardize, for example, procedures for supporting entrepreneurs, they can more efficiently support entrepreneurs through more consistent service- delivery methods across agencies and programs. This could be particularly helpful for entrepreneurs who are not familiar with the federal programs.\nIn addition, GPRAMA’s crosscutting framework requires that agencies collaborate in order to address issues such as economic development that transcend more than one agency, and GPRAMA directs agencies to describe how they are working with each other to achieve their program goals. As discussed previously, without more substantial collaboration, the delivery of service to entrepreneurs, particularly those who are unfamiliar with federal economic development programs, may not be as effective and efficient as possible.",
"Agencies do not maintain information in a way that would enable them to track activities for most of their programs. Further, the agencies lack information on why some programs have failed to meet some or all of their goals. While information from program evaluations can help measure program effectiveness, agencies have conducted evaluations of only 20 of the 52 active programs since 2000.",
"While the four agencies collected at least some information on program activities in either an electronic records system or through paper files, most were unable to summarize the information in a way that could be used to help administer the programs. Promising practices of program administration that we have identified include a strong capacity to collect and analyze accurate, useful, and timely data. According to OMB, being able to track and measure specific program data can help agencies diagnose problems, identify drivers of future performance, evaluate risk, support collaboration, and inform follow-up actions. Analyses of patterns and anomalies can also help agencies discover ways to achieve more value for the taxpayer’s money. In addition, agencies can use this information to assess whether their specific program activities are contributing as planned to the agency goals.\nIn addition, government internal control standards state that agencies should promptly and accurately record transactions to maintain their relevance and value for management decision making. Furthermore, this information should be readily available for use by management and others so that they can carry out their duties with the goal of achieving all of their objectives, including making operating decisions and allocating resources. This guidance calls for agencies to go beyond merely collecting information, stating that they should systematically analyze, or track, it over time to inform decision making. For example, the agencies could track this information to identify trends on how the programs are being used in different areas of the country. This information could help the agencies strategically target program resources to support the unique needs in each geographic area.\nAll four agencies collect program information but do not track detailed, readily available information for most programs, such as the type of technical assistance that their programs provide or fund, which is necessary to effectively administer their programs. For example, Commerce’s Economic Adjustment Assistance, HUD’s Section 4 Capacity Building, SBA’s PRIME, and USDA’s Rural Business Opportunity Grant Program can all support a broad range of technical assistance to various types of entrepreneurs, but agencies are unable to provide information on the types of services provided that would be necessary to compare activities across programs. Similarly, the agencies typically do not track detailed information on the characteristics of entrepreneurs that they serve, such as whether they are located in rural or economically distressed areas or the entrepreneurs’ type of industry. Most of the agencies collect detailed information on several of their programs in a way that could potentially help them more efficiently administer their programs, as the following examples illustrate:\nSBA collects detailed information on the type of technical assistance provided and type of entrepreneur served for 5 of its 10 technical assistance programs. SBA categorizes the types of technical assistance it provides by 17 categories of training and counseling, such as helping a business develop its business plan. All of this information is maintained in an electronic database that is accessible by agency staff.\nFor all of its programs, USDA collects detailed information on the industry of each of the entrepreneurs it supports. In addition, USDA collects detailed information (19 categories) on how entrepreneurs use proceeds, such as for working capital, provided through five of its financial assistance programs. USDA maintains this information in an electronic database, and officials stated that they can provide this type of detailed information upon request.\nFor all eight of its technical assistance programs, Commerce collects information on the type of entrepreneur served and the entrepreneurs’ industry.\nWhile HUD tracked limited program information on the type of support it provides to entrepreneurs, the agency collects information on other program activities and uses it to monitor program compliance. HUD staff meet quarterly with the Secretary of HUD to discuss these program data and determine changes that should be made to improve how they carry out program activities. Table 1 summarizes the type of information that agencies maintain in a readily available format that could be tracked to help administer the programs.\nOfficials who administer these programs provided a number of reasons why they do not track detailed program information for all programs in a way that could be used for program administration purposes. For example, some officials stated they do not rely on program information with this level of detail to make decisions about their programs. As previously discussed, many of these programs are administered by intermediaries, and these intermediaries may maintain detailed information on the services they provide. Agencies do not always require the intermediaries to forward all of this detailed information to headquarters. Rather, an intermediary may, for example, submit data summaries of the support they have provided during the reporting period in a narrative format—a format that cannot be easily aggregated or analyzed. Other agency officials noted that this type of summary-level information they collect and maintain at headquarters is sufficient for their purposes and complies with OMB reporting guidelines. However, without tracking more detailed program information, such as the specific type of support provided and the entrepreneurs served, agencies may not be able to make informed decisions or identify risks and problem areas within their programs based on factors such as how entrepreneurs make use of program services or funding. Furthermore, agencies may not be able to understand the extent that their programs are serving their intended purposes.",
"Our review found that for fiscal year 2011, a number of programs that support entrepreneurs failed to meet some or all of their performance goals. Measuring performance allows organizations to track the progress they are making toward their goals and gives managers crucial information on which to base their organizational and management decisions. Leading organizations recognize that performance measures can create powerful incentives to influence organizational and individual behavior. Some of their good practices include setting and measuring performance goals. GPRAMA requires agencies to develop annual performance plans that include performance goals for an agency’s program activities and accompanying performance measures. According to GPRAMA, these performance goals should be in a quantifiable and measurable form to define the level of performance to be achieved for program activities each year. The agencies should also be able to identify which external factors might affect goal accomplishment and explain why a goal was not met. Such plans can help to reinforce the connection between the long-term strategic goals outlined in their strategic plans and the day-to-day activities of their managers and staff.\nWe found that of the 33 programs that support entrepreneurs and set goals, 19 did not meet any of their goals or only met some of their goals (see table 2). These programs include Commerce’s Economic Development/Support for Planning Organizations, HUD’s Indian Community Development Block Grant, SBA’s 504 loan, and USDA’s Rural Business Opportunity Grant programs. Appendix III provides more information on fiscal year 2011 goals and accomplishments for each program that has goals and accomplishment data available.\nAgency officials provided a number of reasons why they thought these programs did not meet their goals, including that the goals were estimates and program funding was lower than anticipated. In addition, some agency officials could not identify any causes for the failure to meet goals nor had they attempted to determine the specific reasons for the failures.\nPrograms that are failing to meet performance goals without a clear understanding of the reasons could result in agencies not being able to identify and address specific parts of programs that may not be working well. Additionally, without more detailed data on the activities of individual intermediaries, determining which of these third-parties are effectively administering these programs and helping meet program goals is difficult. Making decisions without this information could result in scarce resources being directed away from programs, or intermediaries, that are effective and towards those that are not meeting their objectives or struggling to meet their objectives.",
"Over the past 12 years, agencies have conducted program evaluations of 20 of the 52 programs that support entrepreneurs. Most of these 20 programs were evaluated once in the past decade. The studies that were conducted focus on a variety of areas, including customer satisfaction and the programs’ economic impacts, and report an array of findings related to the effectiveness of the programs. For example, some evaluations reported the actual number of jobs produced as a result of program investments, while one evaluation reported that programs were more useful for larger firms than smaller firms. Some of the differences among the findings are tied to the varying questions the studies sought to answer and the methods that were used to answer them. The questions and methods employed are typically informed by the organization’s purpose for pursuing these studies. These purposes could include, for example, assessing program impact, identifying areas for improvement, or guiding resource allocation. Figure 2 describes the scope of each program evaluation and the findings related to program effectiveness. Appendix V provides more information on each program evaluation.\nAlthough GPRAMA does not require agencies to conduct formal program evaluations, it does require agencies to describe program evaluations that were used to establish or revise strategic goals as well as program evaluations they plan to conduct in the future. Additionally, while not required, agencies can use periodic program evaluations to complement ongoing performance measurement. Program evaluations that systematically study the benefits of programs may help identify the extent to which overlapping and fragmented programs are achieving their objectives. In addition, program evaluations can help agencies determine reasons why a performance goal was not met and give an agency direction on how to improve program performance. For instance, 8 of the 33 programs that were not evaluated by the administering agency failed to meet all of their performance goals. Performance evaluations could have helped agencies understand why these programs’ goals were not met. Further, program evaluations, which examine a broader range of information than is feasible on an ongoing basis through performance measures, can help assess the impact and effectiveness of a program.\nIn July 2007, we recommended that SBA further utilize the loan performance information it already collects to better report how small businesses fare after they participate in the 7(a) program. While SBA agreed with the recommendation, the agency has not implemented it. See GAO, Small Business Administration: Additional Measures Needed to Assess 7(a) Loan Program’s Performance, GAO-07-769 (Washington, D.C.: Jul. 13, 2007). of information, Congress and the agencies may not be able to better ensure that scarce resources are being directed to the most effective programs and activities.",
"In order to support entrepreneurs, federal economic development programs must be efficient and accessible to the people they are intended to serve. However, navigating these overlapping and fragmented programs can be an ongoing challenge for some entrepreneurs. While the agencies have a number of interagency agreements in place, our review found that agency field staff do not consistently collaborate and may not be able to help entrepreneurs navigate the large number of programs available to them. We have identified practices that can help to support collaboration among federal agencies and programs. In addition, greater collaboration is one way agencies can help overcome overlap and fragmentation among programs within and across agencies. Moreover, without enhanced collaboration and coordination, agencies may not be able to make the best use of limited federal resources and may not reach their intended beneficiaries in the most effective and efficient manner.\nIn addition, given the number of federal programs focused on supporting entrepreneurs, agencies need specific information about these programs to best allocate limited federal resources and make decisions about better administering and structuring the programs. In our February 2012 report on duplication, overlap, and fragmentation, we expected to recommend that Congress tie funding to program performance and that OMB and the agencies explore opportunities to restructure programs through such means as consolidation or elimination. However, decisions about funding and restructuring would be difficult without better performance and evaluation information. Thus, making these recommendations would be premature until the agencies address a number of deficiencies. Specifically, agencies typically do not collect information that would enable them to track the services they provide and to whom they provide those services. This practice is not consistent with government standards for internal controls. Without such information, the agencies may not be able to administer the programs in a way that will result in the most efficient and effective federal support to entrepreneurs.\nMoreover, most of the programs that set goals did not meet them or only met some of them, and agency officials could not always identify reasons why program goals were not met. Additionally, many of these programs have not been evaluated in 10 years or more. GPRAMA requires agencies to set and measure annual performance goals, and recognizes the value of program evaluations because they can help agencies assess programs’ effectiveness and improve program performance. Agencies’ lack of understanding of why programs have failed to meet goals may limit decision makers’ ability to understand which programs are most effective and allocate federal resources accordingly.",
"To help improve the efficiency and effectiveness of federal efforts to support entrepreneurs, we make the following recommendations:\nThe Director of the Office and Management and Budget, the Secretaries of the Departments of Agriculture, Commerce, and Housing and Urban Development, and the Administrator of the Small Business Administration should work together to identify opportunities to enhance collaboration among programs, both within and across agencies.\nThe Secretaries of the Departments of Agriculture, Commerce, and Housing and Urban Development, and the Administrator of the Small Business Administration should consistently collect information that would enable them to track the specific type of assistance programs provide and the entrepreneurs they serve and use this information to help administer their programs.\nThe Secretaries of the Departments of Agriculture, Commerce, and Housing and Urban Development, and the Administrator of the Small Business Administration should conduct more program evaluations to better understand why programs have not met performance goals and their overall effectiveness.",
"GAO provided a draft of this report to OMB, Commerce, HUD, SBA, and USDA for review and comment. We also provided excerpts of appendix IV to all of the agencies with programs listed for their review. Commerce, HUD, and USDA provided written comments. Commerce, HUD, and SBA also provided technical comments, which were incorporated where appropriate. OMB did not provide comments on the draft report. All written comments are reprinted in appendixes VI, VII and VIII.\nThe Acting Secretary of Commerce stated that we may wish to consider the complementary role many agencies play in the field of economic development and the need for varied but complementary activities to address the complexities of entrepreneurs. She commented that what may appear as duplication at a higher level is in reality a portfolio of distinct services meeting unique needs. Our report notes that in some instances it may be appropriate for multiple agencies or entities to be involved in the same programmatic or policy area due to the nature or magnitude of the federal effort. We found that many of the 52 programs we examined overlap in terms of statutory authority; our report does not state that duplication exists among these programs. However, we found that most of these agencies were not able to provide programmatic information, such as data on users of the programs that is necessary to determine whether or not duplication actually exists.\nThe Acting Secretary also stated that federal agencies do successfully collaborate and forge policy partnerships, and noted that EDA plays a key role in leading and shaping federal policy for fostering collaborative regional economic development. As noted in our report, Commerce, HUD, SBA, and USDA have taken initial steps to improve how they collaborate to provide technical assistance to entrepreneurs and cites specific examples of these collaborative efforts. However, GAO found that the four agencies, including Commerce, have not pursued a number of other good collaborative practices we have previously identified. For example, our report states that the White House Rural Council, comprised of Commerce and other federal agencies, is working to better coordinate federal programs in order to maximize the impact of federal investment in rural areas. Although the council has announced a number of initiatives, such as helping rural small businesses access capital, we found that the agencies have yet to implement many of our other good collaborative practices such as developing compatible guidance to implement inter- agency agreements. For example, we found that while most of these agencies at the headquarters level have agreed to work together by signing formal agreements to administer some of their similar programs, the agencies generally have yet to develop compatible guidance to implement these agreements in the field.\nFinally, the Acting Secretary stated that EDA agrees with our report’s focus on the need for more specific information tracking and more frequent performance evaluation. She noted that EDA has established performance measures for each of its programs, and that these performance measures were subject to thorough review and validation procedures. She also noted that EDA routinely conducts evaluations of its programs (often limited only by lack of resources). However, the Acting Secretary stated that efforts to monitor and track project progress seem to have been outside of the scope of our report, based on many of the general statements made in the report about the need for additional work in this area. As previously stated, we found that most of the agencies were not able to provide programmatic information for programs that can support entrepreneurs. Our report also states that Commerce does collect information on the type of entrepreneur served and the entrepreneur’s industry for all eight of its programs that can provide technical assistance; however, the report notes that Commerce does not collect information on the specific type of technical assistance provided to entrepreneurs for six of these eight programs—information necessary to compare activities across programs. We provided summary information on evaluations conducted by the agencies in the report, including Commerce. We also found that Commerce, HUD, SBA, and USDA had not evaluated the majority of the 52 programs that can support entrepreneurs, including four of the eight programs Commerce administers. We concluded that program evaluations, when combined with efforts to collect information, can be a positive step toward greater understanding of programs’ effectiveness.\nHUD’s Assistant Secretary for Public and Indian Housing expressed concern regarding our reference on the highlights page of the report to the Indian CDBG program as one of 19 economic development programs that failed to meet their entrepreneurial performance goals. She stated that the entire program may be unfairly perceived as ineffective as a result of this statement. Our report states that 33 of 52 programs we examined set goals related to entrepreneurial assistance and that 19 of these 33 programs did not meet any of their goals or only met some of their goals. Our report does not state that these 19 programs were ineffective. We added language on the highlights page of the report to clarify that our findings were only based on each program’s goals related to entrepreneurial assistance.\nThe Assistant Secretary also stated that our report misrepresents the Indian CDBG program as an economic development program. She noted that while economic development is an eligible program activity, only 3 percent of the dollars awarded under the program since 2005 funded economic development activities. She further noted that most of the program’s grants were used for community development activities, such as building community buildings, developing infrastructure of various types, and rehabilitating housing units on Indian lands. As noted in our report, the 52 programs we examined for this report typically fund a variety of activities in addition to supporting entrepreneurs. In addition, the report notes that most of these programs either target or exclusively serve particular types of businesses.\nThe Assistant Secretary noted that an independent evaluation of the Indian CDBG program was conducted in 2006. HUD had not previously provided us with this evaluation. We revised our report to state that the Indian CDBG program had been evaluated within the past 12 years. Finally, the Assistant Secretary stated that HUD supports efforts to accurately measure the performance of its programs. She noted that HUD’s Office of Native American Programs had recognized limitations in its method of projecting and measuring performance in the Indian CDBG program. She also stated that the office had begun drafting a revised form to be used at grant application and grant closeout to better collect performance measurement data, and that the office was examining its data collection procedures as well as the methodology used to establish program targets. These actions are consistent with our recommendation that the agencies collect program information and use it to help administer their programs.\nUSDA’s Under Secretary for Rural Development stated that he agreed with our report’s statements that entrepreneurs play a vital role in the U.S. economy and that no duplication exists among federal programs that assist entrepreneurs. However, he disagreed with some of the other observations in our report. First, he stated that our report broadly portrays federal programs that assist entrepreneurs and does not highlight the unique characteristics of each agency, such as USDA’s Rural Development’s specialization in rural economic development and its network of state and local area offices. Our report notes that most of USDA’s 13 programs that can support entrepreneurs are limited to areas with a rural statutory definition. We also include discussion based on our outreach to participants in rural economic development, including regional commissions and authorities, on their experiences with the four federal agencies in rural economic development efforts. More importantly, however, when considering the unique characteristics of the various programs, we emphasize the need for agencies to conduct program evaluations to assess effectiveness. While the Under Secretary suggests that the rural focus and the network of state and local area offices enhance program effectiveness, USDA has not conducted evaluations to support this conclusion.\nSecond, USDA’s Under Secretary stated that our report highlights examples where entrepreneurs may be eligible for multiple federal programs based on an entrepreneur’s specific characteristics, but that the report does not mention whether this was a pervasive or problematic issue. He stated that rural entrepreneurs may be eligible for multiple programs, and that a business’s unique situation dictates which programs best meets its needs. Again, our report emphasizes the need for evaluations to determine the relative effectiveness of different programs serving similar purposes. Third, regarding our findings related to the information agencies collect on program activities, the Under Secretary cited a number of tools that the Rural Business-Cooperative Service (RBS) uses to identify and improve the effectiveness of its programs. As noted in this report, we determined that USDA collected detailed information on the industry of each of the entrepreneurs it supports for all of its programs. In addition, we determined that USDA collected detailed information (19 categories) on how entrepreneurs use proceeds provided through 5 of its financial programs. However, we found that over the past 12 years USDA had conducted a program evaluation for only 1 of its 13 programs that can support entrepreneurs, including USDA programs that RBS does not administer.\nFinally, the Under Secretary stated that the recommendations in our report are not explicit, which makes it unclear how RBS would effectively address them. Our report does provide information on how agencies could address our recommendations. First, we recommended that OMB, Commerce, HUD, SBA, and USDA work together to identify opportunities to enhance collaboration among programs, both within and across agencies. Our report identifies several practices that can help agencies and their offices enhance and sustain collaboration, which include indentifying common outcomes, establishing joint strategies, leveraging resources, determining roles and responsibilities, and developing compatible policies and procedures, among others. Second, we recommended that Commerce, HUD, USDA and SBA consistently collect information that would enable them to track the specific type of assistance provided and the entrepreneurs they serve and use this information to help administer their programs. Our report identifies programs that Commerce, HUD, SBA, and USDA administer for which the agencies did and did not maintain information in a readily available format that could be tracked to help administer the programs. Finally, we recommended that Commerce, HUD, SBA, and USDA conduct more evaluations to better understand why programs have not met performance goals and their overall effectiveness. Our report acknowledges that program evaluations can be costly; however, the report also notes that there are various methods agencies can employ to make the evaluations more cost- effective, such as relying on their own data instead of purchasing data from a vendor.\nWe are sending copies of this report to the appropriate congressional committees and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. Should you or your staff have any questions concerning this report, please contact William B. Shear, at (202) 512-8678, or shearw@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 IX.",
"This report discusses (1) the extent of overlap, fragmentation, and duplication and their effects on entrepreneurs, and agencies’ actions to address them; and (2) the extent to which agencies collect information necessary to track program activities and whether these programs have met their performance goals and been evaluated.\nTo determine the extent of overlap and fragmentation among federal programs that fund economic development activities, we focused our analyses on 52 programs administered by the Departments of Agriculture (USDA), Commerce, and Housing and Urban Development (HUD) and the Small Business Administration (SBA) that are authorized to support entrepreneurs. Based on past work, these programs appeared to overlap the most within the four agencies with missions focused on economic development. We reviewed the statutes and regulations that authorize the activities that can be conducted under each program. We categorized the types of activities into three categories: (1) technical assistance, (2) financial assistance, and (3) government contracting assistance. Many of the programs can provide more than one type of assistance, and most focus on technical assistance, financial assistance, or both. To identify the effects of overlap and fragmentation on entrepreneurs and agencies’ actions to address them, we focused on 35 of the 52 programs that provide technical assistance because there was significant overlap and fragmentation among these programs. We reviewed agency documents, such as inter-agency agreements, and conducted interviews to determine how technical assistance is provided to entrepreneurs, including the extent of agency collaboration at the local level. More specifically, we interviewed technical assistance providers, including 14 federal agency officials from four federal agencies located in the field, nine officials from two regional commissions, and 14 representatives of intermediaries (that is, third-party technical assistance providers); four entrepreneurs who have received assistance federal support; and five state and local partners in three geographic areas. These geographic areas included both urban and rural areas. We selected geographic areas based on, the presence of an active regional commission and evidence of collaboration among at least two of the four federal agencies being located within the same region. We assessed this technical assistance information against promising collaborative practices that we have previously identified.\nTo determine the extent to which agencies collect information necessary to track program activities, we reviewed agency manuals and data collection forms that describe information collected on program activities and methods for analyzing and using the information. Specifically, we assessed each agency’s capacity to track specific types of entrepreneurial assistance they provided to specific types of beneficiaries, as well as their ability to report this information in a readily available format at the program level. We compared these processes against standards for internal controls we have previously identified to determine how well agencies track the support they provide to entrepreneurs. To determine the extent to which these 52 economic development programs have met their performance goals, we reviewed agency documents on their fiscal year 2011 program goals and accomplishments. We also interviewed agency officials to determine reasons why goals were not met (see app. III).\nTo describe results from program evaluations related to the effectiveness of the 52 economic development programs that we reviewed, we requested all studies that have been conducted on these programs from the four agencies that administer the programs. Our document request resulted in 19 studies. We refined the list of 19 studies by choosing to focus on studies that were published in or after 2000. The resulting list of program evaluations totaled 16. Because some evaluations studied more than one program, these 16 evaluations covered 20 of the 52 programs in our review. We reviewed the methodologies of these studies to ensure that they were sound and determined that they were sufficiently reliable for our purpose, which was to report high-level findings related to the program’s overall effectiveness (see app. V). Other evaluations of these programs may exist.\nTo provide illustrative examples of each of the nine economic activities related to economic development that we previously identified (see app. II), we conducted a review of the literature that has been published in the past 5 years.including academic journals and trade publications. These sources contained examples of how these economic activities were being conducted at the national, state, and local levels in the United States. The list of examples we developed is not meant to be comprehensive but is intended to provide a range of economic activities that could be funded by federal programs.\nThis review included publications from a variety of sources, We also used these nine economic activities to identify additional federal programs that may be able to fund at least one of the activities (these programs are listed in app. IV). During previous reviews, we focused on federal programs at Commerce, HUD, SBA, and USDA because these agencies have missions focused on economic development. For this report, we identified additional federal programs that could fund the nine economic activities. While many of the agencies that administer these additional programs do not have missions that focus on economic development, their programs may be able to fund at least one of the nine economic activities. We reviewed information on all programs contained in the 2011 Catalog of Federal Domestic Assistance (CFDA) and This list provided the list of programs to all of the administering agencies. of additional federal programs may not be comprehensive because not all agencies provide data to CFDA (see app. IV).\nWe have previously identified incomplete or inaccurate data in the CFDA, but we chose to rely on it for our purposes in this report because it is the only source that contains information on programs from many different federal agencies. We did not assess the data reliability of the CFDA. OMB has compiled initial lists of agencies and programs that contribute to crosscutting goals, as required by GPRAMA, on performance.gov, including those related to the entrepreneurship and small business goal. However, OMB noted that this was not meant to be comprehensive of all programs with any contribution to the crosscutting goals, and that they are continuing to update these lists.\nWe conducted this performance audit from June 2011 to July 2012 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.",
"In September 2000, we reported that there is no commonly accepted definition for economic development. Absent a common definition for economic development, we subsequently developed a list of nine activities most often associated with economic development. In general, we focused on economic activities that directly affected the overall development of an area, such as job creation and economic growth, rather than on activities that improved individuals’ quality of life, such as housing and education. We previously relied on these economic activities to identify 80 economic development programs administered by the U.S. Departments of Agriculture (USDA), Commerce, and Housing and Urban Development (HUD) and the Small Business Administration (SBA) because these agencies have missions that focus on economic development.the nine economic activities.",
"The following examples, which resulted from a review we conducted of academic journals and trade publications, illustrate a range of activities that could be supported by programs that can fund at least one of the economic activities. Examples include projects that are both publicly and privately funded, with many receiving funding from multiple sources in both sectors. They also had an explicit or implicit economic development goal, such as job creation or economic growth. 1. Supporting entrepreneurial efforts. This activity is the focus of this report, with programs grouped according to at least one of three types of assistance that address different entrepreneurial needs: help obtaining (1) technical assistance, which includes business training and counseling and research and development support; (2) financial assistance, which includes grants, loans, and venture capital; and (3) government contracts, which involves helping entrepreneurs qualify for federal procurement opportunities. Illustrative examples of this activity include the following initiatives: Individuals in an Iowa community formed an association of entrepreneurs to provide a broad range of services to entrepreneurs, including technical assistance in the form of mentor counseling, training sessions on various topics, and hosting conferences.\nA California community provided both financial and technical support to local small businesses in order to redevelop a business district. Businesses received micro-grants—small grants of $5,000 each—and were also required to participate in free workshops designed to give them additional tools and resources to succeed in a challenging marketplace. These workshops were produced by an SBA-funded Small Business Development Center.\nIowa provided financial assistance to entrepreneurs through loan guarantees and a publicly funded limited liability corporation that could coordinate venture capital investments. The initiative was designed to increase capital levels and stimulate the creation of more local seed funds. 2. Supporting business incubators and accelerators. This activity can include all of the elements of entrepreneurial efforts, but combines these types of assistance with a facility that supports multiple businesses and may provide shared access to office space, technology, and other support services. Illustrative examples of this activity include the following initiatives:\nA technology business incubator was established at a Florida university so its faculty and service partners can provide business opportunities to client companies. The facility has grown to support a number of services to assist start-up businesses, including office and laboratory space, educational programs, and networking and mentoring opportunities with other experienced entrepreneurs.\nAn Ohio community created a business accelerator that is designed to assist small, established companies, rather than businesses in their infancy, in becoming financially viable and creating jobs in the region. This facility includes office space, access to technology, and a variety of support services. The accelerator also collaborates with a center funded by SBA’s Small Business Development Centers program and a local community college, which provide coaching and mentoring sessions, business plan reviews, workshops, training, referrals, and assistance in obtaining capital.\nAn economic development organization in Pennsylvania created a network of business incubators and accelerators focused on developing and commercializing technology to create high-paying, sustainable jobs. The initiative supports early-stage and established companies with funding, support services, and a network of experts in related industries and academia. 3. Constructing and renovating commercial buildings. This activity can include support for the construction and renovation of buildings established for commercial purposes, such as for retail and office space. Illustrative examples of this activity include the following initiatives:\nA community in Iowa renovated a historic building that used to be a store to attract a large technology firm’s service center. The renovations were designed to meet the firm’s sustainability vision and were financed by public and private sources.\nA community in Arizona renovated a high school to create a new research laboratory. Further buildings were constructed in the area around this project to create a biomedical campus for both commercial and academic purposes.\nA community in Iowa renovated buildings in a historic millwork district to create urban mixed-use developments, which are designed to attract both commercial and residential activity. 4. Constructing and renovating industrial parks and buildings. This activity can include support for the construction and renovation of buildings and campuses established for industrial purposes, such as for manufacturing. Illustrative examples of this activity include the following initiatives:\nA public-private partnership in Nevada constructed an industrial park with new access to a freeway and energy infrastructure. The facility was zoned for heavy industry and designed to be away from population centers.\nA community in Massachusetts administered the transition of a former military base into a light industrial area focused on sustainable development and attracted both small and large firms to the redeveloped area.\nA public-private partnership in a North Carolina created several multi-jurisdictional business parks intended to improve local economies. These parks serve a number of industrial purposes, including technology, manufacturing, distribution, and logistics. Local governments obtained funding to conduct site evaluations and certification through Commerce’s Economic Development Administration and HUD’s Community Development Block Grant program. 5. Strategic planning and research. This activity includes plans for recruiting new businesses or industry clusters, economic research and analyses, and regional coordination and planning across jurisdictions and sectors. Illustrative examples of this activity include the following initiatives:\nLocal officials in a southeastern state formed a regional economic development organization to better coordinate economic and workforce development. The organization engages in marketing and recruitment of businesses and fosters partnerships between various public- and private-sector entities in the region.\nA California community developed a plan for a business district to create jobs and produce savings for businesses. The plan defined resources, timeframes, and types of assistance needed to execute this strategy.\nA regional consortium operating in areas of two southern states conducted research on their area’s economic strengths and developed an action plan to leverage these strengths. Research included the identification of industry clusters that could be well suited to the area. 6. Marketing and access to new markets for products and industries.\nThis activity may include marketing of both new and existing products and industries, facilitating access to new markets, and supporting new uses for existing products. Illustrative examples of this activity include the following initiatives:\nA publicly funded regional technology center in New York provides a range of resources for local manufacturing and technology companies, including assistance with developing sales and growth strategies, conducting marketing activities for increased market share and revenue in existing or new markets, and identifying new customers and market niches.\nA regional economic development organization in North Carolina formed an energy industry cluster that included a bio-energy facility where businesses are colocated with a landfill. These businesses are able to sell what were formerly waste products in new markets, such as alternative fuels and wood pallets.\nSeveral southern and Midwestern states have leveraged federal and state funds to assist rural businesses with e-commerce strategies, including assistance reaching global markets and strengthening competitive market advantages. Both USDA and Commerce provided some funding for this initiative. 7. Supporting telecommunications and broadband infrastructure. This activity may include building, refurbishing, and enhancing infrastructure used to expand access and improve the speed and reliability of Internet access, wireless phone services, and other electronic communication methods. Illustrative examples of this activity include the following initiatives:\nA public-private partnership in a city in Ohio provides businesses and residents with an underground conduit network that supports multiple fiber-based systems for voice, data, and video communications, intended to provide high-speed access to the global marketplace.\nA multi-state rural regional development organization in the southwestern United States coordinated the construction of a broadband Internet network that was intended to generate new opportunities for economic development. The initiative was funded by both private and public investments and covered a large geographic area.\nRegional leaders collaborated with a state commission to expand broadband infrastructure to businesses, schools, and industrial parks in a Virginia city. The high-speed network is noted to be comparable to or faster than that of any other metropolitan area of the country, is available at a relatively low cost, and is intended to attract businesses to the area. 8. Supporting physical infrastructure. This activity includes constructing and repairing infrastructure related to (1) transportation, such as roads, airports and rail; (2) water and sewer; (3) energy; and (4) other amenities, such as pedestrian areas, parking, and beautification projects. Illustrative examples of this activity include the following initiatives:\nA community in New York is planning to renovate a business district by creating new rail service, a pedestrian mall, and green space.\nA community in Ohio renovated their underdeveloped downtown area by constructing better roads and pedestrian space, improving green space, and moving power lines underground. The project was part of a plan to reduce blight and make the area more accessible for visitors.\nA community in North Carolina renovated a vacant textile manufacturing space and downtown area to create a scientific research campus, facilitating this work through water line replacements, the addition of a pedestrian tunnel, and road improvements. 9. Supporting tourism. This activity includes marketing, infrastructure improvement, planning, and research specifically related to developing and improving tourism, as well as supporting special events and festivals to attract visitors. Illustrative examples of this activity include the following initiatives:\nA community in Kentucky improved trails in natural areas to attract tourists for horseback riding and other recreational uses. In addition to trail improvements, the community utilized survey research, marketing, and special events to draw visitors to the area.\nA community in North Carolina entered into public-private partnerships to construct a cluster of tourist venues that included sports and arts museums, an arena, convention center, and performing arts venues. The community utilized a strategic plan for development and a branded name to market the area.\nA county in Mississippi partnered with other regional entities to market their gaming industry and other amenities as part of a broader regional campaign. This new partnership promoted region-wide tourism and focused on key markets that the area may draw visitors from.\nProgram Name and Mission Grants for Public Works and Economic Development Facilities Supports the construction or rehabilitation of essential public infrastructure and facilities necessary to support job creation, attract private-sector capital, and promote regional competitiveness, innovation, and entrepreneurship, including investments that expand and upgrade infrastructure to attract new industry, support technology-led development, accelerate new business development, and enhance the ability of regions to capitalize on opportunities presented by free trade.\nFiscal year 2011 Actual Performance Private investment leveraged–9 year totals (in millions): $3,960 Private investment leveraged–6 year totals (in millions): $1,617 Private investment leveraged–3 year totals (in millions): $1,475 leveraged (3, 6, and 9 years after award)\nGrants for Public Works and Economic Development Facilities (3, 6, and 9 years after award)\nProgram Name and Mission Economic Adjustment Assistance Supports economically distressed communities in their ability to compete economically by stimulating private investment and promoting job creation in targeted areas. Current investment priorities include proposals that foster innovation and enhance regions’ global economic competitiveness by supporting existing industry clusters, developing emerging new clusters, or attracting new regional economic drivers.\nFiscal year 2011 Actual Performance Private investment leveraged–9 year totals (in millions): $3,960 Private investment leveraged–6 year totals (in millions): $1,617 Private investment leveraged–3 year totals (in millions): $1,475 leveraged (3, 6, and 9 years after award)\nJobs created/retained– 9 year totals: 56,058 Jobs created/retained– 6 year totals: 26,416 Jobs created/retained– 3 year totals: 14,842 (3, 6, and 9 years after award)\nGlobal Climate Change Mitigation Incentive Fund Supports economic development projects that create jobs through, and increase private capital investment in, efforts to limit the nation’s dependence on fossil fuels, enhance energy efficiency, curb greenhouse gas emissions, and protect natural systems. The program helps to cultivate innovations that can fuel “green growth” in communities suffering from economic distress.\nPrivate investment leveraged–9 year totals (in millions): $3,960 Private investment leveraged–6 year totals (in millions): $1,617 Private investment leveraged–3 year totals (in millions): $1,475 leveraged (3, 6, and 9 years after award)\nGlobal Climate Change Mitigation Incentive Fund (3, 6, and 9 years after award)\nProgram Name and Mission Economic Development/Technical Assistance Provides focused assistance to public and nonprofit leaders to help in economic development decision making (e.g., project planning, impact analyses, feasibility studies). The program also supports the University Center Economic Development Program, which makes the resources of universities available to the economic development community.\nEconomic Development/Support for Planning Organizations Provides planning assistance to provide support to Planning Organizations (as defined in 13 CFR 303.2) for the development, implementation, revision, or replacement of a Comprehensive Economic Development Strategy, short- term planning efforts, and state plans designed to create and retain higher- skill, higher-wage jobs, particularly for the unemployed and underemployed in the nation’s most economically distressed regions.",
"Program Name and Mission exports and thereby create jobs. The program provides technical assistance to U.S. businesses that have lost sales and employment due to increased imports of similar or competitive goods and services. Technical assistance is provided through a nationwide network of eleven Economic Development Administration-funded Trade Adjustment Assistance Centers.\nNative American Business Enterprise Centers (NABEC) The program promotes the growth and competitiveness of businesses owned by Native Americans and eligible minorities. NABEC operators leverage project staff and professional consultants to provide a wide range of direct business assistance services to Native American tribal entities and eligible minority-owned firms. NABEC services include, but are not limited to, initial consultations and assessments, business technical assistance, and access to federal and nonfederal procurement and financing opportunities.",
"Program Name and Mission consultants to provide a wide range of direct business assistance services to eligible minority-owned firms. Services include initial consultations and assessments, business technical assistance, and access to federal and nonfederal procurement and financing opportunities. MBDA currently funds a network of 30 MBC projects located throughout the United States.\nCommunity Development Block Grant (CDBG)/Insular Areas HUD annually allocates $7 million of CDBG funds to the Insular Areas program in proportion to the populations of the eligible territories. The program is administered by HUD’s field offices in Puerto Rico and Hawaii. The CDBG programs allocate annual grants to develop viable communities by providing decent housing, a suitable living environment, and opportunities to expand economic opportunities, principally for low- and moderate-income persons.",
"Program Name and Mission develop viable communities by providing decent housing, a suitable living environment, and opportunities to expand economic opportunities, principally for low- and moderate-income persons.\nCDBG/States The primary statutory objective of the CDBG States program is to develop viable communities by providing decent housing, a suitable living environment, and opportunities to expand economic opportunities, principally for low- and moderate-income persons. The state must ensure that at least 70 percent of its CDBG grant funds are used for activities that benefit low- and moderate- income persons over a 1-, 2-, or 3-year time period selected by the state.\nCDBG/Non-entitlement CDBG Grants in Hawaii HUD continues to administer the program for the non-entitlement counties in the state of Hawaii because the state has permanently elected not to participate in the State CDBG program. The CDBG programs allocate annual grants to develop viable communities by providing decent housing, a suitable living environment, and opportunities to expand economic opportunities, principally for low- and moderate-income persons.",
"Program Name and Mission CDBG/Section 108 Loan Guarantees Section 108 is the loan guarantee provision of the CDBG program. Section 108 provides communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. It allows them to transform a small portion of their CDBG funds into federally guaranteed loans large enough to pursue physical and economic revitalization projects that can renew entire neighborhoods.\nCDBG/Brownfields Economic Development Initiative (BEDI) The purpose of the BEDI program is to spur the return of brownfields to productive economic use through financial assistance to public entities in the redevelopment of brownfields and enhance the security or improve the viability of a project financed with Section 108-guaranteed loan authority. CDBG Disaster Recovery Grants Grantees may use CDBG Disaster Recovery funds for recovery efforts involving housing, economic development, infrastructure, and prevention of further damage to affected areas, if such use does not duplicate funding available from the Federal Emergency Management Agency, the Small Business Administration, and the U.S. Army Corps of Engineers. The mission and goals of the CDBG Disaster Recovery Grants program may be expanded or limited per the individual appropriation that it receives each year.",
"Permanent jobs created (tracked by low income, moderate income and total) (tracked by low income, moderate income and total)\nSection 4 Capacity Building for Affordable Housing and Community Development Through funding of national intermediaries, the Section 4 Capacity Building program enhances the capacity and ability of community development corporations and community housing development organizations to carry out community development and affordable housing activities and to attract private investment for housing, economic development, and other community revitalization activities that benefit low-income families. $50,000,000 Number of trainings created and provided to Community Development Corporations (CDC)",
"Program Name and Mission programs. The program is designed to support (1) job creation through business development and expansion, (2) investment in human capital through job training and education; and (3) expanding the supply of affordable housing with access to job centers or transportation. Rural Innovation Fund grantees are selected through a competitive process.\nHispanic-Serving Institutions Assisting Communities The Hispanic-Serving Institutions Assisting Communities program helps Hispanic-Serving Institutions expand their role and effectiveness in addressing community development needs in their localities, including revitalization, housing, and economic development, principally for persons of low and moderate income. Accredited Hispanic-Serving Institutions of higher education that provide 2- and 4-year degrees are eligible to participate in this program. For an institution to qualify as a Hispanic-Serving Institution, at least 25 percent of the undergraduate enrollment must be Hispanic students.",
"Program Name and Mission Alaska Native/Native Hawaiian Institutions Assisting Communities The Alaska Native/Native Hawaiian Institutions program helps these institutions expand their role and effectiveness in addressing community development needs in their localities, including revitalization, housing, and economic development, principally for persons of low and moderate income. The program encourages colleges and universities to integrate community engagement themes into their curriculum, academic studies, and student activities.\nIndian CDBG The purpose of the Indian CDBG program is the development of viable Indian and Alaska Native communities, including the creation of decent housing, suitable living environments, and economic opportunities primarily for persons with low and moderate incomes as defined in 24 CFR 1003.4. Funds may be used to improve housing stock, provide community facilities, improve infrastructure, and expand job opportunities by supporting the economic development of the communities in some instances.\nProgram Name and Mission The 7(a) Loan Program is SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. 7(a) loans are the most basic and most commonly used type of loans. They are also the most flexible, since financing can be guaranteed for a variety of general business purposes, including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions).\nJobs supported Active lending partners Underserved markets– 504 Loan Program The 504 Loan Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A typical 504 project includes a loan secured from a private- sector lender with a senior lien covering up to 50 percent of the project cost, a loan secured from a Certified Development Company (backed by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution from the borrower of at least 10 percent equity.",
"Microloan Program SBA’s Microloan Program provides small businesses with small, short-term loans for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery or equipment. SBA makes funds available to specially designated intermediary lenders, which are nonprofit organizations with experience in lending and technical assistance. These intermediaries then make loans to eligible borrowers in amounts up to a maximum of $50,000.\nSurety Bond Guarantee Program SBA provides and manages surety bond guarantees for qualified small and emerging businesses through the Surety Bond Guarantee Program. Participating sureties receive guarantees that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract.",
"Program for Investment in Micro- Entrepreneurs (PRIME) PRIME provides assistance to various organizations. These organizations help low-income entrepreneurs who lack sufficient training and education to gain access to capital to establish and expand their small businesses.",
"Program Name and Mission Women’s Business Centers (WBC) WBCs provide long-term training as well as counseling and mentoring services. By statute, WBCs fill a gap by focusing on women who are socially and economically disadvantaged. WBCs offer classes during regular working hours as well as during the evenings and weekends to serve clients who work during the day. The WBCs often provide counseling in multiple languages.\nWomen’s Business Centers Women’s Business Centers SCORE SCORE is a nonprofit association comprised of more than 13,000 volunteer business professionals in more than 350 chapters and on-line nationwide, dedicated to educating and assisting entrepreneurs and small business owners in the formation, growth, and expansion of their small businesses through mentoring, business advising and training.\nVeterans Business Outreach Centers The Veterans Business Outreach program is designed to provide entrepreneurial development services such as business training, counseling and mentoring, and referrals for eligible veterans owning or considering starting a small business.",
"Fiscal year 2011 Actual Performance $65.65 7(j) Technical Assistance The 7(j) program provides qualifying businesses with counseling and training in the areas of financing, business development, management, accounting, bookkeeping, marketing, and other small business operating concerns. $6,502,000 Small businesses assisted 3,550 7(j) Technical Assistance 8(a) Business Development Program The 8(a) Business Development program provides various forms of assistance (management and technical assistance, government contracting assistance, and advocacy support) to foster the growth and development of businesses owned and controlled by socially and economically disadvantaged individuals. SBA assists these businesses, during their nine year tenure in the 8(a) Business Development program, in gaining equal access to the resources necessary to develop their businesses and improve their ability to compete. $58,274,000 Small businesses assisted 9,457 8(a) Business Development Program 8(a) Business Development Program disadvantaged businesses, which includes 8(a) program participants (%)",
"Program Name and Mission small businesses that obtain HUBZone certification in part by employing staff who live in a HUBZone. The company must also maintain a “principal office” in one of these specially designated areas.\nProcurement Assistance to Small Businesses The program assists small businesses in obtaining federal government contracts and subcontracts.\nFor prime contracting, statutory goal is 23%; for subcontracting, there is no statutory goal, but SBA has set a goal of 35.9%.\nSmall Business Innovation Research Program (SBIR) The SBIR program encourages small businesses to explore their technological potential and provides the incentive to profit from its commercialization. Each year, 11 federal departments and agencies are required by SBIR to reserve a portion of their research and development funds for awards to small businesses. SBA is the coordinating agency for the SBIR program. It directs the agencies’ implementation of SBIR, reviews their progress, and reports annually to Congress on the program’s operation.",
"",
"Small Business Technology Transfer Program (STTR) The STTR program encourages small businesses to explore their technological potential and provides the incentive to profit from its commercialization. Each year, five federal agencies are required to reserve a portion of their research and development funds for awards to small businesses. SBA is the coordinating agency for the STTR program. It directs the agencies’ implementation of STTR, reviews their progress, and reports annually to Congress on its operation. STTR requires cooperation with a university or approved research institution.",
"",
"Program Name and Mission Small Business Investment Company (SBIC) Program The SBIC program aims to increase the availability of venture capital to small businesses. SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.\nNew Markets Venture Capital (NMVC) Program The purpose of the NMVC program is to promote economic development and the creation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas through developmental venture capital investments in smaller enterprises located in such areas. Through public- private partnerships between SBA and businesses, the program is designed to serve the unmet equity needs of local entrepreneurs through developmental venture capital investments, provide technical assistance to small businesses, create quality employment opportunities for low-income area residents, and build wealth within low-income areas.",
"Program Name and Mission Federal and State Technology Partnership (FAST) Program The purpose of the FAST program is to strengthen the technological competitiveness of small business concerns in the U.S. by improving the participation of small technology firms in the innovation and commercialization of new technology.\nInternational Trade The International Trade program helps small business exporters by providing loans for a number of activities specifically designed to help them develop or expand their export activities.\nIntermediary Relending Program The purpose of the program is to alleviate poverty and increase economic activity and employment in rural communities. Under the program, loans are provided to local organizations (intermediaries) for the establishment of revolving loan funds. These revolving loan funds are used to assist with financing business and economic development activity to create or retain jobs in disadvantaged and remote communities.",
"Program Name and Mission businesses, help fund business incubators, and help fund employment- related adult education programs. To assist with business development, the program may fund a broad array of activities.\nRural Business Opportunity Grant Program The program promotes sustainable economic development in rural communities with exceptional needs through provision of training and technical assistance for business development, entrepreneurs, and economic development officials and to assist with economic development planning.\nRural Microentrepreneur Assistance Program The purpose of the program is to support the development and ongoing success of rural microentrepreneurs and microenterprises. Direct loans and grants are made to selected microenterprise development organizations.\nRural Cooperative Development Grants The primary objective of this grant program is to improve the economic condition of rural areas through the creation or retention of jobs and development of new rural cooperatives, value-added processing, and other rural businesses. Grant funds are provided for the establishment and operation of centers that have the expertise or that can contract out for the expertise to assist individuals or entities in the start- up, expansion, or operational improvement of rural businesses, especially cooperative or mutually owned businesses.",
"Program Name and Mission Business and Industry Guaranteed Loans The purpose of the program is to improve, develop, or finance business, industry, and employment and improve the economic and environmental climate in rural communities. This purpose is achieved by bolstering the existing private credit structure through the guarantee of quality loans.\nValue Added Producer Grants The purpose of this program is to assist eligible independent agricultural commodity producers, agriculture producer groups, farmer and rancher cooperatives, and majority-controlled producer-based businesses in developing strategies and business plans to further refine or enhance their products, thereby increasing their value to end users and increasing returns to producers.",
"Program Name and Mission upon the professional skills of rural entrepreneurs, and to provide outreach and promote USDA Rural Development programs in small rural communities with the greatest economic need.\nAgriculture Innovation Center Award grants to centers around the country to provide technical and business development assistance to agricultural producers seeking to enter into ventures that add value to commodities or products they produce.\nSmall Business Innovation Research This program aims to stimulate technological innovation in the private sector; strengthen the role of small businesses in meeting federal research and development needs; increase private-sector commercialization of innovations derived from USDA- supported research and development efforts; and foster and encourage participation by women-owned and socially disadvantaged small business firms in technological innovation.\nData collection ongoing because performance data are collected over a 2-year time period.\nBiomass Research and Development Initiative Competitive Grants Program This program awards grants to support the research and development and demonstration of biofuels and biobased products. It is a joint effort between USDA and the U.S. Department of Energy.",
"Program Name and Mission Woody Biomass Utilization Grant Program This program provides financial grants to businesses and communities that use woody biomass removed from National Forest System hazardous fuel reduction projects. Grants are awarded on a competitive basis.",
"We reviewed the 2011 Catalog of Federal Domestic Assistance (CFDA) and identified 95 additional federal programs that can support at least one of the nine economic activities identified in appendix II (see table 3). These programs, while not comprehensive, are in addition to the 80 economic development programs administered by Commerce, HUD, SBA, and USDA that we included in previous reports. We identified these 94 programs based on our comparison of CFDA program descriptions with the nine economic activities as illustrated in appendix II. However, others conducting similar analyses may come to different conclusions on which federal programs support economic development. Additionally, 32 of the 64 federal agencies and departments listed in the CFDA did not provide descriptions for their programs within the 2011 CFDA, which prevented us from assessing whether those programs are related to economic development. Many of the agencies that administer these additional programs have missions that do not directly focus on economic development. For example, a number of the programs listed for the Department of Health and Human Services focus on health-related research, but also participate in at least one of the economic development activities we have identified.",
"Purpose of the study To assess the economic impacts and federal costs of EDA’s construction program, and to improve upon EDA’s prior study in 1997 in terms of using a more robust regression model.\nData and methods used Data for this study were taken from EDA’s Operations and Planning and Control System for construction projects’ status and funding between fiscal years 1990-2005 and Bureau of Labor Statistics county employment data. Study used ordinary and two-stage least squares regression.\nTo evaluate the local Technical Assistance program for fiscal years 1997 and 1998 to determine the extent to which the program has achieved its mission of helping communities solve specific problems, respond to economic development opportunities, and build and expand organizational capacity in distressed areas.\nThe evaluation is based on data collected from project files and data obtained from EDA headquarters and six regional offices, surveys of 121 grant recipients, and two on-site case studies in each EDA region.\nStudy collected data from numerous sources: effectiveness in meeting economic development needs, effectiveness in targeting distressed areas, distribution of centers being optimal under EDA budget constraints, duplication or overlap with other federal programs, and leveraging resources. interviews with EDA national and regional staff, compilation of a database on University Center characteristics and activities from documents such as grant applications, interviews with Center directors,\nCenter client survey, and site visits.\nTo evaluate the overall impact of EDA’s Economic Development District (EDD) Planning program, which funds the EDDs; highlight commonalities and differences among the various EDDs; as well as to assess if the program promotes regional cooperation towards making an impact on the economic development goals of the community.\nData were gathered in several progressive stages: site visits, general survey, additional site visits, and a second survey to respondents of first survey.\nAnalysis of these data was done using statistical techniques such as principle- component analysis.\nTo find indicators for the effect of CDBG spending and track changes in these indicators. To report on neighborhoods that had received a large amount of CDBG funding.\nData and methods used\nClassified cities into two categories: those that had available data that were more detailed and those that had less-detailed available data Identify CDBG investment levels that must be complemented with additional investment to produce significant improvements in neighborhood outcomes.\nCDBG/Entitlement Grants CDBG/States CDBG/Section 108 Loan Guarantees CDBG/Brownfields Economic Development Initiative (BEDI)\nTo determine the results of local third-party lending programs in terms of business development and job creation benefits. To determine whether some kinds of borrowers in certain types of neighborhoods create jobs or leverage private funds at lower cost than others. telephone interviews with Economic Development directors in 460 of the 972 entitlement communities that used CDBG funds, and interviews with 234 of the 750 business borrowers. sample of business loans to those areas, matched with Dun and Bradstreet information.\nStudy examines various indicators of program performance, including business survival rates, rates of total and low- income job creation, retention relative to jobs planned at the time of loan origination, public costs of each job created, amount of private funding induced (or leveraged) by program loans, and rates at which public loan dollars substitute for private funds that would have otherwise been invested.\nTo measure the outcomes of Indian CDBG expenditures. The outcomes included amount of leveraged funding obtained by grantees, enhancements of partnering relationships, and level of economic activity in the communities.\nStudy had three main data sources: (1) grant file reviews of program data, (2) telephone survey of grant participants, and (3) case study observations.",
"Purpose of the study To evaluate the effect of the Section 4 program on improving organization capacity. The section 4 program was set up to support training for Community Development Corporations (CDC) and to help CDCs grow and serve.\nData and methods used From 2001 through 2009, data were collected from (1) interviews of key staff at intermediaries, (2) online survey of 360 CDCs that received Section 4 grants, and (3) interviews with leaders of 34 Section 4-asssisted CDCs.\nTo assess the impact of SBA’s entrepreneurial development programs on small businesses, including businesses’ perceptions of the programs and their economic growth as a result of the services provided.\nStudy included survey of clients served by SBA’s entrepreneurial businesses. Sample size approximately 6,500 observations across all years–2007, 2008 and 2010 with a smaller sample in 2007.\nStudy includes a set of descriptive statistics on the rate of growth in the number of Women’s Business Center clients and also the rate of jobs and profits at those centers. Study used a regression to test the association between clients and other outcomes. impact on growth of firms factors that account for success specific program model that predicts success predictors of positive economic outcomes, and effect of client demographics on outcomes.\nTo examine the economic impact and effectiveness of Women’s Business Centers.\nSurvey and focus group of 100 Women’s Business Centers.\nIn order to test whether SBA loan guarantees are associated with positive firm outcomes, this study addressed the following questions:\nWhat happens to sales, employment and survival before and after firms receive the guarantee?\nWhat explains the changes observed?",
"Data and methods used other factors (such as business type) affect the change in outcome.\nTo produce a survey that is intended provide customer satisfaction indicators for the 7(a), 504, SBIC, and MicroLoan programs.\nBeginning from a sample of assisted firms from Dunn and Bradstreet, a survey was sent to approximately 3,000 firms. The surveyed firms had received the loans 6 or 7 years prior to the questionnaire.\nHUBZone (Historically Underutilized Business Zone)\nTo examine the effectiveness of the HUBZone program.\nData are from three databases: applications for HUBZone certification, Central Contractor Registration on small businesses, and the Federal Procurement Data System for information on HUBZone businesses that have won HUBZone contracts. The report primarily used an input-output approach to estimate the impact on the HUBZone areas. In this approach, direct and indirect impacts are measured using the above three databases and multipliers from Bureau of Economic Analysis.\nSmall Business Innovation Research Program (SBIR)\nStudy is based on National Research Council surveys and reviews of agency materials. Study includes surveys and also case studies. stimulating technological innovation; using small businesses to meet federal needs; increasing private sector commercialization; and encouraging participation of minority and other disadvantaged groups.\nProgram(s) reviewed Value Added Producer Grants (VAPG)\nPurpose of the study To identify the determinants for success among USDA’s VAPG.\nData and methods used Survey of 739 VAPG recipients, out of which 621 responded. A statistical analysis was conducted using binary logistical regression (logit) and cumulative logit models.\nWhile SBA conducts annual impact surveys of the SBDC, WBC, and SCORE programs, for purposes of this report we focused on the most recent impact study conducted of these programs.",
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"William B. Shear, (202) 512-8678 or shearw@gao.gov.",
"In addition to the contact named above, Marshall Hamlett and Triana McNeil (Assistant Directors), Matthew Alemu, Ben Bolitzer, Julianne Dieterich, Cindy Gilbert, Geoffrey King, Terence Lam, Alma Laris, Marc Molino, Alise Nacson, Jennifer Schwartz, and Karen Villafana made key contributions to this report."
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{
"question": [
"How cohesive are federal efforts to support entrepreneurs?",
"To what extent do these programs overlap?",
"How does this overlap affect entrepreneurs?",
"To what extent does collaboration exist between programs?",
"How could this be improved?",
"Why is effective collaboration essential?",
"To what extent do agencies track information on entrepreneurial assistance programs?",
"What do agencies use for analysis in place of detailed information?",
"To what extent have these programs met their goals?",
"How could more detailed information help agencies with this?",
"What did GAO recommend?",
"How did various agencies respond to GAO's recommendations?",
"How can entrepreneurial development programs help businesses?",
"What programs did GAO focus on?",
"What does this report address?",
"How did GAO collect data for this report?",
"What does GAO recommend regarding collaboration?",
"How did Commerce, HUD, and USDA respond to the recommendations?",
"What specific actions did GAO include in its recommendations?",
"How cohesive are federal efforts to support entrepreneurs?",
"To what extent do these programs overlap?",
"How does this overlap affect entrepreneurs?",
"To what extent does collaboration exist between programs?",
"How could this be improved?",
"Why is effective collaboration essential?",
"To what extent do agencies track information on entrepreneurial assistance programs?",
"What do agencies use for analysis in place of detailed information?",
"To what extent have these programs met their goals?",
"How could more detailed information help agencies with this?",
"What did GAO recommend?",
"How did various agencies respond to GAO's recommendations?",
"How can entrepreneurial development programs help businesses?",
"What programs did GAO focus on?",
"What does this report address?",
"How did GAO collect data for this report?",
"What does GAO recommend regarding collaboration?",
"How did Commerce, HUD, and USDA respond to the recommendations?",
"What specific actions did GAO include in its recommendations?"
],
"summary": [
"Federal efforts to support entrepreneurs are fragmented--including among 52 programs at the Department of Agriculture (USDA), Commerce, and Housing and Urban Development (HUD) and the Small Business Administration (SBA).",
"All overlap with at least one other program in terms of the type of assistance they are authorized to offer, such as financial (grants and loans) and technical (training and counseling), and the type of entrepreneur they are authorized to serve.",
"Some entrepreneurs struggle to navigate the fragmented programs that provide technical assistance. For example, some entrepreneurs and technical assistance providers GAO spoke with said the system can be confusing and that some entrepreneurs do not know where to go for assistance.",
"Collaboration could reduce some negative effects of overlap and fragmentation, but field staff GAO spoke with did not consistently collaborate to provide training and counseling services to entrepreneurs.",
"The agencies have taken initial steps to improve how they collaborate by entering into formal agreements, but they have not pursued a number of other good collaborative practices GAO has previously identified. For example, USDA and SBA entered into a formal agreement in 2010 to coordinate their efforts to support businesses in rural areas; however, the agencies' programs that can support start-up businesses--such as USDA's Rural Business Enterprise Grant program and SBA's Small Business Development Centers--have yet to determine roles and responsibilities, find ways to leverage each other's resources, or establish compatible policies and procedures.",
"Without enhanced collaboration and coordination agencies may not be able to make the best use of limited federal resources in the most effective and efficient manner.",
"Agencies do not track program information on entrepreneurial assistance activities for many programs, a number of programs have not met their performance goals, and most programs lack evaluations. In particular, the agencies do not generally track information on the specific type of assistance they provide or the entrepreneurs they serve, in part because they do not rely on this information to administer the programs.",
"Rather, agencies may rely, for example, on data summaries in narrative format, which cannot be easily aggregated or analyzed. According to government standards for internal control, this information should be available to help inform management in making decisions and identifying risks and problem areas.",
"GAO also found that 19 programs failed to meet their annual performance goals related to entrepreneurial assistance, including USDA's Rural Business Opportunity Grants, Commerce's Economic Development/Support for Planning Organizations, HUD's Indian Community Development Block Grants, and SBA's 504 loans to finance commercial real estate.",
"Programs could potentially rely on results from program evaluations to determine the reasons why they have not met their goals, as well as to gauge overall effectiveness. However, the agencies lack program evaluations for 32 of the 52 programs. Therefore, information on program efficiency and effectiveness is limited, and scarce resources may be going toward programs that are less effective.",
"GAO recommends that the agencies and the Office of Management and Budget explore opportunities to enhance collaboration among programs, both within and across agencies; track program information; and conduct more program evaluations.",
"Commerce, HUD, and USDA provided written comments and each neither agreed nor disagreed with the recommendations. However, USDA commented that the recommendations were not explicit. In the report, GAO provides specific actions that agencies can take to address each recommendation.",
"Economic development programs that effectively provide assistance to entrepreneurs may help businesses develop and expand.",
"GAO focused on 52 economic development programs, with an estimated $2.0 billion in funding, at Commerce, HUD, SBA, and USDA that support entrepreneurs.",
"In response to a statutory requirement, this report discusses (1) the extent of overlap and fragmentation, the effects on entrepreneurs, and agencies' actions to address them; and (2) the extent of tracked program information and whether these programs have met their performance goals and been evaluated.",
"To address these objectives, GAO analyzed program information and interviewed agency officials in headquarters and selected field offices, entrepreneurs, and third-party entities, such as nonprofits, that use federal grants to provide assistance directly to entrepreneurs.",
"GAO recommends that the agencies and the Office of Management and Budget explore opportunities to enhance collaboration among programs, both within and across agencies; track program information; and conduct more program evaluations.",
"Commerce, HUD, and USDA provided written comments and each neither agreed nor disagreed with the recommendations. However, USDA commented that the recommendations were not explicit.",
"In the report, GAO provides specific actions that agencies can take to address each recommendation.",
"Federal efforts to support entrepreneurs are fragmented--including among 52 programs at the Department of Agriculture (USDA), Commerce, and Housing and Urban Development (HUD) and the Small Business Administration (SBA).",
"All overlap with at least one other program in terms of the type of assistance they are authorized to offer, such as financial (grants and loans) and technical (training and counseling), and the type of entrepreneur they are authorized to serve.",
"Some entrepreneurs struggle to navigate the fragmented programs that provide technical assistance. For example, some entrepreneurs and technical assistance providers GAO spoke with said the system can be confusing and that some entrepreneurs do not know where to go for assistance.",
"Collaboration could reduce some negative effects of overlap and fragmentation, but field staff GAO spoke with did not consistently collaborate to provide training and counseling services to entrepreneurs.",
"The agencies have taken initial steps to improve how they collaborate by entering into formal agreements, but they have not pursued a number of other good collaborative practices GAO has previously identified. For example, USDA and SBA entered into a formal agreement in 2010 to coordinate their efforts to support businesses in rural areas; however, the agencies' programs that can support start-up businesses--such as USDA's Rural Business Enterprise Grant program and SBA's Small Business Development Centers--have yet to determine roles and responsibilities, find ways to leverage each other's resources, or establish compatible policies and procedures.",
"Without enhanced collaboration and coordination agencies may not be able to make the best use of limited federal resources in the most effective and efficient manner.",
"Agencies do not track program information on entrepreneurial assistance activities for many programs, a number of programs have not met their performance goals, and most programs lack evaluations. In particular, the agencies do not generally track information on the specific type of assistance they provide or the entrepreneurs they serve, in part because they do not rely on this information to administer the programs.",
"Rather, agencies may rely, for example, on data summaries in narrative format, which cannot be easily aggregated or analyzed. According to government standards for internal control, this information should be available to help inform management in making decisions and identifying risks and problem areas.",
"GAO also found that 19 programs failed to meet their annual performance goals related to entrepreneurial assistance, including USDA's Rural Business Opportunity Grants, Commerce's Economic Development/Support for Planning Organizations, HUD's Indian Community Development Block Grants, and SBA's 504 loans to finance commercial real estate.",
"Programs could potentially rely on results from program evaluations to determine the reasons why they have not met their goals, as well as to gauge overall effectiveness. However, the agencies lack program evaluations for 32 of the 52 programs. Therefore, information on program efficiency and effectiveness is limited, and scarce resources may be going toward programs that are less effective.",
"GAO recommends that the agencies and the Office of Management and Budget explore opportunities to enhance collaboration among programs, both within and across agencies; track program information; and conduct more program evaluations.",
"Commerce, HUD, and USDA provided written comments and each neither agreed nor disagreed with the recommendations. However, USDA commented that the recommendations were not explicit. In the report, GAO provides specific actions that agencies can take to address each recommendation.",
"Economic development programs that effectively provide assistance to entrepreneurs may help businesses develop and expand.",
"GAO focused on 52 economic development programs, with an estimated $2.0 billion in funding, at Commerce, HUD, SBA, and USDA that support entrepreneurs.",
"In response to a statutory requirement, this report discusses (1) the extent of overlap and fragmentation, the effects on entrepreneurs, and agencies' actions to address them; and (2) the extent of tracked program information and whether these programs have met their performance goals and been evaluated.",
"To address these objectives, GAO analyzed program information and interviewed agency officials in headquarters and selected field offices, entrepreneurs, and third-party entities, such as nonprofits, that use federal grants to provide assistance directly to entrepreneurs.",
"GAO recommends that the agencies and the Office of Management and Budget explore opportunities to enhance collaboration among programs, both within and across agencies; track program information; and conduct more program evaluations.",
"Commerce, HUD, and USDA provided written comments and each neither agreed nor disagreed with the recommendations. However, USDA commented that the recommendations were not explicit.",
"In the report, GAO provides specific actions that agencies can take to address each recommendation."
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CRS_RS21961
|
{
"title": [
"",
"Background",
"Occurrence",
"Health Concerns",
"EPA Assessment of Perchlorate for Regulation",
"Perchlorate Risk Assessment",
"NRC Perchlorate Study",
"EPA's Response and Subsequent Actions",
"DOD Perchlorate Actions",
"Legislative Actions"
],
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"",
"Ammonium perchlorate is the key ingredient in solid fuel for rockets and missiles; other perchlorate salts are used to manufacture products such as fireworks, air bags, and road flares. Uncertainty about the health effects of perchlorate exposure has slowed efforts to establish drinking water and environmental cleanup standards. However, because of perchlorate's persistence in water and ability to affect thyroid function, concern has escalated with the detection of perchlorate in water in at least 33 states. In the absence of a federal standard, states have begun to adopt their own measures. Massachusetts set a drinking water standard of 2 parts per billion (ppb, or micrograms per liter [μg/L]) in 2006, and California adopted a 6 ppb standard in 2007. Several states have issued health goals or advisory levels ranging from 1 ppb in Maryland (advisory level) and New Mexico (drinking water screening level) to 17 ppb in Texas (residential protective cleanup level) and, also in Texas, 51 ppb (industrial cleanup level).",
"Perchlorate has been used heavily by DOD and its contractors, and perchlorate contamination has been found near weapons and rocket fuel manufacturing facilities and disposal sites, research facilities, and military bases. Fireworks, road flares, construction sites, and other manufacturing activities and facilities also have been sources of contamination. Moreover, perchlorate occurs naturally (in West Texas, for example), is present in organic fertilizer imported from Chile, and can occur as a breakdown product of other products. It has been detected in drinking water sources, primarily in the Southwest and in scattered locations across the country. Contamination has been found most often in ground water, including some large aquifers in California.\nIn 1999, EPA required public water systems to monitor for perchlorate under the Unregulated Contaminant Monitoring Rule (UCMR) to determine the frequency and levels at which it is present in public water supplies nationwide. The UCMR required monitoring by all systems serving more than 10,000 persons and by a sample of smaller systems. Of 3,865 public water systems tested, perchlorate was detected at levels greater than or equal to 4 µg/L (the minimum detection level of the test) in 160 (4.1%) systems in 26 states and two commonwealths, including 58 systems in California. In 14 systems, perchlorate levels exceeded EPA's preliminary remediation goal of 24.5 ppb. Approximately 1.9% (637) of a total of 34,331 samples collected by the systems had detections of perchlorate at levels of 4 µg/L or greater. The average concentration of perchlorate for the samples with positive detections was 9.85 µg/L. California has required more comprehensive monitoring, and perchlorate has been detected at least twice in 241 active or standby sources of drinking water in that state since 2002.\nIn 2005, EPA reported perchlorate contamination had been found at 65 DOD facilities, 7 other federal facilities, and 37 private sites. All sampling results combined (i.e., soil, public and private drinking water wells, ground water monitoring wells, and surface water), the Government Accountability Office reported that perchlorate had been detected at 395 sites.\nMonitoring also has been conducted to assess the presence of perchlorate in foods. In 2004, the Food and Drug Administration (FDA) tested 500 samples of foods, including vegetables, milk, and bottled water for perchlorate. Samples were taken in areas where water was thought to be contaminated. The FDA found perchlorate in roughly 90% of lettuce samples (average levels ranged from 11.9 ppb to 7.7 ppb for lettuces), and in 101 of 104 bottled milk samples (with an average level of 5.7 ppb). To assess the presence of perchlorate in a wider range of foods, the FDA began testing all samples in its Total Diet Study in 2005. Perchlorate was detected in 625 of 1065 (50%) of samples, and in 211 of the 285 (74%) foods tested. In most cases, perchlorate levels were in the low single digits; however, levels were higher in some foods (e.g., shrimp, tomatoes, spinach, and bacon). The study found that 2-year-olds have the highest total perchlorate intake per kilogram body weight per day, followed by infants (6 to 12 months of age) and children 6 to 10 years of age. The widespread detection of perchlorate in food is relevant to EPA's standard-setting efforts, because EPA considers non-water exposures when determining whether to establish a standard for a contaminant, and at what level to set a standard.",
"Perchlorate is not known to cause cancer. It is known to disrupt the uptake of iodine in the thyroid, and health effects associated with perchlorate exposure are expected to parallel those caused by iodine deficiency. Iodine deficiency decreases the production of thyroid hormones, which help regulate the body's metabolism and growth. A key concern is that impairment of thyroid function in pregnant women can affect fetuses and nursing infants and can result in delayed development and decreased learning capacity. Several human studies have indicated that thyroid changes occur in humans at significantly higher levels of perchlorate than the amounts typically observed in water supplies. However, a 2006 study by the Centers for Disease Control and Prevention (CDC) of a representative sample of the U.S. population found that environmental exposures to perchlorate have an effect on thyroid hormone levels in women with iodine deficiency. (No effect was found in men.) Fully 36% of the 1,111 women in this study were found to be iodine deficient, and the median level of urinary perchlorate measured in the women was 2.9 ppb.",
"Over the past decade, EPA has evaluated perchlorate to determine whether a federal drinking water standard is needed. Under the Safe Drinking Water Act (SDWA, §1412(b)(1)), EPA must regulate a contaminant if the Administrator determines that the contaminant (1) may have an adverse health effect, (2) occurs in public water systems at a frequency and level of public health concern, and (3), in the sole judgment of the Administrator, regulation of the contaminant presents a meaningful opportunity for reducing health risks. In 1997, when a sensitive detection method became available for perchlorate and detections increased, scientific information was limited. In 1998, EPA placed perchlorate on the list of contaminants that were candidates for regulation, but concluded that information was insufficient to determine whether perchlorate should be regulated under the SDWA. EPA listed perchlorate as a priority for further research on health effects and treatment technologies and for collecting occurrence data. In 1999, EPA required water systems to monitor for perchlorate under the Unregulated Contaminant Monitoring Rule to determine the frequency and levels at which it is present in public water supplies nationwide. In January 2007, EPA reported that it had collected sufficient occurrence data, and that further monitoring was not needed for the agency to make a regulatory determination (72 Fed. Reg. 367, January 4, 2007).",
"In 1992, and again in 1995, EPA issued draft reference doses (RfDs) for perchlorate exposure. An RfD is an estimate (with uncertainty spanning perhaps an order of magnitude) of a daily oral exposure that is not expected to cause any adverse, non-cancer health effects during a lifetime. In developing an RfD, EPA incorporates factors to account for sensitive subpopulations, study duration, inter- and intraspecies variability, and data gaps. The draft RfDs range of 0.0001 to 0.0005 milligrams per kilogram (mg/kg) body weight per day translated to a drinking water equivalent level of 4 ppb-18 ppb. EPA takes the RfD into account when setting a drinking water standard; it also considers costs, the capabilities of monitoring and treatment technologies, and other sources of perchlorate exposure, such as food.\nEPA's 1999 draft risk characterization resulted in a human risk benchmark of 0.0009 mg/kg per day (with a 100-fold uncertainty factor), which converted to a drinking water equivalent level of 32 ppb. However, EPA determined that the available health effects and toxicity database was inadequate for risk assessment. In 1999, EPA issued an Interim Assessment Guidance for Perchlorate , which recommended that EPA risk managers use the earlier reference dose range and drinking water equivalent level (DWEL) of 4-18 ppb for perchlorate-related assessment activities at hazardous waste sites.\nIn 2002, EPA prepared a draft risk assessment that concluded that the potential human health risks of perchlorate exposures include effects on the developing nervous system and thyroid tumors, based on rat studies that observed benign tumors and adverse effects in fetal brain development. The document included a draft RfD of 0.00003 mg/kg per day, which translated to a drinking water equivalent level of 1 ppb. This document was controversial, both for its implications for cleanup costs and for science policy reasons. (For example, some peer reviewers expressed concern over EPA's risk assessment methodology and reliance on rat studies.) DOD, water suppliers, and other commentors expressed concern that the draft RfD could lead to unnecessarily stringent and costly cleanups of perchlorate releases at federal facilities and in water supplies. In 2002, a federal interagency perchlorate working group convened to discuss perchlorate risk assessment, research and regulatory issues, and related agency concerns. Working group members included DOD, EPA, the Department of Energy, the National Aeronautics and Space Administration, the Office of Science and Technology Policy, the Council on Environmental Quality, and the Office of Management and Budget.",
"To resolve some of the uncertainty and debate over perchlorate's health effects and the 2002 draft risk assessment, the interagency working group asked the National Research Council (NRC) to review the available science for perchlorate and EPA's draft assessment. The NRC was asked to comment and make recommendations. The NRC Committee to Assess the Health Implications of Perchlorate Ingestion issued its review in January 2005 and suggested several changes to EPA's draft risk assessment. The committee concluded that because of key differences between rats and humans, studies in rats were of limited use for quantitatively assessing human health risk associated with perchlorate exposure. Although the committee agreed that thyroid tumors found in a few rats were likely perchlorate treatment-related, it concluded that perchlorate exposure is unlikely to lead to thyroid tumors in humans. The committee noted that, unlike rats, humans have multiple mechanisms to compensate for iodide deficiency and thyroid disorders. Also, the NRC found flaws in the design and methods used in the rat studies. The committee concluded that the animal data selected by EPA should not be used as the basis of the risk assessment.\nThe committee also reviewed EPA's risk assessment model. It agreed that EPA's model for perchlorate toxicity represented a possible early sequence of events after exposure, but it did not think that the model accurately represented possible outcomes after changes in thyroid hormone production. Further, the committee disagreed with EPA's definition of a change in thyroid hormone level as an adverse effect. Rather, the NRC defined transient changes in serum thyroid hormone as biochemical events that might precede adverse effects, and identified hypothyroidism as the first adverse effect.\nBecause of research gaps regarding perchlorate's potential effects following changes in thyroid hormone production, the committee made the recommendation that EPA use a nonadverse effect (i.e., the inhibition of iodide uptake by the thyroid in humans) rather than an adverse effect as the basis for the risk assessment. The committee explained that \"[i]nhibition of iodide uptake is a more reliable and valid measure, it has been unequivocally demonstrated in humans exposed to perchlorate, and it is the key event that precedes all thyroid-mediated effects of perchlorate exposure.\" Based on the use of this point of departure, the reliance on human studies, and the use of an uncertainty factor of 10 (for intraspecies differences), the NRC's recommendations led to an RfD of 0.0007 mg/kg per day. The committee concluded that this RfD should protect the most sensitive population (i.e., the fetuses of pregnant women who might have hypothyroidism or iodide deficiency) and noted that the RfD was supported by clinical studies, occupational and environmental epidemiologic studies, and studies of long-term perchlorate administration to patients with hyperthyroidism. In addition, the NRC identified data gaps and research needs. The committee has received some criticism for the extent to which it relied on a small, short-term human study, and debate over perchlorate's health risks has continued.",
"In 2005, EPA adopted the NRC recommended reference dose of 0.0007 mg/kg per day, which translates to a drinking water equivalent level of 24.5 ppb. The DWEL is the concentration of a contaminant in water that is expected to have no adverse effects; it is intended to include a margin of safety to protect the fetuses of pregnant women who might have a preexisting thyroid condition or insufficient iodide intake. Notably, EPA based the DWEL on the assumption that all exposure would come from drinking water. If EPA were to develop a drinking water standard for perchlorate, it would lower the DWEL to account for other sources of exposure, particularly food.\nIn January 2006, EPA's Superfund office issued guidance adopting the NRC reference dose and the DWEL of 24.5 ppb as the recommended value to be considered as the preliminary remediation goal (PRG) to guide perchlorate assessment and cleanup at Superfund sites. In March, EPA's Children's Health Protection Advisory Committee (CHPAC) wrote to the EPA Administrator that the PRG did not protect infants, who are highly susceptible to neurodevelopmental toxicity and may be more exposed than fetuses to perchlorate. The CHPAC noted that perchlorate is concentrated in breast milk and that nursing infants could receive daily doses greater than the RfD if the mother is exposed to 24.5 ppb perchlorate in tap water. The committee recommended that the Superfund office lower the PRG and that the Office of Water develop a standard for perchlorate and, in the interim, issue a drinking water health advisory that takes into account early life exposures.\nIn October 2008, EPA announced a preliminary determination not to regulate perchlorate, noting that less than 1% of water systems have perchlorate levels above the health reference level. EPA concluded that perchlorate failed to meet two of SDWA's regulatory criteria (i.e., that a contaminant occur frequently at levels of health concern, and that establishing a national drinking water standard would provide a \"meaningful opportunity for health risk reduction\"). In response, EPA's Science Advisory Board's (SAB's) Drinking Water Committee argued that, given perchlorate's occurrence and well-documented toxicity, EPA must have a compelling basis to support a determination not to regulate. The SAB requested more time to review the new model EPA relied on, and to comment on the preliminary determination.\nOn January 8, 2009, EPA announced that it would seek further advice from the NRC before making a final determination on whether or not to set a drinking water standard for perchlorate. EPA also announced that it was replacing the perchlorate preliminary remediation goal of 24.5 ppb with an interim health advisory, which contains a value of 15 ppb. Health advisories are nonregulatory, but can be useful to state and local officials in addressing drinking water contamination and making cleanup decisions for Superfund sites. EPA based the 15 ppb level on the reference dose recommended by the NRC. The agency explained that it calculated the advisory level to protect the most sensitive population that was identified by the NRC perchlorate committee (the fetuses of pregnant women), and took into account exposures from food as well as water. This approach does not appear to address a key concern of EPA's Children's Health Protection Advisory Committee which identified nursing infants as potentially more exposed than fetuses. The evaluation of impacts to infants and young children is one of the scientific issues that EPA wanted the NRC to evaluate. EPA also was considering asking the NRC to evaluate recent studies, EPA's use of models, and its derivation of the 15 ppb health reference level.\nIn August 2009, the EPA Administrator announced that the agency would reevaluate the science regarding perchlorate's potential health effects, with particular emphasis on evaluating the effects of perchlorate exposure on infants and young children. The agency determined not to ask the NRC to conduct further review of issues related to perchlorate, having concluded that additional NRC review would unnecessarily delay the regulatory decision-making process. Instead, EPA published a Supplemental Request for Comments notice in the Federal Register, seeking public comment on additional ways to analyze data related to the regulatory determination for perchlorate. EPA noted its intent to consider a broader range of alternatives for interpreting the available data on the level of health concern, the frequency of occurrence of perchlorate in drinking water, and the opportunity for health risk reduction through a national drinking water standard. EPA is reevaluating perchlorate exposure to sensitive life stages including infants and developing children, expanding the previous emphasis on pregnant women and their developing fetuses as the most sensitive subpopulations. EPA intends to take public comments into account before making a final regulatory determination. The agency's announcement noted that the final decision may be a determination to regulate.",
"DOD is responsible for some large releases of perchlorate into the environment and has allotted significant resources to address this problem. DOD has spent more than $114 million on research activities regarding perchlorate treatment technologies, detection methods, toxicity studies, and substitutes. Additional funds have been spent on cleanup.\nAlthough remediation has proceeded at some sites, cleanups typically are driven by drinking water standards or other established cleanup standards. With no federal standard, cleanup goals and responsibilities have been ambiguous outside of California and Massachusetts where standards have been set. In 2006, after EPA established a DWEL for perchlorate and issued cleanup guidance based on the DWEL, DOD adopted a policy setting 24 ppb as the level of concern to be used in managing perchlorate releases (unless a more stringent federal or state standard exists. The policy applies broadly to DOD installations and former military lands, and directs the services to test for perchlorate when it is reasonably expected that a release has occurred. Under the policy, if perchlorate levels exceed 24 ppb, a site-specific risk assessment must be conducted; if the assessment indicates that the perchlorate could result in adverse health effects, then the site must be prioritized for risk management. DOD uses a relative risk site evaluation framework to help prioritize environmental restoration work and to allocate resources among sites. EPA has withdrawn the 2006 perchlorate remediation guidance and recommends that its Regional offices now consider using the interim health advisory level of 15 ppb for cleanup. DOD may follow suit and adopt the new level for managing perchlorate releases.",
"In the 111 th Congress, as in the past several Congresses, legislation has been introduced concerning the regulation of perchlorate under the Safe Drinking Water Act (SDWA). H.R. 3206 would require EPA to propose a drinking water regulation for perchlorate within 12 months of enactment of the legislation, and to promulgate a final regulation no later than 18 months after EPA published a proposed rule.\nAdditionally, Congress has provided some funding for the remediation of perchlorate contamination of ground water and public drinking water supplies. The explanatory statement for the Department of Defense Appropriations Act, 2010 ( P.L. 111-118 , H.R. 3326 ), specifies that $1.6 million is intended for the cleanup of perchlorate contaminated drinking water wells, and another $3.5 million is intended for Inland Empire (CA) perchlorate remediation. Two similar bills, H.R. 2316 and H.R. 4252 , each entitled the Inland Empire Perchlorate Ground Water Plume Assessment Act of 2009, would direct the Secretary of the Interior, acting through the Director of the United States Geological Survey, to (1) complete a study of water resources in California, including the Rialto-Colton Basin ( H.R. 2316 ), or (2) complete a study of water resources, specifically the Rialto-Colton Basin ( H.R. 4252 ). Under both bills, the required studies would include a survey of ground water resources (including the identification of a recent surge in perchlorate concentrations in ground water). ( H.R. 4252 , H.Rept. 111-433 ) was passed by the House in March 2010, and ordered reported, without amendment, by the Senate Committee on Energy and Natural Resources in July. Relatedly, H.R. 102 would authorize additional appropriations for the San Gabriel Basin Restoration Fund, and would establish a 35% non-federal matching requirement for the recipient water districts after a specified amount of federal funds had been appropriated\nDuring the 110 th Congress, several perchlorate bills were considered, but none were enacted. Responding to EPA's 2007 decision not to require further monitoring for perchlorate as an unregulated contaminant, S. 24 was introduced to require community water systems to test for perchlorate and disclose its presence in annual consumer reports. S. 150 and H.R. 1747 would have required EPA to set a standard for perchlorate. The Senate Environment and Public Works Committee reported S. 24 ( S.Rept. 110-483 ) and S. 150 ( S.Rept. 110-484 ). Additionally, H.Con.Res. 347 expressed the sense of Congress that the CDC and FDA should take action to educate the public on the importance of adequate iodine intake, as iodine is protective against perchlorate exposure."
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{
"question": [
"What is perchlorate?",
"What is perchlorate's relationship to water supplies?",
"What actions have been taken regarding perchlorate exposure?",
"What regulatory issues have arisen?",
"To what extent has the EPA examined perchlorate?",
"How has the FDA supported this effort?",
"Why have several federal agencies asked for the NRC to research perchlorate?",
"What did the NRC find?",
"What decision regarding perchlorate did the EPA make in 2008?",
"How did the EPA change this in early 2009?",
"How did the EPA change the remediation goal for perchlorate?",
"What legislation has been proposed regarding perchlorate?",
"What action has been taken on this bill?",
"What perchlorate contamination cleanup legislation has been enacted?",
"What does this report consist of?",
"What is perchlorate?",
"What is perchlorate's relationship to water supplies?",
"What actions have been taken regarding perchlorate exposure?",
"What regulatory issues have arisen?",
"To what extent has the EPA examined perchlorate?",
"How has the FDA supported this effort?",
"Why have several federal agencies asked for the NRC to research perchlorate?",
"What did the NRC find?",
"What decision regarding perchlorate did the EPA make in 2008?",
"How did the EPA change this in early 2009?",
"How did the EPA change the remediation goal for perchlorate?",
"What legislation has been proposed regarding perchlorate?",
"What action has been taken on this bill?",
"What perchlorate contamination cleanup legislation has been enacted?",
"What does this report consist of?"
],
"summary": [
"Perchlorate is the explosive component of solid rocket fuel, fireworks, road flares, and other products. Used heavily by the Department of Defense (DOD) and related industries, perchlorate also occurs naturally and is present in some organic fertilizer.",
"This soluble, persistent compound has been detected in drinking water supplies, especially in California. It also has been found in milk and many foods.",
"Because of this widespread occurrence, concern over the potential health risks of perchlorate exposure has increased, and some states, water utilities, and Members of Congress have urged the Environmental Protection Agency (EPA) to set a federal drinking water standard for this chemical.",
"Regulatory issues have involved the health risk reduction benefits and the costs of federal regulation, including environmental cleanup and water treatment costs, both of which are driven by federal and state standards.",
"EPA has spent years assessing perchlorate's health effects and occurrence to determine whether a national standard is warranted.",
"The Food and Drug Administration (FDA) has supported this effort by testing produce and other foods for the presence of perchlorate.",
"Interagency disagreements over the risks of perchlorate exposure led several federal agencies to ask the National Research Council (NRC) to evaluate perchlorate's health effects and EPA's risk analyses.",
"In 2005, the NRC issued its report, and EPA adopted the NRC's recommended reference dose (i.e., the expected safe dose) for perchlorate exposure. Subsequent studies raised more concerns about the potential effects of low-level exposures, particularly for infants in certain cases.",
"In October 2008, EPA made a preliminary determination not to regulate perchlorate in drinking water.",
"Then, in early January 2009, the agency announced that it again would seek advice from the NRC before making a final determination.",
"EPA also announced that it was replacing the preliminary remediation goal for perchlorate of 24.5 parts per billion (ppb) with an interim health advisory, which contains a value of 15 ppb.",
"Perchlorate legislation in this Congress includes H.R. 3206, which would require EPA to set a drinking water standard for perchlorate.",
"No action has been taken on this bill.",
"Among perchlorate contamination cleanup bills, the House passed H.R. 4252 to direct the U.S. Geological Survey to complete a study of water resources (including a study of perchlorate contamination of ground water) in the Rialto-Colton Basin, California. In July 2010, the Senate Committee on Energy and Natural Resources ordered H.R. 4252 to be reported, without amendment.",
"This report reviews perchlorate contamination issues and related developments.",
"Perchlorate is the explosive component of solid rocket fuel, fireworks, road flares, and other products. Used heavily by the Department of Defense (DOD) and related industries, perchlorate also occurs naturally and is present in some organic fertilizer.",
"This soluble, persistent compound has been detected in drinking water supplies, especially in California. It also has been found in milk and many foods.",
"Because of this widespread occurrence, concern over the potential health risks of perchlorate exposure has increased, and some states, water utilities, and Members of Congress have urged the Environmental Protection Agency (EPA) to set a federal drinking water standard for this chemical.",
"Regulatory issues have involved the health risk reduction benefits and the costs of federal regulation, including environmental cleanup and water treatment costs, both of which are driven by federal and state standards.",
"EPA has spent years assessing perchlorate's health effects and occurrence to determine whether a national standard is warranted.",
"The Food and Drug Administration (FDA) has supported this effort by testing produce and other foods for the presence of perchlorate.",
"Interagency disagreements over the risks of perchlorate exposure led several federal agencies to ask the National Research Council (NRC) to evaluate perchlorate's health effects and EPA's risk analyses.",
"In 2005, the NRC issued its report, and EPA adopted the NRC's recommended reference dose (i.e., the expected safe dose) for perchlorate exposure. Subsequent studies raised more concerns about the potential effects of low-level exposures, particularly for infants in certain cases.",
"In October 2008, EPA made a preliminary determination not to regulate perchlorate in drinking water.",
"Then, in early January 2009, the agency announced that it again would seek advice from the NRC before making a final determination.",
"EPA also announced that it was replacing the preliminary remediation goal for perchlorate of 24.5 parts per billion (ppb) with an interim health advisory, which contains a value of 15 ppb.",
"Perchlorate legislation in this Congress includes H.R. 3206, which would require EPA to set a drinking water standard for perchlorate.",
"No action has been taken on this bill.",
"Among perchlorate contamination cleanup bills, the House passed H.R. 4252 to direct the U.S. Geological Survey to complete a study of water resources (including a study of perchlorate contamination of ground water) in the Rialto-Colton Basin, California. In July 2010, the Senate Committee on Energy and Natural Resources ordered H.R. 4252 to be reported, without amendment.",
"This report reviews perchlorate contamination issues and related developments."
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CRS_R42460
|
{
"title": [
"",
"Introduction",
"Background: Creating the SPR",
"International Energy Agency Obligation",
"Net or Gross Imports",
"SPR Drawdown Authorities",
"Severe Energy Supply Interruption Emergencies",
"Severe Domestic Energy Supply Interruption",
"Test Sale",
"SPR Sites",
"Bryan Mound",
"Big Hill",
"West Hackberry",
"Bayou Choctaw",
"SPR Capacity",
"SPR Releases",
"1990-1991 Severe Energy Supply Interruption─Desert Storm Desert Shield",
"2005 Severe Domestic Energy Supply Interruptions─Hurricanes Katrina and Rita",
"2011 IEA Coordinated Release in Response to Libyan Crude Oil Curtailment",
"2014 Test Sale",
"Other Policy Considerations",
"Refining Capacity vs. Crude Supply",
"Gasoline Price Increases",
"The Future of U.S. Imports of Crude Oil",
"Use of the SPR as a Funding Instrument"
],
"paragraphs": [
"",
"The changing role of the United States in world petroleum markets has driven a reassessment of the size of, and perhaps even need for, the Strategic Petroleum Reserve (SPR). Lower oil prices, beginning in mid-2014, the Organization of the Petroleum Exporting Countries (OPEC) strategy of protecting market share rather than stabilizing price, excess capacity in the market, and evolving consumption patterns suggested an oil market that may be less susceptible to price and supply shocks.\nOn the other hand, a variety of conflicts in the Middle East and North Africa, uncertainty concerning Iran's nuclear program and role in Middle East conflicts, and the seeming reversal of the Saudi Arabian-led OPEC market-share strategy suggest that care should be exercised before major decisions on the SPR are taken.\nIn addition to the changing oil environment, the SPR is seen by some as a potential revenue source to fund programs outside of energy policy.\nNew resource development and production in Texas (Eagle Ford and Permian Basin), North Dakota (Bakken), and Ohio (Utica) has added significantly to U.S. light, tight, crude oil production (LTO). Over the past several years, LTO, originally sold at a discount and shipped to U.S. refineries by rail, pipeline, barges, and trucks, has caused U.S. net imports of crude oil to decline while increasing U.S. exports of refined products. In addition, prohibitions on U.S. exports of crude oil have been lifted, resulting in increased exports.\nA majority of U.S. refineries (some 115) were originally designed to process primarily heavy crude oils. Moreover, these refineries account for roughly 75% of U.S. refining capacity. Should the prospect of releasing SPR oil arise, the relevant question may be whether to sell heavy or light oil as much as the quantity of oil that should be released to the market. For example, in 2011, President Obama ordered a sale of 30 million barrels of light sweet crude oil to offset a curtailment in Libya's production when NATO forces intervened militarily in that country's internal conflict. The oil released from the SPR was thought to be a close substitute of curtailed Libyan supplies. As expected, the oil sale had short-term influence on global crude oil prices, but a limited (if any) influence on long-term prices.",
"From the mid-1970s through the present day, the United States has had to absorb a number of significant spikes in the price of crude oil and petroleum products. Whether driven by disruptions in the physical supply of crude or refined fuels, unexpected demand growth, or by uncertainties owing to international conflicts and instabilities, these price increases have had consequences for the U.S. economy. Elevated petroleum prices affect the balance of trade by increasing the value of oil imports and siphoning away disposable income that might support local economies, investment, or savings.\nThe SPR came about as a result of the 1973 Arab-Israeli War. In reaction to the United States' support for Israel, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo on the United States, the Netherlands, and Canada, and reduced production. While some Arab crude did reach the United States, the price of imported crude oil rose from roughly $4/barrel (bbl) during the last quarter of 1973 to an average price of $12.50/bbl in 1974. In addition, local spot shortages of gasoline created a shortage mentality in U.S. markets.\nIn response to the 1973 oil embargo, Congress created a Strategic Petroleum Reserve of up to 1 billion barrels in the Energy Policy and Conservation Act (EPCA) of 1975. The SPR was meant to contain enough crude oil to replace net imports for 90 days, with a requirement initially to store 150 million barrels. In May 1978, Congress authorized expansion of the SPR's physical capacity to 750 million barrels, and in 2005 directed further expansion to the authorized size of 1 billion barrels. The George W. Bush Administration unsuccessfully attempted to persuade Congress of the need to expand the SPR to 1.5 billion barrels.\nCongress intended the SPR to help prevent a repetition of the economic disruption that the 1973 Arab oil embargo had caused. While no amount of strategic stocks can insulate an oil-consuming nation from paying the market price for oil in a supply emergency, the availability of strategic stocks can help mitigate the magnitude of the market's reaction to a crisis. One of the original perceptions of a strategic stockpile's value was that it would discourage the use of oil as a political weapon. OAPEC intended to create a physical supply disruption with the embargo. Congress's motivation in creating the SPR focused especially on a deliberate and dramatic physical oil supply disruption and on mitigating the economic effects of a shortage stemming from international events. In the event of a supply interruption, proponents reasoned that introducing oil into the U.S. market from the SPR would offset the lost supply and in doing so help calm markets, mitigate sharp price spikes, and reduce economic disruptions (i.e., gross domestic product loss). The holding of crude oil rather than petroleum products was done because then, as now, the United States had sufficient domestic refining capacity to meet domestic demand. As a result, potential oil market disruptions would most likely affect the United States through the disruption of crude oil, and not petroleum product, supplies. The SPR could also buy time for the crisis to sort itself out or for diplomacy to seek some resolution before a potentially severe oil shortage escalated the crisis.",
"The OAPEC oil embargo also fostered the establishment of the International Energy Agency (IEA) to develop plans and measures for emergency responses to energy crises. Strategic stock holdings are one of the policies included in the agency's International Energy Program (IEP). IEA member countries, including the United States, are committed to maintaining oil stocks (inventories) equivalent to 90 days of their prior year's net imports, developing programs for demand restraint in the event of emergencies, and agreeing to participate in allocation of oil deliveries to balance a shortage among IEA members. In 2011, the United States participated in a coordinated IEA drawdown in response to the shutdown of Libyan oil exports. (See below.) At its current inventory of about 691 million barrels, the SPR provides the United States 139 days of net import protection and surpasses the 90-day IEA obligation. At the full drawdown rate, the SPR can deliver 4.4 MMb/d of crude oil for 90 days, dropping to a rate of 3.8 MMb/d for an additional 30 days, and dropping further in drawdown rate for up to 180 days as stocks deplete. These measures of days of protection assume a total curtailment of oil supply to importing nations, a scenario that is highly unlikely. This would be especially true for the United States, given that Canada, Mexico, and Venezuela are currently the nation's major foreign sources for imported crude oil.\nSome IEA member nations require a certain level of stock holding by the private sector or by both the public and private sectors. The private oil sector holds roughly 60% of IEA required stocks, whereas governments and supervisory agencies hold the remaining 40%. The U.S. federal government holds 100% of the SPR stock.",
"U.S. net imports of crude oil and petroleum products declined from 9.667 MMb/d in 2009 to 4.871 MMb/d in 2016. The decline in net imports resulted from a decline in gross imports, from 11.691 MMb/d in 2009 to 10.05 MMb/d in 2016, coupled with an increase in exports from 2.024 MMb/d in 2009 to 5.185 MMb/d in 2016. While the 2016 export value includes some crude oil sold to Canada, a growing share is finding other destinations.\nA question concerning the ability of the SPR to maximize its contribution to U.S. energy security is whether, in times of emergency, gross imports should be replaced by supplies from the SPR, thereby preserving U.S. consumption as well as exported petroleum product sales, or whether only net import supplies should be preserved. An additional question is whether SPR releases in time of emergency should be required to be used only in the United States, or whether SPR oil sales should be released into the world market for use outside the United States.",
"Presidential authority to authorize a drawdown depends on making the determination that a severe supply interruption exists nationally or internationally, or is imminent. The United States is obligated by agreement to join in an IEA coordinated response. In the case of an international interruption, the President may release an unlimited volume of crude oil. In the case of a national interruption, some statutory limitations apply. The Secretary of Energy also has limited authority to release crude oil for a test drawdown.",
"The Energy Policy and Conservation Act (EPCA, P.L. 94-163 ) authorized drawdown of the Reserve upon a finding by the President that there is a \"severe energy supply interruption.\" By the statute, such an interruption exists when the President determines that,\n1. an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; 2. a severe increase in the price of petroleum products has resulted from such emergency situation; and 3. a price increase is likely to cause a major adverse impact on the national economy.",
"Congress enacted additional drawdown authority in the 1990 Energy Policy and Conservation Act Amendments ( P.L. 101-383 ) after the Exxon Valdez oil spill, which interrupted the shipment of Alaskan oil, triggering spot shortages and price increases. The intention was to provide for an SPR drawdown under a less rigorous determination than EPCA mandated. This provision authorized the President to use the SPR for domestic energy supply shortages without having to declare a \"severe energy supply interruption\" or the need to meet obligations of the United States under the international energy program.\nUnder the additional authorities in P.L. 101-383 , the President can initiate a drawdown in the event of a circumstance that \"constitutes, or is likely to become, a domestic or international energy supply shortage of significant scope or duration\" and where \"action taken ... would assist directly and significantly in preventing or reducing the adverse impact of such shortage.\" This authority limits SPR sales to no more than 30 million barrels over a maximum 60-day period only when the SPR inventory is above 500 million barrels.",
"By law, the Secretary of Energy must periodically evaluate SPR drawdown and sale procedures, and carry out a test drawdown and sale, or exchange of petroleum products from the reserve, up to 5 million barrels. The last SPR test sale was in 2014.",
"The SPR physically comprises four sites, two in Texas and two in Louisiana ( Figure 1 ). The sites offer access to both marine terminals and pipeline systems needed for moving crude oil to and from the SPR. Each site consists of an underground salt dome (a naturally occurring geologic structure), solution-mined to create storage caverns. Stored crude oil is removed by injecting water to displace the oil. The cavern remains structurally intact as long as the stored oil remains in place. In the event of multiple sales or exchanges over time, repeated water injections will cause salt leaching and begin to compromise the structural integrity of the caverns.\nThe SPR's storage capacity had expanded to 727 million barrels, and its inventory had reached nearly 700 million barrels before Hurricanes Katrina and Rita in 2005. Following the storms, DOE loaned some crude oil to refiners and sold some through competitive bidding. Borrowers of SPR oil were required to repay their loans \"in-kind\" with a premium, essentially returning a larger amount of oil than borrowed. The SPR reached its maximum fill of 727 million barrels by 2010 (through royalty-in-kind acquisition) and remained at that level until the 2011 drawdown reduced the inventory to 695 million barrels. The SPR currently holds the equivalent of 139 days of import protection (based on 2016 import data of 4.871 million barrels per day of net petroleum imports). Table 1 shows the current SPR inventory level, accounting for the 30 million barrels sold in the summer of 2011.",
"The Bryan Mound storage site is located in Brazoria County, TX, approximately three miles southwest of Freeport. The site has 20 storage caverns with a total storage capacity of 254 million barrels, and a cavern inventory of 242.1 million barrels. The Bryan Mound site began operation in 1986 and has remained operational since then.",
"The Big Hill storage site is located in Jefferson County, TX, approximately 26 miles southwest of Beaumont. The site has 14 storage caverns, a combined storage capacity of 171 million barrels, and a cavern inventory of 162.2 million barrels. The Big Hill site began full operation in 1991 and has remained operational since then.",
"The West Hackberry storage site is located in Cameron Parish, LA, approximately 25 miles southwest of Lake Charles. The site has 22 storage caverns with a combined storage capacity of 228 million barrels, and a cavern inventory of 213.2 million barrels. The West Hackberry site began full operation in 1988 and has remained operational since then.",
"The Bayou Choctaw storage site is located in Iberville Parish, LA, approximately 12 miles southwest of Baton Rouge. The site has six storage caverns, an authorized storage capacity of 74 million barrels, and a cavern inventory of 73.6 million barrels. The Bayou Choctaw site began full operation in 1987 and has remained operational since then.\nIn October 2007, Bayou Choctaw's authorized cavern capacity temporarily decreased from 76 million barrels to 73.5 million barrels. Bayou Choctaw Cavern 20 had crept to within 60 feet of the salt dome's edge and required replacement due to the risk of breaching the salt dome. The cavern passed all integrity tests and remains out of any immediate danger of leaking, however. To limit any risk, DOE reduced the oil stored in Cavern 20 from 7.5 million barrels to 3.2 million barrels by using only the upper portion of the cavern. DOE temporarily stored Cavern 20's oil in the Big Hill and West Hackberry caverns. Instead of physically expanding the caverns, additional storage space came from displacing the brine cushion at the bottom of the two caverns. The brine cushion helps counteract naturally occurring cavern creep that results from the salt dome's geological deformation. In November 2011, DOE acquired a 10-million-barrel replacement cavern, designated Cavern 102, in the Bayou Choctaw salt dome. The replacement cavern's development was scheduled for integration into the Bayou Choctaw system by January 2013. Cavern 102's completion will increase the site's capacity by 2.5 million barrels, replacing a 7.5 million barrel cavern with a 10 million barrel cavern.",
"The Energy Policy Act of 2005 (EPAct) required expansion of the SPR to a maximum physical capacity of 1 billion barrels \"as expeditiously as practicable.\" Advocates for expansion argued that the SPR would need to be larger for the United States to be able to maintain stocks equivalent to 90 days of net imports. DOE evaluated a site in Richton, MS, as a possible location for an additional 160 million barrels of capacity. However, in FY2011, the Obama Administration cancelled SPR expansion plans, citing an Energy Information Administration projection that \"U.S. petroleum consumption and dependence on imports will decline in the future and the current Reserve's projection will gradually increase to 90 days by 2025.\"\nThe SPR is designed with a drawdown rate of roughly 4.4 million barrels per day for up to 90 days; thereafter, the rate would begin to decline. Drawdown is limited by the capacity of the takeaway capacity of pipelines and marine terminals servicing the SPR. The first major drawdown in early 1991 (the Persian Gulf War) confirmed SPR's operability. A life extension program, initiated in 1993, upgraded or replaced all major systems to ensure the SPR's readiness to 2025.\nThe SPR's current capacity is physically limited to 713.5 million barrels, with current inventory at about 691 million barrels. Refilling the SPR after an ordered drawdown remains a presidential discretion, presumably at a time when the price of crude oil declines, or political and market conditions make it economically advantageous to do so.\nThe initial crude oil that filled the SPR came from purchases paid though appropriated funds. As an alternative to appropriated funds, DOE proposed accepting transfer of a discrete portion of the royalties payments collected by the Department of the Interior (DOI) for Gulf of Mexico oil leases in the form of royalty-in-kind (RIK) oil rather than as revenues. While RIK avoids the necessity of making outlays for purchasing oil, it also meant a loss of revenues in settling royalties in wet barrels rather than in cash payments to the U.S. Treasury. DOI worked out final details during late 1999 and 2001. The RIK program was used to transfer oil to the SPR to replace oil sold in the mid-1990s for deficit reduction purposes. In mid-November of 2001, President Bush ordered the SPR filled to 700 million barrels, principally through oil acquired as RIK. Between 1999 and 2009, RIK deliveries totaled roughly 162 million barrels and forgone receipts to the U.S. Treasury, an estimated $6.49 billion. In 2009, Secretary of the Interior Ken Salazar announced that he was ending the RIK program.\nWithout the planned Richton site, even if the RIK program resumed, no additional capacity exists to store additional crude oil beyond the 727 million barrels.",
"DOE sells SPR oil through competitive bidding. It publishes a \"notice of sale\" that includes the volume, characteristics, and location of the petroleum for sale; delivery dates and procedures for submitting offers; as well as measures for assuring performance and financial responsibility. Bids are reviewed by DOE and awards offered. DOE estimates that oil could enter the market roughly two weeks after the appearance of a notice of sale.\nTo date, the SPR has released over 160 million barrels for various purposes ( Table 2 ). Presidents have ordered releases on three occasions, some 63 million barrels in total, in response to severe energy supply interruptions in coordination with other IEA member countries—the SPR's original intent. On 11 other occasions, DOE has lent oil (nearly 68 million barrels in total) to mitigate temporary supply interruptions. The borrowers repaid their loans by replacing the crude oil and added a small volume as a premium. On two occasions, sales generated revenue as a budget deficit reduction tool, as did the initial 1985 Weeks Island test sale.\nThe Clinton Administration introduced a new dimension to SPR drawdown and sale with its proposal in its FY1996 budget to sell 7 million barrels to help finance the SPR program. While agreeing that a sale of slightly more than 1% of SPR oil would not cripple U.S. emergency preparedness, some in Congress vigorously opposed the idea, in part, because it might establish a precedent that would bring about additional sales of SPR oil for purely budgetary reasons, as did indeed occur. There were three sales of SPR oil during FY1996. The first was to pay for the decommissioning of the Weeks Island site. The second was for reducing the federal budget deficit, and the third was to offset FY1997 appropriations. The total of 28.1 million barrels sold raised revenues of $544.7 million. Since then, the Obama Administration proposed selling SPR oil to reduce deficit spending in FY2011.\nEPCA authorities permit \"exchanges\" of oil for the purpose of acquiring additional oil for the SPR. Under an exchange (also sometimes referred to as a loan), a company borrows SPR crude and later replaces it, including an additional quantity of oil as a premium for the loan. There were seven exchanges between 1996 and 2005. In June of 2006, after a temporary closure of a ship channel blocked crude oil shipments to two refineries, ConocoPhillips and CITGO borrowed 750,000 barrels of sour crude from the SPR and later replaced it plus additional \"premium\" barrels. In fall 2008, the SPR conducted a test exchange to address shortages that resulted from damages to petroleum infrastructure from Hurricanes Gustav and Ike. Following Hurricane Isaac, 1 million barrels was exchanged with Marathon Oil due to disruptions to the commercial oil production, refining, and distribution operations in the Gulf Coast.\nSome of the events precipitating major releases are discussed below.",
"In the aftermath of the Iraqi invasion of Kuwait on August 2, 1990, escalating gasoline prices and the prospect of a worldwide crude shortfall (approaching 4.5 million-5.0 million barrels daily) prompted calls for an SPR drawdown. The debate focused on whether SPR oil should be used to moderate anticipated price increases, before oil supply problems had become physically evident.\nThe George H. W. Bush Administration indicated that it would not draw down the SPR in the absence of a physical shortage simply to lower prices. On the other hand, some argued that a perceived shortage does as much immediate damage as a real one, and that flooding the market with stockpiled oil to calm markets is a desirable end in itself. From this perspective, the best opportunity to use the SPR came during the first months of the crisis, which some argued the Administration squandered. It became clear during the fall of 1990 that in a decontrolled market, physical shortages are less likely to occur. Instead, an expression of supply shortages comes in the form of higher prices, as purchasers are free to bid as high as they wish to secure scarce supply.\nWithin hours of the first air strike against Iraq in January 1991, the White House announced that President Bush was authorizing a drawdown of the SPR, and the IEA activated the plan on January 17. Crude prices plummeted by nearly $10/barrel in the next day's trading, falling below $20/bbl for the first time since the original invasion. Oil analysts attributed the price drop to optimistic reports about the allied forces' crippling Iraqi air power and the diminished likelihood, despite the outbreak of war, of further jeopardy to world oil supply. There appeared to be no need for the IEA plan and the SPR drawdown to help settle markets, and there was some criticism of it. DOE offered more than 30 million barrels of SPR oil for bid, but only accepted bids on 17.3 million barrels. Successful bidders took oil delivery in early 1991.\nThe Persian Gulf War drawdown provided an important example about ways to maximize the SPR's usefulness in decontrolled markets. Legislation enacted during the 101 st Congress ( P.L. 101-383 ), as previously noted, had expanded SPR drawdown authority by allowing its use in preventing minor or regional shortages from escalating into larger ones; for example, the shortages on the West Coast and price jump that followed the Alaskan oil spill of March 1989. In the 102 nd Congress, omnibus energy legislation ( H.R. 776 , P.L. 102-486 ) broadened the drawdown authority further to include instances where a reduction in supply appeared sufficiently severe to bring about an increase in the price of petroleum likely to \"cause a major adverse impact on the national economy.\"",
"Prior to 2005, growth in worldwide oil demand had begun to constrain U.S. refinery production, particularly as the demand for gasoline and refined products increased with an expanding economy. Hurricane Katrina followed by Hurricane Rita had severe and far-reaching effects on the U.S. petroleum. Each approaching hurricane caused production facilities in the Gulf of Mexico to shut down. The operations of the refining and distribution systems were interrupted once the hurricanes made landfall. Within two days of the devastation, DOE approved emergency loans of 9.8 million barrels of crude oil from the SPR to refineries whose supplies had been cut. The EIA then announced that its member countries had agreed to a coordinated emergency response to make 60 million barrels of crude oil and refined products available to help mitigate the disruptions in the flow of oil worldwide. DOE offered 30 million barrels for sale and executed sales contracts for 11 million barrels. Together with the loans, the SPR released 20.8 million barrels. The other EIA member countries released 8.8 million barrels of crude oil and 18.53 million barrels of refined petroleum products, for a total 27.33 million barrels, into the market. The EIA-released refined products, in particular, benefited the East Coast, which normally depended on Gulf Coast refineries. Receipts to the U.S. Treasury SPR Petroleum Account for 11 million barrels sold totaled $615.3 million. The 9.8 million barrels loaned to the petroleum industry were repaid to the SPR along with 500,000 additional premium barrels.",
"In its FY2012 Budget Request, the Obama Administration had proposed a $500 million sale of petroleum from the SPR, proposed for completion by March 1, 2012, for deposit in the General Fund of the Treasury. The House voted to approve the $500 million sale ( H.R. 2354 , 112 th Congress) provided that the quantity sold would be replaced during FY2012 under paragraph (a)(1) or (3) of Section 160 of the Energy Policy and Conservation Act (42 U.S.C 6240 (a)(1) or (3)), which authorizes acquisition of crude oil produced from federal lands, or through purchase or exchange, respectively.\nHowever, political unrest that began in Tunisia and spread to Egypt and Libya in early 2011 had led to the surge in oil prices observed during the first quarter of the year. To offset the loss of Libyan exports, calm markets, and to moderate prices, some in Congress called for releasing oil from the SPR. Some reasoned that an oil release from the SPR would dampen speculative bidding that was driving the market, and would reduce prices in the short run.\nBy early March 2011, the price of West Texas Intermediate (a light sweet crude) traded on the New York Mercantile Exchange (NYMEX) exceeded $100 per barrel. In Europe, the price of Brent crude oil (a heavier and higher in sulfur crude than WTI) exceeded $115 per barrel. These prices (approximately 20% higher than before the outbreak of political unrest) reflected at least two important factors: first, expectations that the unrest could spread to other countries (some of which could be major oil producers), and second, an actual curtailment of Libyan exports (to an uncertain extent and for an unknown duration). As an offset to the lost Libyan crude exports, Saudi Arabia indicated that it would expand its exports to keep the world market supplied.\nOn June 23, 2011, the International Energy Agency (IEA) announced that its 28 member countries would release 60 million barrels of crude oil and refined products into the global market. As part of that action, the President directed a drawdown of the SPR to meet the U.S. response obligations for 30 million barrels, and DOE issued a Notice of Sale that same day. On June 24, 2011, DOE opened its web-based Crude Oil Sales Offer System for a five-day sale of 30.237 million barrels of light, sweet crude oil at a bid reference price of $112.78 a barrel. DOE received more than 90 offers for SPR crude oil, and awarded 28 contracts to sell 30.64 million barrels of crude oil at an average price of $107.21 per barrel. The oil was sold from the Bryan Mound and Big Hill sites in Texas, and the West Hackberry, LA, site.",
"The Secretary of Energy, under Section 161(g) of the Energy Policy and Conservation Act, authorized a test sale of 5 MMb to test drawdown and sales procedures at the TEXOMA facilities. The sale's purpose was to test procedures currently in place in light of the changes in domestic crude oil production, increased imports from Canada, and changes in the domestic crude oil distribution network. The test sale showed that while five oil companies contracted to purchase the available oil, infrastructure issues on the SPR and private sector sides of the transaction needed to be addressed.\nThe oil from the test sale was sold at a weighted average price of $93.75 per barrel, against an average price paid for oil in the reserve of $29.70 per barrel. Replacement of the test sale oil began in May 2015 and was completed by July 31, 2015. When DOE announced the re-purchase plan, oil was trading at about $45 per barrel.",
"In a market where there is no physical shortage, oil companies may have limited interest in purchasing SPR oil unless they have spare refining capacity to turn the crude into useful products, or want to build crude oil stocks. The U.S. government bases its notice of sale on the previous five-day average of the price of the grade of crude oil it intends to sell, and accepts bids it considers responsive. If the notice itself does not prompt, or contribute to, a softening of prices, there may be limited interest on the part of the oil industry in bidding on SPR supply. Although the possibility exists that prices might decline if additional refined product is released into the market, it is impossible to predict what quantitative effect an SPR crude drawdown would have. For example, following the June 23, 2011, announcement of a 30 million barrel release of oil from the SPR, daily oil prices briefly declined from $94.96 per barrel to $90.70, and then returned to their previous levels within a week.\nThere are additional considerations. A unilateral drawdown on U.S. strategic stocks would probably have less impact on the world oil market than a coordinated international drawdown of the sort that occurred after the 2011 release to meet IEA obligations vis-à-vis Libya's production curtailment. Some might argue that it would be unwise under any scenario for the United States to draw down its strategic stocks while other nations continue to hold theirs at current levels. Additionally, it is always possible that producing nations will reduce production to offset any SPR oil delivered into the market. In 2017, some might argue that the market is already well-supplied and that short-term supply concerns are not affecting prices, but market conditions and current and anticipated geopolitical events are affecting prices. Others argue that the oil commodity futures market is behind speculative bidding that has driven prices.\nSome have perceived the SPR as a defensive policy tool against high oil prices. If an SPR release has no discernible impact on oil prices, it is possible that the SPR will lose some of whatever psychological advantage it exercises on prices when left as an untapped option.",
"While the number of U.S. refineries that process crude oil into fuels has decreased over the last decade, refining capacity has increased somewhat. In 2016, the EIA reported 141 refineries operating with over 18 million barrels per day in capacity (this includes three refinery complexes each made up of two formerly independent refineries). Some 55 refineries have coking processes for converting petroleum resid to higher value products. The Gulf Coast region (Petroleum Administration for Defense District 3) makes up nearly 45% of the U.S. refining capacity, with 57 refineries processing more than 9.0 million barrels per day. The region also has the highest concentration of coking refineries.\nOver the last 25 years, the API gravity of imported crude oils had been decreasing, while average sulfur content had been increasing. API gravity, a measure developed by the American Petroleum Institute, expresses the \"lightness\" or \"heaviness\" of crude oils on an inverted scale. With a diminishing supply of light, sweet (low sulfur) crude oil until relatively recently, U.S. refineries had to add coking capacity to convert lower-priced heavier, sour crude oils to high-value products such as gasoline, diesel, and jet fuel. More recently the problem has become how to effectively integrate growing production of LTO into the refinery input stream.\nThe Government Accountability Office (GAO) observed in 2006 that 40% of the crude oil refined by U.S. refineries was heavier than that stored in the SPR, and that the proportion of stored crude oil grades was not as compatible as it could be with refineries that had been moving towards heavier grades of crude oils. Based on a 2005 SPR crude oil compatibility study, DOE agreed that the SPR could store a small percentage of heavy crude to satisfy the short-term needs of a few refineries in the event of a supply disruption. However, DOE argued, the current mix of crudes was compatible for use in the majority of refineries, and suggested considering the addition of heavy crude for any future expansion of the SPR.\nRefineries that process heavy oil cannot, in general, operate at normal capacity if they run lighter oils. Refiners reported to the GAO that running lighter crude in units designed to handle heavy crudes could impose as much as an 11% penalty in gasoline production and 35% in diesel production. The agency reported that other refiners indicated that they might have to shut down some of their units. The types of oil currently stored in the SPR would not be fully compatible with 36 of the 74 refineries considered vulnerable to supply disruptions. (A majority of the refineries that have pipeline access to the SPR are located in the Gulf Coast region and the Midwest region.) GAO cited a DOE estimate that U.S. refining throughput would decrease by 735,000 barrels per day (or 5% of total U.S. refining capacity) if the 36 refineries had to use SPR oil—a substantial reduction in the SPR's effectiveness during an oil disruption, especially if the disruption involved heavy oil.\nIn response to the 2006 GAO report, DOE agreed to consider storing heavy crudes if an opportunity were to occur through expansion. However, the expansion plans were cancelled in 2011. In addition, since 2006, the SPR updated its crude compatibility study and concluded in its 2010 report that storing heavy crude in the SPR would not provide a net benefit in the event of a supply disruption.\nAs of late, however, light sweet crude production has increased in the United States. Unconventional resources such as the Bakken, Utica, and Eagle Ford shales are producing crude oils comparable to West Texas Intermediate (WTI), the benchmark for light sweet crude oil. Producers have also returned to the Texas Permian Basin, the historic source of WTI. The increasing supply of lower-priced light sweet crude oil has begun to edge out heavier crude oils in supplying U.S. refineries. Some refineries are bypassing their coking units to run the lighter crudes given the economic advantage that these lower-priced crudes offer.",
"In recent years, increases in the price of gasoline have been tied to calls for the release of reserves from the SPR. For example, over the first two months of 2012, retail gasoline prices increased by over 15%. The price of gasoline rose from an average of $3.21 per gallon in late December 2011 to $3.64 in late February. Prices continued to go up, rising to a U.S. average of $3.92 per gallon as of March 26. With these higher prices came calls for, and against, the release of crude oil from the SPR as a way to control price increases.\nAlthough there is a general recognition that a release from the SPR would likely only provide temporary relief from rising prices, some view it as a signal to the market that a continuing spiral of prices would be met by resolve and policy action by the United States.\nThe judgment that a release of crude oil from the SPR provides only temporary relief from rising prices seems well founded. On June 23, 2011, when gasoline prices were at $3.60 a gallon, President Obama announced a 30 million barrel release from the SPR under IEA obligation. The price of gasoline declined by about 2% over the next two weeks following the SPR release announcement, but by July 8, 2011, the price had again reached $3.61 per gallon, approximately the same level as before the release. Gasoline prices continued to rise through the first week of August, before declining later that month. Gasoline prices averaged about $3.60 per gallon in August 2011, declining to $3.40 per gallon in October and $3.21 per gallon in December. The gasoline price reductions in the fourth quarter of 2011 were likely related to the reductions in crude oil prices between August and October 2011, in light of the lag between acquiring title to crude oil and the oil becoming available as retail gasoline, as well as refineries switching production from summer to winter grade gasoline.\nCrude oil prices also responded immediately to the release of oil from the SPR. The price of oil was $94.96 per barrel on June 22, 2011. On June 23, the day President Obama announced the SPR release, the price fell to $90.70 per barrel. By June 30, 2011, the price had risen to $95.73 per barrel, exceeding the price before the announcement. The initial market response to the SPR release lasted about one week. However, the announcement of the SPR release promised to deliver the oil to market by the end of August. The price of oil began to decline in August 2011 and generally declined during August and September, until reaching $75.40 per barrel on October 4, 2011. Thereafter, prices began to rise, exceeding $100 per barrel later in the year.\nThe gasoline price increases of 2012, like virtually all previous price increases, resulted from an increase in the price of crude oil. Crude oil price increases generally result from actual or anticipated market tightening, that is, an increase in demand, a reduction in supply, or both. For example, many viewed the price increases of 2008 as related to the rapid expansion of petroleum demand in China, India, and other emerging markets. In 2011, the price increases were thought to be largely attributable to the loss of Libyan production during the revolution in that country. In 2012, although there were some reductions in supply due to instability in South Sudan, Yemen, and other areas, the primary driver of higher prices seem to be tensions with Iran and related policy responses by both sides in the controversy over Iranian nuclear capability.\nThis environment, where current supplies are uninterrupted but speculation concerning future availability is active, may appear to some observers to be a situation that a release from the SPR would do little to mitigate. For example, if Iranian military action succeeded in blocking the Strait of Hormuz, it would prevent over 17 million barrels per day of crude oil from reaching the market. This quantity is almost four times the size of the maximum drawdown capability of the SPR, if acting alone. However, an event of such size would almost certainly trigger an international response and a coordinated release of crude oil and products from the United States as well as the 27 other IEA member countries.",
"The ability of the SPR to supplement the domestic U.S. supply of crude oil and effectively replace imports depends on the size of the reserve as well as its drawdown capabilities. Its effectiveness also depends on the volume of U.S. imports and the rate of U.S. consumption.\nCrude oil imports are the difference between U.S. demand and domestic production. If either demand falls, or domestic production rises, the need for imports declines. Because of a number of factors, some temporary, including the recession, high prices, and conservation, U.S. consumption of petroleum products has declined since 2005 by about 9.5%. This decline in consumption has reduced the demand for crude oil. Over the same period, U.S. production of crude oil increased from 5.18 million b/d to 5.67 million b/d, an increase of 9.5%. The combination of falling consumption and increasing production has reduced the share of imports in total consumption from 49% in 2005 to about 25% in 2016. In addition, Canada increasingly provides the United States with crude oil imports, and arguably represents a secure source of supply.\nIf recent trends continue, the United States will rely less on crude oil imports. Consequently, the SPR, even if its capacity and contents remain fixed, may be better able to meet U.S. requirements in times of supply shortage on the world market.",
"Since 2015, several laws were passed by the 114 th Congress which required the sale of oil from the SPR, with the proceeds to be used largely for program funding. The Bipartisan Budget Act of 2015 ( P.L. 114-74 ) authorized the sale of 58 million barrels of oil from the SPR over the period FY2017 through 2025. In addition to sales revenues to be deposited in the U.S. Treasury, $2 billion is to be used to modernize and maintain SPR facilities. The 21 st Century Cures Act ( P.L. 114-256 ) authorizes the sale of 25 million barrels of SPR oil from FY2017 through FY2019 for a variety of health-related uses. The Fixing American Surface Transportation Act ( P.L. 114-94 ) authorized the sale of 66 million barrels of SPR oil from FY2023 through FY2015 to supplement highway and transit programs.\nBecause the SPR sales authorized by this legislation are specified in millions of barrels, it does not guarantee a value of revenue for program funding. The price of oil can change rapidly, yielding potentially large swings in sale proceeds.\nIn total, this legislation will reduce the inventory of the SPR by some 149 million barrels by 2025, a reduction of about 21%. All of this legislation includes restrictions to prevent a fall in SPR balances below the 90-day net import coverage level consistent with U.S. IEA obligations. The SPR balance consistent with the 90-day net import coverage value could change for a variety of reasons. Factors that could lead to reduced SPR inventories include reduced U.S. petroleum imports, which itself could be linked to increased U.S. petroleum production, or reduced consumption, or increased petroleum exports. If these factors were reversed, the required SPR balance would increase. While it is likely the petroleum position of the United States will remain favorable and might well improve, rapid changes and volatility have characterized oil markets in the past."
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"question": [
"Why was the SPR authorized?",
"What does EPCA authorize the President to do?",
"How is a \"severe energy supply interruption\" defined?",
"What was the original purpose of the SPR?",
"Why were price triggers not codified?",
"What conditions must the US meet as a member of the International Energy Agency?",
"What agency administers the SPR?",
"How did the 2005 Energy Policy Act affect the SPR?",
"What is the SPR's maximum drawdown capability?",
"How many SPR sales can be made over a 60-day period?",
"How did Congress initially fill the SPR?",
"How did DOE fill the SPR after 2000?",
"How was this system administered?",
"How did the RIK program end?",
"Why has DOE sold and loaned SPR crude?",
"How did the 1990 Energy Policy and Conversation Act Amendments affect the SPR?",
"Under what circumstances have U.S. Presidents authorized emergency sales of SPR crude?",
"For what other reasons has SPR crude been released?",
"Why was the SPR authorized?",
"What does EPCA authorize the President to do?",
"How is a \"severe energy supply interruption\" defined?",
"What was the original purpose of the SPR?",
"Why were price triggers not codified?",
"What conditions must the US meet as a member of the International Energy Agency?",
"What agency administers the SPR?",
"How did the 2005 Energy Policy Act affect the SPR?",
"What is the SPR's maximum drawdown capability?",
"How many SPR sales can be made over a 60-day period?",
"How did Congress initially fill the SPR?",
"How did DOE fill the SPR after 2000?",
"How was this system administered?",
"How did the RIK program end?",
"Why has DOE sold and loaned SPR crude?",
"How did the 1990 Energy Policy and Conversation Act Amendments affect the SPR?",
"Under what circumstances have U.S. Presidents authorized emergency sales of SPR crude?",
"For what other reasons has SPR crude been released?"
],
"summary": [
"Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and Conservation Act (EPCA) of 1975 to help prevent a repetition of the economic disruption caused by the 1973-1974 Arab oil embargo.",
"EPCA specifically authorizes the President to draw down the SPR upon a finding that there is a \"severe energy supply interruption.\"",
"The meaning of a \"severe energy supply interruption\" has, over time, been controversial.",
"The authors of EPCA intended the SPR only to ameliorate discernible physical shortages of crude oil. Historically, increasing crude oil prices typically signal market concerns for supply availability.",
"However, Congress deliberately kept price trigger considerations out of the President's SPR drawdown authority because of the question about what price level should trigger a drawdown, and the concern that a price threshold could influence market behavior and industry inventory practices.",
"As a member of the International Energy Agency—a coalition of 28 countries—the United States agrees to support energy supply security through energy policy cooperation, commit to maintaining emergency reserves equal to 90 days of net petroleum oil imports, develop programs for demand restraint in the event of emergencies, and participate in allocation of oil deliveries among the signatory nations to balance a shortage.",
"The Department of Energy (DOE) manages the SPR, which is comprised of 62 underground storage caverns that were solution-mined from naturally occurring salt domes located at four sites in Texas and Louisiana.",
"The 2005 Energy Policy Act directed SPR expansion to its authorized capacity of 1 billion barrels, but the SPR's physical expansion has not proceeded beyond 727 million barrels.",
"The SPR's maximum drawdown capability is 4.4 million barrels per day, based on the capacity of the pipelines and marine terminals that serve it.",
"Legislation restricts SPR sales to no more than 30 million barrels over a 60-day period for anything less than a severe energy supply interruption.",
"Congress initially appropriated funds to fill the SPR through crude oil purchases, but ended that practice in 1994.",
"In 2000, the Department of Energy began acquiring oil to fill the SPR through the royalty-in-kind (RIK) program.",
"In lieu of paying cash royalties on Gulf of Mexico leases, producers diverted a portion of their production volume to the SPR.",
"The Secretary of the Interior administratively terminated the RIK program in 2009.",
"The DOE has conducted sales and loans of crude oil from the SPR for several different reasons.",
"The 1990 Energy Policy and Conservation Act Amendments expanded SPR drawdown authority to include responding to short-term supply interruptions stemming from situations internal to the United States.",
"U.S. Presidents have authorized emergency sales of SPR crude to meet IEA obligations during the 1990 Persian Gulf War, in the aftermath of Hurricanes Katrina and Rita in 2005, and after a prolonged disruption of Libyan crude in 2011.",
"In addition to these emergency sales, the Department of Energy has released oil, from time-to-time, to test the SPR system and make loans to help refiners bridge temporary supply disruptions, and has sold oil at the direction of Congress to generate revenue for budget deficit reduction.",
"Congress authorized the Strategic Petroleum Reserve (SPR) in the Energy Policy and Conservation Act (EPCA) of 1975 to help prevent a repetition of the economic disruption caused by the 1973-1974 Arab oil embargo.",
"EPCA specifically authorizes the President to draw down the SPR upon a finding that there is a \"severe energy supply interruption.\"",
"The meaning of a \"severe energy supply interruption\" has, over time, been controversial.",
"The authors of EPCA intended the SPR only to ameliorate discernible physical shortages of crude oil. Historically, increasing crude oil prices typically signal market concerns for supply availability.",
"However, Congress deliberately kept price trigger considerations out of the President's SPR drawdown authority because of the question about what price level should trigger a drawdown, and the concern that a price threshold could influence market behavior and industry inventory practices.",
"As a member of the International Energy Agency—a coalition of 28 countries—the United States agrees to support energy supply security through energy policy cooperation, commit to maintaining emergency reserves equal to 90 days of net petroleum oil imports, develop programs for demand restraint in the event of emergencies, and participate in allocation of oil deliveries among the signatory nations to balance a shortage.",
"The Department of Energy (DOE) manages the SPR, which is comprised of 62 underground storage caverns that were solution-mined from naturally occurring salt domes located at four sites in Texas and Louisiana.",
"The 2005 Energy Policy Act directed SPR expansion to its authorized capacity of 1 billion barrels, but the SPR's physical expansion has not proceeded beyond 727 million barrels.",
"The SPR's maximum drawdown capability is 4.4 million barrels per day, based on the capacity of the pipelines and marine terminals that serve it.",
"Legislation restricts SPR sales to no more than 30 million barrels over a 60-day period for anything less than a severe energy supply interruption.",
"Congress initially appropriated funds to fill the SPR through crude oil purchases, but ended that practice in 1994.",
"In 2000, the Department of Energy began acquiring oil to fill the SPR through the royalty-in-kind (RIK) program.",
"In lieu of paying cash royalties on Gulf of Mexico leases, producers diverted a portion of their production volume to the SPR.",
"The Secretary of the Interior administratively terminated the RIK program in 2009.",
"The DOE has conducted sales and loans of crude oil from the SPR for several different reasons.",
"The 1990 Energy Policy and Conservation Act Amendments expanded SPR drawdown authority to include responding to short-term supply interruptions stemming from situations internal to the United States.",
"U.S. Presidents have authorized emergency sales of SPR crude to meet IEA obligations during the 1990 Persian Gulf War, in the aftermath of Hurricanes Katrina and Rita in 2005, and after a prolonged disruption of Libyan crude in 2011.",
"In addition to these emergency sales, the Department of Energy has released oil, from time-to-time, to test the SPR system and make loans to help refiners bridge temporary supply disruptions, and has sold oil at the direction of Congress to generate revenue for budget deficit reduction."
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CRS_R41275
|
{
"title": [
"",
"Background on the Blockade",
"Raid on the MV Marmara",
"IHH and the Free Gaza Movement",
"Views from Israel",
"Views from Turkey",
"International Reactions",
"Investigations/Inquiries",
"U.S. Position",
"Policy",
"Aid",
"Implications for the Future",
"The Blockade",
"Israeli-Palestinian Peace Talks",
"Turkish-Israeli Relations",
"U.S.-Turkish Relations",
"Legislation"
],
"paragraphs": [
"",
"Israel withdrew from the Gaza Strip in 2005, but retained control of the territory's borders. Hamas emerged as the predominant force in the territory. In January 2006, Hamas won the Palestinian Authority (PA) legislative elections and established itself as a major actor in domestic politics. Some countries and organizations, including Turkey, consider Hamas a democratically elected, legitimate representative of the Palestinian people. Israel considers Hamas to be a terrorist group, and the U.S. State Department designates it as a Foreign Terrorist Organization (FTO). Hamas has criticized peace talks with Israel in line with its commitment to resistance, has perpetrated terrorist attacks against Israel, and has launched rockets from Gaza into Israel.\nHamas's participation in politics heightened its rivalry with Fatah, which had led all previous Palestinian governments. It also prompted the United States to end all direct foreign aid to the Palestinians. Under pressure from Saudi Arabia, Hamas and Fatah formed a unity government in February 2007, which proved to be short-lived. In what it considered a pre-emptive act to prevent Fatah from striking it first, Hamas took control of the Gaza Strip by force in June 2007. This \"coup\" prompted PA President Mahmud Abbas to dissolve the Hamas-led government and replace it with the current one under Prime Minister Salam Fayyad, who administers only the West Bank. Hamas remains in control of Gaza. Israel and the United States reestablished relations with the new PA government, and Israel imposed a tight land, sea, and air blockade on the Gaza Strip, in what it describes as an act of self-defense to prevent arms from reaching Hamas. With the blockade, Israel also hoped to turn Gazans against Hamas by contrasting Hamas rule with the better life of Palestinians in the West Bank. Instead, the blockade isolated the territory and helped to strengthen Hamas's control.\nFrom December 2008 to January 2009, Israeli forces carried out a major military offensive, called Operation Cast Lead, against Hamas in order to stop rocket fire into southern Israel and to weaken or overthrow Hamas. The campaign resulted in more than 1,000 Palestinian deaths and the destruction of much of the Gaza Strip's infrastructure and many buildings. Afterwards, Israel tightened the blockade and conditioned its end on the release of Israeli Defense Forces (IDF) Sergeant Gilad Shalit, who had been captured in 2006.\nThe blockade has severely affected the humanitarian situation in the Gaza Strip, although Israel and its critics differ about the effects. The Israeli government maintains that there is no humanitarian crisis in Gaza, and the IDF issues a detailed Weekly Summary of Humanitarian Aid Transferred into Gaza to support that position. The Ministry of Defense Coordinator of Government Activities in the Territories (COGAT) issues a similar Gaza Strip Merchandise and Humanitarian Aid Report . They provide information on the number of trucks and persons allowed to enter Gaza and list the cargos of food, medicine, and other supplies. The United Nations Office for the Coordination of Humanitarian Aid (OCHA) issues contrasting regular reports on the situation in Gaza. It summarily states that the blockade has \"worsened conditions of life of Palestinians, deepened poverty and food insecurity, prevented reconstruction, and increased aid dependence by destroying livelihoods and economic activity.\" It refers to the blockade as \"collective punishment.\" U.S. non-governmental humanitarian aid organizations, such as CARE and Mercy Corps, report difficulties experienced in rebuilding Gaza more than a year after Cast Lead, as well as obstacles that their workers face in trying to provide assistance because they cannot simultaneously accommodate U.S., Israeli, and Hamas rules—and Hamas is in control. Gazans have been unable to repair public infrastructure—hospitals, schools, electric systems, or sewage treatment plants—because Israel will not permit the delivery of materials such as steel, concrete, and tiles that could be used both for rebuilding and for the manufacture of weapons or other military purposes.\nIn recent years, humanitarian aid groups have sent supply ships and activists to Gaza. However, Israel directs them to land at its port of Ashdod for inspection before delivery to Gaza. In addition to the deliveries allowed by Israel, Egypt intermittently opens the border crossing at Rafah with Gaza that it sealed in 2007. Moreover, the smuggling of goods (and weapons) via a network of tunnels under the border also relieves the blockade somewhat, but smuggled goods create economic distortions by fueling a large informal economy. Israeli planes often bomb the tunnels, but these attacks have not put a stop to the activity.",
"On May 22, 2010, the MV Mavi Marmara , a former Istanbul passenger ferry owned by the Turkish Humanitarian Relief Foundation (more fully the Foundation for Human Rights and Freedoms and Humanitarian Relief (IHH)), left Istanbul and, after stopping in the Mediterranean port of Antalya to pick up more than 500 passengers, met up at sea with five other ships south of Cyprus. IHH also sent two cargo vessels. Several ships from the Free Gaza Movement had departed from the Greek port of Piraeus. A six-ship flotilla then set sail for the Gaza Strip with the intent to deliver 10,000 tons of humanitarian aid and to break the Israeli blockade. In all, about 700 activists from 38 countries participated in the expedition, including approximately 11 Americans, some European parliamentarians, and Swedish writer Henning Mankell. On May 30, the ships refused Israel's offer to unload at the port of Ashdod so that their cargos could be inspected before delivery accompanied by representatives of the non-governmental organizations.\nOn May 31, when the ships were in international waters between 80 and 100 miles from the Israeli coast, Israeli navy zodiac boats intercepted them and naval commandos took over five ships, reportedly without incident. However, the Marmara resisted and commandos rappelled from helicopters onto that ship and were confronted by some passengers/activists. The IDF released videos showing that individuals attacking the commandos were armed with iron rods, knives, broken glass bottles, and sling shots, and equipped with gas masks, night vision goggles, and life vests. The IDF says that the passengers also seized a commando's side arm. IHH President Bulent Yildirim admitted that activists had used iron rods, but claimed that they threw seized Israeli weapons into the sea. It is not clear if the commandos, who had paintball guns and firearms, struck first or in response to an attack from the passengers, and each side has given a different account. Nine passengers were killed, including eight Turks and a Turkish-American; 24 were injured, including one American, and 10 commandos were injured. The dead were members of or volunteers for IHH, which hailed them as \"martyrs.\"\nAll of the ships were taken to Ashdod, where the passengers were detained and the cargo was unloaded, inspected, and trucked to the Kerem Shalom border crossing between Israel and Gaza. Hamas initially refused to allow the aid to be transferred into Gaza and the Israeli Defense Ministry stored it at a military base while it consulted international organizations. On June 15, it was announced that the U.N. would distribute the aid. By June 3, Israel had deported all the detainees, including all alleged perpetrators of the attacks on its military personnel, except for a few severely wounded who were repatriated a few days later.\nIsraeli officials claim to have found Molotov cocktails, detonators, wood and metal clubs, slingshots and rocks, large hammers, and sharp metal objects on the Marmara , but no rockets.",
"The flotilla was the idea of the Free Gaza Movement, which teamed up with the IHH. The Free Gaza Movement is a Cyprus-based coalition or alliance formed to oppose Israel's blockade of the Gaza Strip and is said to have roots in the International Solidarity Movement, a non-violent movement dedicated to ending the Israeli occupation of Palestinian territory. Its members had sailed to Gaza several times before, and Israel had let them dock there five times. After Operation Cast Lead, however, Israel began intercepting Free Gaza Movement ships before they reached Gaza. This year, Free Gaza decided to cooperate with other groups, including the IHH, in a \"freedom\" flotilla. Free Gaza Movement founder Greta Berlin said that former Malaysian Prime Minister Mahathir Mohammed had raised €300,000 (approximately $367,000) to enable the Movement's participation in the convoy. She said that it will continue to send ships to Gaza, and Israel peacefully intercepted another one, the MV R achel Corrie , on June 5.\nIHH is a humanitarian aid organization founded in 1995 that is said to have ties to the International Red Cross; holds special consultative status with the U.N. Economic, Social, and Cultural Organization (UNESCO); and operates in more than 100 countries. It has provided humanitarian aid to Bosnia and Chechnya as well as to victims of Hurricane Katrina and the earthquake in Haiti, among other activities. IHH's involvement with the aid flotilla is in line with its previous aid to Gaza, where it has an office. In addition to the Mavi Marmara , IHH contributed two cargo ships to the May convoy.\nDays before the raid, an Israeli think tank released a report linking IHH to radical Islamist networks, including Hamas and the Muslim Brotherhood, and to \"global jihad elements\" in the 1990s. It cited a French intelligence report claim that IHH President Bulent Yildirim had recruited Muslims for jihad in Bosnia, Chechnya, and Afghanistan in the 1990s, but also stated that IHH engages in \"legitimate humanitarian activities.\" Since the incident, the think tank has released additional reports, including one alleging that IHH employed violence on the Mavi Marmara with premeditation.\nIHH openly supports Hamas, which led Israel to outlaw it in 2008. It is not a U.S. State Department-designated terrorist group, although it is part of a Saudi-based, Hamas-created umbrella group of Muslim charities called Union of Good that the U.S. Treasury has designated as a terrorist organization.\nIHH has influential connections in Turkey. In his remarks at the Marmara 's departure from Istanbul, Yildirim thanked the ruling Justice and Development Party (AKP) and two small Islamist parties for their support. IHH is believed to be close to the conservative Islamist Felicity Party (SP). While there was no direct Turkish government involvement in the aid mission, government administrators facilitated IHH's purchase of the ferry from the Istanbul municipality, which AKP controls, and its departure from Turkish ports. Yildirim also mentioned recent instances of IHH aid workers' \"martyrdom\" in Afghanistan and imprisonment in Israel, and IHH leaders have referred to those killed on the Marmara as \"martyrs.\" IHH is said to have had about 40 to 50 members aboard the Marmara .",
"While there is a multiplicity of views in Israel concerning the blockade of Gaza and the raid on the Marmara , most Israelis equate security with survival and peace. Israel's leaders appear to believe that the blockade of the Gaza Strip, the security barrier that Israel has constructed in the West Bank, the successes of the Palestinian security forces and economy in the West Bank, and what it views as enhanced deterrence in the aftermath of military campaigns against Hezbollah in Lebanon in 2006 and Hamas in the Gaza Strip from December 2008 to January 2009 have brought about a kind of quiet, if not peace. As of the date of the incident, no Israeli had been killed in a terrorist attack or a cross-border rocket attack in Israel in more than a year. Therefore, the government is unwilling to abandon a tactic (i.e., the blockade) that has worked—and is still working from its perspective. Prime Minister Benjamin Netanyahu insists that the blockade is necessary to prevent weapons from reaching Gaza. He maintains, \"(I)t's our obligation—as well as our right in accordance to international law and to common sense—to prevent these weapons from entering by air, sea, and land.\" He cites two earlier examples of Israel's seizure of ships that were discovered to be carrying arms.\nThe prime minister claimed that the flotilla intercepted in May intended to break the naval blockade, not to bring goods, and said Israel allows goods and cargo to enter Gaza. He added, \"Had the blockade been breached, this flotilla would have been followed by dozens, by hundreds of ships. The amount of weapons that can be transported aboard a ship is totally different from what we saw get through the tunnels (beneath the Gaza-Egypt border). Hundreds of missiles and rockets, and an innumerable number of weapons can be smuggled aboard a ship.\"\nNetanyahu argued that the consequences of Israel's failure to maintain the blockade would be \"an Iranian port in Gaza, only a few dozen kilometers from Tel Aviv and Jerusalem.\" Israeli officials refer to those killed on the Marmara as \"terrorists\" and, as noted above, Israel banned the IHH in 2008.",
"As noted, several Turkish political parties, including the ruling AKP, supported the IHH effort to aid the Palestinians. However, the Turkish government claims it was not directly involved. Foreign Minister Ahmet Davutoglu said afterwards that the government had tried to convince the non-governmental organizations in charge of the flotilla to take the aid to Israeli ports, but it was not successful. The government also urged Israel to let the ships land in Gaza.\nThe Turkish government, all political parties, and people were outraged by the Israeli attack. After the raid, mass demonstrations occurred in Ankara and Istanbul, and officials made repeated, dramatic, if not hyperbolic, statements about Israel's actions. The Turkish Foreign Ministry first protested Israel's use of force \"in the strongest terms,\" charging that \"Israel has once again clearly demonstrated that it does not value human lives and peaceful initiatives through targeting innocent civilians.\"\nTurkey called for an emergency meeting of the U.N. Security Council—on which it holds a non-permanent seat—that Foreign Minister Davutoglu attended on May 31. Turkey also called for NATO permanent representatives in Brussels and the Organization of the Islamic Conference (OIC), which it chairs, to meet on the issue. At the Security Council session, Davutoglu called Israel's actions \"banditry and piracy ... murder conducted by a state ... and barbarism.\" He stated that the use of force was \"inappropriate\" and \"disproportionate\" and that international law dictates that \"even in wartime, civilians are not to be attacked or harmed.\" He argued that the doctrine of self-defense could not justify the actions of Israeli forces. Finally, he called on the council to condemn Israel's \"act of aggression,\" demand an urgent inquiry, and call for the punishment of all responsible authorities and persons.\nPrime Minister Recep Tayyip Erdogan described Israel's actions as a \"bloody massacre\" deserving \"every kind of curse.\" He said, \"This insolent, irresponsible, reckless, and unfair attack by the Israeli government which trampled on every kind of human value must be punished by all means.\" These quotes are characteristic of his many unsparing, trenchant remarks. The most offensive and inflammatory may have been his blaming Israel for increasingly common global comparisons of the \"Zionist star\" (i.e., Star of David) with the Nazi swastika.\nFor some time, Turkish officials' anti-Israeli rhetoric have gained them considerable regional influence. Erdogan is very popular with Arab publics and his fervor and rage also benefit him with voters. While the heat of the first days after the raid may dissipate, the anger will remain. The prime minister may be feeding or exploiting it for domestic political purposes in the run-up to national elections next year, or earlier, as he cannot afford to lose votes to either more Islamist parties or the reviving secular opposition.",
"There has been near-universal condemnation of Israel's actions. Nicaragua broke off relations with Israel, while Ecuador and South Africa recalled their ambassadors and many other governments called in Israeli ambassadors to protest. The European Union reiterated its demand for an immediate opening of Gaza's border crossings. China urged Israel to end the blockade and condemned the Israeli raid on the ship. Russia called on Israel to lift the blockade and for an impartial investigation.\nU.N. Secretary General Ban Ki-moon condemned the violence and called for a full investigation. The U.N. Human Rights Council voted to launch an independent, international inquiry into the events, although the United States voted against it. On June 1, a compromise Statement by the President of the Security Council at the U.N. regretted \"the loss of life and injuries resulting from the use of force during the Israeli military operation in international waters against the convoy sailing to Gaza.... The Council ... condemns those acts which resulted in the loss of at least ten civilians and many wounded.\" It called for a \"prompt, impartial, credible, and transparent investigation conforming to international standards.\" In addition, the council reiterated its \"grave concern at the humanitarian situation in Gaza\" and stressed \"the need for sustained regular flow of goods and people to Gaza as well as unimpeded provision and distribution of humanitarian assistance throughout Gaza.\" It again called for a two-state solution to the Israeli-Palestinian conflict and expressed support for the ongoing proximity talks (that are being mediated by U.S. Special Envoy for Middle East Peace George Mitchell).\nBritish Prime Minister David Cameron called Israel's actions \"unacceptable.\" He said that Britain remained committed to Israel's security and urged Netanyahu to respond constructively to \"legitimate\" international criticism and to lift the blockade. German Chancellor Angela Merkel expressed her \"deep concern\" to both Netanyahu and Erdogan, and her spokesman said, \"Every German government has always recognized and supported the right of Israel to defend itself, but this right must of course be within the bounds of proportionality.\" French President Nicolas Sarkozy condemned \"the disproportionate use of force\" and said, \"All possible light must be shed on the circumstances surrounding this tragedy, which highlights the urgent need for the peace process to be relaunched.\"\nOn June 14, the Council of the European Union adopted conclusions regretting the loss of life during Israel's military operation in international waters against the flotilla sailing to Gaza and condemned the use of violence. It called of an immediate, full, and impartial inquiry with credible international participation. It called for \"the immediate, sustained, and unconditional opening of crossings for the flow of humanitarian aid, commercial goods, and person to and from Gaza\" and \"for a solution that addresses Israel's legitimate security concerns.\"",
"In response to international calls for an investigation of the incident, Israel has launched several probes. On June 7, Israel Defense Forces (IDF) Chief of Staff Lt. Gen. Gabi Ashkenazi appointed former head of the National Security Council Maj. Gen. Giora Eiland (Ret.) to head an external military probe that will report by July 4. Three other retired senior officers are on the panel that is tasked with drawing operational conclusions. It reportedly will delve into the choice of unit to carry out the operation, possible alternative tactics that might have been used to stop the flotilla, military decision-making leading up to the operation, and intelligence matters. Eiland has already defended the commandos' right to self-defense and said, \"(T)here was a mistake, but not on the soldiers' part. The mistake lay in underestimating who the Turkish ship's passengers were.\"\nOn June 13, Prime Minister Netanyahu announced the establishment of a special, independent public commission to inquire into the events of May 31. It will be chaired by retired Supreme Court Justice Jacob Turkel, who still sits on a military appeals court panel, and, as members, Shabtai Rosen, a professor of international law and former diplomat, and Maj. Gen. Amos Horen (Ret.), a former president of Technion (Israel Institute of Technology). The panel includes two foreign observers: Lord David Trimble, the former first minister of Northern Ireland, and Brig. Gen. Ken Watkin, former judge advocate general of the Canadian Forces.\nThe commission has a limited mandate. It will investigate whether Israel's blockade of the Gaza Strip and the enforcement of it conform to international law. It also will consider the actions and identities of those who organized and participated in the flotilla. Military personnel will not be required to testify. Instead, the IDF will provide it with summaries of the Eiland investigation.\nIsrael had coordinated its approach to the investigation with the Obama Administration, which had urged the inclusion of an \"international component\" to enhance the inquiry's credibility. Hence, the White House reaction to the Israeli announcement was positive:\nWe believe that Israel, like any other nation, should be allowed to undertake an investigation into events that involve its national security. Israel has a military justice system that meets international standards and is capable of conducting a serious and credible investigation, and the structure and terms of reference of Israel's proposed independent public commission can meet the standard of a prompt, impartial, credible, and transparent investigation. But we will not prejudge the process or its outcome, and will await the conduct and findings of the investigation before drawing further conclusions.\nHowever, Turkish Foreign Minister Davutoglu was not satisfied. He declared,\nThe crime was committed in international waters, not in Israel's territorial waters. A commission which will conduct an inquiry into an attack staged in international waters should be international. We demand that an international commission should be formed under the supervision of the U.N. with participation of Turkey and Israel…. We believe that Israel, as a country which attacked on a civil convoy in international waters, will not conduct an impartial inquiry.\nHe also said that \"international participation in a commission established by Israel does not give it an international quality.\" Finally, Davutoglu stated that if an international commission were not set up, then Turkey would unilaterally review its ties with Israel and implement sanctions against it.\nIsrael's State Comptroller Micha Lindenstrauss will carry out yet another investigation into the legality of the government's decision-making as well as intelligence and public relations issues. The probe will not duplicate that of the IDF or the Turkel group.\nMeanwhile, U.N. Secretary General Ban Ki-moon took note of the Israeli announcement, but added that his own proposal for an international inquiry remains on the table and he hoped for a positive Israeli response. Turkey accepted Ban's proposal and called on Israel to do so. However, Israeli Defense Minister Ehud Barak said, after meeting the Secretary General and providing details concerning new steps to ease the blockade (see \" The Blockade ,\" below) \"we consider an [international probe] while organizations that support terror are trying to send more ships to Gaza to be an irresponsible act.\"\nOn June 17, the Turkish Foreign Ministry announced that a panel headed by the foreign and justice ministers \"will assess the national and international dimensions\" of the raid and prepare the ground for a possible international investigation.",
"",
"The United States is caught between two long-time allies—Israel and Turkey—and the Obama Administration seems interested in finding a path between them that will not antagonize either party. It is a challenging task. State Department spokesman P.J. Crowley reported that, before the raid, the Administration had urged caution and restraint on Israel given the anticipated presence of civilians, including American civilians.\nAfterwards, the Administration's first reaction was circumspect, if not muted. The White House issued a statement saying, \"The President expressed deep regret at the loss of life in today's incident and concern for the wounded.... The President also expressed the importance of learning all the facts and circumstances surrounding this morning's tragic events as soon as possible.\"\nThe Administration negotiated with Turkey concerning the Security Council President's statement that condemned \"acts\" resulting in the loss of life, but not Israel per se. The statement also did not call for an international investigation because of recent experience with what Israel and the Administration considered to be the one-sided U.N. Goldstone Commission investigation of Operation Cast Lead. The State Department's Crowley indicated that the United States believes \"Israel is in the best position to conduct an investigation.\" U.S. Deputy Permanent Representative at the U.N. Alejandro D. Wolff also criticized the attempt to break the blockade, saying, \"Direct delivery by sea is neither appropriate nor responsible, and certainly not effective, under the circumstances.\" Yet, he further said that the situation in Gaza was \"unsustainable.\" Secretary of State Hillary Rodham Clinton made the same observation.\nThe White House said that President Obama \"affirmed the importance of finding better ways to provide humanitarian assistance to the people of Gaza without undermining Israel's security.\" Vice President Biden maintained that because Israel is at war with Hamas, it \"has a right to know whether or not arms are being smuggled in.\" He also stated that the Administration had been \"cajoling\" Israel to allow building materials into Gaza.\nThe Administration likely does not want its reaction to the flotilla incident to further disrupt what has become an uneasy bilateral relationship with Israel. It needs a better relationship with the Netanyahu government in order to make progress in the Israeli-Palestinian peace talks, which U.S. officials believe to be in America's national security interests. Strains had developed due to President Obama's and Netanyahu's differing views regarding West Bank settlement activity and, especially, Jerusalem. The Administration does not want Israel to take any actions that could prejudge a final settlement with the Palestinians, who seek a state in the West Bank and Gaza with east Jerusalem as its capital. The incident at sea led Prime Minister Netanyahu to cancel a June 1 meeting with President Obama at the White House, but it has been rescheduled for July 6.\nAt the same time, the Administration needed to consider the strength of its desire for Turkey's support in the Security Council for sanctions on Iran. It is usually believed that unanimity or a large number of votes in the council lends greater weight on such issues. It is possible, however, that the Administration had decided to proceed without Turkey's support, given the announcement in Tehran on May 17 of an agreement with Iran and Brazil on an exchange in Turkey of some of Iran's low enriched uranium for medical grade uranium—a deal that the Administration found deficient. Turkey voted against sanctions, which its officials maintain was because of the Tehran deal and not related to the events of May 31 and their aftermath.",
"On June 9, at a meeting with Palestinian Authority (PA) President Abbas, President Obama promised $400 million in aid for the West Bank and Gaza Strip. None of the aid requires new congressional action as all was appropriated in FY2009 and FY2010 legislation. Most is not for Gaza. That slated in some way for Gaza includes $40 million to support the United Nations Relief and Works Agency's (UNRWA) Emergency Appeal for Gaza and the West Bank to help improve educational and health services, increase job creation, and repair shelters in Gaza, while also addressing core humanitarian needs in the West Bank; $14.5 million for school rehabilitation, small-scale agriculture, the repair of a hospital and other community infrastructure in Gaza; $10 million for the construction of five new UNRWA schools in Gaza; and $5 million to complete five USAID-funded projects to repair water distribution and wastewater collection systems in Gaza.",
"",
"There is an international consensus that something must be done to lift or ease Israel's blockade of Gaza and to reestablish a fully functioning economy there for its residents. Yet, there was a dearth of ideas from those who called on Israel to end the blockade concerning creative ways for Israel to do that and to continue to prevent the arming of Hamas and its development as a more deadly threat to Israel. Hamas is exploiting the flotilla incident as a propaganda victory. It is not in the group's interest to not attempt to rearm or to help lessen Israel's international isolation. It is in the United States' and international community's interest to find a solution to this problem.\nPresident Obama described the situation in Gaza as \"unsustainable.\" He stated \"we agree that Israelis have the right to prevent arms from entering into Gaza that can be used to launch attacks into Israeli territory. But … it is important for us to explore new mechanisms so that we can have goods and services, and economic development, and the ability of people to start their own businesses, and to grow the economy and provide opportunity within Gaza.\" He added, \"there should be ways of focusing narrowly on arms shipments, rather than focusing in a blanket way on stopping everything and then in a piecemeal way allowing things into Gaza.\"\nThe Israeli government discussed ways to ease procedures at land crossings. Prime Minister Netanyahu insisted that the sea blockade is essential. Foreign Minister Avigdor Lieberman suggested that Israel offer to ease the crossings in exchange for monthly International Red Cross visits to Sergeant Gilad Shalit. However, Hamas restated its position that any movement on Shalit depends solely on Israel's release of more than 1,000 Palestinian prisoners, as it has long demanded, and is not related to any other issue.\nOne suggestion was for Israel to publish a limited list of goods prohibited for security reasons and let all other goods enter the Gaza Strip. Former British Prime Minister Tony Blair, the Quartet Representative, and the European Union urged Israel to adopt the practice and it did \"in principle.\" On June 17, Prime Minister Netanyahu's office announced that the Israeli security cabinet had agreed to \"liberalize the system by which civilian goods enter Gaza; expand the inflow of materials for civilian projects that are under international supervision; continue existing security procedures to prevent the inflow of weapons and war materiel; and to decide in the coming days on additional steps to implement this policy.\" However, the naval blockade would not be lifted. The White House welcomed the move as \"a step in the right direction. On June 20, the Prime Minister's Office announced the following steps to be implemented \"as quickly as possible\":\nPublish a list of items not permitted into Gaza that is limited to weapons and war materiel, including problematic dual-use items. All items not on the list will be permitted. Enable and expand the inflow of dual-use construction materials for Palestinian Authority-approved projects (schools, health facilities, water, sanitation, etc.) that are under international supervision and for U.N. housing projects. Expand operations at the existing operating land crossings, thereby enabling the processing of a significantly greater volume of goods and the expansion of economic activity. Add substantial capacity at the existing operating land crossings and, as necessary, add additional land crossings. Streamline the policy of permitting the entry and exit of people for humanitarian and medical reasons and that of employees of international aid organizations recognized by the government of Israel. Continue the inspection and delivery of goods bound for Gaza through the port of Ashdod.\nThe White House responded, \"Once implemented, we believe these arrangements should significantly improve conditions for Palestinians in Gaza, while preventing the entry of weapons.\" It also wanted to \"explore additional ways to improve the situation in Gaza, including freedom of movement and commerce between Gaza and the West Bank.\" The measures have not put an end to calls for a complete lifting of the blockade. The Turkish Foreign Ministry said that they were \"a positive step but not enough.\" Meanwhile, Sergeant Shalit's father charged that the Israeli government had surrendered an important tool to gain his son's release.\nShortly after the Marmara incident Egypt announced the opening of the Rafah crossing \"indefinitely,\" although it only allowed travelers with special permits and continued to restrict potentially dual use goods.\nSome PA officials are concerned that efforts to lift the blockade will lead to a more autonomous Gaza Strip that is permanently separate from the West Bank. Such concerns may have animated Prime Minister Fayyad's suggestion, also proposed by Tony Blair and others, to reinstate the 2005 Agreement on Movement and Access, which called, inter alia , for the Rafah border crossing to operate with EU monitors and Israeli surveillance as well as for a link between Gaza and the West Bank. PA forces also were situated at the border. The EU Border Assistance Mission (EU-BAM) operated until suspended when Hamas took over the Gaza Strip in 2007. Its revival would be a way for the PA to reestablish its forces at the border. However, a Hamas spokesman quickly declared, \"any international intervention, especially by the Europeans, must come through the government of Gaza,\" which would be problematic for both the PA and the Europeans.\nNew attempts to break the blockade are expected. The Iranian Red Crescent announced plans to send three ships and one airplane bearing supplies for Gaza, but delivery may be made via the Egyptian Red Crescent. The European Campaign to End the Siege on Gaza says that it is organizing another aid flotilla. A ship with women activists carrying food and medicine already has set sail from Lebanon and others from Reporters without Borders and the Free Palestine Movement plan to leave from there as well. The IHH announced that it has assembled six ships for another flotilla due to sail in the second half if July that it invited others to join. The Israeli Foreign Ministry spokesman said that ships from Iran and Lebanon are from \"enemy states\" and would get different treatment. The U.S. State Department has tried to discourage these efforts, stating, \"everyone who wants to help the people of Gaza should work through established channels.\"",
"Many observers believe that the best response to the current crisis and the way to prevent future ones is Israeli-Palestinian peace and the creation of an independent Palestinian state that would deprive Hamas of its resistance rationale and lead to better lives for the Palestinians. U.S. Special Envoy for Middle East Peace George Mitchell says that the proximity talks that have been underway for several weeks between Prime Minister Netanyahu and President Abbas will continue. Abbas also has stated that the talks will not be broken off. However, few are optimistic about the prospects for peace given the uncompromising territorial ambitions of right-wing nationalists in the Netanyahu government and the divided Palestinian rule between Gaza and the West Bank. Even if an accord can be achieved, many wonder how successfully it can be implemented.",
"The current crisis is undoubtedly a turning point in Turkish-Israeli relations. President Abdullah Gul declared, \"Turkish-Israeli relations can never be as before from now on.\" Yet, this change is not dramatic; it has been coming for some time.\nThe picture of Turkish-Israeli friendship was drawn in the 1990s when their bilateral relations improved in tandem with Israeli-Palestinian peace talks and when both governments viewed Syria, then their common neighbor, as an adversary. Cordiality was aided by the Turkish military's appreciation of Israeli arms for use in the fight with Kurdistan Workers Party (PKK) insurgents. Joint military exercises became routine. Surprising to some, relations did not deteriorate when the Justice and Development Party (AKP), which has Islamist roots, came to power in 2002. Prime Minister Erdogan visited Israel and Israeli President Shimon Peres addressed the Turkish parliament. Israel trusted Ankara enough to allow it to mediate indirect peace talks with Syria in 2008.\nHowever, Israel's suspicions of the AKP may have been sparked when the party hosted Hamas Politburo Chief Khalid Mish'al in 2006, after the Palestinian Authority legislative elections. Turkish officials repeatedly refer to Hamas as a democratically elected group that was denied the chance to govern, and call on the international community to engage Hamas. Moreover, Israel is aware of Turkey's close relations with Iran, its defense of that country's right to develop nuclear energy, and its charge that the international community uses a double standard when it fails to castigate Israel for its nuclear weapons. Erdogan and other Turkish officials almost always refer to Israel's nuclear weapons when countering international concern about the possibility that Iran seeks such weapons; Erdogan has described that notion as \"gossip.\" Turkish officials do not, as Israeli officials do, refer to Iranian President Mahmud Ahmadinejad's vow to \"wipe Israel off the map\" or to Iran's support for anti-Israel terrorists. In other words, a gap has been widening between the two erstwhile friends.\nBilateral relations have been deteriorating rapidly since Israel's military campaign against Hamas from December 2008 to January 2009. Prime Minister Erdogan has said that he was insulted that then Israeli Prime Minister Ehud Olmert had failed to inform him of the anticipated offensive while in Turkey for consultations regarding the Turkish-mediated Israeli-Syrian peace talks just days before launching the offensive. In January 2009, Erdogan took offense at President Peres's defense of Operation Cast Lead at the World Economic Forum and stormed off the stage. Erdogan's action gained him popularity throughout the Arab world. Shortly thereafter, a Turkish television series depicted Israeli soldiers as barbarians. Erdogan has repeatedly criticized Prime Minister Netanyahu's government. In October 2009, Turkey cancelled Israel's participation in a multilateral military exercise—some suggested that this was due to concerns that Israel would use it to prepare for an attack on Iran. In January 2010, Israeli Deputy Prime Minister Dani Ayalon insulted Turkey's ambassador to Israel while complaining about the television series. Turkey demanded and received an apology. Erdogan is unrelenting in his repeated references to what he refers to as Israel's inhumane conduct of the Gaza campaign and of its continuing ill treatment of the Palestinians in Gaza, which he calls an \"open air prison.\" He also has warned Israel not to try to change the character of Jerusalem and questioned the Jews' ties to certain religious sites.\nAfter Israel's raid on the flotilla, Erdogan said \"Today is a turning point in history. Nothing will be the same again,\" speaking of relations with Israel. Turkey recalled its ambassador from Israel and cancelled three joint military drills, cooperation in the fields of energy and water, and soccer matches. It also is demanding that Israel apologize and compensate the victims. Foreign Minister Davutoglu says that relations will not improve until the results of an international probe of the Israeli raid are implemented and Israel lifts the siege of Gaza.\nDefense Minister Vecdi Gonul said that Turkey did not plan to cancel military contracts for the purchase of Israeli arms, including Heron drones, radars, and avionic systems, and joint production of mine-resistant ambush-protected (MRAP) vehicles. Most of the Herons have been delivered and Israel has been compensated for them. However, after the flotilla incident, Israeli defense industries withdrew engineers and flight officers who were training Turkish forces for the Heron. The companies also claimed that the deal had not been cancelled and, on June 22, a Turkish military delegation arrived in Israel to test the last four drones scheduled for delivery. Much of the Turkish-Israeli bilateral trade—worth $2.5 billion in 2009—has been Turkey's purchase of military equipment from Israel and it was anticipated to increase before the incident. The two countries signed a free trade agreement in 1996. Observers do not believe that any new deals should be expected.\nAside from criticizing Israel's plans for its own inquiry into the incident, Foreign Minister Davutoglu declared that Turkey would work to isolate Israel in every international platform if an international investigation were not established.",
"The flotilla crisis may have added to a developing rift in the foreign policies of Turkey and the United States. The Administration does not want to harm relations with Turkey, which is important to U.S. geostrategic interests, particularly in Iraq and Afghanistan. President Obama called Prime Minister Erdogan to convey his condolences for the tragedy at sea. However, some in Turkey want the Administration to choose between Israel and Turkey, and believe that the United States must choose Turkey. As that is unlikely, some Turks may remain unsatisfied.\nDespite its NATO membership and European Union candidacy, Turkey is an increasingly independent actor on the international stage, reflective of its growing economic and regional power and ambition to be a world power. It is conforming less automatically than in the past to the views of the United States and other Western allies, and developing what Foreign Minister Davutoglu has described as a \"multidirectional\" foreign policy. Ankara also is less reluctant to criticize its American ally publicly. With regard to the flotilla incident, Davutoglu expressed disappointment with Washington's \"cautious reaction to the events.\" He stated, \"We expect full solidarity with us. It should not seem like a choice between Turkey and Israel. It should be a choice between right and wrong, between legal and illegal.\" He also complained that the United States had delayed and watered down the U.N. Security Council President's statement.\nThis crisis came on the heels of a disagreement between Washington and Ankara over Turkey's agreement with Brazil and Iran concerning Iran's uranium. Davutoglu insists that Turkey followed guidance in an October 2009 letter from President Obama to Prime Minister Erdogan in formulating the deal, but the U.S. State Department had observed several weeks before the agreement was announced in Tehran that those parameters needed updating. The Foreign Minister also sought to place the agreement with Iran in the context of President Obama's policies of engagement and multilateralism in order to deprive United States of room to maneuver in its effort to get harsher sanctions imposed on Iran. As noted above, Turkey voted against sanctions.\nRecent events suggest U.S. policy makers should expect additional and increasing examples of Turkey's developing autonomous foreign policy. It may be a challenge for U.S. officials to accommodate their views to Turkey's \"multidirectionalism\" or to address it constructively.",
"S.Res. 548 , introduced and referred to the Committee on Foreign Relations on June 9, 2010. To express the sense of the Senate that Israel has an undeniable right to self-defense, and to condemn the recent destabilizing actions by extremists aboard the Mavi Marmara .\nH.R. 5501 , American Stands with Israel Act, introduced and referred to the Committee on Foreign Affairs on June 10, 2010. To prohibit the United States participation on the U.N. Human Rights Council and prohibit contributions to the U.N. for the purpose of paying for any U.N. investigation into the flotilla incident."
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"question": [
"What did Israel withdraw from in 2005?",
"What did Hamas do after it won the 2006 Palestinian legislative elections?",
"What did Israel do in response to this?",
"What effect did this have of Gaza's infrastucture?",
"What do Israel, the UN, and international non-governmental organizations differ on?",
"What have humanitarian aid groups done in recent years?",
"What does Israel do with the supply ships and activists?",
"What did the Free Gaza Movement and Turkish Humanitarian Relief Fund organize in May 2010?",
"Why did Israeli forces intercept the convoy?",
"What happened after Israeli special forces intercepted the convoy?",
"How did Israel view its actions?",
"How did Turkey view them?",
"What was the international reaction to Israel's actions?",
"How did the US react?",
"What did the Obama administration try to do?",
"What did it urge Israel to do?",
"How did Turkey react to this?",
"What has happened to Turkish-Israeli relations?",
"What has happened in the aftermath of the incident?"
],
"summary": [
"Israel unilaterally withdrew from the Gaza Strip in 2005, but retained control of its borders.",
"Hamas, a U.S. State Department-designated Foreign Terrorist Organization (FTO), won the 2006 Palestinian legislative elections and forcibly seized control of the territory in 2007.",
"Israel imposed a tighter blockade of Gaza in response to Hamas's takeover and tightened the flow of goods and materials into Gaza after its military offensive against Hamas from December 2008 to January 2009.",
"That offensive destroyed much of Gaza's infrastructure, but Israel has obstructed the delivery of rebuilding materials that it said could also be used to manufacture weapons and for other military purposes.",
"Israel, the U.N., and international non-governmental organizations differ about the severity of the blockade's effects on the humanitarian situation of Palestinian residents of Gaza. Nonetheless, it is clear that the territory's economy and people are suffering.",
"In recent years, humanitarian aid groups have sent supply ships and activists to Gaza.",
"However, Israel directs them to its port of Ashdod for inspection before delivery to Gaza.",
"In May 2010, the pro-Palestinian Free Gaza Movement and the pro-Hamas Turkish Humanitarian Relief Fund organized a six-ship flotilla to deliver humanitarian aid to Gaza and to break Israel's blockade of the territory.",
"The ships refused an Israeli offer to deliver the goods to Ashdod. On May 31, Israeli naval special forces intercepted the convoy in international waters.",
"They took control of five of the ships without resistance. However, some activists on a large Turkish passenger vessel challenged the commandos. The confrontation resulted in eight Turks and one Turkish-American killed, more than 20 passengers injured, and 10 commandos injured.",
"Israel considered its actions to be legitimate self-defense.",
"Turkey, whose nationals comprised the largest contingent in the flotilla and among the casualties, considered them to be unjustifiable and in contravention of international law.",
"There was near-universal international condemnation of Israel's actions.",
"The U.N. Security Council in a U.S.-Turkish compromise condemned \"the acts\" that resulted in lost lives and called for an",
"The Obama Administration tried to walk a fine line between two allies, Israel and Turkey, and not allow the incident to derail efforts to ameliorate relations with Israel in order to protect Israeli-Palestinian talks now underway.",
"It urged Israel to include international participants in its probe of the incident, and announced an aid package for the Palestinians that does not require new appropriations.",
"However, the Administration's reaction displeased Turkey, and may contribute to that country's ongoing pursuit of a more independent foreign policy course.",
"Turkish-Israeli relations, which had been deteriorating for some time, have reached a low point.",
"In the aftermath of the incident, Israel has eased restrictions on the passage of goods and people into Gaza, while continuing to prevent shipments of weapons and dual-use items to Hamas."
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GAO_GAO-12-721
|
{
"title": [
"Background",
"Five Year Workforce Plan",
"Overseas Staffing Model",
"Recent Hiring Initiatives",
"Findings from 2009 GAO Report on Staffing Hardship Posts",
"Even with Increased Hiring, State Faces Persistent Midlevel Experience Gaps Overseas",
"State Increased Hiring under Diplomacy 3.0 but Revised Its Targets for Future Years",
"Experience Gaps at Overseas Posts Have Not Declined",
"State Has Taken Steps to Address Midlevel Experience Gaps Overseas but Has Not Included These Steps in Its Workforce Plan",
"State Has Taken Steps to Expand the Use of Civil Service Employees in Midlevel Overseas Positions",
"State Hires Retirees for Both Full-Time and Temporary Overseas Assignments, but Their Use Is Limited",
"State Has Not Developed a Strategy to Address Midlevel Gaps",
"Conclusions",
"Recommendation for Executive Action",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Analysis of Factors Associated with Vacancies and Upstretch Assignments",
"Appendix III: Comments from the Department of State",
"Appendix IV: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"State is the lead agency responsible for implementing American foreign policy and representing the United States abroad. It staffs over 270 embassies, consulates, and other posts worldwide. Figure 1 shows the number and share of State’s Foreign Service, Civil Service, and Locally Employed staff. According to State, about two-thirds of the Foreign Service serves overseas at a given point in time, whereas almost all Civil Service employees serve domestically. Locally Employed staff serve overseas.\nForeign Service employees serving abroad fall into two broad categories—generalists and specialists. Generalists help formulate and implement the foreign policy of the United States and are grouped into five career tracks: consular, economic, management, political, and public diplomacy. Specialists serve in 18 different skill groups to support overseas posts worldwide or in Washington, D.C. These skill groups are grouped into eight major categories: Administration, Construction Engineering, Facility Management, Information Technology, International Information and English Language Programs, Medical and Health, Office Management, and Security.\nState typically hires Foreign Service employees at the entry level. Among Foreign Service generalists, the entry-level consists of three position grades—06, 05, and 04. Midlevel positions include grades 03, 02, and 01, and senior-level positions include career minister, minister counselor, and counselor positions. Officers compete annually for promotion to the next higher grade. It typically takes about 4 to 5 years for an officer to move through the entry-level grades to a midlevel grade. The levels associated with Foreign Service specialist position grades vary across specialist function. For example, a senior-level office management specialist position is a 04 grade, whereas a senior-level medical technician position is a 02 grade.\nState requires its Foreign Service employees to be available for service anywhere in the world and reserves the ability to direct officers to any of its posts overseas or to its Washington headquarters. However, the department does not generally use this authority, preferring other means of filling high-priority positions, according to State officials. The process of assigning Foreign Service employees to their positions typically begins when they receive a list of upcoming vacancies for which they may compete. Foreign Service employees then submit a list of positions for which they want to be considered, or “bids,” to the Office of Career Development and Assignments and consult with their career development officer. The process varies depending on an officer’s grade and functional specialty, and State uses a variety of incentives to encourage Foreign Service employees to bid on hardship posts, including the high-priority posts in AIP countries.",
"State has a Five Year Workforce Plan, which it updates annually. This document describes State’s strategic workforce planning process, which includes the following five elements:\nEstablish strategic alignment: links human resources to strategic goals.\nIdentify gaps by analysis of requirements and talent pool: compares estimated staffing requirements to projected workforce levels to identify workforce gaps and strength.\nDevelop management plans: develop plans related to recruitment, hiring, promotion, training, and career development.\nImplement management plans: implement plans related to recruitment, hiring, promotion, training, and career development.\nEvaluate strategies: evaluate plans, strategies, programs, and initiatives.",
"State uses an Overseas Staffing Model, which it updates every 2 years, to ensure that the department’s personnel resources are aligned with its strategic priorities and foreign policy objectives. The model uses a variety of inputs—such as the priority level of overseas posts, visa processing requirements, and security needs—to estimate the required Foreign Service staffing levels at each overseas location. The model includes seven categories of embassies based primarily on the level and type of work required to pursue the U.S. government’s diplomatic relations with the host country. For example, the lowest-level category includes special- purpose small embassies with limited requirements for advocacy, liaison, and coordination in the host country’s capital. The highest-level category includes the largest, most comprehensive full-service posts where the host country’s regional and global role requires extensive U.S. personnel resources.",
"State has sought to rebuild the size of its Foreign Service after a period of hiring below attrition levels during the 1990s that contributed to staffing gaps overseas and endangered diplomatic readiness, according to the department. To address these gaps, State implemented the “Diplomatic Readiness Initiative,” which resulted in hiring over 1,000 new employees above attrition from 2002 to 2004. However, as we previously reported, most of this increase was absorbed by the demand for personnel in Afghanistan and Iraq. In 2009, State began another hiring effort called Diplomacy 3.0 to increase its Foreign Service workforce by 25 percent by 2013. However, due to emerging budgetary constraints, State now anticipates this goal will not be met until 2023.",
"In 2009, we reported that State faced persistent staffing and experience gaps at overseas posts, particularly at the midlevel. The report’s analysis of State’s personnel data, as of September 2008, found that posts with the greatest hardship levels had higher vacancy rates than posts with no or low hardship levels. Posts with the greatest hardship also were more likely to fill positions through “upstretch” assignments—assignments in which the position’s grade is at least one grade higher than that of the officer assigned to it. The report also found that these staffing and experience gaps can compromise posts’ diplomatic readiness in a variety of ways. For example, gaps can lead to decreased reporting coverage; loss of institutional knowledge; and increased supervisory requirements for senior staff, detracting from other critical diplomatic responsibilities.\nIn addition, we reported on a variety of measures and incentives that State used to help ensure that Foreign Service employees bid on hardship posts. These ranged from monetary benefits to changes in service and bidding requirements. In response to our recommendation, State evaluated these measures and incentives in 2011. According to State officials, this evaluation found that officers used the entire range of incentives available—financial and nonfinancial—based on preferences and priorities and that career stage and family status were key to affecting the officers’ decisions.",
"State increased the size of the Foreign Service by about 17 percent in fiscal years 2009 and 2010, but overseas experience gaps—the percentage of positions that are vacant or filled with upstretch assignments—have not declined since 2008 because State increased the total number of overseas positions in response to increased needs and emerging diplomatic priorities. These gaps are largest at the midlevels and in hardship posts. According to State officials, the department takes special measures to fill high-priority positions.",
"State made substantial progress in fiscal years 2009 and 2010 toward the Diplomacy 3.0 goal of increasing the size of the Foreign Service by 25 percent by 2013. In those years, State hired about 1,900 Foreign Service employees above attrition, increasing the total size of the Foreign Service by about 17 percent, or over two-thirds of its total 5-year goal. According to State, in addition to expanding overseas staffing, the increase in hiring allowed the department to double the size of the training complement, which provides flexibility to enroll Foreign Service employees in language courses—some of which require up to 2 years of training—without increasing the size of overseas gaps.\nHowever, due to budget constraints, hiring has slowed significantly, and State only added 38 new Foreign Service positions above attrition in fiscal year 2011. In that year, it also modified its hiring projections to reflect a downward revision of future budget estimates for fiscal year 2012 and beyond. State now projects it will add 150 new Foreign Service positions above attrition in fiscal year 2012 and 82 new Foreign Service positions above attrition in each of the following 6 years. As a result, State revised its estimate for when it will complete the Diplomacy 3.0 hiring initiative. In April 2011, State estimated it would complete the increased hiring called for in Diplomacy 3.0 in fiscal year 2018; however, State now estimates it will not complete the hiring initiative until fiscal year 2023. State officials noted that these estimates may be revised again based on future budget environments.",
"Our analysis of State staffing data shows that State faces experience gaps in over one-quarter of Foreign Service positions at overseas posts, a proportion that has not changed since 2008. The largest gaps are in midlevel positions, while hardship posts and some position categories, such as Office Management Specialist positions, also have large gaps.\nAccording to our analysis of State staffing data as of October 31, 2011, State faces experience gaps in 28 percent of overseas Foreign Service positions. Specifically, 14 percent of overseas Foreign Service positions are vacant and an additional 14 percent of positions are filled through upstretch assignments. Both percentages, as well as the total percentage of positions facing experience gaps, are unchanged since 2008.\nOur analysis indicates that State has not met its goal for reducing the overseas vacancy rate. In its fiscal year 2013 Bureau Strategic and Resource Plan (BSRP), State’s Bureau of Human Resources established a goal of reducing the vacancy rate for overseas positions to 8 percent by the end of fiscal year 2011. However, we found that State had an overseas vacancy rate of 14 percent 1 month after the end of that fiscal year. Further, our comparison of data from 2008 and 2011 shows that, while the number of officers serving overseas increased following the Diplomacy 3.0 hiring surge, the number of authorized positions overseas has also increased. Consequently, the overall vacancy rates have not declined. In 2008, approximately 7,000 of about 8,100 total Foreign Service positions were filled. Comparatively, in 2011, nearly 7,800 Foreign Service positions were filled—or 11 percent more positions than in 2008—but the total number of positions increased to over 9,000, resulting in the same vacancy rate.\nThe BSRP also set overseas vacancy rate targets of 10 percent in 2010 and 6 percent in 2012. The BSRP stated that the department did not meet its 2010 target with an actual vacancy rate of 16.7 percent. does not consider an entry-level officer in a ceded position to be in an upstretch assignment. However, officials at overseas posts and in regional bureaus noted that these positions may still suffer from experience gaps. Figure 2 shows that the number of authorized positions and Foreign Service employees serving overseas has increased, but the proportion of positions with experience gaps has not changed.\nState officials noted that AIP posts—State’s highest-priority posts—account for much of the increase in new positions. As figure 3 shows, regionally, the largest share of new positions is in the Bureau of South and Central Asian Affairs, primarily because of increases in Afghanistan and Pakistan, and the majority of new positions are in a small number of countries where State has high levels of engagement. Specifically, about 40 percent of all new positions are in AIP countries and an additional 20 percent are in 5 other countries: Mexico, Brazil, China, India, and Russia. State officials noted that this distribution of new positions reflects the department’s changing foreign policy priorities. For example, positions were added in Brazil and China in response to presidential directives to expand consular capacity in those countries. According to State officials, the department has also created positions to address emerging diplomatic priorities, such as climate change and global health. Additionally, State officials noted that most Foreign Service employees hired in fiscal year 2010 would not have been placed in overseas assignments as of October 31, 2011, when we acquired staffing data. State anticipates that overall vacancy rates will drop to approximately 9 percent as officers hired in recent years are fully deployed by the end of 2012.\nAlthough State intended to eliminate gaps in midlevel Foreign Service positions by the end of fiscal year 2012, these gaps have only diminished slightly since 2008. Specifically, experience gaps currently exist in about 26 percent of midlevel Foreign Service positions—only 2 percent lower than in 2008. About 60 percent of all vacancies and upstretch assignments are in midlevel positions because they make up the largest share of all overseas positions. Figure 4 shows the numbers and percentages of positions filled at grade, filled with upstretch assignments, and vacant for the various position levels.\nState has acknowledged that midlevel gaps are a persistent problem. State has faced midlevel gaps for years and, according to the August 2011 Five Year Workforce Plan, the midlevel gap grew from 2010 to 2011. According to State officials, midlevel gaps have grown in recent years because most of the new positions created under Diplomacy 3.0 were midlevel positions and State only hires entry-level Foreign Service employees. In prior reports, we found that midlevel experience gaps compromise diplomatic readiness, and State officials confirmed that these gaps continue to impact overseas operations.\nState officials noted that midlevel gaps will decrease as recent hires are promoted. According to State’s Five Year Workforce Plan, officers hired in fiscal years 2009 and 2010 under the first wave of Diplomacy 3.0 hiring will begin to be eligible for promotion to the midlevels in fiscal years 2014 or 2015. In recent years, State has accelerated the average time it takes for officers to be promoted into the midlevels, in part to fill gaps. However, officials from State’s regional bureaus and AFSA expressed concerns that this creates a different form of experience gap, as some officers may be promoted before they are fully prepared to assume new responsibilities.\nOur analysis shows that a post’s hardship level continues to be one of the most significant factors for predicting whether a position is filled, remains vacant, or is filled with an upstretch assignment. We found that over 35 percent of all positions in posts of greatest hardship are vacant or filled with upstretch assignments compared to about 22 percent for posts with low or no hardship differentials. Further, our analysis of the likelihood of positions being vacant or filled with an upstretch assignment shows that— controlling for other factors, such as a position’s level, type, or regional location—a post’s hardship level is one of the most consistent factors for predicting where experience gaps will occur. Specifically, we found that positions in posts of greatest hardship are 44 percent more likely to be vacant than positions at posts with low or no hardship differentials. Additionally, when positions are filled, posts of greatest hardship are 81 percent more likely to use an upstretch candidate than posts with low or no hardship differentials. This is consistent with our findings in prior work, which found that hardship posts faced larger gaps than posts with low or no hardship differential. Appendix II describes our analysis of the likelihood of various positions being vacant or filled with an upstretch assignment in further detail.\nWe found no significant difference between the rates at which generalist and specialist positions are filled. However, the likelihood of generalist positions being filled with upstretch assignments is somewhat higher than for specialist positions. We also found that there are differences in vacancy and upstretch rates for specific functions within both the generalist and specialist fields and that some position categories are more difficult to fill.\nAmong generalists, the consular section has the largest gaps, in terms of the total number of positions that are vacant or filled with upstretch assignments, because it is the largest generalist section. According to our analysis, about 170 consular positions were vacant as of October 31, 2011, and about 250 consular positions were filled with upstretch assignments. State officials noted that demand is high for entry-level consular officers to adjudicate visas, particularly in countries that have seen dramatic increases in demand for visas in recent years. In addition, the Public Diplomacy section has a relatively high upstretch rate, with nearly one-quarter of all Public Diplomacy positions filled with upstretch assignments. State officials noted that gaps within the Public Diplomacy section, particularly at the midlevels, have persisted since the late 1990s, when the U.S. Information Agency—which had responsibility for public diplomacy—was integrated into State. Figure 5 shows the proportion of positions that are filled at grade or better, filled with upstretch assignments, or are vacant for generalist positions.\nWithin specialist skill groups, Office Management Specialist (OMS) positions have the largest overall gaps, both in terms of the number of positions and the relative percentage of the gap. Over one-third of all OMS positions, or nearly 300 positions, are either vacant or filled with upstretch assignments. Regional bureau and post officials cited OMS positions as being among the most difficult to fill. For example, officials in Brazil noted that both the embassy in Brasilia and the consulate in Sao Paulo had OMS positions that were vacant for 2 years. Security specialist skill groups also face substantial gaps. The Security Technician and Security Engineer fields have fewer positions than some of the larger specialist fields, but about 30 percent of positions in both fields are vacant or filled with upstretch assignments. Further, security officers have one of the highest vacancy rates among specialist fields, with about 17 percent of those positions unfilled. Figure 6 shows the proportion of positions that are filled at grade, filled with upstretch assignments, or vacant for the 10 largest specialist skill groups.\nAccording to State officials, the department takes a number of steps to help fill high-priority positions. State staggers the assignments process over several months and seeks bids for high-priority areas—including Chiefs of Mission, Deputy Chiefs of Mission, and positions in AIP—before the regular bid cycle. Officials noted that in the most recent cycle for assignments starting in the summer of 2012, State filled about three- quarters of all positions in AIP posts before the regular bid round began.\nRegional bureau officials noted that this should have a positive effect on staffing elsewhere because it limits the number of people pulled from other assignments. State continues to fill AIP positions year-round and often uses people from other posts on temporary assignments in AIP posts. According to State, as of February 2012, approximately 91 percent of AIP positions were filled. State also holds an “urgent vacancies” bid round in the spring to fill positions that were not filled in earlier cycles.\nState uses a decentralized process for prioritizing and filling overseas positions, which officials stated helps ensure important positions are filled. While AIP posts are the only official department priority for staffing, State officials said regional bureaus informally set their own priorities by determining which of the positions within the bureau that are up for bid are most critical and actively recruiting candidates for those positions. Officials from State’s Office of Career Development and Assignments stated that the regional bureaus are in the best position to assess the needs across posts and prioritize positions accordingly. Regional bureau officials stated that, in order to minimize the impact of experience gaps, they will consider factors such as the size of the post or the availability of upper-level support in addition to the needs of the position itself when determining whether a position can remain vacant or be filled through an upstretch assignment. For example, officials stated they may prefer to fill a single position in a small, difficult-to-fill post ahead of multiple positions in a much larger post. Similarly, they may be more likely to allow an upstretch assignment for a lower midlevel position in a large post because larger posts are likely to have more layers of upper management support.\nAs we reported in 2009, State has created a wide range of measures and financial and nonfinancial incentives to encourage officers to bid on assignments at hardship posts. For example, Foreign Service employees may receive favorable consideration for promotion for service in hardship posts. Additionally, State uses Fair Share bidding rules, which require employees who have not served in a hardship location within the last 8 years to bid on at least three positions in hardship posts. Officials in the bureaus of Near Eastern Affairs and South and Central Asian Affairs stated that they regularly collect feedback on the impact of incentives in encouraging officers to bid on positions in AIP posts. One official noted that, in addition to financial incentives, nonfinancial incentives, such as additional opportunities or the feeling that they are doing something important, often help to attract bidders. According to State officials, through this system of incentives and bidding rules, State has always been able to find volunteers to fill critical needs. While the department has the authority to direct Foreign Service employees to specific assignments if it does not have adequate bidders for a position, according to State officials, the department has not used these directed assignments— outside of assigning Foreign Service employees in their first or second rotation. State officials noted that use of directed assignments could potentially result in a less motivated or productive workforce.",
"State has taken steps to implement goals highlighted in the QDDR to increase its reliance on Civil Service employees and retirees, and expand mentoring to help address midlevel experience gaps overseas. To expand the limited number of Civil Service employees filling overseas positions, State began a pilot program to offer additional opportunities for overseas assignments and eased requirements for conversions from Civil Service to Foreign Service. State also hires retirees on a limited basis to help fill gaps overseas. In addition, State began a pilot program offering a workshop with mentoring for first-time supervisors overseas. However, State’s Five Year Workforce Plan does not include a specific strategy to guide efforts to address midlevel gaps.",
"State’s first QDDR, released in 2010, highlighted the goal of expanding the use of Civil Service employees to help close the midlevel experience gap. The QDDR noted that State has a base of Civil Service employees with significant experience and called for increasing opportunities for Civil Service employees to fill overseas Foreign Service assignments and increasing the number of Civil Service conversions to the Foreign Service. A February 2011 report by the American Academy of Diplomacy and the Stimson Center also recommended expanded use of Civil Service employees to fill midlevel gaps.conducted a survey of its Civil Service employees and found a high level of interest in serving overseas. About 75 percent of respondents expressed interest in serving in some type of overseas assignment in their careers and about 25 percent expressed interest in eventually converting to Foreign Service, according to State officials.\nAs a first step, State recently The extent to which State currently draws on its pool of Civil Service employees for overseas assignments is limited. From fiscal years 2009 through 2011, State placed 159 Civil Service employees in overseas Foreign Service positions in temporary assignments. These are known as “Limited Non-Career Appointments” (LNA). According to State officials, many of these assignments fill midlevel positions. State’s human capital rules enable Civil Service employees (and other non-Foreign Service employees) to serve as LNAs, normally for up to 5 years. duration of these assignments typically ranges from 1 to 3 years, according to State officials.\nMany of these LNA assignments are for positions that the department has identified as “hard-to-fill,” meaning they lack sufficient qualified bidders from among the ranks of the Foreign Service. In an announcement to the department each May, State identifies hard-to-fill positions for which Civil Service employees may apply. Most of these positions are at the midlevel. State listed 36 hard-to-fill positions in 2009, 74 in 2010, and 55 in 2011. Other common types of overseas LNA assignments for Civil Service employees include positions in AIP countries, developmental opportunities, and positions requiring specific expertise.\nRules governing LNAs are covered in the Foreign Affairs Manual (3 FAM 2290) and federal law (22 U.S.C. §§ 3943, 3949). positions Civil Service employees leave behind. Affected bureaus must guarantee that applicants will be placed into permanent Civil Service positions within the same bureau when they return from their overseas assignments. This requirement creates some reluctance on the part of bureaus to approve applications for overseas assignments, according to State officials. In addition, department officials noted that Civil Service employees have concerns about losing future opportunities for desirable Civil Service positions while serving overseas. Another challenge is that State cannot always identify a sufficient number of qualified Civil Service employees to apply for the overseas vacancies it seeks to fill. State officials noted that hard-to-fill positions are typically not in the more desirable locations, which they said contributes to limited interest among qualified Civil Servants. In addition, it can often be difficult to match Civil Service employees’ qualifications with the needs of the open positions.\nThe Human Resources Bureau began a pilot program in November 2011 to expand opportunities for Civil Service employees to serve in overseas positions. It was intended to support goals highlighted in the QDDR to enhance career development for midlevel Civil Service employees and ease Foreign Service midlevel staffing gaps. The department identified 11 overseas positions at various posts to which qualified Civil Service employees could apply. Most of these assignments are for midlevel positions. The assignments in the pilot differ from the hard-to-fill assignments in two key ways. First, these are not positions that Foreign Service bidders initially passed over. Second, the re-employment rules are more flexible, according to Human Resources Bureau officials; affected bureaus do not have to hold a position for the Civil Service employees who participate in the pilot. Instead, returning Civil Service employees can be placed in a bureau different from the one they vacated.\nAccording to State officials, the department has agreed with AFSA to limit the total to about 20 assignments at any one time during the pilot to ensure that the program does not limit career development opportunities for Foreign Service employees. The officials noted that Foreign Service employees operate in an “up-or-out” personnel system, which requires them to have sufficient experience and responsibilities to progress in their careers. In addition, efforts to increase the number of Civil Service assignments to Foreign Service positions must be consistent with State’s human capital rules, which state that the department’s goal is to fill Foreign Service positions with Foreign Service employees except under special circumstances. The overseas positions in the pilot program continue to be designated as Foreign Service positions and can be filled by Foreign Service employees after the Civil Service employees complete their assignments.\nHuman Resources Bureau officials stated that they expect this pilot program to help the department assess its ability to identify overseas positions that match the skills and experience of potential Civil Service applicants. It will also identify potential staffing impacts on affected bureaus and posts, as well as career development needs of the Foreign Service. However, according to the officials, the department has not finalized plans for evaluating the results of the pilot program. They also noted that it will be more than 2 years before the first set of assignments is completed and they can begin to survey participants and stakeholders to assess results of the pilot program.\nState’s QDDR also included a goal of expanding opportunities for Civil Service employees to convert to the Foreign Service to help fill experience gaps overseas. The QDDR stated that, while all State personnel can apply to enter the Foreign Service through the traditional selection process, it is in the department’s interest to offer more and quicker pathways for qualified and interested Civil Service employees to join the Foreign Service. However, State’s Foreign Service Conversion Program has strict eligibility requirements, which limit the number of conversions. The program’s application and review process resulted in only three Civil Service applicants recommended for conversion in 2010 and four in 2011.\nState only opens positions for conversion that it projects to be in deficit or otherwise approved by the Director General and lists them in an annual cable that it circulates throughout the department. The department convenes a review panel to confirm that applicants meet minimum qualifications, which include 24 months in Foreign Service positions abroad out of the previous 6 years; and 30 months of service— domestically or overseas—in the desired skill code in the previous 6 years. The panel then determines if applicants have the skills and experience necessary to perform successfully in the positions for which they are applying. Applicants offered an opportunity to convert based on the panel review must then submit a proctored writing sample, which must earn a passing grade from the Foreign Service Board of Examiners to be recommended for conversion.\nAccording to Human Resources Bureau officials, in 2011, State identified 88 Foreign Service generalist positions as open for conversion from Civil Service, as well as Foreign Service generalist and specialist. Twenty-six Civil Service applicants applied. Ultimately, the process resulted in seven applicants given the opportunity to convert and four of the seven passing the writing test requirement. Table 1 shows the number of applicants who qualified at key stages in the process in 2010 and 2011.\nHuman Resources Bureau officials noted that in 2011, the department sought to ease the qualification requirements somewhat, including reducing the number of months served overseas from 30 months to 24 months; however, the number of qualified applicants actually dropped from 30 in 2010 to 26 in 2011. Beginning in 2012, the assessment process will include a structured interview, along with the writing test, to give candidates an additional means of demonstrating their skills and competencies.",
"Retirees can fill key roles at overseas posts, bringing with them a high level of skills and experience, according to State officials. The department has limited authority to hire retirees for full-time positions and also for temporary assignments. State’s QDDR noted that the department should draw on its pool of retirees to help address its overseas midlevel gap. In addition, the Stimson Center and American Academy of Diplomacy report also recommended that State increase reliance on retirees.\nState hires retired Foreign Service and Civil Service employees to work full-time with waivers from federal dual compensation rules, under certain circumstances, to help fill workforce gaps overseas. In calendar year 2011, State approved 57 dual compensation waivers for 35 Foreign Service retirees and 22 Civil Service retirees for overseas assignments. Federal law requires that payment of a retiree’s annuity terminates on the date of re-employment except under circumstances in which State has the authority to grant a dual compensation waiver. These circumstances include staffing needs in AIP countries and emergency situations involving a direct threat to life or property, or other unusual circumstances.\nState officials stated that they would make greater use of dual compensation waivers to draw from the pool of retirees to fill experience gaps if their legal authority were expanded. However, other than State’s Office of Inspector General, the department has not formally sought expanded congressional authority to offer waivers to hire Foreign Service retirees. The Office of Inspector General is seeking separate congressional authority for additional dual compensation waivers to help meet its staffing needs, including filling positions at its overseas posts in hardship locations, such as Amman, Jordan; Cairo, Egypt; and Kabul, Afghanistan.\nState hires many more Foreign Service retirees for temporary, part-time work than it does for full-time assignments. These retirees work on a “When Actually Employed” schedule and are commonly referred to as “WAEs.” WAEs do not fill vacant positions overseas but are an important means of addressing workforce gaps, according to State officials. For example, posts often rely on WAEs to fill staffing gaps during summer rotations of Foreign Service employees, according to State officials. Officials also noted that WAEs can be particularly helpful when short-term needs arise requiring special skills and expertise, such as helping posts prepare for a presidential visit or evacuating an embassy during a crisis. Newer staff also can benefit from the experience and expertise that WAEs share during their assignments.\nFederal rules, and high salary and travel costs, limit the extent to which State uses WAEs. State bureaus typically hire them for short assignments of 1 to 3 months. Federal law enables Foreign Service retirees to earn a salary while continuing to receive their retirement annuity as long as their total earnings do not exceed the greater of an amount equal to the basic pay they earned when they retired or the highest annual rate of basic pay for full-time employment in the position for which they have been re- employed. This limits the amount of time they can work in a calendar year. According to State officials, WAEs also have a cap of 1,040 hours of employment per calendar year. In addition to rules in federal statute that limit their use, WAEs are also a relatively expensive option because of their high salaries and travel costs, according to State officials from the geographic bureaus and the Bureau of Consular Affairs—the primary users of WAEs. Table 2 shows the number of WAE appointments these bureaus used in 2011 and the average duration of each appointment. Individual bureaus maintain their own lists of retirees and hire them as WAEs from their own budgets. State has no initiatives currently under way to expand its use of WAEs.\nAs part of its effort to address Foreign Service experience gaps, State’s QDDR included the goal of expanding existing mentoring programs and piloting a new mentoring program for first-time supervisors. State currently offers mentoring for entry-level Foreign Service employees and situational mentoring, which offers advice for any State employee on a specific activity or issue. In addition, State officials noted that less experienced Foreign Service employees are increasingly being asked to fill supervisory roles earlier in their careers than in the past, which raises the need for targeting this group for additional mentoring.\nIn September 2011, the Human Resources Bureau began a pilot program offering training workshops designed to improve the skills of first-time supervisors overseas. Mentoring, both at and following the training, is a key component of the pilot workshops, according to bureau officials. The pilot involved two 5-day workshops—one in Fort Lauderdale, Florida, and another in Frankfurt, Germany, delivered to a total of 49 first-time supervisors from three of the department’s geographic regions. The workshops focused on performance management and basic leadership skills. Retirees served as class mentors and established relationships with the participants at the sessions. The mentors are expected to follow up with the attendees for 1 year, with the possibility to travel to their overseas posts, if warranted.\nAccording to Human Resources Bureau officials, the program included follow-up surveys of attendees and their supervisors to assess the usefulness of the workshops in improving participants’ management style and skills. The officials noted that the response among the participants and their supervisors has been positive. State plans to conduct two more sessions in September 2012 for first-time supervisors from the department’s other three geographic regions. State officials noted that the pilot needs to be completed before they can determine the effectiveness of the program. A potential constraint is the cost of sending officers to these workshops.",
"Although State has undertaken efforts to carry out QDDR goals to address midlevel gaps, the department has not developed a strategic approach to guide these efforts. We have found in prior work that developing a strategy to address staffing gaps and evaluating its success contribute to effective workforce plans. State’s Five Year Workforce Plan outlines its human capital strategies; however, the plan lacks a specific strategy for addressing midlevel experience gaps. In our prior work, we developed a workforce planning model that suggests that, when considering a strategy to address workforce gaps, agencies consider the full range of flexibilities available under current authorities, as well as flexibilities that might require additional legislation before they can be adopted. State’s efforts to draw on its pool of retirees and Civil Service employees to fill midlevel gaps are examples of the use of such flexibilities; however, it is not clear that State has developed a strategy to take full advantage of its authority to use them.\nIn addition, our workforce planning model suggests that, to evaluate human capital strategies, agencies develop performance measures that can be used to gauge progress toward reaching human capital goals. State’s Five Year Workforce Plan does not indicate how it will evaluate efforts under way to address midlevel gaps. State plans to assess its two pilot programs, but it has not developed performance measures to gauge the potential impact of these efforts on midlevel gaps.",
"State faces persistent Foreign Service experience gaps at overseas posts, particularly at the midlevels, and these gaps put its diplomatic readiness at risk. State has traditionally relied on hiring new Foreign Service employees to fill overseas gaps and significantly increased hiring in fiscal years 2009 and 2010. However, those new hires will not be eligible for promotion to the midlevels until at least fiscal year 2014 and projections for future annual hiring increases have been reduced due to budgetary constraints. As a result, State likely will continue to face staffing and experience gaps for the foreseeable future. These gaps will continue to affect diplomatic readiness as positions remain unfilled or are staffed by Foreign Service employees whose experience does not match the position requirements. In the meantime, State has taken steps to implement goals highlighted in the QDDR to address midlevel overseas gaps, including developing pilot programs for increasing the use of Civil Service employees overseas and providing new workshops with mentoring for first-time supervisors overseas. Although these efforts are currently small in relation to the size of the overall gaps, their impact and the extent to which they can be expanded in the future have yet to be analyzed by State and are, therefore, unclear. Since State has not developed a specific strategy for addressing midlevel gaps, it can neither fully assess the success of its efforts to close these gaps nor determine the optimal course of action for enhancing diplomatic readiness.",
"To help guide State’s efforts to address midlevel gaps in the Foreign Service, we recommend that the Secretary of State direct the Bureau of Human Resources to update its Five Year Workforce Plan to include a strategy to address these gaps and a plan to evaluate the success of this strategy.",
"We provided a draft of this report to State for comment. In its written comments, reproduced in appendix III, State agreed with our recommendation. State also provided technical comments, which we incorporated throughout the report, as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report’s date. At that time, we will send copies to the Secretary of State and other interested congressional committees. 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) 512-8980 or courtsm@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 IV.",
"In this report, we assess: (1) the extent to which the Department of State’s (State) overseas midlevel Foreign Service experience gaps have changed since 2008 and (2) State’s efforts to address these gaps.\nTo assess the extent of the State’s overseas midlevel Foreign Service experience gaps and how these gaps have changed since 2008, we reviewed GAO and State Office of Inspector General reports, as well as State workforce planning and budget documents and its Diplomacy 3.0 initiative; collected and analyzed staffing data on all overseas Foreign Service positions from State’s Global Employees Management System (GEMS) as of September 30, 2008, and October 31, 2011; and interviewed officials in State’s Bureau of Human Resources, Bureau of Consular Affairs, and six regional bureaus regarding overseas experience gaps.\nTo determine the extent of overseas Foreign Service experience gaps, we analyzed State staffing data. We compared the number of positions that were vacant, filled with upstretch assignments, and filled at grade or higher with the total number of authorized overseas positions. We did not validate whether the total number of authorized overseas positions was appropriate or met State’s needs. We calculated total vacancy and upstretch rates across all overseas Foreign Service positions for both the 2008 and 2011 data. We also calculated vacancy and upstretch rates for both data sets by each of the following characteristics: level (i.e., entry-, mid-, or senior-level); type (i.e., generalist or specialist); and function (e.g., consular or information management). For 2011 data only, we supplemented the GEMS data with additional State data on hardship differentials and embassy and nonembassy rankings from State’s Overseas Staffing Models and also calculated vacancy and upstretch rates by each of these characteristics.\nTo calculate vacancy rates, we divided the total number of positions by the number of vacant positions. To calculate upstretch rates, we divided the total number of positions by the number of upstretch assignments. We considered any assignment in which the grade of incumbent was at least one grade lower than that of the position as an upstretch assignment, with one exception: According to State officials, tenured Foreign Service generalists with a position grade of 04 are not considered in an upstretch assignment if they encumber a position with an 03 grade because tenured 04 grade officers are expected to fill positions with an 03 grade, if possible. We, therefore, did not consider tenured 04 grade officers to be in an upstretch assignment when they filled positions graded as 03. We considered senior-level positions at the Career Minister, Minister Counselor, and Counselor level to be of a comparable grade and, therefore, did not consider officers with any of these grades to be in an upstretch assignment. According to State officials, the department does not consider any employee in an entry-level position to be in an upstretch assignment. However, for the purposes of our analysis, we defined any assignment in which the position’s grade is higher than the incumbent’s grade to be an upstretch assignment. Therefore, because State assigns different grades to positions within the entry levels, we considered entry- level assignments where a position’s grade was higher than the employee’s grade to be upstretch assignments.\nWe eliminated a small number of positions from our analysis of each data set because we could not clearly or completely identify where the positions were located. We also eliminated 57 Security Protective Specialist positions from the 2011 data because, according to State officials, it was a new job category and was not intended for permanent Foreign Service Officers, but rather employees hired under short-term limited noncareer appointments. In total, we did not use 88 positions, or about 1 percent of the total, from the September 30, 2008, data and 207 positions, or about 2 percent of the total, from the October 31, 2011, data, which we determined did not substantially affect our findings.\nWe also conducted an analysis of the likelihood of overseas positions being vacant or filled through upstretch assignments based on the various characteristics described above. For a detailed discussion of the methodology and results of that analysis, see appendix II.\nWe obtained staffing and position data from State’s GEMS database. Since we have previously checked the reliability of this database, we inquired if State had made any major changes to the database since our 2009 report. State indicated that it had not made major changes to the system. We also tested the data for completeness, confirmed the general accuracy of the data with select overseas posts, and interviewed knowledgeable officials from the Office of Resource Management and Organizational Analysis concerning the reliability of the data. Data from Afghanistan, Iraq, and Pakistan (AIP) posts often show higher vacancy rates than actually exist at the post; however, it does so because State relies heavily on short-term assignments to fill positions in these locations. These short-term assignments do not show up in GEMS, and the position, therefore, appears vacant. Positions in GEMS represent a need for full-time, permanent Foreign Service employees, and, therefore, we determined that the GEMS data accurately reflect State’s ability to fill positions in these locations with full-time, permanent Foreign Service employees. Additionally, because State often pulls staff from other overseas assignments to fill short-term temporary assignments in AIP countries, the vacancy rate for all overseas positions is most accurately captured when all posts are included. Therefore, based on our analysis of the data and discussions with the officials, we determined the data to be sufficiently reliable for our purposes. However, when referring specifically to vacancy rates in AIP countries, we reference other State sources, which include positions filled through both permanent and temporary assignments.\nTo assess State’s approach to addressing midlevel Foreign Service gaps through expanded use of Civil Service employees, retirees, and mentoring, we reviewed GAO and State Office of Inspector General reports; reviewed relevant State documents, such as State’s Quadrennial Diplomacy and Development Review (QDDR), State’s Five Year Workforce Plan, and the Bureau of Human Resources’ Bureau Strategic and Resource Plan; reviewed federal laws, policies, and regulations governing Limited Non-Career Appointments (LNA) of Civil Service Employees, conversion from Civil Service to Foreign Service, and hiring of retired Foreign Service and Civil Service annuitants; and interviewed officials in State’s Bureau of Human Resources, Bureau of Consular Affairs, and six regional bureaus, the American Foreign Service Association, and the American Academy of Diplomacy regarding overseas experience gaps and the potential to address gaps through the use of Civil Service, retirees, and mentoring.\nWe collected and analyzed data on the retirees hired with dual compensation waivers in calendar year 2011. We also collected and analyzed data on the use of retirees hired for temporary, short-term assignments, referred to as “When Actually Employed” (WAE) in fiscal year 2011 from each of the six regional bureaus and the Bureau of Consular Affairs. We analyzed that data based on the number of assignments made, rather than the number of retirees used, as State officials noted that some individuals may be used in multiple assignments. In addition, we collected and analyzed data on overseas LNA assignments of Civil Service employees for fiscal years 2009 through 2011 from State’s Bureau of Human Resources. Because these assignments may be for multiple years, the number of assignments made does not necessarily reflect the number of Civil Service employees serving overseas at any one time. We also collected data on the results of State’s 2010 and 2011 Foreign Service Conversion Program, including the number of positions available, the number of Civil Service applicants, and the number offered conversion opportunities. We found the data on the use of retirees and Civil Service employees overseas to be sufficiently reliable for our purposes. We focused only on efforts related to expanding the use of Civil Service employees, retirees, and mentoring because they were highlighted in State’s QDDR as key means of addressing overseas midlevel gaps.\nTo supplement our other analysis, we met with officials in Amman, Jordan; Kyiv, Ukraine; New Delhi, India; Santo Domingo, Dominican Republic; and Sao Paulo and Brasilia, Brazil, to obtain firsthand knowledge about experience gaps and use of Civil Service, retirees, and mentoring at overseas posts. We conducted this work in conjunction with a separate study on visa fraud and selected posts that met criteria established for both studies, including the size of staffing gaps and the level of visa fraud.\nWe conducted this performance audit from June 2011 to June 2012 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.",
"In this appendix, we describe the methods we used to determine what factors were related to whether positions at the State Department were vacant as of October 2011 and those that were filled by upstretch assignments—employees whose grades were lower than the grades of the positions filled. We first considered a set of bivariate tables (or two- way cross-classifications) that indicated what percentage of positions were filled and left vacant, across categories that reflected the level of the position (entry level, midlevel, and upper level); the hardship category associated with the position (least, medium, and greatest); the type of position (generalist versus specialist); the Overseas Staffing Model ranking and type of post where the position was located (embassies ranked 1 or 2 were combined and contrasted with embassies ranked 3, 3+, 4, 5, 5+, and nonembassies of any rank); region (Africa, East Asia and the Pacific, Europe and Eurasia, Near East, South and Central Asia, and Western Hemisphere); and whether the position was in Afghanistan, Iraq, or Pakistan (collectively referred to as AIP) or elsewhere (non-AIP).\nWe then calculated odds and odds ratios from the observed percentages in these tables, which allowed us to summarize the differences in the likelihoods of positions remaining vacant across the different types of positions, and conducted a series of bivariate and multivariate regression analyses to estimate the significance of those differences when we considered each of these six factors one at a time, when we considered five of them simultaneously (all but AIP), and finally when we considered all six of them simultaneously. Finally, we conducted parallel analyses that involved looking at the same types of two-way tables and estimating the same bivariate and multivariate regression models to determine, among those positions that were filled, whether they were filled by upstretch assignments as opposed to officers at or above grade. We describe these analyses as follows.\nThe first three columns of numbers in table 3 show the percentage of positions that were filled and vacant across the categories of the six factors just described, and the numbers of positions in each category on which those percentages were based. A slightly smaller percentage of upper-level positions than entry-level positions were vacant (12.6 percent versus 14.9 percent), and a much larger percentage of the positions in the greatest hardship category (20.5 percent) than in the least hardship category (10.4 percent) were left vacant. While there was little difference between generalist positions and specialist positions, there were some sizable differences across different posts with different rankings, with positions in the highest-ranked embassies (20.9 percent) and in nonembassies (16.4 percent) showing the highest percentages of vacancies. Higher percentages of positions in the Near East (22.3 percent) and South and Central Asia (24.2 percent) were left vacant compared with other regions, and positions in AIP countries were much more likely to be vacant than those in non-AIP locations (39.5 percent vs. 11.4 percent).\nIn the last two columns of table 3, we show the odds on positions being vacant, and odds ratios that indicate the proportional differences in those odds across the different categories of positions. The odds on positions being vacant are calculated by dividing the percentage of positions that are vacant by the percentages that are filled, within each of the categories of the different positions. For entry-level positions, for example, we divide 14.9 by 85.1 to obtain 0.18, which indicates that 0.18 positions were vacant for every one that was filled or, alternatively, that 18 were vacant for every 100 that were filled. Similar calculations for midlevel and upper- level positions yield slightly smaller odds (equal to 0.17 and 0.14, respectively), and odds that differ quite substantially across other categories of positions, such as those with the greatest hardship (0.26) versus least hardship (0.12), and those in South and Central Asia (0.32) versus the Western Hemisphere (0.13).\nThe odds ratios in the final column of table 3 indicate the proportional differences in the odds of positions remaining vacant across the categories of each of the position characteristics. To estimate these odds ratios, we choose one category of each characteristic as the referent category (indicated by REF in the table), and divide the odds for the other categories by the odds for the referent category. For example, we chose midlevel positions as the referent category with respect to position level, divided 0.18 and 0.14 by 0.17, and the resultant odds ratios indicate that entry-level positions had slightly higher odds of remaining vacant than midlevel positions, by a factor of 1.04, while upper-level positions had slightly lower odds than midlevel positions of remaining vacant, by a factor of 0.86. Similar calculations using the different categories of the other position characteristics reveal that positions with greatest and medium hardship were more likely to be vacant than those with least hardship, by factors of 2.22 and 1.36, respectively, while specialist positions had only slightly higher odds than generalist positions of remaining vacant, by a factor of 1.07. Also, all of the lower-ranked embassies had roughly half or less than half the odds of embassies ranked 5+ of remaining vacant, and nonembassies had odds that were lower than the highest-ranked embassies by a factor of 0.74. Finally, positions in Africa had lower odds on remaining vacant than positions in the Western Hemisphere (by a factor of 0.78), positions in East Asia and the Pacific and in Europe had odds that were very similar, and positions in the Near East and South and Central Asia had higher odds on remaining vacant than positions in the Western Hemisphere, by factors of 2.25 and 2.51, respectively. As the final multivariate model in table 4 shows, some of these regional differences were because AIP countries were more than five times as likely as those in other areas to be vacant.\nOdds ratios identical to those just discussed, apart from slight rounding error, are shown in the first column of table 4. The unadjusted odds ratios in the first column of table 4, however, were estimated using a series of bivariate logistic regression models, which allow us to test whether the different contrasts specified by the various odds ratios are significantly different than 1. Significant odds ratios are bolded in the table, and we can see the unadjusted ratios reflecting the differences in the odds on positions remaining vacant across position level categories and between generalist and specialist positions are not significant; in addition, the differences between positions in the East Asia and Pacific region, Europe, and the Western hemisphere are not significant. All of the other unadjusted (or bivariate) odds ratios are significant, though our judgment about both the size and significance of these differences is only tentative since they are unadjusted and fail to take into account that the different position characteristics—for example, hardship level and region—may be related to one another and, as such, the estimated unadjusted effect of one characteristic may be accounted for by the effect of another.\nIn the middle column of the table, we show the results of re-estimating these odds ratios using a multivariate model that estimates the effects on positions remaining vacant of all of these factors simultaneously, except for the AIP indicator. Under this model, most of the effects remain significant, though the difference between nonembassy positions and embassy positions is diminished and insignificant, and the difference between entry- level and midlevel positions increases and becomes significant.\nIn the final column, we show the results of re-estimating these odds ratios using a multivariate model that estimates the effects of all six factors simultaneously, including the war zone indicator. As can be seen, the adjusted difference between AIP and non-AIP positions is sizable (OR = 4.12), and allowing for that difference accounts for all of the differences between embassies of different ranks and nonembassies, and most of the differences between regions (the exception being the difference between positions in Africa and the Western Hemisphere). In summary, when all factors are considered simultaneously and the associations between characteristics are taken into account, the differences that are statistically significant are as follows: entry-level positions have higher odds of remaining vacant than midlevel positions, by a factor of 1.36; positions in the greatest hardship and medium hardship categories are more likely than those in the least hardship category to remain vacant, by factors of 1.44 and 1.22, respectively; positions in Africa are less likely to remain vacant than those in the Western hemisphere, by a factor of 0.67; and\nAIP positions are slightly more than four times as likely to remain vacant as non-AIP positions.\nTable 5 shows similar bivariate results in which these six characteristics are cross-classified by whether the position was filled by employees whose grades were lower than the grades of the position they filled, and table 6 shows the significant and insignificant odds ratios from bivariate and multivariate models used to estimate the effects of those characteristics on this outcome. While there is no need to labor over a discussion of all of the percentages and odds and odds ratios in table 5, which show the unadjusted and sometimes sizable differences across categories of position in the likelihood of being filled by a lower-graded employee, they are there for the reader to see. Our bottom-line findings, from the multivariate model coefficients in the final column of table 6 in which all position characteristics are considered simultaneously and the effect of each is estimated net of the others, are as follows:\nUpper-level positions are more than twice as likely as midlevel positions to be filled by upstretch assignments.\nPositions in the greatest hardship and medium hardship categories are more likely than those in the least hardship category to be filled by lower-level employees, by factors of 1.81 and 1.47, respectively.\nSpecialist positions are less likely than generalist positions to be filled by employees whose grades are lower than the positions, by a factor of 0.75.\nPositions in East Asia and the Pacific and Europe are less likely to be filled by upstretch assignments than those in the Western hemisphere, by factors of 0.80 and 0.72, respectively.\nThe lowest-ranked embassies (ranks 1 and 2) are only about half as likely as the embassies ranked 5+ to be filled by upstretch assignments, while embassies with other ranks and nonembasssies are not significantly different from embassies ranked 5+.\nAIP positions are half as likely to be filled by upstretch assignments as non-AIP positions.",
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"In addition to the contact named above, Anthony Moran, Assistant Director; Howard Cott; Kara Marshall; Grant Mallie; Doug Sloane; Martin De Alteriis; Karen Deans; and Grace Lui provided significant contributions to the work."
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{
"question": [
"What problem does the Department of State face in overseas Foreign Service Positions?",
"How did the Department of State fix this problem in 2009 and 2010?",
"What was the problem with these new hires?",
"What did GAO find?",
"What makes up the largest share of vacant positions?",
"What have State officials said about the gaps?",
"What did State officials note about the department?",
"What has State taken steps to do?",
"What is State currently implementing?",
"What must efforts to expand these assignments do?",
"How does State hire retirees?",
"What is an example of this?",
"What did State do to take steps toward mitigating experience gaps?",
"What has State done to close midlevel Foreign service gaps?",
"What did GAO report on in 2009?",
"What plan is State currently undertaking?",
"What might delay the plan's full implementation?",
"What did State’s first Quadrennial Diplomacy and Development Review highlight?",
"What was GAO asked to assess?",
"How did GAO analyze State's personnel data?"
],
"summary": [
"The Department of State (State) faces persistent experience gaps in overseas Foreign Service positions, particularly at the midlevels, and these gaps have not diminished since 2008.",
"In fiscal years 2009 and 2010, State increased the size of the Foreign Service by 17 percent.",
"However, these new hires will not have the experience to reach midlevels until fiscal years 2014 and 2015.",
"GAO found that 28 percent of overseas Foreign Service positions were either vacant or filled by upstretch candidates—officers serving in positions above their grade—as of October 2011, a percentage that has not changed since 2008.",
"Midlevel positions represent the largest share of these gaps.",
"According to State officials, the gaps have not diminished because State increased the total number of overseas positions in response to increased needs and emerging priorities.",
"State officials noted the department takes special measures to fill high-priority positions, including those in Afghanistan, Iraq, and Pakistan.",
"State has taken steps to increase its reliance on Civil Service employees and retirees, as well as expand mentoring, to help address midlevel experience gaps overseas; however, State lacks a strategy to guide these efforts.",
"State is currently implementing a pilot program to expand overseas assignments for Civil Service employees.",
"Efforts to expand the limited number of these assignments must overcome some key challenges, such as addressing new gaps when Civil Service employees leave their headquarters positions and identifying qualified Civil Service applicants to fill overseas vacancies.",
"State also hires retirees on a limited basis for both full-time and short-term positions.",
"For example, State used limited congressional authority to offer dual compensation waivers to hire 57 retirees in 2011.",
"As a step toward mitigating experience gaps overseas, State began a pilot program offering workshops that include mentoring for first-time supervisors.",
"State acknowledges the need to close midlevel Foreign Service gaps, but it has not developed a strategy to help ensure that the department is taking full advantage of available human capital flexibilities and evaluating the success of its efforts to address these gaps.",
"In 2009, GAO reported on challenges that State faced in filling its increasing overseas staffing needs with sufficiently experienced personnel and noted that persistent Foreign Service staffing and experience gaps put diplomatic readiness at risk.",
"State is currently undertaking a new hiring plan, known as “Diplomacy 3.0,” to increase the size of the Foreign Service by 25 percent to close staffing gaps and respond to new diplomatic priorities.",
"However, fiscal constraints are likely to delay the plan’s full implementation well beyond its intended target for completion in 2013.",
"In addition, State’s first Quadrennial Diplomacy and Development Review highlighted the need to find ways to close overseas gaps.",
"GAO was asked to assess (1) the extent to which State’s overseas midlevel experience gaps in the Foreign Service have changed since 2008 and (2) State’s efforts to address these gaps.",
"GAO analyzed State’s personnel data; reviewed key planning documents, including the Five Year Workforce Plan; and interviewed State officials in Washington, D.C., and at selected posts."
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CRS_RL34320
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{
"title": [
"",
"Overview",
"U.S. Assistance Programs",
"Unexploded Ordnance",
"Political Situation",
"Foreign Relations",
"Economic Conditions",
"U.S.-Laos Trade",
"International Foreign Aid",
"Human Rights and Humanitarian Issues",
"Religious Freedom",
"The Hmong Minority"
],
"paragraphs": [
"",
"The United States and the Lao People's Democratic Republic (LPDR), a small, largely agrarian Southeast Asian country ruled by a communist government, cooperate in many areas despite ideological differences and U.S. concerns about the ethnic Hmong minority. The slow warming of bilateral relations reflect efforts by the U.S. government to pay more attention to Southeast Asia in general and by the Lao government to broaden its foreign ties as China becomes more influential in the region. The U.S. government has embarked upon a policy of economic engagement with Laos, expanding technical assistance to the Lao government to build its capacity to implement trade agreements and modernize its legal and regulatory framework: \"This is probably the most important action the U.S. Government can currently take to influence the future direction of Laos' policy.\" In June 2009, the Obama Administration removed the prohibition on U.S. Export-Import Bank financing for U.S. companies seeking to do business in Laos, citing Laos' commitment to opening its markets.\nIn other areas of the relationship, the U.S. government has noted progress and bilateral cooperation. In 2008, the United States and Laos exchanged defense attachés (the first time in over 30 years). Although substantial restrictions on civil rights and political freedoms remain, fewer human rights abuses have been reported in recent years. The country was upgraded to Tier 2 on the U.S. State Department's trafficking in persons list in 2007, and in 2008-2009 the Lao government \"demonstrated some progress in its anti-trafficking law enforcement.\" However, Laos increasingly has become a transit area for the trafficking of Vietnamese, Chinese, and Burmese women destined for Thailand. Bilateral cooperation on counter-narcotics activities has contributed to a 96% decline in opium production between 1998 and 2007, although smuggled methamphetamine use reportedly has risen among Lao youth.\nMajor areas for U.S. policy consideration include urging the Lao government to accept international monitoring of the resettlement of former Hmong militia members and returnees from Thailand; increasing assistance for de-mining activities; granting trade preferences or tariff relief for Lao products, particularly garments; and developing programs for sustainable management of the Mekong River.",
"The United States provides relatively little foreign assistance to Laos. U.S. State Department funding for foreign operations programs in Laos in FY2009 was estimated to be $5.0 million compared to $5.8 million in 2008. By comparison, the United States provided neighboring Cambodia, a country of similar economic development, roughly $65 million in FY2009. The largest aid programs in Laos focus on de-mining and counternarcotics programs. New programs include those strengthening the country's legal and regulatory framework and trade capacity. Other, ongoing areas of U.S. assistance and bilateral cooperation include HIV/AIDS prevention and treatment, military education (training in English language and military professionalism), and the recovery of Americans missing in action (MIAs). U.S. public diplomacy programs in Laos include support for libraries, providing access to international news and Western media, English language training, sponsoring Lao government officials studying in the United States through the International Visitor Leadership Program, and lectures and workshops on U.S. political and legal institutions.",
"Over 2.5 million tons of U.S. munitions were dropped on Laos during the Vietnam War, more than the amount inflicted on Germany and Japan combined during World War II. Unexploded ordnance (UXO), which affects between one-quarter and one-third of the country's land area, causes an average of 120-300 deaths per year. U.S. funding for de-mining activities has fallen from a high of $3.3 million in FY2006 to an estimated $1.9 million in FY2009. The LPDR also receives assistance through the Leahy War Victims Fund. Ongoing Leahy programs include education and employment for people with disabilities ($280,000), support for children ($992,900), and medical care, rehabilitation, and socio-economic integration services ($1,380,000).",
"Laos is ruled by the Lao People's Revolutionary Party (LPRP), which is committed to maintaining a one-party state. According to many experts, the LPRP's hold on the government, legislature, courts, labor unions, mass media, and society remains firm, in part through an extensive security apparatus. Despite restrictions on political activities, relations between Lao citizens and the government generally have been calm in recent years.\nThe government under Prime Minister Bouasone Bouphavanh has made some efforts to energize the Lao economy and society as well as make the government more responsive. It has pursued pro-market reforms and attempted to reduce political corruption and cronyism. In addition, the National Assembly reportedly has become more vocal about corruption, government accountability, and economic policy. In 2008, the National Assembly passed laws allowing for private ownership of media outlets and the formation of civil society groups. In May 2009, Prime Minister Bouasone signed the Decree on Associations establishing a legal framework for the formation of local non-governmental organizations (NGOs), which foreign activists say is key toward establishing an effective international NGO presence and civil society in Laos. In 2009, the LPDR ratified the United Nations International Covenant on Civil and Political Rights.\nAnti-government activities, such as public protests and bombings, have all but disappeared since the 1999-2004 period. During that time, university students and teachers staged two demonstrations for democratic reforms. Rebel militias operating out of Thailand carried out several attacks on Lao border posts. Anti-government groups detonated over a dozen small bombs in the capital, Vientiane, and other cities, killing several people. Several ambushes of highway buses and other vehicles, in which over 40 people died, were reported. These isolated attacks, which the Lao government either downplayed or for which it blamed Hmong insurgents, however, did not spark widespread anti-government activity.",
"Once dominated by its links to Vietnam, Laos' foreign policy horizons have broadened to include Southeast Asian regional powers and the United States. Laos has maintained a \"special relationship\" with Vietnam since the communist victories in the two countries in 1975 and formalized in a 1977 Treaty Of Friendship And Cooperation. Vietnam's influence on Laos remains strong and paternalistic, particularly in political and military affairs and among the Revolutionary Party's old guard, although China's economic influence is growing. Laos' northern provinces reportedly are becoming economically integrated with China's Yunnan province, while Chinese commercial influence is emerging in Vientiane. In addition, China has become a principal source of economic assistance, including grants, low-interest loans, technical assistance, and foreign investment. Some observers believe that Hanoi has encouraged the Lao government to improve relations with the United States in an effort to counteract Chinese influence.\nLaos also has cultivated good relations with other neighbors. The LPDR shares cultural and religious traditions and maintains close economic ties with Thailand, and its relations with Cambodia and Burma (Myanmar) are generally cordial. Laos joined the Association of Southeast Asian Nations (ASEAN) in 1997, partly to tie its development to the group's growing internal and external trade linkages. As a member of ASEAN, Laos is a party to the ASEAN Free Trade Area (AFTA), which requires Laos to fully comply with tariff reduction requirements by 2015. Vientiane hosted the 10 th ASEAN Summit in November 2004, the ASEAN Ministerial Meeting in July 2005, and the Southeast Asian Games in December 2009.\nThe United States and Japan have stepped up efforts to engage the lower Mekong sub-region of which Laos is a part. In July 2009, Secretary of State Hillary Clinton attended the ASEAN Regional Forum in Thailand, which focuses on regional political and security matters. On the sidelines of this gathering, Clinton participated in the first U.S.-Lower Mekong Delta Ministerial meeting. At the Ministerial meeting, which included the nations of Cambodia, Laos, Thailand, and Vietnam, the United States pledged to continue or enhance cooperation and assistance in the areas of the environment, health, and education. In recent years, Japan also has made an attempt to enhance ties in the sub-region, largely reflecting a response to China's growing influence. In November 2009, Japanese Prime Minister Yukio Hatoyama pledged $5.5 billion in assistance to the Mekong delta sub-region.\nAll lower Mekong countries are members of the Mekong River Commission (MRC), founded in 1995, which works to facilitate cooperation and sustainable management of water. Members of the MRC are concerned about the existing and potential adverse impacts of the operation of Chinese dams in the upper reaches of the Mekong upon the environment, fish stocks, and agriculture downstream. In 2009, the United States pledged more than $7 million for environmental programs in the lower Mekong.",
"Laos is one of the poorest countries in Asia, with a per capita income of $2,100 (purchasing power parity) and a ranking of 133 on the United Nations Development Program's Human Development Index , but its economic prospects are improving. The Lao economy experienced a relatively brief period of collectivization (1975-1985). In 1986, the LPDR government began a policy of economic reform—disbanding collective farms, legalizing private ownership of land, allowing market forces to determine prices, and encouraging private enterprise in all but some key industries and sectors. Between 1988 and 2008, the country's economy grew by over 6% per year on average, with the exception of 1997-1998 due to the Asian financial crisis. Recent economic policies, including developing the taxation system, making the banking system more competitive, and reducing red tape for foreign businesses, have helped to spur foreign investment. However, progress has been slow; many analysts do not expect Laos to accede to the WTO before 2012.\nAgriculture, mostly subsistence rice farming, accounts for about 39% of gross domestic product (GDP) and involves over 80% of the country's labor force. A growing proportion of the economy, accounting for about 34% of GDP, comes from light manufacturing (garments and electronic assembly). Services constitute about 27%. Other major economic sectors include metals extraction, hydropower, timber, rubber, and tourism. The Lao economy grew by an estimated 4.5% in 2009, down from 7.5% in 2008, and is expected to grow by 7% in 2010.\nLaos is becoming economically integrated with its neighbors. The LPDR's principal trading partners are Thailand (35%), Vietnam (15%), and China (8.5%). Thailand is the largest export market for Lao goods, buying $626 million in 2008 while Vietnam imported $216 million and China $140 million. The EU is also a major regional trading partner and a large market for Lao products. Laos is still not heavily dependent upon foreign trade, however, and has been somewhat insulated from the global economic downturn. Vietnam, China, Thailand, and South Korea are the LPDR's largest foreign investors. Many Chinese and Vietnamese companies have invested in the mining sector while Thai enterprises have played a large role in the development of hydropower. China reportedly has begun to rival Australia as the main investor in minerals extraction.",
"U.S.-Laos trade is growing rapidly but from a low base. In 2008, total trade between Laos and the United States, the LPDR's seventh largest trading partner, was valued at $60 million compared to $15 million in 2006. In 2008, the value of Lao exports to the United States doubled compared to the previous year, to $42 million, of which about two-thirds was apparel. In 2009 (Jan-Sept), a nearly 30% drop in clothing exports to the United States was compensated in large part by an over 4,000% increase in exports of electrical machinery.\nOn November 19, 2004, Congress passed the Miscellaneous Trade and Technical Corrections Act of 2004, which extended nondiscriminatory treatment to the products of Laos (signed into law as P.L. 108-429 ). For several years, U.S.-Laos relations were largely shaped by the U.S. debate over whether to grant Laos normal trade relations treatment. Between 1997, when the United States and Laos concluded a bilateral trade agreement, and 2004, legislation to extend NTR status to Laos faced opposition from many Members of Congress concerned about human rights conditions in Laos and the plight of the ethnic Hmong minority. Some prominent Hmong-American organizations strongly opposed enacting the trade agreement, although the Laotian-American community as a whole reportedly was split on the issue.",
"Laos receives approximately $400 million in bilateral and multilateral assistance annually. The top sources of official development assistance (ODA) to Laos in 2007 were multilateral agencies, including the Asian Development Bank, the World Bank, and the United Nations Development Program ($133 million), the European Union ($103 million), Japan ($81 million), and Australia ($20 million). According to some estimates, China is a major source of economic assistance to Laos. However, these estimates generally reflect a much broader range of activity than what is typically carried out by major ODA donors and is not directly comparable to ODA as measured by the Organization for Economic Cooperation and Development (OECD).\nChinese economic assistance to Laos has included grants, concessional loans, debt relief, public works projects, infrastructure and energy development, construction of medical facilities, agricultural training, and investments on preferential terms. According to one report, Chinese grants and loans totaled approximately $325 million and $350 million, respectively, from the late 1990s to 2007, while investment projects totaled $876 million in value from 1990 to 2007. China reportedly financed and helped build the main stadium for the 25 th Southeast Asian Games held in December 2009 in Vientiane. However, some Members of the Lao National Assembly reportedly opposed a Chinese plan to develop the area around the stadium, fearing that the project's apartments would be used to house tens of thousands of Chinese construction workers.",
"",
"According to many observers, the LPDR does not engage in widespread persecution of religious groups and religious freedom has improved, particularly in urban areas. The Department of State reported, \"In most areas officials generally respected the rights of members of most religious groups to worship, albeit within strict constraints imposed by the government.\" However, non-mainstream or non-Buddhist religious activities, particularly among religious and ethnic minorities, often continue to experience repression at the local level.\nFrom 2000 through 2003, the United States Commission on International Religious Freedom (USCIRF) recommended that the U.S. State Department designate Laos as a \"country of particular concern\" for systematic and egregious violations of religious freedom. In 2004, the Lao government and the U.S. Embassy in Vientiane conducted a joint seminar on religious freedom issues, and the USCIRF upgraded Laos to its \"watch list.\" In 2005, the USCIRF removed Laos from the watch list, citing the re-opening of most of its closed churches, release of almost all religious prisoners, and official denunciation of campaigns to force renunciations of faith. In 2002, the Lao government promulgated Decree 92 on religious practice. Although this decree reportedly has helped to guarantee religious freedom in many cases, it also has authorized government officials to oversee religious practice. There continue to be scattered incidences of local officials overzealously applying the law or communist orthodoxy against Christians. Abuses of authority include forcing Christian believers to renounce their faith or relinquish their bibles, detaining worshippers, or expelling them from their villages.",
"During the Vietnam War, the United States Central Intelligence Agency (CIA) trained and armed an estimated 60,000 Hmong guerillas to fight the Vietcong. After the Lao communists took power in 1975, Lao and Vietnamese troops decimated most of the Hmong army. The Lao People's Army then allegedly carried out a war of attrition in the northern mountains against remaining Hmong militias and communities that had resisted surrendering. Many human rights organizations claim that the Lao military committed atrocities against the mountain Hmong, whose strength has dwindled to scattered pockets of likely no more than 1,000 persons in total. Between 2005 and 2007, according to some reports, roughly 2,000 mountain Hmong, many of them malnourished, surrendered to Lao authorities and applied for resettlement in lowland areas. Although some observers argue that the Lao government does not engage in systematic persecution of the Hmong minority, others fear that official suspicion of former insurgents would likely result in their mistreatment.\nFollowing the communist takeover, up to one-third of the Hmong minority in Laos, which totaled 350,000 in 1974 by some estimates, fled to Thailand. Nearly 250,000 Lao-Hmong eventually resettled in the United States. In the early 1990s, the United Nations High Commissioner for Refugees (UNHCR) began to close its camps in Thailand and offered the remaining Hmong in the country a choice between resettling in third countries or returning to Laos. Most (estimates range from 30,000 to 100,000 Hmong) chose to stay in Thailand. About 30,000 returned to Laos. In 2003, the United States agreed to accept about 15,000 Hmong who had taken refuge at the Wat Tham Krabok Temple in central Thailand, after the Thai government announced that it would disperse those living there.\nBetween 2005 and 2009, the Thai government reportedly repatriated over 3,000 Lao-Hmong under an agreement with the Lao government. Approximately 4,500 remained at the Huai Nam Khao camp in Thailand's Phetchabun province. Thailand has long been reluctant to allow UNHCR involvement for fear of encouraging an influx of refugees from Laos and other neighboring countries, and reportedly has restricted international access to the camp. Although many Hmong in Thailand have expressed fear of harassment or persecution if they go back to Laos, Thai authorities and some international observers have estimated that a minority – between 15% and 25% of the Huai Nam Khao group – would likely qualify as political refugees, while the remainder are \"economic migrants.\" In December 2009, the Thai army began deporting the Hmong at Huai Nam Khao, claiming that about half had agreed to go voluntarily.\nAnother group of 158 Lao-Hmong at a detention center in Nong Khai, Thailand, have been granted U.N. refugee status. The Nong Khai group has been identified as former insurgents and their family members, and have applied for political asylum in Australia, Canada, the Netherlands, and the United States. In December 2009, the Thai army deported this group back to Laos as well. The Thai government asserted that it had received assurances from Lao leaders that after the Hmong at Nong Khai are returned to Laos, they will be allowed to resettle in third countries.\nThe Lao government claims that it has granted amnesty to former insurgents and denied that returning Hmong face mistreatment. In 2008, the Lao government reportedly arranged for some visits of international observers to a resettlement village. However, some advocates argue that the government has not allowed international groups to independently monitor or investigate conditions of former insurgents or returning Hmong.\nIn April 2009, H.Con.Res. 112 , \"Expressing Support for Designation of a 'National Lao-Hmong Recognition Day,'\" was introduced in the House of Representatives. In June 2009, 31 Members of Congress signed a letter to Secretary of State Hillary Clinton urging her to appeal to the Thai government not to forcibly repatriate Lao-Hmong asylum seekers. U.S. officials have called upon the Thai and Lao governments for greater transparency in the repatriation and resettlement processes and have recognized the refugee status of the Nong Khai detainees. In December 2009, the U.S. State Department urged Thai authorities to suspend the deportation process at Huai Nam Khao."
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"question": [
"How do the United States and the LPDR cooperate?",
"What has the US government done in its relations with the communist state?",
"What do areas of US assistance and bilateral cooperation include?",
"What happened between the two countries in 2008?",
"What policy has the US government embarked upon with the LDPR?",
"What has the Obama Administration and Members of Congress expressed concern about?",
"What did 31 Members of Congress sign in June 2009?",
"What have US officials called upon Thai and Lao governments to do?",
"What was introduced in the House of Representatives in 2009?",
"What has Laos done in recent years?",
"How has religious freedom changed?",
"What did the LPDR do in 2009?",
"How has Opium production been affected?",
"What happened to the economy between 1988 and 2008?",
"What was total trade valued at between Laos and the US in 2008?",
"What reforms has the government implemented?"
],
"summary": [
"The United States and the Lao People's Democratic Republic (LPDR) cooperate in important areas despite ideological differences and U.S. concerns about alleged human rights abuses against the ethnic Hmong minority.",
"The U.S. government has gradually upgraded its relations with the communist state, which has strong ties to Vietnam and growing economic linkages with China.",
"Major areas of U.S. assistance and bilateral cooperation include de-mining and counter-narcotics programs, strengthening the country's regulatory framework and trade capacity, HIV/AIDS prevention and treatment, the recovery of Americans missing in action during the Vietnam War, and military education and training.",
"In 2008, the United States and Laos exchanged defense attachés the first time in over 30 years.",
"The U.S. government has embarked upon a policy of economic engagement with the LPDR as a means of influencing the future direction of Lao policy.",
"The Obama Administration and Members of Congress have expressed concerns about the plight of former ethnic Hmong insurgents and their families, who have historical ties to the U.S.-backed Lao-Hmong guerilla army of the Vietnam War period, and efforts by Thai authorities to repatriate over 4,500 Lao-Hmong living in camps in Thailand, many of whom claim that they likely will be persecuted or discriminated against if they return to Laos.",
"In June 2009, 31 Members of Congress signed a letter to Secretary of State Hillary Clinton urging her to appeal to the Thai government not to forcibly repatriate Hmong asylum seekers.",
"U.S. officials have called upon the Thai and Lao governments for greater transparency in the repatriation and resettlement process.",
"In April 2009, H.Con.Res. 112, \"Expressing Support for Designation of a 'National Lao-Hmong Recognition Day,'\" was introduced in the House of Representatives.",
"Laos, one of the poorest countries in Asia, has made some notable political, social, and economic progress in recent years.",
"Religious freedom reportedly has improved, particularly in urban areas.",
"In 2009, the LPDR ratified the United Nations International Covenant on Civil and Political Rights and promulgated a legal framework for non-governmental organizations.",
"Opium production and use have dropped dramatically since 1998.",
"Between 1988 and 2008, the economy grew by over 6% per year, with the exception of 1997-1998 due to the Asian Financial Crisis. Meanwhile, U.S.-Laos trade has grown rapidly, albeit from a low base.",
"In 2008, total trade between Laos and the United States was valued at $60 million compared to $15 million in 2006.",
"The government has implemented market-oriented reforms, but progress has been slow."
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GAO_GAO-13-65
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{
"title": [
"Background",
"Leading Principles of Strategic Workforce Planning",
"Interactive graphic Figure 1: Strategic Workforce Planning Process Incorporating Leading Principles",
"OCHCO Manages Strategic Workforce Planning for DHS",
"DHS’s Recent Efforts to Manage Strategic Workforce Planning Reflect Leading Principles, but Increased Oversight of Component Planning Would Enhance Efforts",
"DHS Has Taken Steps for Managing Strategic Workforce Planning, but Challenges Remain",
"DHS Efforts to Monitor and Evaluate Components Progress",
"Evaluate Progress",
"Conclusion",
"Recommendations for Executive Action",
"Agency Comments",
"Appendix I: Comments from the Department of Homeland Security",
"Appendix II: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"Strategic workforce planning addresses two critical needs: aligning an organization’s human capital program with its current and emerging mission and programmatic goals and developing long-term strategies for acquiring, developing, and retaining staff to achieve programmatic goals. This process includes the determination of critical skills and competencies—such as the identification of mission-critical occupations (MCO)—to meet both current and future programmatic needs. Once skills and competencies are identified, strategies should be tailored to address gaps in number, deployment, and alignment. The development and implementation of strategic workforce planning should be collaborative, involving employees and other stakeholders. Further, organizations should monitor and evaluate progress of their workforce plans and the contributions that their implementation made toward achieving programmatic goals.\nIn 2002, we reported that a consistent approach to the government’s management of its people—its human capital—was the critical missing link in reforming and modernizing the federal government’s management practices, noting that many agencies faced challenges in key areas, including leadership, strategic human capital planning, and creating results- oriented organizational cultures, amongst others. actions to be taken, such as workforce planning to support the skilled talent needs of the government, the identification of solutions to skills gaps, and the measurement and evaluation of the performance of key initiatives.\nGAO, A Model of Strategic Human Capital Management, GAO-02-373SP (Washington, D.C.: Mar. 15, 2002). and transforming the department. For example, we identified the need for DHS to link workforce planning efforts to the department’s strategic and program-specific planning efforts to identify current and future human capital needs, including the size of the workforce; the deployment of the workforce across the department and its components; and the knowledge, skills, abilities, and diversity needed for the agency to meet its goals and objectives. In our most recent update of the high-risk list in February 2011, we reported that the department needed to link workforce planning to its strategic and program-specific planning efforts to identify current and future human capital needs to address DHS’s challenges within the department’s management functions and in integrating those functions across the department.\nIn January 2011, DHS issued its initial Integrated Strategy for High Risk Management, which included key management initiatives (e.g., Workforce Strategy, Workforce Planning and Balanced Workforce, and Outreach and Targeted Recruitment) to address challenges identified for each management area—human capital, financial, information technology, acquisition, and management integration. DHS provided updates of its progress in implementing these initiatives in later versions of the strategy in June 2011, December 2011, and June 2012. We reported in September 2012 that successfully achieving and sustaining progress in these management areas would demonstrate the department’s ability and ongoing commitment to addressing its high-risk designation in this implementation and transformation area.",
"We have reported that strategic workforce planning includes five leading principles that address aligning an organization’s human capital program with its current and emerging mission and programmatic goals, and developing long-term strategies for acquiring, developing, and retaining staff to achieve programmatic goals. The process for strategic workforce planning, along with a description of the five associated leading principles, is shown in figure 1.",
"Move mouse over the phase title to get more information on the phases.",
"The department created BWPMO within OCHCO in March 2010 and issued its Balanced Workforce Strategy in 2010. The Balanced Workforce Strategy refers to the department’s effort to identify the appropriate balance of federal and contractor employees required to support critical agency functions. For example, we reported in December 2011, as a result of the balanced workforce efforts, the Transportation Security Administration (TSA) hired 12 individuals in watch officer support positions, which involve collecting information and monitoring domestic events that affect air passenger security, positions that had previously been filled by contractors. Program officials said they plan to convert the remaining contractor positions to positions for federal employees in the near future. Further, we reported that DHS developed the Balanced Workforce Strategy in response to congressional concerns about the department’s use of contracted services and our 2007 report on its use of professional and management support services. BWPMO issued the Balanced Workforce Strategy in 2010 and subsequently developed an automated tool to help components perform the necessary analysis to determine the appropriate mix of federal employees versus contractors.\nWith the balanced workforce effort established, in January 2011, BWPMO began preparing for a Workforce Planning Summit to focus on Strategic Workforce Planning within DHS that it held in May 2011. From February through May 2011, DHS held four meetings featuring presentations from TSA, the U.S. Coast Guard (USCG), FEMA, and Customs and Border Protection (CBP) to discuss workforce planning best practices. DHS also revised and reissued the department’s Workforce Planning Guide in March 2011.\nAnother office in OCHCO, the Human Capital Policy and Programs (HCPP) office, also plays a role in the oversight of component workforce planning efforts. Specifically, HCPP performs Human Resources Operations Audits (HROA) to determine components’ compliance with DHS’s Human Capital Accountability Plan and the Human Capital Assessment and Accountability Framework. Along with ensuring compliance with statutes and regulations, these internal audits assess the degree to which policies, programs, and practices provide efficient and effective support of the components’ respective missions.\nThe HROAs assess components in five areas related to human capital using a three-point scale (having met, partially met, or not met desired outcomes). Specifically, the five areas of the HROAs are (1) strategic alignment, (2) leadership and knowledge management system, (3) results-oriented performance culture system, (4) talent management system, and (5) accountability system. Within each of the five areas there are a total of 44 outcomes that, taken together, provide a basis for the assessment. Depending on the results of their findings, auditors can either require actions or make recommendations to the components for further action, which are included in the final report sent to the component.",
"While DHS has recently taken steps that are generally consistent with leading principles in managing departmental strategic workforce planning, OCHCO has made limited progress in developing an oversight approach for monitoring and evaluating component-level efforts. As a result, and since OCHCO’s efforts are in the relatively early stages, it is too early to determine the potential impact of its strategic workforce planning policies and initiatives on the departmentwide implementation of these efforts. Since January 2011, DHS has developed and disseminated guidance and procedures to guide workforce planning at the component level and has taken steps to enhance workforce planning across the department. These steps are generally reflective of some leading principles we have identified for strategic workforce planning. However, the performance measures contained in various DHS strategies primarily focus on monitoring progress in implementing a single aspect of strategic workforce planning—that is determining whether staff performing certain jobs should be federal or contract employees. In addition, OCHCO officials have not developed a documented evaluation system to institutionalize its oversight efforts. Further, internal audits and our previous work have identified component-level challenges related to workforce planning.",
"DHS has taken steps relatively recently that are generally consistent with strategic workforce planning principles. Specifically, since January 2011, DHS has taken steps to develop and implement strategic workforce planning efforts that are generally consistent with the leading principles including involving management and stakeholders, identifying skills and competencies, developing strategies to fill gaps, and building capability through training.\nInvolving top management and stakeholders: We have found efforts that address key organizational issues, like strategic workforce planning, are most likely to succeed if, at their outset, agencies’ top program and human capital leaders set the overall direction, pace, tone, and goals of the effort, and involve employees and other stakeholders in establishing a communication strategy that creates shared expectations for the outcome of the process. We reported in March 2012 that DHS has demonstrated top leadership commitment by identifying roles and responsibilities at the departmental level for its key management initiatives, including those in the human capital management area, it included in the December 2011 Integrated Strategy for High Risk Management. At the component level, BWPMO began efforts in 2011 to obtain input from component stakeholders and communicated information departmentwide via councils and committees, such as the Workforce Planning Council, which meets monthly. In addition, from June through October 2011, BWPMO regularly held committee meetings of its Workforce Indicators Working Group to incorporate component input into new strategic workforce planning initiatives, such as providing common definition of terms so that human capital data, such as rates of attrition, reported by components are uniform. DHS also included component input in the development of the DHS Workforce Strategy Fiscal Years 2011-2016. Internal audits found evidence that components are taking steps to involve top managers and stakeholders. For example, internal audits of CBP in December 2011 found that agency workforce planning officials meet with their program-level counterparts at least three times a year to discuss changes within their workforce, develop strategies to retain the workforce, and to provide updated workforce analysis statistics.\nIdentifying critical skills and competencies: Our work has shown that in order to effectively meet department challenges, agencies must identify the workforce skills and competencies that are critical to achieving strategic goals and identify how the agency will obtain these requirements. OCHCO began working with components in 2011 to help identify critical skills and competencies needed to achieve their current and future workforce needs to achieve the department’s missions. OCHCO provided components guidance for identifying critical skills and competencies, among other things, and DHS also developed a common framework for DHS competencies to be used across all components through DHS’s Competency Working Group. Specifically, this framework includes a standard set of departmentwide competencies that would apply to all staff, which would be augmented by two further sets of competencies within each component: one set specific to all occupations and the other set specific to individual jobs. OCHCO also worked directly with components to identify MCOs. Internal audits found evidence that components are taking steps to identify critical skills and competencies, as well as the gaps that exist. For example, auditors found in their March 2010 audit that TSA identified mission-critical positions throughout its organization and that information related to the competencies necessary to fill mission-critical positions was housed in a tool utilized as part of a midlevel leadership development program.\nDeveloping strategies for addressing gaps: Our work on strategic workforce planning principles indicates that once an agency identifies the critical skills and competencies needed, strategies should be developed to address gaps in the number, skills and competencies, and deployment of the workforce needed for the future. Developing such strategies creates a road map for an agency to use to move from the current to the future workforce needed to achieve program goals. In September 2011, OCHCO began participating in the governmentwide Executive Steering Committee and Integrated Product Team as part of the Office of Personnel Management (OPM) and Department of Defense (DOD)-led Strategic Human Capital High Risk Initiative to develop strategies for addressing workforce skill gaps. According to BWPMO officials, its efforts on this governmentwide initiative supplemented the gap analysis detailed in the DHS Workforce Planning Guide, which BWMPO officials planned to update with additional tools and templates developed based on information from the governmentwide initiative. BWPMO officials reported they plan to complete the update by the end of November 2012. In addition, DHS required components to develop an initial assessment strategy for developing plans to address the skill gaps by the end of fiscal year 2012, and the department reported in June 2012 that 100 percent of its components had developed an initial assessment strategy. For example, officials at the U.S. Secret Service (USSS) said they developed a series of action plans to ensure full staffing of the Uniformed Division officer position, a position designated as a high-risk MCO through efforts related to the work of the governmentwide high-risk initiative. This included the identification and analysis of staffing gaps and the development of action plans to close them.\nBuilding workforce planning capability: Our work on strategic workforce planning principles indicates that agencies should build the capability needed to address administrative, education, and other requirements important to supporting the workforce strategy. BWPMO leadership hosted the May 2011 Strategic Workforce Planning Summit, which involved human capital officials from each component. The summit provided training for component officials on strategic workforce planning to identify workforce indicators, competency and skill gaps, and revise MCOs. The training also included building components’ planning capability to address current and future workforce needs using alternative futures scenarios. Officials at FEMA credited the summit with providing them the training they needed to better define their MCOs. In addition, representatives from each of the seven major components we interviewed said that OCHCO staff provided multiple opportunities for building their workforce planning capability through shared knowledge, including leading principles, identifying challenges and solutions, and general sharing of information between DHS and the components and also among the components. OCHCO has also provided resources for components to work directly with each other regarding sharing workforce leading principles. For example, BWPMO manages a shared website that allows officials at each component to share information and utilize resources, such as presentations or leading principles shared by other components. Internal audits found evidence that components are also building workforce planning capability. For example, in March 2012, internal auditors reported that Immigration and Customs Enforcement (ICE) had established communities of practice composed of eight offices tasked with addressing the strategic direction of human capital and improving communications for accuracy and timeliness among the ICE human capital leaders.\nWhile DHS has taken relatively recent steps, since January 2011, to implement strategic workforce planning, recent internal audits, as well as our previous work, identified challenges related to workforce planning at the component level. Specifically, these audits, as well as our previous work, have reported findings of component-level deficiencies that could impair the continued implementation of recent OCHCO efforts. For example, internal audits and our previous work found challenges related to the following.\nInvolving stakeholders: In July 2010, internal auditors recommended that human capital professionals in the Coast Guard work with component and program-level human capital stakeholders to determine the workforce needed to meet organizational goals.\nSimilarly, in August 2009, internal auditors recommended that U.S.\nCitizenship and Immigration Service (USCIS) educate all managers, supervisors, and employees on the significance of the strategic workforce plan, including their roles and responsibilities in implementing the plan.\nIdentifying critical skills: Internal auditors found in March 2012 that ICE had performed the preliminary identification of MCOs in fiscal years 2010 and 2011, and recommended that ICE continue efforts to Additionally, internal identify competency gaps, among other things. auditors found in July 2010 that while USCG identified a list of MCOs, the list was inconsistent across the functional areas of human capital and that a comprehensive list should be compiled and shared amongst the various program areas. In July 2009 we reported that, among other things, the Federal Protective Service’s (FPS) workforce planning was limited because FPS headquarters did not collect data on its workforce’s knowledge, skills, and abilities. We reported that without such information, FPS was unable to determine what its optimal staffing levels should be or identify gaps in its workforce needs, or determine how to modify its workforce planning strategies to fill these gaps, and we made recommendations that FPS take steps to address these issues. FPS officials agreed with our recommendations and in June 2010 drafted a staffing plan consistent with our recommendations, but as of November 2012, FPS has not gained approval of its staffing plan.\nDeveloping strategies for addressing gaps: A March 2012 internal audit reported that although ICE had made significant progress in the development of a draft succession plan demonstrating progress in moving toward a strategically aligned workforce plan, the agency had not yet finalized a comprehensive agencywide workforce and succession plan, and that this area remains a source of concern. Further, we reported in February 2009 that TSA did not have a reasonable basis for determining the workforce needed to achieve inspection goals of its transportation security inspector (TSI) workforce. According to TSA officials, planned aviation inspection goals were met in fiscal year 2007, but aviation cargo inspection goals were not met because, among other reasons, TSA did not fill all of its cargo TSI positions. TSA reported that it had plans to conduct a staffing study in fiscal year 2009 to identify the optimal workforce size to address its current and future program needs. In September 2011, we further reported that TSA had completed the workforce study in March 2010 to provide the agency with a more reasonable basis for determining the optimal workforce size needed to achieve its current and future inspector workload needs of its aviation and air cargo inspectors.study were informing TSA’s resource allocation decisions as part of this review.\nWe did not assess the extent to which the results of this\nBuilding capability: In internal audits conducted from August 2009 through May 2010, auditors found that three of the seven components’ human capital managers and staff had insufficient awareness of the linkage between human capital planning and the department’s missions and goals. Specifically, as mentioned above, in August 2009, auditors recommended USCIS educate all managers, supervisors, and employees in Human Capital on the significance of the human capital strategic plan and how its strategic objectives affect the mission, including their roles and responsibilities in executing the plan. Audits conducted in October 2009 and May 2010 resulted in similar recommendations for both ICE and USSS.",
"Although the department recently began taking positive steps for managing strategic workforce planning in 2011, DHS officials have not yet taken steps to implement an effective oversight approach for monitoring and evaluating components’ progress in implementing strategic workforce planning, consistent with strategic workforce planning principles.\nAccording to leading principles, agencies should measure the effectiveness of the workforce plan and help ensure that the strategies work as intended by evaluating the contributions workforce plans make to strategic results. To do this, agencies should determine how well the agency implemented its workforce plan and determine the contribution that the implementation made toward achieving programmatic goals. Periodic measurement of an agency’s progress toward human capital goals and the extent that human capital activities contributed to achieving programmatic goals provides information for effective oversight by identifying performance shortfalls and the need for appropriate corrective actions.Framework calls for agencies to develop a system for monitoring and evaluating the results of its human capital management policies, programs, and activities, and identifying and monitoring necessary improvements based on the principle that agency human capital management decisions should be guided by a data-driven, results- oriented planning and accountability system.\nFurther, OPM’s Human Capital Assessment and Accountability OCHCO has developed limited performance measures to provide a basis for monitoring and evaluating departmentwide strategic workforce planning efforts. related to strategic workforce planning and that two of these three measures gauge components’ efforts to determine whether positions should be filled with federal or contract employees. Determining whether a function should be staffed by either a federal employee or a contractor is one element of the first of five steps (strategic direction setting) in DHS’s workforce planning model, which includes five steps made up of a total of 15 elements. The five steps and 15 elements of the DHS Workforce Planning Model, as well as whether there are any related performance measures for these elements, are described in table 1.\nWe identified these performance measures in two different strategy documents, DHS’s Workforce Strategy and its Integrated Strategy for High Risk Management.\nThe remaining performance measure gauges the percentage of components that have developed an initial assessment strategy for determining skills gaps for an analysis of workforce supply, which is a precursor to step 2 of the workforce planning model. OCHCO also uses what it refers to as the Human Capital Dashboard to monitor and report to senior DHS officials regarding targeted indicators of workforce health, such as attrition, aligned with the MCOs. For example, in DHS’s first mission area, Preventing Terrorism and Enhancing Security, the Dashboard identifies workforce information such as number of staff and attrition rates for job series identified as MCOs, including transportation security officers from TSA and special agents from USSS.\nThus, on the basis of our evaluations, OCHCO has established performance measures that monitor only 2 of the 15 elements in the department’s workforce planning model. When we asked BWPMO officials about developing performance measures for other steps or elements of the DHS Workforce Planning Model, officials agreed that the existing measures did not adequately report the state of strategic workforce planning at the component level. BWPMO officials said that they intended to include additional performance measures in revising the Workforce Strategy, sometime in 2016. In subsequent discussions, BWPMO officials said that, in response to our inquiries, they planned to discuss how to accelerate their efforts to incorporate additional performance measures for reporting components’ progress implementing strategic workforce planning at a future Workforce Planning Council meeting. place to develop and implement additional workforce planning-related performance measures. Without performance measures that provide BWPMO a basis to monitor all aspects of departmentwide strategic workforce planning, DHS has limited means of determining components’ progress toward achieving human capital goals or the contribution of human capital activities toward achieving programmatic goals. Additional performance measures that monitor additional steps and elements of DHS’s workforce planning model could enhance the department’s oversight of these efforts.\nBWPMO officials also discussed applying a governmentwide measure in fiscal year 2012 to measure staffing gaps as part of its annual reporting to OPM.",
"BWPMO officials rely on an informal management approach to assess component workforce planning, which provides it with a limited means of evaluating components’ progress in implementing departmental policies and procedures governing workforce planning. BWPMO’s reliance on an informal management approach to evaluate components’ progress in implementing departmental policies and procedures governing workforce planning provides limited oversight of components’ efforts because it fails to leverage and institutionalize existing processes.\nTwo processes exist within OCHCO that BWPMO could leverage to more effectively evaluate components’ progress implementing workforce planning, though these have limitations. Specifically, components develop and provide to OCHCO for review, annual operational plans to report on the components’ progress implementing the department’s Workforce Strategy, though OCHCO has not provided timely review of components’ annual operational plans. Additionally, HCPP uses internal audits in its evaluation of component-level human capital-related efforts, but BWPMO has not used the results of these audits to evaluate the implementation of the components’ workforce planning efforts.\nThe department’s Workforce Strategy requires components to submit annual operational plans to OCHCO that describe, among other things, how their strategic workforce planning supports the strategy’s goals and objectives. Specifically, the annual operational plans are the method by which components report to the Secretary of Homeland Security and the CHCO on component-specific actions in support of the department’s goals, objectives, and associated performance measures identified in the Workforce Strategy. OCHCO is responsible for overseeing the implementation of the Workforce Strategy and also for providing oversight and feedback on the components’ annual operational plans, among other things. In order for these annual plans to be an effective tool for component leadership to ensure that their workforce planning efforts are aligned to the department’s Workforce Strategy, component officials need departmental feedback in time to make any corrections or revisions so they can fully develop the operational plans prior to the start of the fiscal year and then implement them once the fiscal year begins.\nHowever, OCHCO has not provided feedback on operational plans in time for the components to revise and implement their plans before the start of the fiscal year. Specifically, when we spoke with component officials from April through May 2012, they said they had previously provided their fiscal year 2012 operational plans to OCHCO for review, but at that time had not yet received feedback on these plans. An official from the OCHCO Chief of Staff’s office, the office responsible for overseeing the implementation of the workforce strategy and for providing feedback on the components operational plans, said that as of September 2012, nearly 1 year after the beginning of fiscal year 2012, the components’ had not received feedback on their operational plans for fiscal year 2012, and subsequently the department had not begun working with components to develop their plans for fiscal year 2013. Further, fiscal year 2013 had already begun yet OCHCO had not completed the process for finalizing the fiscal year 2012’s plans. This official agreed that components’ operational plans should be finalized and in place prior to the start of the fiscal year for which they are intended in order to guide components’ operations for the coming year.\nWhen we asked the official from the OCHCO Chief of Staff’s office whether the component operational plans were an effective tool for the department to use in its evaluation of component-level workforce planning, the official acknowledged that the plans do not serve as an effective management tool for OCHCO to evaluate component workforce strategy-related activities, including workforce planning. The plans do not serve as an effective management tool because there have been delays in preparing, reviewing, and approving component annual operational plans, as well as in providing feedback. Such feedback serves as the basis for revising and finalizing the plans, as well as providing baseline information to develop the following year’s plans. OCHCO officials agreed that they have not provided components with feedback regarding their operational plans in a timely manner, which has delayed the implementation of the fiscal year 2012 plans as well as the development of fiscal year 2013 plans. OCHCO officials agreed these plans should have been developed and implemented prior to the start of the fiscal year for which they are to be used to evaluate the implementation of the DHS Workforce Strategy. As a result, without timely feedback and implementation, OCHCO is unable to use the annual operational plans to determine the effectiveness of components’ efforts to implement the department’s workforce strategy.\nIn addition to OCHCO’s requirement that components report annually on the status of their implementation of workforce planning efforts, HCPP conducts internal audits called Human Resources Operations Audits on each operational component every 3 years. Our analysis determined that 11 out of 44 total outcomes in the HROAs related to workforce planning. Within the first section of the HROA, strategic alignment, there are three outcomes that explicitly assess components’ workforce planning efforts. For example, one outcome assesses whether workforce planning is strategically approached. In addition to the three outcomes explicitly identified in the audits as related to workforce planning, our analysis determined there are an additional eight outcomes within the audits that relate to the strategic workforce planning leading principles our previous work has identified. For example, one outcome DHS components are assessed against is whether they have documented and communicated human capital accountability policies, processes, measures, and results throughout their organization. This outcome directly relates to the strategic workforce planning leading principle regarding monitoring and evaluating.\nThe most recently completed audits conducted on the seven operational components included in our review revealed that five of the seven components had not taken needed steps to ensure that human capital accountability policies, processes, measures, and results are documented and communicated throughout the organization. Additionally, four components had not fully incorporated systems to continually assess and improve human capital planning and investment as well as their impact on mission accomplishment. For example, in their most recent HROAs, CBP and TSA met all four outcomes pertaining to accountability; however, audits of the other five components included recommendations to develop accountability programs. For example, in March 2012 auditors recommended that ICE officials develop a formalized accountability program that describes a system for measuring accountability goals and compliance with applicable legal authorities and continue developing standardized policies and procedures that will be used to hold program areas accountable. Similarly, USCIS’s most recent audit report in August 2009 recommended that USCIS officials develop and implement a human capital accountability plan.\nFurther, HCPP and BWPMO, the two offices in OCHCO responsible for providing oversight of components’ workforce planning, have not coordinated their efforts. Specifically, within OCHCO, HCPP uses the HROAs to evaluate components’ compliance with certain statues and regulations, among other things, while BWPMO, the OCHCO office primarily responsible for departmentwide workforce planning, had no knowledge that HROAs included workforce planning-related required actions and recommendations.\nAccording to the OCHCO Human Resources Audit Manual, the guide used by audit teams to perform HROAs on the components, the component is responsible for preparing an action plan for the accepted required actions and recommendations. This plan must be submitted to the audit team lead for review and approval and must include a timeline of activities to fulfill each action and must identify the documentation that will be provided to the audit team lead upon completion of each item.\nWhen we asked OCHCO officials how the required action plans were evaluated, they said that as part of their follow-up and tracking of component HROA responses, HCPP reviews component action plans and closes out audit reports. This process includes issuing the final audit results to the component and, in response, the component develops an action plan. Once HCPP receives the required component action plan, HCPP staff evaluates the plan to determine its sufficiency in addressing the required actions from the audits and adds notes to the report to indicate their final determination or provide further direction to the component. Finally, HCPP issues a close out report to the component documenting the status of the findings.\nDespite BWPMO’s responsibility for departmentwide workforce planning, officials in that office did not use the workforce planning-related portions of the HCPP HROAs to evaluate component workforce planning. When we asked BWPMO officials how they used the results of these audits for departmental management and oversight, they said that they were not aware that the HROAs included recommendations or required components to take certain actions pertaining to workforce planning. Thus, these officials said that they had not integrated the results of these audits into their strategic workforce planning efforts. Because HCPP performs the human resources operational audits and BWPMO had not used the results to assess compliance, the BWPMO officials relied on informal discussions with component officials to gather information on the status of component strategic workforce planning efforts.\nAs a result of our inquiries, BWPMO officials said they planned to coordinate with HCPP in the future to ensure that workforce planning analysis conducted during the audits is consistent with BWPMO workforce planning efforts, and that the results of required actions and recommendations from the final audit reports related to workforce planning are evaluated across components. However, BWPMO had no documented plans regarding using these audits to evaluate components’ implementation of strategic workforce planning efforts. Though BWPMO and HCPP officials stated they planned to revise the Human Resources Audit Manual to incorporate changes, as of November 2012, BWPMO was unable to provide specific information regarding how these audits would be used in the future. Standards for Internal Control in the Federal Government calls for agencies to have appropriate documentation of transactions and internal controls, which should appear in management directives, administrative policies, or operating manuals. Moreover, the standards state that such policies and procedures should provide reasonable assurance that ongoing monitoring and evaluation is institutionalized in the agency’s operations. Without policies and procedures in place to ensure that monitoring and evaluation is institutionalized, OCHCO will continue to have limited oversight of the implementation of strategic workforce planning at the component level.\nIn addition, although components are required to develop annual operational plans to report on their efforts to implement the department’s workforce strategy and the HROAs are performed on components to assess the extent to which they are contributing to mission accomplishment, among other things, the two efforts are not linked. In conjunction with additional strategic workforce planning performance measures, incorporating the results of human resources operations audits, including the status of addressing required actions and recommendations, in the components’ annual operational plans could provide OCHCO with a greater ability to oversee departmentwide strategic workforce planning. Moreover, monitoring and evaluating the results of components’ implementation of OCHCO’s strategic workforce planning policies and procedures is essential to ensure that issues and concerns identified in prior internal audits are consistently and comprehensively resolved and to provide a means of assessing the impact of OCHCO’s recent initiatives.",
"DHS’s ability to successfully meet its multiple, diverse, and essential missions involves the efforts of more than 240,000 employees, the vast majority of which work within the seven operational components. To ensure DHS has the workforce it needs to accomplish these missions, and effectively manage the human capital challenges it is facing along with the government as a whole, such as increasing turnover, the department needs to align its strategic planning with programmatic goals and budgetary realities to develop long-term strategies for acquiring, developing, and retaining staff to achieve these goals. DHS has recently taken steps to implement more strategic, departmentwide workforce planning by working collaboratively with components though various committees and councils to focus the department on strategic workforce planning. Nonetheless, as DHS moves forward, it will need to determine how to assess its progress and ensure components are achieving workforce planning goals. DHS currently has limited performance measures and lacks policies and procedures regarding how to use the results of audits for departmental oversight of component workforce planning. Without additional performance measures related to workforce planning to hold components accountable for making progress in implementing these efforts, DHS’s OCHCO does not have an effective means of monitoring progress. Similarly, without policies and procedures for integrating the results of audits into component workforce plans and annual reports, DHS lacks reasonable assurance that evaluation of such efforts will be institutionalized, nor can it provide evidence of component alignment with departmental strategic workforce planning guidance.",
"To help ensure that DHS strategic workforce planning is effectively implemented departmentwide, we recommend that the Secretary of Homeland Security direct the Office of the Chief Human Capital Officer to take the following three actions to provide a basis to monitor and assess the effectiveness of departmentwide strategic workforce planning: identify and document additional performance measures, such as measures to monitor component efforts to develop and implement action plans to address workforce supply and demand discrepancies, and use them to assess and report on components’ progress in implementing DHS’s strategic workforce planning process; document policies and procedures for the Balanced Workforce Program Management Office and the Human Capital Policy and Programs Office to use the results of audits related to component- level workforce planning; and integrate the results of these audits with components’ annual operational plans and review the plans and provide timely feedback to enhance components’ implementation of strategic workforce planning efforts.",
"We requested comments on a draft of this report from DHS. On November 16, 2012, DHS provided written comments, which are reprinted in appendix I, and provided technical comments, which we incorporated as appropriate. DHS concurred with our three recommendations and described actions planned to address them. Specifically, DHS stated that—-\nThe department has taken steps to implement an effective oversight approach for monitoring and evaluating components’ progress in implementing strategic workforce planning. These steps include an effort by BWPMO and HCPP to develop a checklist outlining specific performance measures to be used in future HROAs to determine component compliance with workforce planning guidance, among other things.\nBWPMO plans to document oversight policies in the next update of its workforce planning guidance, and that HCPP will provide audit findings to BWPMO staff in order to ensure appropriate internal control processes and component compliance with workforce planning guidance. The procedures outlined in the planned update to the DHS Workforce Planning Guide will also be used by BWPMO to monitor and provide workforce planning oversight of components.\nOCHCO will use HROA audit results as a source of component information as OCHCO conducts reviews of component annual operational plans. OCHCO will begin this integration of HROA information and component operational plans with the issuance of HCPP’s next HROA audit report scheduled for the end of November 2012.\nWe are sending copies of this report to the Secretary of Homeland Security, selected congressional committees, 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) 512-9627 or maurerd@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 II.",
"",
"",
"",
"In addition to the contact named above, Chris Keisling, Assistant Director; Scott Behen, Analyst-in-Charge; David Garcia; Steve Lozano; and Katherine Davis made significant contributions to the work. Mary Denigan-Macauley, Tracey King, and Amanda Miller also contributed to this work."
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{
"question": [
"What has the DHS done recently to enhance strategic workforce planning?",
"What are these steps consistent with?",
"What specifically are these steps consistent with?",
"What is an example of this?",
"What has been identified in the DHS related to workforce planning?",
"What is an example of this?",
"What did GAO recommend?",
"How did FPS officials react?",
"What have DHS officials not yet done?",
"What should agencies do according to this principle?",
"What should agencies do to achieve this?",
"What has the OCHCO developed?",
"What does OCHCO rely on?",
"What is an example of this?",
"Why does DHS's OCHCO not have reasonable assurance that efforts will be institutionalized?",
"What will the department not be able to produce?",
"What does DHS's workforce support?",
"What does strategic workforce planning focus on?",
"What has GAO previously identified?",
"What was GAO asked to review?",
"What does this report assess?",
"What did GAO review?"
],
"summary": [
"The Department of Homeland Security (DHS) has taken some relatively recent steps to enhance strategic workforce planning across the department.",
"These steps are generally consistent with leading principles, but the department has not yet implemented an effective oversight approach for monitoring and evaluating components' progress.",
"Specifically, recent steps DHS has taken to develop and implement strategic workforce planning efforts are consistent with the leading principles GAO has reported that include involving management and stakeholders, identifying skills and competencies, developing strategies to fill gaps, and building capability through training.",
"For example, the department demonstrated stakeholder involvement by including component-level stakeholders in the development of the DHS Workforce Strategy.",
"Though DHS has taken steps to implement strategic workforce planning, recent internal audits, as well as GAO's previous work, identified challenges related to workforce planning at the component level that could impair the continued implementation of recently initiated strategic workforce planning efforts.",
"For example, GAO reported in July 2009 that the Federal Protective Service's (FPS) workforce planning was limited because FPS headquarters did not collect data on its workforce's knowledge, skills, and abilities and subsequently could not determine optimal staffing levels or determine how to modify its workforce planning strategies accordingly, amongst others.",
"GAO recommended that FPS take steps to address these issues.",
"FPS officials agreed with our recommendations, and in June 2010 drafted a staffing plan consistent with our recommendation, but as of November 2012, FPS has not gained approval of its staffing plan.",
"Although DHS began taking positive steps for managing strategic workforce planning in 2011, DHS officials have not yet taken steps to implement an effective oversight approach for monitoring and evaluating components' progress in implementing strategic workforce planning.",
"According to this principle, agencies should measure the effectiveness of the workforce plan and help ensure that the strategies work as intended by monitoring and evaluating the contributions workforce plans make to strategic results.",
"To do this, agencies should determine how well the agency implemented its workforce plan and the contribution that its implementation made toward achieving programmatic goals.",
"However, the Office of the Chief Human Capital Officer (OCHCO) has developed limited performance measures to provide a basis for monitoring and evaluating departmentwide strategic workforce planning efforts. GAO's analysis identified performance measures that reported on only 2 of the 15 elements in DHS's strategic workforce planning model.",
"OCHCO relies on an informal process to evaluate component workforce planning, though processes exist that it could leverage to provide oversight.",
"For example, OCHCO performs internal audits and requires components to develop annual operations plans to implement the department's workforce strategy.",
"Without (1) performance measures that more comprehensively address DHS's strategic workforce planning process, and (2) policies and procedures for ensuring monitoring and evaluation of departmentwide workforce planning, DHS's OCHCO does not have reasonable assurance that such efforts will be institutionalized.",
"Further, the department will not be able to produce departmentwide evidence of component alignment with DHS strategic workforce planning guidance.",
"With more than 240,000 employees doing diverse jobs, DHS's workforce supports the department's multiple missions to prevent terrorism and enhance security, secure and manage the nation's borders, and ensure resilience from disasters, amongst others.",
"Strategic workforce planning focuses on developing long-term strategies for acquiring, developing, and retaining an organization's total workforce, including federal staff and contractors, to meet the needs of the future.",
"GAO has previously identified workforce-related challenges faced by DHS components.",
"In light of these ongoing challenges, GAO was asked to review DHS's strategic workforce planning efforts.",
"This report assesses whether DHS has incorporated strategic workforce planning leading principles into the department's management of strategic workforce planning efforts.",
"GAO reviewed DHS strategies and guidance related to strategic workforce planning, compared them with leading principles identified in previous GAO work, and discussed ongoing strategic workforce planning efforts with officials from the seven components selected because they constitute the majority of DHS personnel."
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GAO_GAO-16-416
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{
"title": [
"Background",
"MHS Overview",
"MHS Coverage Eligibility for Reservists and Deployed DOD Civilians",
"DOD Access to Care Standards",
"Utilization of MHS Mental Health Care",
"DOD Makes a Variety of Inpatient and Outpatient Mental Health Care Available Domestically and Overseas",
"DOD Offers a Variety of Mental Health Care Services",
"DOD Provides Most Outpatient Services through Direct Care and Most Inpatient Services through Purchased Care",
"Military Services Also Make Mental Health Care Available through Non- Traditional Methods",
"DOD Has Increased the Number of Available Mental Health Providers, but DOD Data Show Shortages for Some Provider Types",
"MHS Mental Health Care Available to Inactive Reservists is Generally Limited to Assessments and Referrals or to Care Purchased through TRICARE Reserve Select",
"While DOD Met Most of Its Mental Health Appointment Access Standards, DOD Lacks a Key Standard, and Its Surveys Suggest Potential Access Problems Recent Data Show That DOD Generally Met Its Access Standards for Most Direct Care Mental Health Appointment Types",
"DOD Lacks an Access Standard for the Most Common Type of Direct Care Mental Health Appointment",
"Limited Data on Mental Health Access in Purchased Care Are Available, but DOD Instead Relies on Beneficiary Surveys and Complaints to Monitor Access",
"DOD Surveys and Other Sources of Access Information Show That Some Servicemembers Have Experienced Mental Health Access Problems",
"Mental Health Care Available in Deployed Settings Varies Depending on the Environment, and Access Data Are Generally Not Available",
"Mental Health Care Available in Deployed Settings Varies by Environment, Is Delivered Through Various Means, and Has Decreased Along with Deployments",
"Mental Health Access Data for Deployed Settings Are Generally Not Available, Although Afghanistan Studies Show Some Access Improvement since 2009",
"Conclusions",
"Recommendation for Executive Action",
"Agency Comments",
"Appendix I: Fiscal Year 2015 Department of Defense (DOD) Mental Health Provider Staffing Shortages",
"Appendix II: Department of Defense (DOD) and Air Force Survey Data Related to Mental Health Access",
"Appendix III: Comments from the Department of Defense",
"Appendix IV: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"The MHS operated by DOD has two missions: (1) supporting wartime and other deployments and (2) providing peacetime health care. In support of these two missions, DOD operates a large and complex health care system that employs more than 150,000 military, civilian, and contract personnel working in MTFs. DHA oversees the TRICARE health plan, and also exercises authority and control over the MTFs and subordinate clinics assigned to the NCR Medical Directorate. Outside of the NCR Medical Directorate, each military service operates its own MTFs and their subordinate clinics. Each military service recruits, trains, and funds its own medical personnel to administer medical programs and provide medical services to servicemembers. DHA does not have direct command and control of MTFs operated by the military services.\nIn the MHS, health care is provided at no cost to active duty military servicemembers through the TRICARE Prime health care option. Reservists called or ordered to active service for more than 30 days have the same coverage as active duty servicemembers under TRICARE Prime, while inactive reservists may qualify to purchase TRICARE Reserve Select (TRS) coverage. The health care services covered by TRICARE Prime and TRS are generally the same, although the options vary by factors such as enrollment requirements, choices between civilian and MTF providers, required contribution from servicemembers toward the cost of care, and referral and prior authorization requirements. Data from the end of fiscal year 2014 showed that there were 1,587,987 active duty servicemembers enrolled in TRICARE Prime and 121,912 reservists with TRS.\nWithin the United States, TRICARE is organized into three main regions—North, South, and West. (See fig. 1 for a map of the three regions.) DHA and TRICARE Regional Offices are responsible for managing purchased care through contractors in each of these regions. In each region, the contractor develops a network of civilian providers— referred to as network providers—to serve all the TRICARE beneficiaries in geographic areas called Prime Service Areas. The TRICARE Regional Offices, in particular, are responsible for monitoring the quality and adequacy of contractors’ provider networks and customer-satisfaction outcomes. Overseas, TRICARE is divided into three areas: Eurasia- Africa, Latin America and Canada, and Pacific. One contractor serves these areas, which is overseen by the TRICARE Overseas Office.",
"Reservists have a general cycle of coverage during which they are eligible for MHS care through various TRICARE options based on their duty status – preactivation, active duty, deactivation, and inactive. During preactivation, when reservists are notified that they will serve on active duty in support of a contingency operation for more than 30 days in the near future, they are eligible for TRICARE benefits as an active duty servicemember. While on active duty for more than 30 days, reservists are required to enroll in TRICARE Prime and are eligible to receive the same medical services accorded to active-duty servicemembers. During deactivation, reservists returning from more than 30 days of active duty in support of a contingency operation may be eligible for 180 days of transitional health care through various TRICARE options. Inactive reservists can choose to purchase TRS coverage, if eligible, or use any other health coverage for which they may be eligible, such as employer- sponsored insurance. For reservists who are injured, become ill, or incur a disease while in a duty status, a line of duty determination is required and must be approved in order to determine eligibility for any MHS medical care associated with the specific injury, illness, or disease. If this determination is positive, the reservist is eligible to receive medical treatment for the specific injury, illness, or disease described in the line of duty determination through MTFs or civilian providers.\nDOD’s policies also entitle all deployed DOD civilian employees to medical treatment and services, including mental health services, at the same level and scope of those services provided to military personnel while in that deployed setting. Upon returning from deployment, DOD civilians are eligible to receive care in an MTF for any mental health conditions determined to be related to their deployment. This care is provided at no cost. Formerly deployed DOD civilians with mental health conditions related to their deployment can also elect to get treatment outside an MTF and get their care reimbursed, or seek care through their regular health insurance if the health plan will cover the treatment.",
"DOD has established, in regulation and policy, TRICARE Prime access standards related to various aspects of DOD mental health care, including appointment wait times. The standards include appointment wait time standards for four types of mental health appointments—acute, routine, wellness, and specialty (see table 1). DOD measures its compliance with these wait time standards in several ways, including monitoring the average number of days to be seen for each appointment type, as well as the average percentage of appointments that meet the relevant access standard. The MHS goal is for 90 percent of appointments of each type to meet the relevant access standard. The standards apply to care delivered to TRICARE Prime beneficiaries in either direct care or purchased care. The policy notes that it applies to overseas locations to the extent practicable, but overseas locations often present unique circumstances. The access standards, however, do not apply to care delivered in deployed settings.\nWithin the MHS’s direct care system, compliance with the access standards is monitored using appointment data available from DOD’s Composite Health Care System, the electronic system through which patient appointments are booked. Appointments are scheduled in the system, which is programmed to count the actual waiting time between the date of the appointment request and the scheduled appointment date. These metrics are readily available at each MTF and at higher organizational levels, including service headquarters. DOD reports that oversight of appointment wait times and the availability of care for all clinics under the command of an MTF is a key responsibility of the leadership team at that facility and that ultimately, the MTF Commander is accountable for performance related to delays in care for all medical care, including mental health.\nIn the purchased care system, detailed data about compliance with DOD’s access to care standards are not available; instead, patient satisfaction with the length of time to an appointment, as measured through TRICARE beneficiary surveys, is used as a surrogate measure of access. While the TRICARE regional contractors submit appointment data to DHA, the contractors do not collect and report the same level of detail on access to care as is available in the direct care system, and the contractors do not use the same information systems. Moreover, the overseas contractor does not collect the same data as the U.S. contractors.",
"Use of MHS mental health care has generally increased among active duty servicemembers. From fiscal year 2009 through fiscal year 2013, the percentage of active duty servicemembers who used either outpatient or inpatient mental health care provided through DOD’s MHS increased across all four services. Across all services, utilization began to decline in fiscal year 2014 (see fig. 2).",
"",
"DOD makes a variety of mental health care services available both domestically and overseas to active duty servicemembers, ranging from outpatient services such as psychotherapy and telehealth, to inpatient services such as acute psychiatric care, as well as emergency services. Table 2 lists the covered outpatient and inpatient mental health services available to servicemembers through the various TRICARE options. Army and Air Force officials stated the same mental health care is generally available domestically and overseas. While a TRICARE fact sheet notes that when overseas, limitations on mental health care services may apply, the Air Force reported that servicemembers are screened prior to overseas tours to minimize the likelihood of needing care that is not available. Army officials added that the availability of specific mental health services to be provided through direct care in a particular MTF or clinic depends on multiple factors, including the MTF’s size and the mental health needs of the beneficiary population it serves. For example, not all MTFs offer inpatient mental health services. In such cases, an active duty servicemember requiring inpatient mental health services would either be referred to purchased care or travel to an MTF that offers such services.",
"In fiscal year 2014, DOD provided most of its outpatient mental health services through the direct care system, while providing most of its inpatient mental health services through the purchased care system. Among all of DOD’s military services, outpatient mental health care is provided at nearly all MTFs and clinics, while inpatient mental health care is less widespread. For example, the Army reported that in fiscal year 2014, all of its 56 MTFs and clinics provided outpatient mental health care, whereas only 13, or 23 percent, of the Army’s MTFs and clinics provided inpatient mental health care. For the same year, the Air Force reported all of its 75 MTFs with mental health clinics provided outpatient mental health services, but only 2 MTFs, or approximately 3 percent, provided inpatient mental health care. The Navy, which also provides health care services for the Marine Corps, reported that in fiscal year 2014, there were 67 MTFs and clinics that provided outpatient mental health care, whereas only 4 MTFs provided inpatient mental health care.\nConsistent with the availability of outpatient mental health services at MTFs and clinics, about 76 percent of outpatient mental health encounters for active duty servicemembers were provided through direct care across all military services in fiscal year 2014 (see table 3). In contrast, inpatient mental health care was provided mostly through purchased care in that year for all the military services except the Navy, which divided its provision of inpatient mental health care equally through direct care and purchased care. DOD and Army officials reported that they have increasingly focused on providing mental health care through the direct care system—citing reasons such as a need for DOD and the services to be aware of active duty servicemembers’ mental well-being to assess both their fitness for duty and whether they pose any risk to themselves or others.",
"To address the mental health needs of servicemembers, the military services have integrated mental health providers in primary care settings, embedded mental health providers within units, and used telehealth. Each military service has established a program to integrate mental health providers into primary care settings to decrease overall health care costs and improve patient access to mental health services. A DOD official stated that these mental health providers, officially termed internal behavioral health consultants, are typically psychologists and social workers who help primary care providers with any mental health concerns that servicemembers have. As needed, the consultants also help servicemembers adhere to their treatment regimens. According to DOD, internal behavioral health consultants typically see patients one to four times for a 30-minute appointment per episode of care and refer them to specialty mental health care for a more intensive level of services if they show no improvement.\nThe number of behavioral health consultants varies across DOD’s military services. Army officials stated that in fiscal year 2014, the Army had internal behavioral health consultants in 38 of its 56 MTFs and clinics. The officials reported that integrating internal behavioral health consultants into primary care settings has been an effective method to provide behavioral health care. The Air Force reported that as of fiscal year 2014, 71 of its 75 MTFs had internal behavioral health consultants. The Navy reported that as of fiscal year 2014, the service had placed internal behavioral health consultants in 71 clinics throughout the 27 domestic and overseas Naval MTFs, and has plans to eventually have them in 80 clinics.\nDOD’s military services have also co-located mental health providers with units to provide an easy point of access to mental health care and to help destigmatize these services. For example, the Army uses Embedded Behavioral Health (EBH) teams, which are multidisciplinary teams of approximately 13 mental health providers and support staff who are stationed near servicemembers’ units and barracks. In fiscal year 2014, the Army had 58 functional EBH teams that supported all of its combat brigade teams. Air Force officials reported that the Air Force embeds mental health providers in units that remotely pilot aircraft, Special Operations units, and at one Air Force base. In fiscal year 2014, the Air Force had 23 embedded mental health providers. The Navy uses both the Army’s and the Air Force’s approach, with embedded mental health teams stationed near servicemembers’ units, as well as mental health providers co-located with units. The Navy embeds active duty mental health providers in all of its large seagoing platforms, in all Marine Corps infantry regiments, and in all Navy and Marine Corps Special Operations Commands. In fiscal year 2014, the Navy had 19 locations with embedded mental health teams located near units and an additional 11 mental health providers stationed aboard its ships.\nThe military services have also implemented telehealth programs with varying degrees of complexity to leverage the services’ existing resources and increase the availability of mental health care in areas with provider shortages.\nThe Army has a global multidisciplinary telehealth program, consisting of psychiatrists, psychologists, and other mental health providers, who provide mental health care to servicemembers in regionally-remote settings as well as in deployed settings. An Army official stated that the Army uses telehealth when an MTF reaches capacity, supplementing that MTF’s delivery of care with telehealth services instead of using the purchased care or requiring the servicemember to wait to receive care. The same official noted that the Army is looking to use its telehealth program to support administrative evaluations in addition to providing mental health treatment.\nThe Air Force uses telehealth to provide psychiatry services to smaller isolated bases. Air Force officials reported that their telehealth program consists of 9 staff, including 5 psychiatrists who use video teleconferencing to support MTFs that do not have an on-site psychiatrist and 2 psychologists who primarily assist with completing administrative evaluations.\nThe Navy Medicine telehealth program office has begun telehealth services at several Navy health care facilities and is developing plans for its systematic use. Navy officials reported that the Navy used telehealth on an ad hoc basis in the past to provide mental health care at installations that did not have access to mental health providers.",
"Our analysis of DOD staffing data for the direct care system from fiscal years 2009 through 2015 and for the purchased care system from December 2010 through July 2015 shows that DOD increased the number of available mental health providers in both delivery systems, thereby increasing DOD’s mental health capabilities to meet servicemembers’ mental health care needs. In its direct care system, DOD increased the number of mental health providers by 15 percent— from 4,608 providers to 5,276 providers—from fiscal year 2009 through fiscal year 2015. This increase was in response to the NDAA for Fiscal Year 2010, which required the Secretary of each military service to increase the number of active duty mental health personnel authorized for the service. Of the three military services, the Army and Air Force increased their mental health provider staffing from fiscal year 2009 through fiscal year 2015. The Army’s addition of 467 mental health providers, from 2,721 in fiscal year 2009 to 3,188 in fiscal year 2015, was the largest increase among the military services. In contrast, the Navy decreased its staffing by 51 mental health providers, from 883 in fiscal year 2009 to 832 in fiscal year 2015 (see fig. 3).\nDespite the general increase in the available MHS mental health providers, shortages for certain types of mental health providers, such as psychiatrists and social workers, have persisted (see fig. 4). For example, DOD staffing data show that by the end of fiscal year 2015, all of the military services had a shortage of psychiatrists, with 127 positions authorized but not filled. In addition, both the Navy and the Air Force had more authorized positions for every type of mental health provider, except mental health nurse practitioners, than were filled. (See app. 1 for more information on service-level staffing shortages in fiscal year 2015.) We previously found that the military services believed that a nationwide shortage of mental health professionals, as well as overarching military- specific challenges such as frequent deployments and relocations and competitive compensation, have adversely affected DOD’s ability to recruit and retain mental health providers.\nIn the purchased care system, two of the three domestic TRICARE managed care contractors increased the number of available network mental health providers in Prime Service Areas, which are geographic areas usually within an approximate 40-mile radius of an MTF. Network providers are those civilian providers who have a contractual relationship with the TRICARE managed care contractor to provide care at a negotiated rate. From December 2010 to July 2015, the total number of network mental health providers increased by 7,887 providers (52 percent increase), from 15,216 in December 2010 to 23,103 in July 2015, in the TRICARE North region. During the same time period, the total number of network mental health providers increased by 39,025 providers (190 percent increase), from 20,515 in December 2010 to 59,540 in July 2015, in the TRICARE West region. In contrast, from December 2011 to July 2015, the total number of network mental health providers in the TRICARE South region decreased by 2,149 providers (17 percent decrease), from 12,505 in December 2011 to 10,356 in July 2015 (see fig. 5). An official from the TRICARE South contractor stated that while the number of network mental health providers in Prime Service Areas showed a decrease, the South region over this time period had an overall increase in mental health providers (if providers outside Prime Service Areas are also included). The official added that despite the decrease, the number of providers contracted was more than sufficient to meet the demand in the vast majority of areas throughout the South region.\nDespite the general increase in mental health providers in the purchased care system, DOD data show that from December 2010 to July 2015 provider shortages, particularly for psychiatrists, persisted for certain Prime Service Areas in all three regions (e.g., Fort Riley, KS; Ft Polk, LA; Traverse City, MI). The provider shortages were more prevalent in the TRICARE West Region, with up to 15 percent of Prime Service Areas contracting fewer psychiatrists than targeted and up to 11 percent of Prime Service Areas contracting fewer behavioral health providers than targeted for the network in certain years. In spite of the general decrease in contracted network mental health providers from December 2011 to July 2015 in the TRICARE South Region, the region had the fewest psychiatrist and behavioral health provider shortages, with no more than 6 percent of Prime Service Areas experiencing psychiatrist shortages, and no more than 2 percent of Prime Service Areas experiencing behavioral health provider shortages during this time period. Officials from the TRICARE South contractor told us that these shortages were possibly due to shortages of psychiatrists, particularly child psychiatrists, both at the national and local levels. TRICARE Regional Office officials told us that the contractors were limited in their ability to address these provider shortages because the provider shortages affect the entire health system and are not specific to the TRICARE program.",
"Unlike the mental health care made available to active duty servicemembers, DOD generally does not make mental health care available to inactive reservists at no cost to them. While active duty servicemembers have access to a range of mental health care services provided at no cost to the servicemembers through TRICARE Prime, officials from the various Guard and Reserve components of DOD’s military services told us that DOD generally does not make such mental health care available to inactive reservists—with the exception of conducting mental health assessments and referring reservists to community resources. Reservists who purchase TRS have access to the list of covered inpatient and outpatient services available through TRICARE. However, National Guard officials stated that the premiums, co-pays, and deductibles associated with seeking treatment would not be affordable for some reservists, particularly those of lower ranks and for whom the Reserve or Guard is the sole source of employment. DOD reports that as of June 2014, about 25 percent of the reservists eligible to participate in TRS were enrolled.\nRegarding the assessment and referral services available to inactive reservists, service officials reported that these services are provided through Directors of Psychological Health (DPH), who are typically licensed mental health providers, and who are responsible for developing community resource guides and cultivating community contacts that can provide either free or discounted mental health care to inactive reservists. The Air and Army National Guard DPH programs are different in certain respects.\nAir National Guard. An Air National Guard official stated that as of July 2015, the Air National Guard had 93 DPHs who were embedded in 89 Air Force wings, with another 8 national staff who supported the DPHs in individual states. The official stated that Air National Guard servicemembers have more in-person, face-to-face interactions with their DPHs by virtue of the DPHs being embedded with the units.\nArmy National Guard. A National Guard Bureau official stated that as of July 2015, the Army National Guard had 157 DPHs. An Air National Guard official reported that unlike Air National Guard DPHs, Army National Guard DPHs may have dual status (for example, as a guardsman on the weekend and a clinical psychologist during the week), and those DPHs can therefore be deployed along with their units, leaving the Army National Guard with the challenge of finding a replacement to serve reservists remaining in their state.\nIn addition to the general DPH role to assess and refer reservists to community mental health resources, Air Force Reserve DPHs can also provide some clinical services, according to an Air Force Reserve official. The official told us that the Air Force Reserve DPHs are clinical social workers who are licensed, credentialed, and privileged to work in military hospitals and clinics. The same official stated that while these DPHs provide referrals and are mostly engaged in prevention efforts, the DPHs can provide some clinical services for reservists, which are then documented as such in the reservists’ electronic medical records. An Air Force Reserve official noted that as of August 2015, there were 30 DPHs embedded in wings where the Air Force Reserve saw the greatest need, and the official said that the Air Force Reserve is likely to get additional DPHs in the future.\nA Navy official stated that the Navy and Marine Corps Reserve Psychological Health Outreach Program teams, in their roles as DPHs, have instituted a Resiliency Check-In program that provides Navy and Marine Corps reservists with check-in screenings with a mental health provider, information on local community mental health resources, and case management as needed following the screening. The official, who is responsible for the psychological health of Navy and Marine Reserve Forces, credited the program with helping destigmatize mental health care. According to the official, these 12 regionally embedded Psychological Health Outreach Program teams are composed of 4-5 licensed mental health professionals led by regional DPHs who service all of the Navy and Marine Corps Reserve sites using various forms of communication and annual site visits. For each Resiliency Check-In event, the teams typically schedule a minimum 15-minute appointment with each reservist to screen for psychological health and other needs. If a reservist is found to be in need of mental health care or have other needs that can impact the reservist’s psychological health or unit, the teams provide the reservist with information detailing local health care resources; the teams also follow-up with the reservist for as long as needed.",
"Data from DHA’s TRICARE Operation Center for April 2014 through August 2015 showed that MHS-wide, for appointments by active duty servicemembers in the direct care system, the mental health access to care standards were generally met for all domestic and overseas appointment types except routine appointments. The data come from Access to Care Mental Health Summary reports, which measure access both in terms of the average percentage of appointments that met the relevant access standard and the average number of days to be seen. The data show that in terms of the percentage of domestic and overseas mental health appointments that met the access standard each month between April 2014 and August 2015, on average 96 percent or more of specialty and wellness appointments met the 28-day standard, exceeding the MHS goal of 90 percent (see table 4). For acute appointments, more than 90 percent of all three services’ appointments met the 1-day standard on average; however, only 79 percent of NCR Medical Directorate acute appointments met the standard. For routine appointments, only the Air Force exceeded the 90 percent goal. Less than half of the Army routine appointments on average met the 7-day standard.\nIn terms of average days to be seen, MHS-wide specialty and wellness appointments met the 28-day standard by a wide margin, averaging about 11 and 10 days to be seen, respectively (see table 5). There was more variability in terms of meeting the 1-day standard for acute appointments. Specifically, the Air Force and the Army met the standard from April 2014 through August 2015, but the Navy and the NCR Medical Directorate did not meet the standard—averaging 1.67 and 1.79 days to be seen, respectively. For routine appointments, only the Air Force met the 7-day standard in terms of average days to be seen, and both the Army and the NCR Medical Directorate more than doubled the desired days to a routine appointment.\nWe also examined routine appointment access in terms of the average days to the third next available appointment, another measure of access that is prospective rather than retrospective, and which DOD officials suggested may be a more accurate representation of appointment availability. Data for the average number of days to the third next available routine appointment showed that the military services also did not meet the 7-day routine appointment access standard from April 2014 through August 2015 using this measure, with an MHS average of about 11 days to the third next available routine appointment. (See table 6.)\nAlthough the mental health appointment access data suggest that DOD is not meeting the 7-day standard for routine appointments, officials suggested that these data are misleading, as some appointments were coded incorrectly—negatively impacting the routine appointment access results. For example, DOD, Navy and NCR Medical Directorate officials attributed the large numbers of days to routine appointments, in part, to a known technical problem in DOD’s Composite Health Care System, which is used to book appointments. Officials said that this resulted in non- routine mental health appointments that were averaging about 15 days to be seen being mistakenly booked as routine—driving up the average days to routine appointments. In February 2016, DOD officials reported that a fix to this technical problem in the appointment booking system was underway and that the services had developed and disseminated specific guidance for booking clerks on the issue of incorrect appointment type categorization.\nAdditionally, Army officials said that a particular type of mental health treatment might be negatively impacting the Army’s performance against the access standard for routine appointments; about one-third of routine appointments were for an intensive outpatient program which has scheduled start dates, such as the first Monday of the month. An Army official noted that while these appointments were booked as routine, the planned start date for the program may not occur for two weeks after booking. Another Army official noted that categorizing these appointments as routine may be a misapplication of the routine appointment category. An Army official said that as of December 2015 Army officials had begun discussions internally about standardizing the coding for these appointments.\nNonetheless, a DOD official also said that the routine appointment data suggested that there may not be enough routine appointments available to meet demand, and that to resolve the access performance issue mental health clinics might need to make more routine appointments available on their schedules. The official suggested that because access data show that other types of mental health appointments, such as specialty appointments, are being scheduled well within the MHS standard timeframe of 28 days, mental health clinic appointment schedules should possibly be revised to allocate more routine appointments. However, in February 2016 DOD officials reported that until the issue of incorrectly coded appointments in the Composite Health Care System was resolved, the officials were limited in their ability to determine the extent to which a shortage of mental health appointments exists.\nIn addition to the factors mentioned above, NCR Medical Directorate officials also reported that difficulty recruiting and hiring qualified clinicians had affected their ability to deliver timely care to their patient population, but they were taking steps to improve access. Officials reported that ongoing enhancements to their staffing, referral, and appointing processes, as well as care delivery options, such as telehealth, were intended to improve access performance. NCR Medical Directorate officials said that MTF directors and commanders meet at least monthly to review progress in this area.",
"Although DOD has established standards and is monitoring access for four types of mental health appointments, DOD told us that most mental health appointments provided in the MHS’s direct care system fall into a fifth category—follow-up appointments—which generally do not have an official DOD access to care standard. A DOD official said that acute, routine, wellness, and specialty appointment categories are generally to be used only for a patient’s initial referral or assessment for mental health care and that additional follow-up appointments for counseling, for instance, would fall into this fifth appointment category, which are coded as ‘future’ appointments. Of the more than 2.6 million direct care mental health appointments that were scheduled from April 2014 through August 2015, about 59 percent were follow-up appointments (see fig. 6).\nRegarding the lack of an access standard for follow-up appointments, a DOD official said that unlike the other appointment types, an access standard for follow-up appointments was not established in regulation, and that follow-up appointments generally do not have an official access standard against which they are measured. However, data are available from the Composite Health Care System through which DOD could monitor follow-up appointment access. Federal standards for internal control note that control activities need to be established and reviewed to monitor performance measures and indicators, and that these controls could call for comparisons and assessments relating different sets of data to one another so that analyses of the relationships can be made and appropriate actions taken. By not establishing, reviewing, and monitoring an official performance standard for follow-up appointments— the most common mental health appointment type—DOD is missing performance information for the majority of the mental health care it provides.\nUnlike DOD, some health care systems have established access standards and measurement strategies for follow-up mental health care. For example, the Veterans Health Administration’s policy is that follow-up care for established veterans should be provided within 30 days of the clinically indicated date. In addition, a 2012 report from the Department of Veterans Affairs Office of Inspector General noted that the private sector health care organizations they studied measured follow-up appointments by establishing a pre-determined average number of visits (e.g., four) within the first 45–60 days of an initial new patient appointment, and they also measured the length of time between subsequent visits (e.g., the amount of time until the second, third, and fourth visits).\nDOD officials said that DHA is in the process of improving its oversight and monitoring of access to mental health care, although it did not report plans to develop an access standard for follow-up appointments. A DOD official noted that while there is not currently a DHA-led governance structure to conduct monthly assessments of access to care in specialty care (including mental health), there will be one in the future that mirrors the already established primary care monitoring structure. The official noted that a newly formed advisory board had been established to optimize specialty care, evaluate performance, and make recommendations for continuous process improvement, and another official noted that under this advisory board, a Mental Health Working Group had been chartered. That group has developed a mental health strategic plan—slated for implementation by the end of fiscal year 2016— which contains goals and initiatives related to improving access performance, including the standardization of business processes across all three services and the NCR. As part of its effort to standardize business processes, the Mental Health Working Group is proposing a revision to current coding practices, which it hopes will allow for greater surveillance and the ability to intervene and incentivize compliance with access standards. Additionally, the strategic plan contains an initiative related to identifying benchmarks for access, which is scheduled to be completed by the third quarter of fiscal year 2016. Nonetheless, DOD officials did not indicate that developing an official access standard for follow-up appointments would be part of the strategic planning process.",
"Limited data are available regarding access to care in the MHS’s purchased care system. As previously mentioned, in lieu of detailed access to care compliance data, patient satisfaction with length of time to appointment, as measured through beneficiary surveys described later in this report, is used as a surrogate measure of access. In addition to beneficiary surveys, TRICARE Regional Office officials told us that they generally rely on beneficiary reports of access concerns, rather than on appointment wait time data. The officials said that all such reports are investigated and researched, and corrective action is taken when possible. A consultant that reviewed access in the MHS’s purchased care system noted that these methods of monitoring compliance with access standards—beneficiary surveys and monitoring of beneficiary complaints—were consistent with the primary methods used by civilian health plans, even though the methods are not consistent with the direct- care system’s focus on appointment wait time data. The consultant also found that developing automated systems to better monitor wait times in purchased care was neither practical nor feasible, given the dispersed networks of providers that make up the purchased care system.\nNonetheless, in all three domestic TRICARE regions the 28-day mental health appointment access standard for specialty appointments is monitored for a servicemember’s first mental health appointment that is referred to purchased care. The wait time is measured as the time between a referral authorization and the first specialty service date reported on associated claims. While this measure may overstate the time to care because it does not account for factors such as the time a servicemember may take after receiving a referral authorization before calling for an appointment, the measure appears to be the best available proxy for monitoring compliance with this standard, according to the consultant that reviewed access in the MHS’s purchased care system. Data provided by each TRICARE Regional Office showed that the three regions did not meet the MHS goal of having 90 percent of appointments meet the access standard. For specialty mental health appointments with behavioral health providers, more than three-fourths of appointments met the access standard, and for psychiatry appointments, about two-thirds of appointments met the access standard (see table 7). However, as noted previously, this measurement may overstate the amount of time servicemembers must wait before receiving care.",
"Various DOD and Air Force surveys have found that some servicemembers experienced problems or have concerns about accessing mental health care. For example, fiscal year 2011 through fiscal year 2014 data from DOD’s Health Care Survey of DOD Beneficiaries—the principal tool with which DHA monitors the opinions and experiences of MHS beneficiaries directly—found that about one in three servicemembers who had a need for treatment or counseling experienced problems accessing mental health care in the MHS. (See app. II, table 13.) Service-specific results were generally similar to the overall results, although fewer active duty Air Force servicemembers experienced access problems compared to the other services, with an estimated 23 to 29 percent of Air Force servicemembers experiencing problems over the four-year period. Similar to the results for active duty servicemembers, about an estimated one-third of reservists experienced problems accessing mental health treatment over the four years.\nResults from the Air Force’s 2013 Community Assessment survey found that the majority of Air Force servicemembers did not feel that various mental health access barriers related to logistics and appointment scheduling were applicable to them. (See app. II, table 14.) However, it is unknown what percentage of Air Force servicemembers responding to the 2013 Community Assessment actually sought counseling or other mental health care. In response to various questions related to potential access barriers, the 2013 survey results estimate that the listed access barriers did not affect the majority of Air Force servicemembers’ ability to seek counseling or other mental health care services. For example, in response to the statement “It would be difficult to schedule an appointment,” 81 percent of active duty Air Force servicemembers reported that this statement “does not describe me at all.”\nAdditional DOD surveys specific to purchased care have also identified some potential problems regarding access to civilian mental health providers. For example, DOD’s nationwide TRICARE Standard Surveys of Civilian Providers have found that less than half of civilian mental health providers were accepting new TRICARE patients. (See app. II, table 15.) As we have previously reported, surveys from 2008 through 2011 estimated that only about 39 percent of civilian mental health providers were accepting any new TRICARE patients. Data from the 2012 and 2013 TRICARE Standard Survey of Civilian Providers provided by DOD showed that this percentage had not improved over time, with an estimated 37 percent of civilian mental health providers accepting new TRICARE patients during the surveys. A TRICARE Regional Office official suggested that the challenge of finding a civilian mental health provider who is accepting new TRICARE patients should be less of a concern for Prime beneficiaries, because they would typically be seeking care from TRICARE network providers. The Regional Office official also said that they would assist any Prime beneficiary who reported challenges in finding a mental health provider, and a DOD official explained that if a mental health specialist is not available, the contractor (domestic or overseas) is contractually responsible for locating a non- network provider for Prime beneficiaries.\nAdditionally, DOD’s TRICARE Standard Survey of Beneficiaries, which surveyed beneficiaries not enrolled in TRICARE Prime (that is, nonenrolled beneficiaries), including reservists with TRS, have also found that these beneficiaries experienced problems accessing a civilian mental health care provider. (See app. II, table 16.) As we previously reported, surveys from 2008 through 2011 show that an estimated 28 percent of these nonenrolled beneficiaries experienced problems accessing civilian mental health care providers. The 2012 and 2013 survey data show similar results, with an estimated 30 percent of nonenrolled beneficiaries experiencing problems accessing services provided by a civilian mental health care provider.\nIn addition to surveys, recent research related to access to DOD mental health has also identified potential problems with access to care for some types of servicemembers. For example, a 2015 RAND Corporation study about access to behavioral health care found that active duty servicemembers classified as living in geographically remote areas made up to 20 percent fewer visits to behavioral health care providers than those living closer to facilities. The RAND study also found that remote servicemembers needing or wanting behavioral health care face challenges similar to those faced by the rural population generally, including a shortage of appropriate service providers, long travel times to facilities, and few travel options. Additionally, the study found that gaps in broadband service in rural and remote areas impede the use of telehealth services. However, despite the high representation of reservists who live in geographically remote areas, RAND’s analyses did not find the remoteness associated with less utilization of behavioral health care in that population.\nTwo Army-specific studies also identified some concerns with access to mental health care. A 2010 survey of Army mental health care providers and their patients found that while the majority of the providers reported being able to spend sufficient time with patients (92 percent) and schedule encounters to meet patients’ needs (82 percent), the providers also identified services for which access to treatment was more limited and patient subgroups with an unmet need for additional clinical care or services. For example, the providers’ patients with more severe symptoms and diagnostic and clinical complexity reported higher rates of access problems. Additionally, a study of three samples of Army National Guard soldiers at three time points found that while stigma was the most frequently cited barrier to care (34 percent of soldiers overall), 31 percent of the soldiers reported at least one significant barrier to care related to logistics (where to get help, inadequate transport, difficult to schedule, getting time off work, care costs too much money, no providers available, long distances to care). One logistical barrier—mental health treatment costing too much—was the most commonly reported, with 16 percent of soldiers overall noting this barrier.\nWe also learned about mental health access challenges in our interviews with service officials representing reservists and with representatives from an association representing Reserve officers. Both groups identified mental health access challenges experienced by reservists. However, service officials reported that they typically hear about these types of access challenges anecdotally and do not systematically collect information about access challenges faced by reservists. For example, while activated reservists or those with line of duty mental health conditions may have a right to DOD health care, Army National Guard and Army Reserve officials and representatives from the Reserve Officers Association reported that reservists’ access may be limited by their distance from an MTF or from other resources available in their area, particularly if they live in a geographically remote area. An Army National Guard official and a Navy and Marine Corps Reserve official noted that in some communities reservists face challenges finding providers that will accept TRICARE or providers that are accepting new patients. National Guard officials and a Navy and Marine Corps Reserve official also noted that the TRS premiums and other costs are another access barrier for some reservists, particularly for lower ranking servicemembers or those who are otherwise unemployed. Additionally, representatives from the Reserve Officers Association and the Army National Guard reported challenges associated with putting reservists on orders to receive care related to a line of duty condition. An Army National Guard official noted, for example, that the minimum time for orders is an 8-hour day or a 4- hour drill period, which means servicemembers would have to be put on active duty for that day, precluding them from doing anything else, including working their civilian jobs.\nWhile access problems were identified in surveys, studies, and our interviews, DOD’s current work to establish a governance structure for mental health access oversight, which includes the implementation of the department’s mental health strategic plan, may address some of these concerns. For example, the governance structure may improve accountability when access standards are not being met. However, some problems such as finding available mental health providers may remain because, as noted previously, provider shortages affect the entire health system and are not specific to DOD or the TRICARE program. It is too early to determine the extent to which DOD’s ongoing efforts will resolve all of these concerns.",
"",
"Officials from the Army, Navy, and Marine Corps reported that the availability of mental health care varies depending on the deployed environment. They noted that such care is more variable than the services available domestically and that in general, deployed reservists and DOD civilians have access to the same mental health care available to active duty servicemembers in that deployed environment. This is consistent with findings from our prior work. For example, in 2013 we reported that the health care services that are available aboard Navy vessels largely depend on the type and class of vessel. Larger vessels generally offer a wider range of services—including specialized services—than do smaller vessels, due largely to their more robust crew levels and capabilities.\nAdditionally, MHAT studies about the mental health care available in Afghanistan, where a significant number of deployed servicemembers have been located in recent years, have found that the mental health resources available there were robust but unevenly distributed. The Joint Mental Health Advisory Team 8 (J-MHAT 8) study, conducted in 2012, noted that the range of mental health care provided in Afghanistan included emergency psychiatric care and medical evacuations, psychotherapy, medication management, traumatic event management, outreach, education, awareness training, and medical evaluations. However, the study also found that the providers and clinics that deliver these services were unevenly distributed, resulting in a small number of clinics providing the bulk of the services.\nNavy and Marine Corps officials told us that the availability of mental health care in deployed settings varies depending on a number of factors. For example, a Navy official cited factors including the type of deployed setting, the number of deployed personnel, and the assessed needs of a particular unit. A Marine Corps official noted some additional factors, such as the deployment purpose and the expected stress from the deployment. This official stated that Navy and Marine commanders, after consulting with psychological health advisors and considering a variety of factors, generally determine what, if any, mental health resources deploy with particular units.\nMental health care is provided to deployed servicemembers and DOD civilians through various means. Army officials told us, for example, that mental health care in deployed settings is provided to servicemembers through behavioral health officers assigned to brigade combat teams, as well as through combat operational stress control teams. An Army official stated that each brigade deploys with two different behavioral health officers—frequently psychologists and social workers—and staff that support these officers with providing care. The official said that the combat operational stress control teams comprise up to 30 individuals that assist with prevention initiatives and provide support for mental health issues for each brigade combat team. The official added that the division would also have a psychiatrist who helps coordinate care. Navy and Air Force officials similarly stated that in certain deployed settings mental health providers may be co-located or embedded with deployed personnel. The Marine Corps’ combat operational stress control program includes teams of Marine leaders, religious ministry personnel, and mental health providers assigned to battalion-sized units that have been trained in identifying, managing, and preventing combat stress issues.\nClinic settings and telehealth are also used to deliver mental health care in certain deployed settings. For example, the report for J-MHAT 8 described clinic settings in Afghanistan through which servicemembers received care. That study found, for example, that the majority of mental health services provided in Afghanistan were provided at combat stress clinics and behavioral health clinics, which are outpatient clinics that provide mental health care to any walk-in patients. Mental health care in Afghanistan was also provided in restoration clinics—residential treatment facilities designed to maximize restoration and return-to-duty for servicemembers. J-MHAT 8 also found that telehealth was used in Afghanistan, although most providers surveyed reported that they preferred in-person counseling as a method of care delivery for servicemembers. Army officials noted that over the past several years, the Army has increasingly leveraged telehealth to increase access to care, particularly in remote locations.\nData on the number of deployed mental health providers in Afghanistan show that the number of providers available to offer mental health care services increased from 2005 through 2010, before decreasing as the United States scaled back its military operations (see fig. 7). Army officials told us that there are generally more behavioral health providers deployed to areas of combat operations, such as Afghanistan, compared to other non-combat missions.\nData provided by the military services and DOD regarding the total number of mental health providers deployed to any location since fiscal year 2014 suggest that deployed mental health provider availability has continued to decrease since the last MHAT study in Afghanistan—MHAT 9 in 2013—when there were 129 mental health providers in Afghanistan, consistent with the overall drawdown in deployed forces. For fiscal year 2014, the services reported a total of 114 mental health providers in any deployed setting (of these, the Army reported 64, the Air Force reported 29, the Navy reported 21, and the Marine Corps reported none). As of February 2016, DOD reported that there were a total of 36 mental health providers in deployed settings, of which 10 were located in Afghanistan. Army officials confirmed that the number of deployed mental health providers has decreased since 2013 in accordance with the overall force drawdown in Afghanistan. Army and DOD officials also reported some additional factors that have affected the total number of deployed mental health providers in recent years, such as troops no longer performing combat patrols and the behavioral health providers’ non-combat missions, which include providing local support to Allied missions and supporting redeployment operations.",
"According to DOD, data on access to mental health care in deployed settings are generally not available, and DOD’s access to care standards do not apply in these environments. For example, an Army official noted that the Army’s access to data on mental health encounters in deployed settings is fairly limited. He stated that data availability depends on factors such as commanders’ preferences regarding what data to record and internet connectivity at the deployed site. In lieu of data on access, a DOD official noted that DOD has reviewed the staffing ratios in the MHAT reports in order to monitor access in the deployed environment. In recent years MHAT data has indicated that the number of mental health providers in Afghanistan was sufficient to meet mental health needs of deployed servicemembers, according to the 2013 MHAT 9 report.\nThe MHAT studies conducted in Afghanistan from 2009 through 2013 showed some improvement in active duty servicemembers’ opinions about access to mental health care. As part of the studies, servicemembers were surveyed about various logistical barriers to accessing mental health care, and the responses were separated by those servicemembers who screened positive for mental health problems and those who did not (see table 8). The MHAT studies found that the percentage of servicemembers agreeing with the statements “mental health services aren’t available” and “it is too difficult to get to the location where the mental health specialist is” decreased significantly since 2009.\nHowever, as table 8 shows, the MHAT studies from 2009 through 2013 also found that some servicemembers continued to experience barriers accessing mental health services. For example, the MHAT studies consistently found that a higher percentage of Army servicemembers who screened positive for mental health problems experienced barriers to mental health care compared with those who did not screen positive. The studies also found that the percentage of servicemembers who experienced some access barriers remained fairly stable from 2009 through 2013. For example, during this period the percentage of servicemembers reporting that they would experience difficulty getting time off work for treatment remained the highest compared to the other access barrier questions. In addition, the MHAT studies also identified stigma as a strong potential barrier to seeking mental health care, with servicemembers that screened positive for mental health conditions reporting high levels of stigma-related concerns. For example, in the 2013 study, 49 percent of Army servicemembers that screened positive for a mental health condition reported that they agreed or strongly agreed that they would be seen as weak if they were to seek mental health care.\nAlthough the MHAT studies showed that some servicemembers continued to experience barriers accessing mental health services over time, as noted previously, the number of servicemembers deployed to Afghanistan has declined in recent years. Additionally, DOD reported in February 2016 that it was working to expand its telehealth efforts there and that efforts such as circulating providers throughout the battlefield and organizing providers in teams had improved the utilization and efficiency of deployed mental health providers since the last MHAT report in 2013.",
"Providing our nation’s military servicemembers with timely access to mental health care is a crucial responsibility of DHA and the military services. Recent data show that DOD is generally meeting three of its four appointment wait time access standards in its direct care system— where the majority of outpatient mental health care is delivered. However, recent DOD surveys also show that about a third of servicemembers reported that they experienced problems accessing care—indicating that servicemember perceptions of access and DOD’s access to care standards may not be aligned. Our work also shows that despite federal internal control standards that call for agencies to have sufficient information to monitor agency performance, DOD lacks an important standard for follow-up appointments, which represent nearly two-thirds of the mental health care provided in the MHS’s direct care system. Without such a standard, DOD does not have a mechanism for holding MTFs or the services accountable for providing timely access to the most common mental health care provided in the direct care system.\nNonetheless, DOD has efforts underway to expand the mental health care available to its servicemembers and to improve access to that care. For example, DOD’s current work to establish a governance structure for the oversight of mental health access, which includes the department’s mental health strategic plan, could help DOD and the military services identify, monitor, and improve the performance of those military services or MTFs not performing up to standards and help ensure that servicemembers have timely access to necessary mental health care. However, it is too soon to determine what the impact of DOD’s efforts will be on improving access. Additionally, some factors outside of DOD’s control, such as the nationwide shortage of mental health providers, may continue to limit DOD’s ability to address all identified access problems.",
"To enhance oversight of access to mental health care and help ensure that servicemembers have timely access to mental health care, we recommend that that Secretary of Defense direct the Assistant Secretary of Defense for Health Affairs to establish an access standard for mental health follow-up appointments and regularly monitor data on these appointments.",
"We provided a draft of this report to DOD for comment. DOD provided written comments, which are reproduced in appendix III. DOD also provided technical comments that were incorporated, as appropriate.\nIn its written comments, DOD concurred with our recommendation, but noted that developing a standard for follow-up mental health appointments would be difficult. Nonetheless, the agency reported that it would review appropriate methods to develop follow-up standards. DOD did not provide a time frame for implementing this recommendation.\nWe are sending copies of this report to the Secretary of Defense, appropriate congressional committees, 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) 512-7114 or williamsonr@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 major contributions to this report are listed in appendix III.",
"This appendix provides results from our analysis of DOD fiscal year 2015 quarterly mental health staffing reports by military service and the National Capital Region (NCR) Medical Directorate. These reports are submitted by the services and the NCR Medical Directorate to the Office of the Assistant Secretary of Defense for Health Affairs human capital office each quarter to provide status updates on mental health care provider staffing levels.",
"Tables 13 through 16 contain results for questions relevant to access to mental health care in DOD’s Military Health System from four recent surveys. The four surveys are: (1) the fiscal year 2011-2014 Health Care Survey of DOD Beneficiaries; (2) the 2013 Air Force Community Assessment survey, (3) the TRICARE Standard Survey of Civilian Providers for 2012 and 2013; and (4) the TRICARE Standard Survey of Beneficiaries for 2012 and 2013.",
"",
"",
"Randall B. Williamson, (202) 512-7114 or williamsonr@gao.gov.",
"In addition to the contact named above, Lori Achman, Assistant Director; Muriel Brown; Krister Friday; Jacquelyn Hamilton; Dharani Ranganathan; Christina Ritchie; and Helen Sauer made key contributions to this report."
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"question": [
"What does DOD data on domestic and overseas direct care show?",
"What is the case with routine appointments?",
"What factors did DOD and service officials attribute this to?",
"What did they tell GAO?",
"What else did the data show?",
"What do federal internal control standards call for?",
"What can DOD not do by not establishing and monitoring a follow-up appointment standard?",
"What is the case for purchased care?",
"What have DOD surveys identified?",
"What is an example of this?",
"What did provider surveys from 2012 to 2013 find?",
"How might DOD's ongoing efforts implement change?",
"What does the National Defense Authorization Act for FY2015 contain?",
"What does this report examine?",
"What did GAO recently analyze?",
"What data did GAO review?"
],
"summary": [
"DOD data on domestic and overseas direct care from April 2014 through August 2015 show that MHS-wide DOD's access to care standards were generally met for three of four mental health appointment types.",
"However, in the case of routine appointments—initial appointments for a new or exacerbated condition—data show that other than the Air Force, MHS routine mental health appointments generally did not meet the 7-day access standard.",
"DOD and service officials attributed this to several factors, including some appointments being incorrectly coded, thus negatively impacting the routine appointment access results.",
"They told GAO that DOD was taking steps to address the coding problem and improve oversight of mental health access.",
"Additionally, the data show that about 59 percent of mental health appointments are follow-up appointments, which generally do not have an official DOD access standard.",
"Federal internal control standards call for agencies to have sufficient information to monitor agency performance.",
"By not establishing and monitoring a follow-up appointment standard, DOD cannot hold the military services accountable for the majority of mental health care provided in the direct care system.",
"For purchased care, limited access data are available, and DOD instead relies on beneficiary surveys and complaints to monitor access—consistent with methods used by civilian health plans.",
"DOD surveys have identified access problems for some servicemembers.",
"For example, a DOD beneficiary survey estimated that about one-third of active duty servicemembers experienced problems accessing mental health care from 2011 through 2014.",
"Additionally, provider surveys from 2012 and 2013 found that only an estimated 37 percent of civilian mental health providers were accepting any new TRICARE patients.",
"DOD's ongoing efforts to improve oversight of mental health access, including implementing a strategic plan, may help address some of these problems, but it is too early to tell.",
"The National Defense Authorization Act for Fiscal Year 2015 contains a provision for GAO to assess the availability and accessibility of mental health care in DOD's MHS for military servicemembers.",
"This report examines, among other things, (1) the mental health care DOD makes available to servicemembers domestically and overseas and (2) the accessibility of mental health care provided to servicemembers domestically and overseas.",
"GAO analyzed recent, available data on MHS mental health utilization, staffing, and appointment access and compared access data to relevant DOD standards.",
"GAO reviewed mental health data from several DOD surveys as well as documents related to MHS mental health care. GAO also interviewed DOD and service officials and representatives from servicemember and provider associations."
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CRS_R41384
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{
"title": [
"",
"What is Systemic Risk?",
"What Are Sources of Systemic Risk?",
"Runs and Liquidity",
"\"Too Big to Fail\" or Systemically Important Firms",
"Leverage",
"Payment, Settlement, and Clearing Systems",
"Regulatory Gaps, Discretion, and Information Gathering",
"Asset Bubbles",
"Systemic Risk and the Fed's Existing Authority and Responsibilities at the Time of the Crisis",
"Runs and Liquidity",
"Too Big to Fail or Systemically Important Firms",
"Leverage",
"Payment, Settlement, and Clearing Systems",
"Regulatory Gaps, Discretion, and Information Gathering",
"Asset Bubbles",
"Evaluating Systemic Risk Regulation",
"The Dodd-Frank Wall Street Reform and Consumer Protection Act",
"Systemic Risk Provisions",
"Financial Stability Oversight Council",
"Regulation of Systemically Significant Firms48",
"Resolution Authority50",
"Proprietary Trading53",
"Payment, Clearing, and Settlement Systems and Activities",
"Derivatives55",
"Capital Requirements56",
"Changes to Section 13(3) Emergency Lending Authority",
"FDIC Emergency Liquidity Program",
"Bank Holding Company Regulation63",
"Other Federal Reserve Provisions",
"Consumer Financial Protection Bureau65",
"GAO Audits",
"Disclosure",
"Federal Reserve Governance",
"Regulation of Thrift Holding Companies71",
"Securities Holding Companies72"
],
"paragraphs": [
"In the wake of the recent financial crisis, many commentators have called for systemic risk or \"macroprudential\" regulation to help avoid future crises. The Obama Administration's financial regulatory reform proposal of 2009 included many of the proposed elements, giving many—but not all—of these responsibilities to the Board of Governors of the Federal Reserve System (Fed). Using the Administration's plan as a starting point, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act ( H.R. 4173 ), which was signed into law on July 21, 2010, as P.L. 111-203 . The Dodd-Frank Act was a broad-based reform package that included provisions affecting almost every part of the financial system. This report discusses only those provisions related to systemic risk or the Federal Reserve, found mostly in Titles I and XI of the act.\nThis report first discusses systemic risk issues, relating them to events in the recent crisis. It then identifies the Fed's existing powers and responsibilities for systemic risk regulation at the time of the crisis. Finally, it discusses parts of the Dodd-Frank Act involving the Fed and systemic risk, including the creation of a Financial Stability Oversight Council; regulation of systemically significant firms; resolution authority; modifications to the Fed's emergency lending authority and new disclosure requirements; the Consumer Financial Protection Bureau; the regulation of payment, clearing, and settlement systems and activities; and limits on proprietary trading.",
"All financial market participants face risk—without it, financial intermediation would not occur. Some risks, such as the failure of a specific firm or change in a specific interest rate, can be addressed through diversification, insurance, or financial instruments such as derivatives. One definition of systemic risk is risk that can potentially cause instability for large parts of the financial system. Often, systemic risk will be caused by risks that individual firms cannot protect themselves against; some economists distinguish these types of risks as a subset of systemic risks called systematic risks. Systemic risk can come from within or outside of the financial system. An example of systemic risk that came from outside of the financial system were fears (that largely proved unfounded in hindsight) that the September 11, 2001, terrorist attacks on the nation's financial center would lead to widespread disruption to financial flows because of the destruction of physical infrastructure and death of highly specialized industry professionals. Systemic risk within the financial system is often characterized as contagion , meaning that problems with certain firms or parts of the system spill over to other firms and parts of the system.\nThe financial crisis that intensified in September 2008 featured many examples of systemic risk, including runs on financial institutions and illiquidity of asset classes, that will be discussed below. Many of these examples were highly unusual and had not been experienced as acutely by industry participants or financial regulators in the past. Whether firms or regulators were carelessly unprepared for what occurred, or whether these incidents truly could not be reasonably predicted, prevented, or avoided is subject to debate.\nSome experts, both within the regulatory community and outside of it, have argued that part of the reason regulators failed to prevent the crisis is that regulators were given a mandate to prevent microprudential risk, but no regulator had a mandate to prevent macroprudential risk. (Whether this is actually the case will be discussed below.) Microprudential regulation focuses on identifying risks to an individual firm and requiring firms to protect against those risks, whereas macroprudential regulation focuses on preventing or safeguarding against systemic risks. A scenario can be imagined where microprudential regulators focus on the risks of a firm's actions to itself, but overlook risks posed by those same actions to the system as a whole. Proponents argue that financial regulatory reform should feature a new mandate to regulate systemic risk.\nAt least two arguments have been made against a systemic risk regulator. One argument holds that regulators already had the authority to respond to the systemic risk episodes that occurred in the crisis. Thus, the failure was not the result of a lack of regulator authority but poor use of existing authority. Conversely, it has been argued that those systemic risk episodes could not have been prevented precisely because they were systemic risk episodes—by their nature, the problems that arose were unlikely to be foreseen or neutralized. Either argument produces the conclusion that even with a systemic risk regulator in place, the crisis would not have been avoided. From this logic flows the same conclusion: the creation of a systemic risk regulator would be ineffective at best and harmful to necessary risk-taking behavior at worst because a systemic risk regulator, by design, has incentives to be overly cautious. Specific examples in the following section will help elucidate the perceived need for systemic risk regulation, while the subsequent section explains what regulators could and could not do in each area before the Dodd-Frank Act.",
"Policymakers can manage systemic risk only if the sources of systemic risk can be identified and regulated. A systemic risk regulator's authority to act could be made very broad and open ended to cover all contingencies, or it could be made more narrow to limit discretion and curb \"mission creep,\" increasing the likelihood that once a risk is identified, additional legislative action would be needed to respond to it. This choice has implications for the balance of power between the legislative and executive branches. This section reviews sources of systemic risk that arose during the recent crisis, with the caveat that future crises are unlikely to follow a similar path as past crises. The examples selected below are the types of specific activities that could potentially be regulated for systemic risk.",
"Firms are said to be liquid when they are able to meet current obligations or short-term demand for funds. A firm is said to be solvent but illiquid when its assets exceed its liabilities, but it is unable to liquidate assets rapidly enough to meet current obligations. Markets are said to be liquid when a large volume of financial securities can be traded without price distortions because there is a ready and willing supply of buyers and sellers. Liquid markets are a sign of normalcy—most of the time, investors can take liquidity for granted.\nBanking and many other types of financial intermediation often involve borrowing on a short-term basis and using the funds to lend or invest on a long-term basis. This creates a mismatch, where a financial institution's assets tend to be less liquid than its liabilities. Under normal financial conditions, an institution's short-term liquidity needs are relatively predictable, allowing it to easily sell or borrow against its long-term assets to meet those needs.\nIn a liquidity crunch of the type that characterized the episode beginning in August 2007 and other historical financial panics, investors are no longer willing to buy a firm's assets (at least not at prices the firm would consider reasonable) or lend it new funds against those assets. In these circumstances, if creditors attempt to withdraw their deposits or call in their loans all at once, an institution will fail even if the value of the institution's assets exceeds its liabilities. This scenario is referred to as a run. Historically, depositors have caused runs on banks, and mainstream economic thought credits the creation of Federal Deposit Insurance Corporation (FDIC) deposit insurance for largely eliminating the threat of depositor runs (because depositors have less incentive to withdraw funds if those funds are guaranteed by the government). In the recent crisis, runs occurred on non-banks when lenders refused to roll over loans as they matured.\nMoney market mutual funds were another part of the \"shadow banking\" system that was revealed to be susceptible to runs during the crisis. When Lehman Brothers failed, the Reserve Fund, a money market fund holding Lehman Brothers commercial paper, \"broke the buck\" (the value of its assets fell below par), and this prompted widespread withdrawal requests that could not be met. This set off a run throughout the money market industry, including a run against funds that did not hold Lehman debt. Like any investment fund where funds can be withdrawn on demand, a run is possible when the assets of the fund cannot be immediately liquidated to meet unusually high redemption requests. Money market mutual funds are seen as more susceptible to runs than other types of investment funds because funds can be withdrawn on demand; some funds hold assets, such as commercial paper, that cannot be resold to meet redemption requests; and money market funds are marketed as a safe alternative to bank accounts, with some featuring bank-like options such as check-writing.\nRuns are subject to contagion. Runs may begin at troubled institutions, but sometimes spread to healthy institutions because of the liquidity mismatch. Because an institution's liquidity is finite, all depositors or creditors have an incentive to withdraw their funds first if they believe that the firm will soon run out of funds, especially in the absence of a governmental guarantee. The sudden withdrawal of funds can cause losses for remaining creditors at an otherwise healthy institution and can ultimately lead to the firm's failure. Runs can also be set off by an otherwise healthy institution's \"counterparty\" exposure to an unhealthy institution. Financial firms do not operate in isolation—they depend on each other as sources of credit, liquidity, and risk-sharing, and to buy and sell securities. Through these transactions, they become counterparties to each other, with the failure of one counterparty potentially imposing losses on the other. The crisis saw a widespread breakdown in counterparty trust that greatly reduced these transactions, straining the basic functioning of the financial system. Creditors and depositors may not be able to clearly gauge counterparty exposure, but because of the first-mover advantage in a run, may decide to err on the side of caution and withdraw funds.\nInstitutions face a tradeoff between the desire to hold liquidity to avoid the sorts of problems described above and the cost of holding that liquidity, which typically means earning less than through alternative uses of the funds. One way regulators reduce the likelihood of liquidity problems is by requiring that financial firms hold sufficient liquid reserves to meet unforeseen circumstances. Another way is to limit reliance on short-term debt that may be difficult to roll over during periods of financial turmoil. In principle, these interventions can be justified on economic grounds based on the argument that liquidity creates positive externalities for the financial system as a whole that are not fully captured by the individual institution holding the liquidity. Because the individual firm does not receive all of the benefit generated by the liquidity, individual firms tend not to hold as much as would be optimal from a societal perspective. In addition, individual institutions may hold too little liquidity for their own needs if they know that they can access Federal Reserve liquidity inexpensively (as was possible during the recent crisis). In economics, this is called the moral hazard problem—anticipated rescue from bad outcomes leads to greater risk taking.",
"Systemic risk can spread if the failure of a firm causes contagion to other firms through counterparty losses that in turn cause the counterparty to fail or makes others doubt the counterparty's solvency. Most counterparties are not important enough to impose serious losses on a critical number of counterparties, but a large share of assets, deposits, and liabilities are concentrated in a few firms in the United States, and, according to the International Monetary Fund (IMF), a few large firms \"dominate key market segments ranging from private securitization and derivatives dealing to triparty repo and leveraged investor financing.\" Some policymakers perceive the bankruptcy process, in the case of a large or highly interconnected financial firm, produces losses or delays in payment to creditors and counterparties of bankrupt firms that cause systemic risk.\nContagion can spread unpredictably. For example, because the investment bank Lehman Brothers was under stress since Bear Stearns was rescued in March, policymakers reasoned that Lehman's failure would not cause systemic risk because market participants had several months to prepare themselves. Nevertheless, when Lehman Brothers failed, it unexpectedly caused a money market mutual fund holding its commercial paper to \"break the buck.\" This set off a widespread run on money market accounts, including those that did not hold Lehman's paper, that disrupted firms' access to short-term debt.\nIn 2008, regulators acted on the principle that some firms, such as American International Group (AIG), are \"too big to fail\" or, in the case of Bear Stearns, if not too big, then \"too interconnected to fail.\" To avoid the bankruptcy of those two firms, the Fed arranged an assisted sale of Bear Stearns and lent funds to AIG. Although equity holders of Bear Stearns and AIG suffered heavy losses, all counterparties and creditors (including subordinated debt holders, who bought debt that was explicitly junior to regular debt holders) were paid in full thanks to government support. However, the knowledge or suspicion that a firm is too big to fail changes the behavior of a firm and its creditors because of moral hazard. If a firm and its creditors believe that they will be protected from any future losses, they have an incentive to take more risks in an attempt to increase potential profits, since there will be less downside if those risks turn out badly. Thus, moral hazard increases the likelihood that large firms will be a source of systemic risk.",
"Financial institutions fund their loans and asset purchases through a combination of liabilities (deposits and debt) and capital. Leverage is a term that refers to the ratio of liabilities to capital held by an institution. Institutions have an incentive to hold more capital to safeguard against insolvency (when liabilities exceed assets), but they also have an incentive to hold less capital so that profits are not spread too thinly among capital holders. During the credit boom, leverage increased in the financial sector, as some institutions increased their liabilities to expand their loans and asset purchases. Because interest rates were relatively low, liabilities could be financed at relatively low cost. Beginning in the second half of 2007, firms began to write off losses on loans and assets, depleting their capital. Some capital was replenished by issuing new equity, but eventually institutions needed more capital than investors were willing to supply. Thus, if firms wished to reduce their liabilities to reduce leverage, they would have to sell some of their assets. Financial institutions complained that the desire of all institutions to sell assets at once, when buyers were scared off by uncertainty about future asset prices, led to a situation where assets could only be sold at \"fire sale\" prices that further depleted the seller's capital. To the extent that assets were \"marked to market\" (recorded at prevailing market prices) on an institution's balance sheet, fire sales could cause \"feedback effects\" where all institutions holding similar assets—even those that had not sold—faced write downs that depleted capital.\nSome economists have argued that this cycle of leveraging when times are good and deleveraging when times are bad is a source of systemic risk. They propose that capital requirements should be made less pro-cyclical, meaning that regulators would require firms to hold more capital than needed when times are good, so that they could draw down capital rather than be forced into fire sales when faced with losses.",
"Another potential source of systemic risk could be an event that leads to the breakdown of a payment, settlement, or clearing system. Such an event would focus, not on the activities of specific firms, but rather on the robustness of the system as a whole when something goes wrong. Adverse events could potentially include the failure of a major counterparty, exchange, or clearinghouse; technological disruptions; or fraud, any of which might disrupt timely payments to a large number of financial market participants.\nConcerns about systemic risk in the payment systems in the recent crisis have focused on the derivatives market. Policymakers have expressed concern that over-the-counter derivative contracts were not processed promptly enough and suffered from inadequate record keeping. Regulators have expressed a concern that over-the-counter contracts were overly vulnerable to counterparty risk, since the holder of a contract, who is often trying to hedge risk of its own, is exposed to the risk that the provider of protection could fail to make contractual payments. Further, it was apparent that there was not enough transparency for markets or regulators to identify where these counterparty risks lay. The alternative to trading on the over-the-counter market is to clear derivatives through a central clearinghouse and/or trade derivatives on public exchange.\nDerivatives have not been the only market to fail to function smoothly in the recent crisis. Repurchase agreement (repo) markets also saw a large increase in \"fails\" during the crisis. In a common repurchase agreement, the holder of a Treasury bond sells it, with an agreement to buy it back for a higher price the next day. Repurchase agreements are a common source of liquidity for financial firms such as investment banks. During the crisis, investor flight to Treasury securities caused scarcity and low yields that led many buyers of the Treasury security to be unwilling or unable to sell it back at the end of the repo contract. According to the Treasury Market Practices Group, \"While some settlement fails are inevitable, these widespread and persistent fails prevent efficient market clearing and impose credit risk on market participants, and are therefore damaging to overall market liquidity.\"",
"One criticism raised about the performance of regulators in the run-up to the crisis is that each regulator was given very narrow mandates, and had no responsibility for \"seeing the forest for the trees.\" According to this view, there were gaps between the responsibilities of different regulators, as well as regulators who were unconcerned about whether activities undertaken by institutions they regulated posed risks to the system as a whole. For example, it was argued that the Office of Thrift Supervision inadequately supervised AIG's financial products subsidiary, instead focusing only on the fact that it posed no risk to the health of thrifts. (AIG was officially a thrift holding company.) Gaps were identified in the regulation of institutions (such as investment banks), financial systems (such as over-the-counter derivatives), and products (such as mortgages issued by non-banks, pre-crisis) that contributed to the crisis. Sometimes the focus of the \"gaps in regulation\" argument was the shadow banking system, and the proposed solution was for regulators to close gaps are focused on creating a similar regulatory environment for banks and non-banks.\nAnother critique was that the regulatory system was ineffective because there were too many overlapping regulators, and this contributed to the crisis. Five regulators have responsibilities for different types of depository institutions at the federal level, and some depositories are regulated solely at the state level, for example. An argument for reducing the number of regulators is that firms can \"forum shop\" in the current system, choosing the regulator whom they believe will be most sympathetic or have the lightest touch. This could lead to a \"race to the bottom\" in terms of regulatory standards, where other regulators ease up to avoid losing firms to other regulators. An argument in favor of multiple regulators is that competition among regulators makes it less likely that regulators will suffer from \"blind spots\" or \"groupthink.\"",
"From a macroeconomic perspective, fixing specific details of what went wrong in the recent crisis is arguably less important for preventing a future crisis than addressing the disequilibrium in underlying economic fundamentals that led to the crisis. Specifically, such a viewpoint would see the housing bubble, and the financial sector's large exposure to it, as inevitably producing a crisis. Thus, a proponent of that view would argue that when the bubble first emerged, policymakers should have taken steps to prevent the bubble from becoming so large, so that the when the bubble did burst, it would have been less disruptive. For example, the Federal Reserve could have raised interest rates to increase (indirectly) the financing costs of purchasing a house, and regulators could have set rules to tighten mortgage underwriting standards which, in hindsight, are generally believed to have been too lax. Because investors have shown a willingness to accept lower underwriting standards in booms when defaults are low, it has also been argued that regulators should have required underwriting standards high enough that borrowers would have been able to withstand a downturn in the housing market. According to this view, unless the bubble could have been avoided, focusing on measures such as overall capital and liquidity levels alone would not have prevented the boom and bust cycle.",
"Systemic risk regulation is not a new concept. On page one of a 2005 Federal Reserve document entitled Federal Reserve: Purposes and Functions , the Fed identifies \"maintaining the stability of the financial system and containing systemic risk that may arise in financial markets\" as one of its four primary duties. At the time of the crisis, the Fed could have used its existing regulatory powers over bank holding companies and certain consumer financial products to limit the likelihood of a systemic risk episode, and it could have used its existing lender-of last-resort powers to ameliorate the fallout following a systemic risk episode. Besides its authority to lend to banks through the discount window, it had authority to provide direct assistance to any firm through its emergency authority, found in Section 13(3) of the Federal Reserve Act. This emergency authority was used extensively during the recent crisis to provide assistance to non-bank parts of the financial system. Finally, the Fed has an overall statutory mandate to keep inflation stable and unemployment low. Arguably, it would be impossible to meet this existing mandate if the Fed ignored systemic risk.\nAlthough regulators may have used their powers to attempt to prevent systemic risk before and during the crisis, it may be the case that they did not have all the legal authority needed to respond to the types of systemic issues that emerged. This may be, in part, because regulation has not kept pace with the changes brought about by financial innovation. This section looks at the Fed's existing powers and gaps in its powers at the time of the crisis in light of the specific systemic issues raised in the previous section.",
"The potential for runs can never be fully eliminated because they are a by-product of the maturity mismatch inherent in financial intermediation. Nevertheless, regulators could require that financial institutions take precautionary steps that minimize the likelihood of runs, namely by requiring firms to hold some of their assets in a liquid form and maintain access to long-term credit. Banking companies traditionally have been regulated to ensure that they hold sufficient liquidity. This regulation, however, was more concerned with the liquidity of depository institutions rather than non-depository affiliates of banking institutions. An assumption made by banks and regulators before the crisis was that healthy banks would always have access to ample private sector liquidity, in part because the Federal Reserve could always flood the private market with liquidity through its open market operations. Beginning in August 2007 and becoming acute in September 2008, healthy banks could not access sufficient liquidity from private sources despite the Fed's efforts, as fear of counterparty risk caused the interbank lending market to freeze up.\nWhen banks could not access liquidity from private markets, they began borrowing from the Fed's discount window, posting their illiquid assets as collateral. Borrowing from the discount window and another newly created lending facility called the Term Auction Facility, created for banks rose from less than $1 billion to over $500 billion during the crisis. Lending by the Fed was not the only action taken to halt runs by debt-holders during the crisis; the FDIC created the Temporary Liquidity Guarantee Program. This program, which was financed through fees levied on participating banks, temporarily guaranteed newly issued bank debt. Access to the discount window and similar lending facilities creates a moral hazard problem since it gives financial firms less incentive to obtain liquidity from private markets, which regulation of liquidity can potentially offset.\nA skeptic might note that because institutions can never hold enough liquidity to remain liquid (without access to central bank credit) in a true market panic, simply requiring higher liquidity is unlikely to prevent a reoccurrence of the events similar to those of September 2008. If one concludes that liquidity problems were a symptom of the collapse in counterparty trust, other structural changes may be necessary to ensure that the problem is not repeated. For example, to reduce fears of counterparty risk, regulators could limit maximum exposure to individual counterparties or require that such exposures be adequately collateralized. This would raise the cost of taking on counterparty risk, perhaps persuading firms to become better diversified.\nEffective structural changes were complicated by the disparate regulatory regimes in place in the U.S. for banks and non-banks. Non-bank financial institutions generally have not been regulated at the federal level for liquidity even though they often are more dependent on short-term borrowing than are banks (not including federally insured demand deposits). For example, a recent study estimated that 38% of broker-dealers' liabilities were short-term repurchase agreements (\"repos\"), whereas for commercial banks they were less than 10% of liabilities. The proximate cause of failure for many non-bank financial institutions was a \"run\" by debt-holders—an inability to roll over short-term debt. The Fed arguably extinguished liquidity problems at this category of institutions by making liquidity available through its emergency lending authority, found in Section 13(3) of the Federal Reserve Act. For example, the Fed provided liquidity through new temporary lending facilities for primary dealers (major broker-dealers in the Treasury market) in March 2008. Between September and November 2008, the Fed also added liquidity to commercial paper markets and asset-backed securities markets by directly purchasing or financing the purchase of those assets through special facilities created temporarily.\nThe Securities and Exchange Commission (SEC), not the Fed, had regulatory responsibility for money market mutual funds. The SEC's regulation covers the types of assets that money market funds are allowed to hold. In spite of this regulatory scope, it was Treasury, not the Fed or the SEC, that intervened to provide money market mutual funds a temporary guarantee in September 2008. Although investors may hope for similar assistance in the event of a future crisis, Treasury no longer has authority to use the Exchange Stabilization Fund, the fund it used in 2008 for this purpose, that is, \"for the establishment of any future guaranty programs for the United States money market mutual fund industry.\"",
"The Fed had primary regulatory responsibility for bank holding companies and financial holding companies. These two categories already encompassed many of the largest financial firms in the financial system. Because the Fed could already regulate banks for safety and soundness, it already had authority to take the too big to fail problem into account when setting regulation for these types of holding companies. The closest regulatory scrutiny was applied to a holding company's depository subsidiaries, as discussed above. If the crisis has demonstrated that systemic risk can be caused by any of the too big to fail's subsidiaries, it may follow that all subsidiaries should receive similar regulation.\nAs previously mentioned, commercial banks and securities firms, which are commonly referred to as investment banks, are subject to distinct regulatory systems in the United States. Before the crisis, there also were five large investment banks that did not fall under the Fed's regulatory umbrella, but since the crisis, each of these firms either failed (Lehman Brothers), were acquired by bank holding companies (Bear Stearns and Merrill Lynch), or converted to bank holding companies (Goldman Sachs and Morgan Stanley). As a result of these conversions to or acquisitions by bank holding companies, the Fed became the umbrella supervisor over these institutions.\nSeveral other types of financial firms, including hedge funds and broker-dealers, were not closely regulated for safety and soundness by the Fed or by other federal regulators before the crisis. Previously, banks were the only type of financial institutions considered to be a source of systemic risk. Although non-bank financial institutions have, over time, grown rapidly relative to banks, policy remained unchanged—firms (banks or non-banks) were not explicitly identified as too big to fail, and thus non-banks received no special regulatory treatment to take into account any special systemic risks they might pose.\nFor firms that were already regulated for safety and soundness, like banks, prudential regulation could potentially be set to take into account the moral hazard posed by too big to fail. Otherwise, in hindsight, it seems as if policymakers were willing to live with the assumption that the ambiguity surrounding whether or not a company would be protected as too big to fail would prevent moral hazard. Intervening during the crisis to keep Bear Stearns, Fannie Mae, Freddie Mac, and AIG from failing made it unlikely that market participants would perceive a stated intent to allow a large institution to fail as credible.\nDuring the crisis, when a non-bank financial firm faced failure, the policy options were to allow the firm to enter bankruptcy, as was done with the investment bank Lehman Brothers, or for the government to inject funds to keep the firm solvent, as was done with the insurance company AIG. The Fed used its emergency lending authority (Section 13(3) of the Federal Reserve Act), which is broad enough to allow it to lend to troubled firms, provided the loan is \"secured to the satisfaction of the Federal Reserve bank.\" With respect to the transactions involving Bear Stearns and AIG, the Fed determined that its loans were satisfactorily secured. In the case of Lehman Brothers, Fed Chairman Ben Bernanke indicated, after the fact, that Lehman Brothers was not provided a loan because it could not secure the loan to the Fed's satisfaction. The Fed did not make public (and was not required to make public) specific evidence as to how it has ensured that loans are secured to its satisfaction. Its lender-of-last-resort role was specifically aimed at assisting solvent firms (firms whose assets exceed their liabilities) with liquidity problems. A commonly held principle is that the lender-of-last-resort function should not be employed for firms whose troubles stem from solvency issues, but in the heat of a crisis, it can be difficult to differentiate between liquidity problems and solvency problems.\nFor banks, thrifts, credit unions, and the housing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, there were also the options of government receivership or conservatorship, where the government seizes control of the firm to either wind it down or keep it functioning, respectively. Under a government receivership, the federal administrative agency operating the receivership is given authority to impose losses on specific creditors and infuse either government or deposit insurance funds to reduce losses on other creditors. In the case of bank and thrift insolvencies, for example, the FDIC used funds financed through deposit insurance premiums to make depositors of a failed bank whole.",
"Banks already faced capital requirements set by regulators (including the Fed) based on the Basel Accords. Typically, capital requirements were seen as providing for the safety of the specific firm, without considering how the cycle of leverage and deleverage might pose systemic risk. Some economists argue that the crisis has demonstrated that existing requirements were either too low or too pro-cyclical. It is argued that capital requirements were pro-cyclical because a firm was required to hold less capital when asset prices were high and to raise capital when asset prices fell.\nFederal capital requirements were applied to depository subsidiaries, not a holding company's non-depository subsidiaries. \"Firewalls\" were in place to prevent problems with a non-depository subsidiary from affecting the depository subsidiary. In the Fed's words, \"The Federal Reserve's supervision of nonbank subsidiaries under the Bank Holding Company (BHC) Act is primarily directed toward, and focused on, ensuring that the nonbank subsidiary does not present material financial, legal, or reputational risks to affiliated depository institutions nor to the BHC's or FBO's [Foreign Banking Organization's] ability to support these depository institutions.\" The logic behind this approach was that leverage limits or capital requirements are needed for the federally insured subsidiary because it has the advantage of the federal subsidy in terms of federally insured deposits, but less so for non-insured subsidiaries that are presumably subject to market discipline, including by stockholders. As discussed above, decisions during the recent financial crisis to rescue \"systemically important\" firms may be viewed as having undermined this logic, at least for large or interconnected firms.",
"The Fed had regulatory responsibility and played a key \"clearinghouse\" role in the check-clearing payment system for banks. The Fed set regulations on banks' uses of the payment system to ensure its smooth functioning. (For example, the Fed has capped and assessed fees on a bank's overdrafts from its reserve account at the Federal Reserve bank. ) This system showed little sign of stress during the crisis. In addition, there are five private sector settlement systems supervised by the Fed, which operate in areas such as payments, securities, and foreign exchange. Other payment, settlement, and clearing systems, as well as activities that did not occur through a clearinghouse, were not directly regulated by the Fed. (The Fed set best practice guidelines for any payment or settlement system, but these guidelines were not required for systems that the Fed does not regulate.) The authority of Fed (and other bank regulators) over the institutions which they regulate is sufficient for them to monitor how banks operate in other payment, settlement, and clearing settings. Banks, particularly large banks, account for a considerable share of credit default swap and other derivative transactions. Thus, despite having no direct authority to regulate the private systems and clearinghouses handling these transactions, by overseeing how banks use and structure those transactions, the Fed could have a large role in affecting the overall operations of those systems.",
"Regulators already coordinated policy through inter-agency groups such as the Federal Financial Institution Examinations Council (FFIEC) and the President's Working Group on Financial Markets. FFIEC is composed of the federal bank regulators and is meant to set consistent regulation for banks across regulators. The President's Working Group includes the Secretary of the Treasury and the chairmen of the Federal Reserve, the SEC, and the CFTC. Those promoting the need to eliminate regulatory gaps argue that FFIEC's scope was too narrow to perceive systemic risk, while the President's Working Group's responsibilities were too ad hoc.\nIt can be said that during the recent crisis, there was no explicit statutory delegation of authority for systemic regulation. On the other hand, although the Fed lacked direct authority over many of the components of the financial services industry, it had a statutory directive sufficiently broad to provide a basis for it to monitor the financial system to inform Congress of potential systemic dangers.\nPrior to enactment of the Dodd-Frank Act, the Fed lacked sufficient authority to intervene in financial markets even if it were to identify a gap in regulation that could lead to systemic risk. Under the type of functional regulation in place after the enactment of the Gramm-Leach-Bliley Act in 1999, regulatory authority over holding companies was dispersed among an array of regulators. As the primary regulator of bank holding companies and financial holding companies, the Fed had broad powers over the banking subsidiaries of the holding company but limited powers over the non-banking subsidiaries such as insurance companies and securities firms. Although the law provided the Fed with safety and soundness regulatory authority over the holding company itself, and over certain of its depository subsidiaries, federal banking and securities regulators, as well as state insurance regulators, were designated as primary functional regulators of other subsidiaries. The result was that there was no clear authority for the Fed or for any one regulator to oversee or to intervene in the entire operations of a holding company. Moreover, although the Fed had full access to information on transactions between banks and nonbanks and any public information on nonbanking concerns, neither the Fed nor any one regulator had access to all of the proprietary information that may have been needed to make a systemic risk determination.\nOn the other hand, the Fed's broad general policy mandate casts doubt on the argument that there was no \"big picture\" regulator tasked with identifying the broader problems mounting in financial markets. With its legal mandate to \"promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates,\" it is difficult to argue that the Fed's outlook was too narrow for it to be aware of the fundamental macroeconomic imbalances that were arguably at the root of the crisis. The Fed may not have had the authority to act on systemic issues that were outside of its areas of responsibility, but the Fed regularly makes recommendations to Congress on issues that it believes affect its mandated goals. The argument that \"everybody missed the warning signs that the Fed missed\" has validity, but begs the question of whether a systemic risk regulator would have missed them as well.",
"The Fed's legal mandate to \"promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates\" gives it broad discretion to develop and pursue a monetary policy that will meet that mandate. Events since 2007 offer strong evidence that the bursting of an asset bubble can lead to macroeconomic results that are inconsistent with its mandate. If the Fed wished to raise interest rates to burst an asset bubble, its actions could be justified by its current mandate. But in the past, the Fed has chosen not to use monetary policy to respond to asset bubbles, arguing that to burst a bubble just for the sake of doing so would stray from its current mandate.\nIn the past, the Fed has argued that it would not be able to identify bubbles accurately until they had already burst. Although this may seem doubtful to some, a large body of economic theory supports the position that future movements in asset prices cannot be accurately predicted since current asset prices should incorporate all available information about their future movement. In other words, the Fed could successfully identify bubbles only if it were able to \"outsmart\" market participants, and it is questionable whether the Fed has more information or expertise than market participants. It could be argued that the evidence that the housing market was being driven by speculation as opposed to fundamentals was prevalent and obvious, and markets have demonstrated time and again that pricing is not always efficient. Even if it is accepted that markets are sometimes prone to bubbles, it does not necessarily follow that the Fed can accurately identify them. Fed officials are on record fairly late in the housing boom as dismissing the claim that a housing bust was a serious threat to the U.S. economy. For example, in June 2007, two months before liquidity problems emerged, Chairman Bernanke stated in a speech that \"However, fundamental factors—including solid growth in incomes and relatively low mortgage rates—should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.\"\nThe Fed has also argued in the past that attempts to use higher interest rates to prick asset bubbles before they are fully inflated could be either ineffective or a cure that is worse than the disease. Instead, the Fed has argued it can use expansionary monetary policy to ensure a smooth landing after a bubble has burst. The aftermath of the dot-com bubble would seem to support this view—the 2001 recession was mild and brief, and it is not evident that attempts by the Fed to prick the dot-com bubble earlier would have led to a better outcome. On the other hand, it is doubtful that attempts by the Fed to prematurely prick the housing bubble could have ended worse than the 2008 financial crisis, and monetary policy was not powerful enough in this case to ensure a smooth landing.",
"Systemic events have proven to be rare in modern times. When they occur, they are usually not predicted by many beforehand. This hampers the evaluation of a systemic risk regulator's performance. In years with good outcomes, it may be impossible to distinguish whether good outcomes were caused by the systemic risk regulator's vigilance or were simply the result of normal times. There is also the risk that a systemic risk regulator who is only rewarded for avoiding instability would allow too little risk-taking, and thus stifle financial innovation and efficient intermediation. Because systemic events have proven hard to predict, a systemic risk regulator could plead that its failure to predict the systemic event accorded with conventional wisdom.\nAssuming that the Fed's mandate provides it with systemic risk authority, the law seems not to have offered any clear-cut mechanism to discipline the Fed for failure to prevent a systemic event—other than congressional intervention by amending federal law. Under the Federal Reserve Act, Fed governors serve 14-year terms and can only be removed for \"cause,\" not for policy disputes. The Federal Reserve System is self-financing; without changing the law, Congress cannot adjust its budget to influence its priorities. Adding specific systemic risk authority to the Fed's current wide-ranging remit, which some see as enabling the Fed to justify any action by pointing to some part of its mission, broadens the Fed's already wide-ranging authority and may enhance arguments that the broad mandate hampers effective oversight.",
"The Dodd-Frank Wall Street Reform and Consumer Protection Act ( H.R. 4173 ) was signed into law on July 21, 2010, as P.L. 111-203 . The Dodd-Frank Act was a broad-based reform package that included provisions affecting almost every part of the financial system. While the overall goal of the act was to prevent another systemic risk episode, this section discusses only those provisions of the act related to the types of systemic risk issues discussed in this report or the Federal Reserve. The provisions discussed are found mostly in Titles I and XI of the act.",
"New systemic risk responsibilities in the Dodd-Frank Act were mostly divided between the newly created Financial Stability Oversight Council and the Federal Reserve, although resolution authority was largely shared between the Treasury Secretary and the Federal Deposit Insurance Corporation. Modifications to existing regulations generally applied to the existing regulator.",
"Title I, Subtitle A of the Dodd-Frank Act creates the Financial Stability Oversight Council on the date of enactment. The Council is chaired by the Secretary of the Treasury, and the voting members consist of the heads of eight federal regulatory agencies (including the chairman of the Fed), the Treasury Secretary, and a member appointed by the President with insurance expertise. The Council is tasked with identifying risks to financial stability and responding to emerging systemic risks, while minimizing moral hazard arising from expectations that firms or their counterparties will be rescued from failure. The Council's duties include\ncollecting information on financial firms from regulators and through the Office of Financial Research, which is created in Title 1, Subtitle B to support the Council; monitoring the financial system to identify potential systemic risks; proposing regulatory changes to Congress to promote stability, competitiveness, and efficiency; facilitating information sharing and coordination among financial regulators; making regulatory recommendations to financial regulators, including \"new or heightened standards and safeguards\"; identifying gaps in regulation that could pose systemic risk; reviewing and commenting on new or existing accounting standards issued by any standard-setting body; providing a forum for the resolution of jurisdictional disputes among council members. The Council may not impose any resolution on disagreeing members, however.\nThe Council is required to provide an annual report and testimony to Congress.\nIn contrast to some proposals to create a systemic risk regulator, the Dodd-Frank Act does not give the Council authority (beyond the existing authority of its individual members) to eliminate emerging threats or close regulatory gaps it identifies. In many cases, the Council can only make regulatory recommendations—it cannot impose change. The fact that regulators are on the Council may make it less likely they would resist its recommendations, however.",
"In addition to the duties listed above, the Council has authority to identify non-bank financial firms that are systemically significant by a \"two-thirds vote of the voting members then serving,\" including the Treasury Secretary. A firm would be deemed systemically significant on the basis of a Council determination that it could pose a threat to financial stability because of material distress or because of \"the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities\" of the firm. Foreign financial firms operating in the United States could be identified by the Council as systemically significant. The act exempts firms with consolidated assets under $50 billion, although the Council and Fed may raise that threshold. The Fed is given examination powers to help the Council determine whether a firm is systemically significant. A firm can contest its designation before the Council and, if unsuccessful, through appeal to a federal district court, which may set aside the Council's determination only if it finds it to be arbitrary and capricious. Any firm that has over $50 billion in consolidated assets and received assistance under the Troubled Asset Relief Program (TARP) that ceases to be a bank holding company would automatically be considered a systemically significant firm.\nUnder the new law, the Council may recommend that the Fed impose more stringent prudential safety and soundness standards on these firms than are applicable to other nonbank financial firms and bank holding companies which do not pose a systemic risk. In recommending these standards, the Council may recommend different standards for individual institutions or categories based on the risk they present.\nUnder Subtitle C of Title I, the Fed would regulate for safety and soundness the firms which the Council has subjected to Fed supervision on the basis of a systemic risk determination and any other bank holding company with total consolidated assets of $50 billion. At the recommendation of the Council or on its own initiative, the Fed may set different standards for different systemically significant firms or categories of firms based on various risk-related factors. The standards include risk-based capital requirements that account for off-balance-sheet activities and 15 to 1 leverage limits (if appropriate), liquidity requirements, risk management requirements, and exposure limits of 25% of a company's capital per counterparty. Other prudential standards may be applied at the Fed's discretion. The firms are required to submit resolution plans (\"living wills\") and credit exposure reports to the Fed. Regulated subsidiaries would continue to be regulated by their primary functional regulator, although the Fed may override the functional regulator if the Fed believes the firm is not adhering to regulatory standards or poses a threat to financial stability. The Fed must consult with the primary regulator before applying heightened prudential standards to a regulated subsidiary. The Fed must conduct annual stress tests on systemically significant firms and, in consultation with the Council and the FDIC, issue regulations establishing remediation measures to be imposed at an early stage of a firm's \"financial decline\" in an effort to prevent insolvency and its potential impact on the financial system.\nIf the Board determines, and at least two-thirds of the Council confirms, that a systemically significant firm poses a \"grave threat\" to financial stability, it may:\n(1) limit the ability of the company to merge with, acquire, consolidate with, or otherwise become affiliated with another company;\n(2) restrict the ability of the company to offer a financial product or products;\n(3) require the company to terminate one or more activities;\n(4) impose conditions on the manner in which the company conducts one or more activities; or\n(5) if the Board of Governors determines that the actions described in paragraphs (1) through (4) are inadequate to mitigate a threat to the financial stability of the United States in its recommendation, require the company to sell or otherwise transfer assets or off-balance-sheet items to unaffiliated entities.\nIn addition, Title VI prohibits any insured depository institution, bank holding company, or systemically significant institution from merging with or acquiring assets of another company which causes the total consolidated liabilities of the acquiring company to exceed 10% of the aggregate consolidated liabilities of all financial companies or, in the case of interstate mergers, 10% of the total amount of deposits of insured depository institutions in the United States. The Fed may make exceptions for a bank in default, an acquisition involving assistance provided by the FDIC to institutions in danger of default, an acquisition that results in minimal increase in the company's liabilities, or during severe financial conditions.",
"Title II attempts to address the concern that failures of systemically important financial firms were too destabilizing under prior law by establishing a new system for certain financial companies whose resolution under otherwise available law is determined by various federal regulators to pose dangers to the U.S. financial system. This resolution system is modeled after the FDIC's existing receivership regime for depository institutions. Many types of financial companies and their subsidiaries are eligible for this special resolution regime; however, subsidiaries that are insurance companies, certain broker-dealers, and insured depositories are not eligible.\nIn order for an eligible financial company to be resolved under the special regime, a group of regulators, including two-thirds of the Federal Reserve Board, must recommend the company for the resolution based on standards delineated by the Dodd-Frank Act. After the recommendation, the Treasury Secretary, in consultation with the President, must make a determination that the \"company is in default or in danger of default;\" the company's resolution under otherwise available law would \"have serious adverse effects on financial stability of the United States;\" \"no viable private sector alternative is available;\" and other considerations. A company that disputes the determination by the Treasury Secretary will have limited rights to appeal the determination in federal court.\nWhile the special resolution regime is modeled after the FDIC's receivership power, there are some important distinctions between the two. For instance, the Dodd-Frank Act emphasizes that\ncreditors and shareholders will bear the losses of the financial company; management responsible for the condition of the financial company will not be retained; and the [FDIC] and other appropriate agencies will take all steps necessary and appropriate to assure that all parties, including management, directors, and third parties, having responsibility for the condition of the financial company bear losses consistent with their responsibility, including actions for damages, restitution, and recoupment of compensation and other gains not compatible with such responsibility .\nThe act also states that \"[a]ll financial companies put into receivership under this title shall be liquidated [and n]o taxpayer funds shall be used to prevent the liquidation of any financial company under this title.\"\nThe funding mechanism for resolutions under the Dodd-Frank Act also differs from the conservatorship/receivership regime for depositories. The Orderly Liquidation Fund established by the Dodd-Frank Act will not be prefunded. Instead, the FDIC, upon being appointed receiver of a particular financial company, is authorized to borrow funds from the Treasury subject to explicit caps based on the value of the failed firm's consolidated assets. If necessary to pay off such obligations to the Treasury, the FDIC would have the authority to assess claimants of the failed institution that received more through the receivership than they would have received had the failed firm been liquidated in bankruptcy, as well as the power to assess certain large financial institutions (bank holding companies and nonbank financial companies eligible for the special resolution regime that have more than $50 billion in assets and all nonbank financial institutions supervised by the Fed as systemically significant). The Dodd-Frank Act also imposes a three-year time limit on any receivership with the possibility of up to two one-year extensions.\"",
"Title VI contains an outright prohibition on proprietary trading by any FDIC-insured depository institution, company controlling an insured depository institution, company treated as a bank holding company for purposes of the International Banking Act of 1978, and any affiliate or subsidiary of such entity. Such institutions are also barred from owning interests in or sponsoring hedge funds or private equity funds. There are, however, certain exceptions to the prohibition—some transitional, some involving activities by foreign firms that take place solely outside the United States, and others designated as permitted activities, including purchasing and selling government or GSE securities, market making activities, risk mitigating hedging activities, small business investment company investments, insurance company portfolio investments, and other investments identified by regulators.\nRather than subjecting non-bank financial companies supervised by the Fed to a prohibition on proprietary trading and hedge fund ownership or sponsorship, the legislation authorizes the regulators to issue rules subjecting such companies to additional capital and quantitative limits on such activities unless the activity has been identified under one of the exceptions.",
"In addition to the duties listed above, the Council, by a two-thirds vote including the chairman, is authorized to identify systemically significant systems for payment, clearing, and settlement (PCS) of financial transactions (also called utilities) and (PCS) activities for regulation by the SEC or the CFTC if registered therewith; otherwise, by the Fed. Title VIII identifies activities that could potentially be regulated, including settling and netting of financial transactions; the provision and maintenance of trade, contract, or instrument information; risk management activities related to continuing transactions; transmittal and storage of payment instructions; and the movement of funds. The act identifies funds transfers, securities contracts, futures contracts, forward contracts, repurchase agreements, swaps, foreign exchanges contracts, financial derivatives contracts, and any similar transaction identified by the Council as financial instruments whose payment, clearing, or settlement could be regulated. It explicitly excludes designated contract markets, registered futures associations, swap data repositories, certain swap execution facilities, national securities exchanges and associations, alternative trading systems, security-based swap data repositories, broker dealers, investment companies, futures commission merchants, commodity trading advisors, and commodity pool operators from regulation.\nThe PCS regulator may make information requests, issue rules and take enforcement actions, and examine a designated PCS system or firm performing a PCS activity. For PCS systems and activities regulated by the SEC or CFTC, the Fed may make enforcement recommendations or take actions in case of \"imminent risk or substantial harm.\" Once a PCS system is regulated, it may borrow from the Fed; the right to borrow is limited to \"unusual or exigent circumstances\" and requires a showing that the firm cannot secure credit elsewhere and a majority vote of the Fed Board taken after consultation with the Treasury Secretary.",
"Title VII seeks to remake the OTC market in the image of the regulated futures exchanges. The act includes a requirement that swap contracts be cleared through a central counterparty regulated by one or more federal agency. Clearing houses require traders to post initial margin at the time they open a contract to cover potential losses, and require subsequent deposits of cash (called maintenance margin) to cover actual losses to the position. The effect of margin requirements is to eliminate the possibility that any firm can build up an uncapitalized exposure so large that default would have systemic consequences. The size of a cleared position is limited by the firm's ability to post capital to cover its losses. That capital protects its trading partners and the system as a whole. Counterparty risk is shifted from the firms engaged in the trade to the clearing house.\nThe new law provides exceptions to the clearing requirement for commercial end-users, or firms that use derivatives to hedge the risks of their nonfinancial business operations. Regulators may also provide exemptions for smaller financial institutions.\nSwap dealers and major swap participants—firms with substantial derivatives positions—will be subject to margin and capital requirements above and beyond what the clearing houses mandate. Trades that are cleared will also be subject to trading on an exchange, or an exchange-like \"swap execution facility,\" regulated by either the Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC), in the case of security-based swaps. All trades will be reported to data repositories, so that regulators will have complete information about all derivatives positions. Data on swap prices and trading volumes will be made public. This would make more information available to regulators about the size and distribution of possible losses during periods of market volatility.\nThe act prevents insured depository institutions from dealing credit default swaps.",
"Title I requires the federal banking regulators to establish minimum risk-based capital requirements and leverage requirements on a consolidated basis for depository institutions, depository holding companies, and firms designated as systemically significant by the Council that are no lower than those were set for depository institutions as of the date of enactment. Under this provision, no longer will holding companies be authorized to include trust-preferred securities in Tier I capital. These requirements are phased in, and certain small firms are exempted.\nTitle VI requires the federal banking regulators to make capital \"requirements countercyclical, so that the amount of capital required to be maintained … increases in times of economic expansion and decreases in times of economic contraction, consistent with … safety and soundness.\"\nThe Council is required to conduct a study on the feasibility of implementing a contingent capital requirement for systemically significant firms. Contingent capital is debt that can be converted into equity by the issuing firm under certain circumstances. Following the study, if the Council recommends, the Fed may impose contingent capital requirements on systemically significant firms.",
"Title XI amends Section 13(3) of the Federal Reserve Act to require the Fed to establish, in consultation with the Secretary, regulations governing the use of the Federal Reserve Act's Section 13(3) emergency lending authority, in contrast to the ad hoc use of Section 13(3) during the recent crisis. The policies and procedures prescribed in these regulations must include measures to prevent aid to failing firms or insolvent borrowers and may require borrowers to certify that they are solvent. Any program established under this authority must be approved by the Treasury Secretary and must be \"for the purpose of providing liquidity to the financial system, and not to aid a failing financial firm or company.\" A program that is \"structured to remove assets from the balance sheet of a single and specific company\" is forbidden, as is any program designed to help a single company to avoid bankruptcy or an insolvency proceeding. The policies and procedures must ensure that any assistance be secured sufficiently to protect taxpayers from losses \"consistent with sound risk management practices.\" This contrasts with the standard applicable during the recent crisis, which required that security for assistance be \"indorsed [sic.], or otherwise secured to the satisfaction of the Federal reserve [sic.] bank.\" Any program under this authority must be \"terminated in a timely and orderly fashion.\"",
"In addition to the Fed, the Federal Deposit Insurance Corporation (FDIC) also set up emergency programs in response to the crisis. On October 14, 2008, the FDIC announced the creation of the Temporary Liquidity Guarantee Program to encourage liquidity in the banking system, including a Debt Guarantee Program and a Transaction Guarantee Program. This program was not specifically authorized by Congress; it was authorized under the FDIC's standing systemic risk mitigation authority, 12 U.S.C. § 1823(c)(4)(G). The Debt Guarantee Program guarantees debt issued by banks, thrifts, and bank holding companies, including commercial paper, interbank funding, promissory notes, and any unsecured portion of secured debt.\nTitle XI provides more specific, explicit authority for the FDIC to create a program to guarantee debt of solvent depository institutions or depository institution holding companies and their affiliates \"during times of severe economic distress.\" This supersedes the authority in 12 U.S.C. 1823(c)(4)(G). To institute such a program, at the Treasury Secretary's request, two-thirds of the FDIC's Board and two-thirds of Fed governors must make a finding, that (1) a liquidity event exists, (2) failure to act would have serious adverse effects on financial stability, and (3) using this authority would ameliorate the effects. The program must be \"widely available\" to \"solvent insured depository institutions or solvent depository institution holding companies (including any affiliates thereof\" and may not include \"the provision of equity in any form.\" There could, therefore, be no program under this authority similar to the Capital Purchase Program undertaken under the Troubled Asset Relief Program (TARP) authorized by the Emergency Economic Stabilization Act of 2008. Under the legislation, the FDIC, in consultation with the Treasury Secretary, must establish policies and procedures governing the terms and conditions of such a program \"as soon as is practicable.\" The program must be financed by assessments on participants, although temporary funding will be available to the FDIC from the Treasury. Upon establishing a program, the Treasury Secretary, in consultation with the President, is to establish a maximum amount of debt that can be guaranteed, and obtain congressional approval before any guarantees may be issued. Congressional approval is to take the form of a joint resolution to be considered under expedited procedures.",
"Title VI makes modifications to the Fed's authority to regulate bank holding companies. It removes the strict limitations on Fed authority to take direct action against functionally regulated subsidiaries of bank holding companies. It expands Fed authority to examine bank holding company subsidiaries by specifically including risks to U.S. financial stability as a focus of the examination. It authorizes the Fed to monitor how the subsidiaries, except for functionally regulated subsidiaries and depository institution subsidiaries, are complying with any other applicable federal law (subject to the allocation of examination functions under the Consumer Financial Protection Act of 2010, Title X of the Dodd-Frank Act).\nTitle VI also sets standards for the Fed to examine activities of non-depository, non-functionally regulated subsidiaries of depository institution holding companies that \"are permissible for the insured depository institution subsidiaries of the depository institution holding company in the same manner, subject to the same standards, and with the same frequency as would be required if such activities were conducted by the lead insured depository institution subsidiary of the holding company.\" The regulator of the lead depository institution may request a Fed examination of the non-depository, non-functionally regulated subsidiaries of the holding company, and if the Fed fails to begin such an examination, the regulator of the lead depository institution may commence to conduct the examination. Recommendations for supervisory actions are to be submitted to the Fed; if the Federal Reserve Board does not take enforcement action within 60 days, the agency making the recommendation may take action.",
"This section discusses major provisions of the Dodd-Frank Act related to the Federal Reserve that do not involve systemic risk issues.",
"Title X establishes a Bureau of Consumer Financial Protection (Bureau) within the Federal Reserve System with authority over an array of consumer financial products and services (including deposit taking, mortgages, credit cards and other extensions of credit, loan servicing, check-guaranteeing, collection of consumer report data, debt collection, real estate settlement, money transmitting, and financial data processing, among others). It will serve as the primary federal consumer financial protection supervisor and enforcer of federal consumer protection laws over many of the institutions that offer these products and services. The Bureau will be required to consult with the prudential regulators when prescribing regulations.\nThe Dodd-Frank Act authorizes the Bureau to prescribe rules and issue orders and guidance. The legislation also transfers to the Bureau rulemaking authority for many of the existing federal consumer protection laws, including the Truth in Lending Act, the Real Estate Settlement Procedures Act, and the Home Ownership and Equity Protection Act. As a check on the Bureau's rulemaking powers, the Financial Stability Oversight Council has the ability to set aside a regulation prescribed by the Bureau if the regulation \"would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk.\"\nThe Bureau is established within the Federal Reserve System, but it has some measure of independence from the Fed. For instance, the Fed does not have the formal authority to stop, delay, or disapprove of a Bureau regulation, nor can it\n(A) intervene in any matter or proceeding before the Director [of the CFPB], including examinations or enforcement actions, unless otherwise specifically provided by law;\n(B) appoint, direct, or remove any officer or employee of the Bureau; or\n(C) merge or consolidate the Bureau, or any of the functions or responsibilities of the Bureau, with any division or office of the Board of Governors or the Federal Reserve banks.\nHowever, the Bureau is not completely independent of the Fed. As an example, the act allows, but does not require, the Fed to \"delegate to the Bureau the authorities to examine persons subject to the jurisdiction of the [Board] for compliance with the Federal consumer financial laws.\"\nThe Bureau is to be headed by a director appointed by the President, subject to the advice and consent of the Senate, to serve for a five-year term from which s/he could only be removed for \"inefficiency, neglect of duty or malfeasance in office.\" The director has authority to hire the employees necessary to carry out the duties of the Bureau. The act establishes a procedure by which the existing regulators (including the Fed) will transfer employees to the Bureau as necessary to perform the consumer financial protection functions that are transferred from those agencies to the Bureau.\nThe Bureau will be funded \"from the combined earnings of the Federal Reserve System [in an] amount determined by the Director to be reasonably necessary to carry out the authorities of the Bureau\" subject to specified caps. The cap will be 10% of the total operating expenses of the Federal Reserve System for FY2011, 11% for FY2012, and 12% thereafter. As a gauge of how much money this will be, the system's total operating expenses for FY2009 were $4.98 billion, 10% of which is just under $500 million. These funds are not reviewable by either the House or Senate Committees on Appropriations. The act also authorizes appropriations if the director \"determine[s] that sums available to the Bureau [as specified by the caps] under this section will not be sufficient to carry out the authorities of the Bureau under Federal consumer financial law for the upcoming year.\"",
"Previously, the Government Accountability Office (GAO) was not allowed to audit monetary policy actions, including interest rate changes, transactions with foreign governments, open market operations, and loans to financial firms. Actions taken by the Fed in response to the financial crisis were covered by this exemption. Title XI allows GAO to audit open market operations, discount window lending, actions taken under emergency authority, and actions taken in response to the financial crisis for\n(A) the operational integrity, accounting, financial reporting, and internal controls governing the credit facility or covered transaction;\n(B) the effectiveness of the security and collateral policies established for the facility or covered transaction in mitigating risk to the relevant Federal reserve bank and taxpayers;\n(C) whether the credit facility or the conduct of a covered transaction inappropriately favors one or more specific participants over other institutions eligible to utilize the facility; and\n(D) the policies governing the use, selection, or payment of third-party contractors by or for any credit facility or to conduct any covered transaction.\nThe legislation does not authorize the GAO to conduct policy evaluations of the Fed's monetary actions. GAO may not disclose confidential information in its reports until that information was made public by the Fed. The GAO must audit the Fed's response to the recent crisis response within a year of enactment.\nThe legislation also calls for a separate GAO audit of Federal Reserve bank governance to assess whether it produces conflicts of interest or potential conflicts, and whether the existing system of selecting regional Federal Reserve bank directors results in directors who represent \"the public without discrimination on the basis of race, creed, color, sex, or national origin, and with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumers.\"",
"Title XI of the Dodd-Frank Act establishes, for the first time, disclosure requirements relating to Federal Reserve lending. It requires that the Fed provide the congressional committees of jurisdiction details on the rationale for assistance, the identity of the recipient, the material terms of the assistance, and the expected cost to the taxpayer. This information is to be provided within seven days of an action taken under Section 13(3), with updates every 30 days following. The Fed can request that this information be kept confidential and limited to the chairmen and ranking members of the committees.\nThe act calls for public disclosure of the identities of borrowers, amount borrowed, rate charged, and collateral pledged or assets transferred within one year after a credit facility is terminated and within two years after the transaction for discount window loans or open market operations. For Fed programs created during the crisis, this information must be publicly disclosed by December 1, 2010.",
"Previously, one of the seven governors of the Federal Reserve Board was designated (by the President with Senate confirmation) chairman and one was designated vice-chairman. In addition to these positions, Title XI creates a vice-chairman for supervision, nominated by the President with Senate confirmation. The vice-chairman for supervision is required to testify to the committees of jurisdiction semi-annually.\nPreviously, the presidents of the 12 Federal Reserve regional banks were chosen by each regional bank's Board of Directors. The board was comprised of nine members: three chosen by the member banks from the banking industry, three chosen by the member banks to represent non-banking interests, and three chosen by the Board of Governors in Washington to represent non-banking interests. Title XI allows only the directors representing non-banking interests to select the regional bank presidents. As noted in the previous section, the legislation also calls for a GAO audit of the selection process for regional bank directors.",
"Previously, thrifts were regulated by the Office of Thrift Supervision (OTS). Title III abolishes OTS and transfers its authority to other regulators. The Fed gains the authority to supervise, issue rules, and take enforcement actions with respect to any savings and loan holding company and any of its subsidiaries, other than a depository institution.\nTitle VI authorizes the Fed to require a grandfathered unitary thrift holding company which conducts some commercial or other non-financial activities to conduct all or part of its financial activities in an intermediate savings and loan holding company regulated by the Fed.",
"Title VI eliminates the investment bank holding company framework in section 17 of the Securities Exchange Act of 1934, under which a securities firm not having a depository institution subsidiary may choose to be supervised by the SEC as an investment bank holding company, coincidentally satisfying a foreign law requirement for consolidated supervision by its home country. Instead, a securities holding company (SHC) may submit to Fed regulation. It would then become subject to the record-keeping, reporting, and examination requirements imposed by the Fed as specified in section 618 of the Dodd-Frank Act. The Fed is also authorized to prescribe capital and risk management standards for SHCs."
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"question": [
"What did the recent financial crisis contain?",
"What lesson have some policymakers taken from this crisis?",
"What questions still need to be asked about this regulator?",
"How have some of the major financial market phenomena been identified?",
"What did the Fed do at the time of the crisis?",
"What did the Fed do in addition?",
"Why are many significant firms already regulated by the Fed?",
"What does the Fed's monetary policy mandate allow?",
"What can neither the board of governers of the Fed nor other existing regulators do?",
"What do opponents of giving regulators new systematic risk responsibilities argue?",
"What do they fear?",
"What has the recent crisis demonstrated?"
],
"summary": [
"The recent financial crisis contained a number of systemic risk episodes, or episodes that caused instability for large parts of the financial system.",
"The lesson some policymakers have taken from this crisis is that a systemic risk or \"macroprudential\" regulator is needed to prevent similar episodes in the future.",
"But what types of risk would this new regulator be tasked with preventing, and is it the case that those activities are currently unsupervised?",
"Some of the major financial market phenomena that have been identified as posing systemic risk include liquidity problems; \"too big to fail\" or \"systemically important\" firms; the cycle of rising leverage followed by rapid deleverage; weaknesses in payment, settlement, and clearing systems; and asset bubbles.",
"At the time of the crisis, the Federal Reserve (Fed) already regulated bank holding companies and financial holding companies for capital and liquidity requirements, and it could influence their behavior in markets that it did not regulate.",
"In addition, the Fed directly regulated or operated in some payment, settlement, and clearing systems.",
"Many systemically significant firms are already regulated by the Fed because they are bank holding companies, although some may exist in what is referred to as the shadow banking system, which was largely free of federal regulation for safety and soundness.",
"The Fed's monetary policy mandate was broad enough to allow it to prick asset bubbles, although it has not chosen to do so.",
"Neither the Board of Governors of the Federal Reserve System (Fed) nor other existing regulators had the authority to address gaps in existing regulation that they believed pose systemic risk.",
"Opponents of giving regulators new systemic risk responsibilities argue that the crisis did not occur because regulators lacked the necessary authority to prevent it, but because they used their authority poorly and failed to identify systemic risk until it was too late.",
"They fear that greater regulation of financial markets will lead to moral hazard problems that increase systemic risk.",
"The recent crisis has demonstrated that government intervention may become unavoidable, however, even when firms or markets are not explicitly regulated or protected by the government."
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GAO_GAO-15-816
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{
"title": [
"Background",
"AUC Development and Use",
"Testing AUC for Imaging Services under Medicare Part B",
"Legislative Requirements for the Imaging AUC Program",
"CMS’s Initial Implementation Plan Focuses on the Process for Specifying Applicable AUC and Establishing Priority Clinical Areas for Future Prior Authorization",
"Specifying Applicable AUC",
"Prior Authorization Policy",
"Status of Identifying Qualified CDSMs",
"Provider-Led Entities Have Developed AUC Related to a Number of Services Deemed of Questionable or Low Value",
"Many Services Have Been Identified As Having Questionable Or Low Value",
"Provider-Led Entities Have Developed AUC For Some, But Not All, Questionable- And Low- Value Services",
"Clinical Decision Tool Capabilities and Provider Confidence Are Among Key Considerations for an Effective AUC Program",
"Agency Comments and Our Evaluation",
"Appendix I: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"",
"RAND and the University of California at Los Angeles (UCLA) School of Medicine developed a process for determining the appropriateness of a specific health care service for a particular patient, known as the RAND/UCLA appropriateness method. An appropriate service was defined as one in which the expected health benefit exceeds the expected negative consequences by a sufficiently wide margin that the procedure is worth doing, exclusive of cost. In selecting services for AUC development, the RAND/UCLA authors outlined the following factors for consideration. A service should be frequently used, be associated with a substantial amount of morbidity and/or mortality, exhibit wide variations among geographic areas in rates of use, or be controversial.\nNumerous groups—including provider-led entities, such as medical specialty societies, and government or non-profit entities, such as the Centers for Disease Control and Prevention or the American Cancer Society—have developed AUC to assist providers in making the most suitable treatment decision for a particular patient.",
"From October 2011 through September 2013, CMS conducted the Medicare imaging demonstration to estimate the impact applying AUC would have on provider ordering practices and utilization. AUC were programmed into clinical decision support mechanisms (CDSM)— electronic tools in which providers enter patient characteristics, such as symptoms, diagnoses, prior test results, and demographic information. From the CDSM, providers received a rating on the degree of appropriateness of their imaging order (appropriate, equivocal or uncertain, or inappropriate). If the order could not be linked to any criteria in the CDSM, no rating would be assigned. Instead, the CDSM would notify the provider that the order was not covered by the guidelines.\nThe RAND evaluation of the demonstration found an increase in the percentage of orders that were rated as appropriate over the course of the demonstration. However, the authors noted that, due to the large proportion of orders that could not be linked to any criteria, the results do not necessarily indicate an improvement in the rate of appropriate ordering. For this reason, among others, the evaluation of the demonstration recommended against expanding the use of AUC for imaging services to a broader population of Medicare beneficiaries.",
"PAMA stipulated that, as of January 2017, providers ordering imaging services (including primary care and specialty care providers) generally will be required to consult AUC through a qualified CDSM. The results of the AUC consultation generally must be documented on the claim submitted by providers furnishing imaging services (typically radiologists) in order to be paid by Medicare. (See fig. 1.)\nTo fully implement the imaging AUC program, CMS must complete several components over the next 5 years, as outlined in PAMA:\nSpecify applicable AUC by November 15, 2015. Through rulemaking, and in consultation with stakeholders, CMS must specify one or more AUC. The AUC may only be developed or endorsed by national professional medical specialty societies or other provider-led entities, not by CMS. The agency must take into account whether the AUC have stakeholder consensus, are scientifically valid and evidence-based, and are derived from studies that are published and reviewable by stakeholders. CMS must annually review AUC to determine the need for any updates or revisions.\nPublish a list of qualified CDSMs by April 1, 2016. With stakeholder input, CMS must specify one or more qualified CDSMs that may be used by ordering providers for AUC consultation. Mechanisms may include modules in certified electronic health record technology, other private sector CDSMs, or mechanisms established by CMS. The CDSMs must be able to execute certain functions, such as generating and providing a certification or documentation that the CDSM was used by the ordering provider. The list must be updated periodically and include one or more CDSMs per imaging service that are available free of charge.\nRoll out imaging AUC program by January 1, 2017. Ordering providers generally must provide to the furnishing provider certification that they have consulted with specified AUC using a qualified CDSM. Furnishing providers generally will only be paid if their Medicare claims for imaging services indicate which CDSM was used, whether the order would or would not adhere to any applicable AUC, and the ordering provider identification number.\nBegin the process for identifying outlier ordering providers on January 1, 2017. For services furnished beginning in 2017, CMS must annually determine up to 5 percent of all ordering providers who are outliers based on their low adherence to appropriate ordering. In making these determinations, CMS must use 2 years of data starting from January 1, 2017 and consult with stakeholders in order to develop methods to identify outlier ordering providers. CMS must also establish a process for determining when a provider’s outlier designation should be removed.\nImplement prior authorization beginning January, 1, 2020. Imaging services ordered by an outlier provider will be subject to prior authorization from CMS. In applying prior authorization, the agency may only use specified AUC.",
"In its July 2015 notice of proposed rulemaking, CMS outlined its initial plan and timeframes for implementing the imaging AUC program. While CMS’s initial plan touches on each implementation component of the program, it focused largely on the process for specifying applicable AUC and establishing priority clinical areas for future prior authorization policy. Given the need to consider stakeholder comments and that progress on early components affects the timing of subsequent components, CMS’s initial plans to implement certain components of the program extend beyond the dates outlined in PAMA.",
"To respond to the PAMA requirement of specifying applicable AUC, CMS is proposing to qualify provider-led entities such that all AUC developed, endorsed, or modified by these entities may be eligible for use in the imaging program. The agency does not intend to evaluate and select AUC itself because of the volume of those potentially available, according to CMS officials. Once an entity is qualified by CMS, all applicable AUC developed, endorsed, or modified by that entity would become specified applicable AUC under the program. In addition, CMS is proposing recertification every 6 years. The agency’s proposed definition for a provider-led entity is a national professional medical specialty society or an organization that is comprised primarily of providers and is actively engaged in the practice and delivery of health care, such as hospitals and health systems.\nCMS has proposed that individual AUC must link a specific clinical condition, one or more imaging services, and an assessment of the appropriateness of the service(s). To respond to PAMA’s requirement for AUC development, the agency proposed that, to become qualified, provider-led entities must demonstrate that their process for developing, endorsing, or modifying AUC includes certain elements such as a rigorous evidentiary review process whereby key decision points within each criteria are graded according to the strength of evidence using a formal, published, and widely recognized methodology; a multidisciplinary team with autonomous governance to lead the AUC a publicly transparent process for identifying and disclosing potential public postings of their AUC and their AUC development process on the entity’s website; and a transparent process for the timely and continual updating of each AUC.\nUnder PAMA, CMS is required to specify applicable AUC by November 15, 2015. However, CMS does not anticipate posting its initial set of qualified entities on its website until the summer of 2016. As a result, the agency does not expect to specify applicable AUC until at least 7 months after the PAMA-specified timeframe.",
"To respond to PAMA’s requirement that prior authorization be applied to ordering providers with low adherence to appropriate ordering, CMS plans to establish priority clinical areas and limit its identification of outlier ordering providers to these areas. In developing the priority clinical areas, CMS may consider incidence and prevalence of diseases, volume and variability of utilization, strength of evidence for imaging services, and applicability to a variety of care settings and to the Medicare population. According to agency officials, given the variety of clinical scenarios for which imaging services may be ordered, the aim of establishing priority clinical areas is to narrow the potential scope of prior authorization. They also stated that low back pain, nontrauma headache, and acute chest pain are examples of potential priority clinical areas. CMS expects to identify the first set of priority clinical areas in the rulemaking cycle that begins in 2016 in consultation with stakeholders and to further develop its policy to identify outlier ordering providers. Additional priority clinical areas may be added during each rulemaking cycle.\nIn addition, the agency is proposing a process by which it will be made aware of potentially nonevidence-based AUC associated within the established priority clinical areas. CMS is planning to have a standing request for public comments in all future AUC-related rulemaking notices so the public has ongoing opportunities to assist the agency in identifying AUC that may not be sufficiently evidence-based. CMS may consult the Medicare Evidence Development and Coverage Advisory Committee in reviewing any potentially nonevidence-based AUC. If, through this process, AUC are determined to be insufficiently evidence-based, and the provider-led entity that produced the criteria does not make a good faith attempt to correct the issue, this information could be considered when the provider-led entity applies for requalification.\nAccording to CMS officials, the proposed process does not include review of potentially nonevidence-based AUC outside of the established priority clinical areas. To respond to PAMA’s requirement that specified applicable AUC be reviewed each year, they stated that, in addition to accepting public comments regularly on potentially nonevidence-based AUC associated with the established priority clinical areas, they will also review the requirements and process for AUC development as a part of CMS’s annual rulemaking.",
"Under PAMA, CMS is required to publish a list of qualified CDSMs by April 1, 2016. To do so, CMS must determine which CDSMs are suitable for use in the program. The agency’s July 2015 notice of proposed rulemaking did not contain specifics on this implementation component. The agency plans to provide clarifications, develop definitions, and establish the process by which it will specify qualified CDSMs through the rulemaking process in 2016. The agency stated that it does not plan to publish a list of qualified CDSMs until after November 1, 2016, at least 7 months after the PAMA-specified timeframe.",
"Medical specialty societies and health care researchers have undertaken efforts to identify services that are of questionable or low value under certain circumstances and therefore have the potential to be used inappropriately. Based on our examination of the AHRQ National Guideline Clearinghouse, we found that provider-led entities—as defined in CMS’s notice of proposed rulemaking—have developed AUC associated with a number of these services. These questionable- and low-value services with associated AUC are potential candidate services if the AUC program were to expand beyond imaging services.",
"Since 2012, as a part of the Choosing Wisely® initiative, national medical specialty societies have identified health care services of questionable value. Among the hundreds of services included in the Choosing Wisely® initiative, we reviewed 17 radiation therapy and clinical pathology services of questionable value under certain circumstances. The following are among those we reviewed:\nThe American Society for Radiation Oncology surveyed its members to collect a list of potential services, convened a work group to select key services from the initial list, conducted literature reviews, and received input from its board of directors to inform its final selection. For example, the group recommended against routine follow-up mammography more often than annually for women who have had radiotherapy following breast conserving surgery. In addition, it recommended that providers not routinely prescribe proton beam therapy over other forms of definitive radiation therapy for prostate cancer.\nThe American Society for Clinical Pathology convened a review panel of pathology and laboratory medicine experts to evaluate the literature and identify services that are frequently performed; that are of no benefit or harmful; that are costly and do not provide higher quality care; and where eliminating the service or alternatives are within the control of the provider. Among the services identified, the group recommended against prescribing testosterone therapy without laboratory evidence of testosterone deficiency. The group also recommended avoiding routine preoperative testing for low-risk elective surgeries without a clinical indication.\nIn addition, researchers at Harvard Medical School compiled a list of 26 low-value Medicare-covered services, of which we reviewed 19 nonimaging services. The researchers deemed a service to be of low value if, on average, it provided little to no clinical benefit, either in general or in specific clinical scenarios. They developed their set of low- value services from the Choosing Wisely® initiative, the U.S. Preventive Services Task Force ratings of services with a ‘D” grade, the National Institute for Health and Care Excellence “do not do” recommendations, the Canadian Agency for Drugs and Technologies in Health technology assessments, and peer-reviewed literature. The 19 nonimaging services fell into 5 categories: cardiovascular testing and procedures, cancer screening, diagnostic and preventive testing, preoperative testing, and other surgery. In addition, the Harvard study estimated the proportion of Medicare beneficiaries receiving the low-value services and total spending devoted to these services.",
"We found that provider-led entities have developed AUC for some, but not all, of the questionable- or low-value services we reviewed. Our analysis of AHRQ’s National Guideline Clearinghouse indicated that provider-led entities have developed AUC for more than half of the 36 questionable- or low-value services included in our review. Specifically, 23 services had at least 1 associated AUC developed by a provider-led entity.AUC in the National Guideline Clearinghouse.\nFor the remaining 13 services, we did not find any associated Among the 17 radiation therapy and clinical pathology questionable-value services identified by the respective medical specialty societies, 12 services had an associated AUC developed by a provider-led entity. (See table 1.) For example, the American College of Radiology has developed an AUC for appropriate radiation therapy following hysterectomy for endometrial cancer patients. In other cases, we found multiple associated AUC for a single questionable service. For instance, the American College of Obstetricians and Gynecologists and the American Society for Colposcopy and Cervical Pathology have each developed criteria for the appropriate use of human papilloma virus testing for low-risk abnormal pap smears.\nIn addition, we found associated AUC developed by provider-led entities for 11 of the 19 low-value services identified in the Harvard study. (See table 2.) For example, the American College of Physicians has developed AUC regarding the appropriate use of stress testing for those with stable coronary disease. In addition, the American College of Radiology has developed criteria outlining the appropriate conditions under which inferior vena cava filters may be used to prevent pulmonary embolism.\nAs indicated in the RAND/UCLA report, the selection of services for an AUC program generally takes into account the service’s frequency of use and resources consumed, among other factors. The Harvard researchers used claims and enrollment data—such as procedural codes, beneficiary diagnoses, and age—to determine the extent to which the low-value services were used and the associated expenditures. The researchers reported their results as a range using two approaches. The more narrow approach was based on higher specificity and was less likely to misclassify appropriate use as inappropriate. The broader approach focused on higher sensitivity, capturing more inappropriate use but also some potentially appropriate use. For example, in 2009, estimated inappropriate spending for colorectal cancer screening ranged from $7 million for beneficiaries 85 years and older to $573 million for those 75 years and older and affected 0.9 to 7.7 percent of beneficiaries of each group, respectively. The wide range in inappropriate service use, as measured by the two approaches, indicates how difficult it may be to select services for program expansion that have the most potential for improving health care quality and reducing wasteful spending.",
"We identified several issues that are key to the effective implementation of the imaging AUC program or any future expansion of the program, including the utility of the CDSM and provider confidence in the applicable criteria. Such issues surfaced during the Medicare imaging demonstration and, according to the RAND evaluation of the demonstration, may have limited its success. Because they are not specific to imaging services, they likely would apply to services considered for program expansion as well.\nEffectively mapping clinical indications to applicable AUC. Programming an adequate variety of patient characteristics into CDSMs would allow the mapping of clinical indications to available AUC to be sufficiently robust. During the demonstration, almost two- thirds of orders placed by providers could not be linked to any criteria in CDSMs; therefore, providers did not receive an appropriateness rating (appropriate, uncertain or equivocal, or inappropriate) for these orders. Providers reported issues with locating a diagnosis or clinical scenario relevant to their patient or that the clinical information they did successfully enter about their patients into the CDSM did not result in any matches to AUC. The evaluators of the demonstration cited technical issues with mapping clinical indications to the distinguishing features of each AUC programmed into the CDSMs.\nEnhancing clinical decision making. Only well-developed CDSMs can adequately assist providers with meaningful clinical decisions. Many providers in the demonstration found the CDSM feedback presented to them—that is, the appropriateness rating or the links to the AUC, if applicable—was not specific enough to assist with decisions for specific patients or situations. Providers said that they expected detailed, actionable feedback about their orders to guide them in their decision making. In addition, providers reported that the CDSMs would have been more helpful if they had provided feedback before the order was placed, rather than after; specifically, some said they would have preferred entering the clinical indication or other patient information first in order to receive guidance on what to order.\nDesigning CDSMs for ease of use. Whether CDSMs are integrated with electronic health record systems or web-based or stand-alone software applications, providers prefer those that can be used quickly and efficiently. In the demonstration, providers using web-based or stand-alone software applications experienced frustration with the lack of integration between the CDSM and their electronic health record system. For example, providers had to click out of their electronic health record system and go through an entirely new platform to order imaging services. Additionally, providers wanting to change orders would have to start from the beginning and go through the entire process again. This process caused workflow inefficiencies for busy providers.\nEnsuring provider confidence in appropriateness ratings and their underlying evidence. To secure provider buy-in, it is important that ratings not be based on outdated evidence or conflict with local guidelines or other best practice guidelines. Providers who participated in the demonstration were not always comfortable with the appropriateness ratings that were assigned to their orders and wanted more transparency than was available about how the ratings were assigned, especially when evidence was known to be limited. Providers wanted more information regarding the quality of evidence used to generate AUC and more detail about the level of agreement associated with appropriateness ratings.\nAllowing sufficient preparation time for implementation. Due to the complex and wide scope of changes associated with implementing AUC, allowing adequate preparation time for stakeholders is critical. Providers who participated in the demonstration noted that all phases of the demonstration were too short to address the large number of challenges related to successfully engaging providers and staff, aligning existing and new workflow patterns, and introducing providers and staff to the CDSM software and guidelines. Providers reported inadequate time for set up, planning, pilot testing, implementation, internal evaluation, and change. Efforts to move forward rapidly during the demonstration were confounded by CDSM software challenges beyond the control of participants and their practices, as well as escalating frustrations and disengagement by providers.",
"The Department of Health and Human Services reviewed a draft of this report and provided technical comments, which we incorporated where appropriate.\nWe are sending copies of this report to appropriate congressional committees and the Administrator of CMS. 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) 512-7114 or cosgrovej@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 I.",
"",
"",
"In addition to the contact named above, Rosamond Katz, Assistant Director; Kye Briesath; Stella Chiang; Maria A. Maguire; Vikki L. Porter; and Jennifer M. Whitworth made key contributions to this report.",
"Medicare: Higher Use of Costly Prostate Cancer Treatment by Providers Who Self-Refer Warrants Scrutiny. GAO-13-525. Washington, D.C.: July 19, 2013.\nMedicare: Action Needed to Address Higher Use of Anatomic Pathology Services by Providers Who Self-Refer. GAO-13-445. Washington, D.C.: June 24, 2013.\nMedicare: Higher Use of Advanced Imaging Services by Providers Who Self-Refer Costing Medicare Millions. GAO-12-966. Washington, D.C.: September 28, 2012.\nMedicare: Use of Preventive Services Could Be Better Aligned with Clinical Recommendations. GAO-12-81. Washington, D.C.: January 18, 2012.\nMedicare Part B Imaging Services: Rapid Spending and Shift to Physician Offices Indicate Need for CMS to Consider Additional Management Practices. GAO-08-452. Washington, D.C.: June 13, 2008."
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"question": [
"How is the implementation of appropriate use criteria being handled?",
"What are AUC?",
"How are AUC used by health care providers?",
"How can health-care providers interface with AUC?",
"How is CMS examining the AUC imaging process?",
"How might the AUC expansion be dispersed amongst any relevant groups?",
"How can organizations become CMS-endorsed?",
"Why is the CMS not involving itself directly in the development of AUC?",
"How will the implementation of AUC be controlled to ensure the proper areas are managed first?",
"How will these priority areas be established?",
"How will the process of establishing priority clinical areas help streamline the imaging process?",
"How will the AUC program be expanded?",
"How is the quality of these associated AUCs determined?",
"How prevalent is the independent development of associated AUC?",
"To what extent are the AUC distributed across multiple service catagories?",
"To what extent have the previous AUC attempts been evaluated in formulating a new imaging AUC program?",
"How did GAO begin its investigation?",
"How did GAO determine which AUC areas needed the most review?",
"How did GAO examine related provider-led AUCs?",
"To what extent did GAO examine these provider-led AUCs?",
"How can this report be improved upon?"
],
"summary": [
"The Centers for Medicare & Medicaid Services (CMS)—an agency within the Department of Health and Human Services (HHS)—has proposed initial plans and timeframes for implementing the Medicare appropriate use criteria (AUC) program for advanced diagnostic imaging services, such as computed tomography, magnetic resonance imaging, and positron emission tomography.",
"AUC are a type of clinical practice guideline intended to provide guidance on whether it is appropriate to perform a specific service for a given patient.",
"Under the Protecting Access to Medicare Act of 2014 (PAMA), a health care provider ordering advanced diagnostic imaging services generally must consult AUC as a condition of Medicare payment for providers who furnish imaging services.",
"Consulting AUC involves entering patient clinical data into an electronic decision tool to obtain information on the appropriateness of the service.",
"The agency's July 2015 notice of proposed rulemaking focused largely on the process for specifying applicable AUC to be used in the program and a policy for identifying providers who must obtain authorization from CMS before ordering imaging services due to their low adherence to appropriate ordering.",
"CMS has proposed to qualify provider-led entities—such as national professional medical specialty societies—such that all AUC developed, endorsed, or modified by these entities would be eligible for use in the imaging program.",
"To become a qualified source of AUC, provider-led entities must adhere to CMS standards for AUC development.",
"The agency does not plan to evaluate and select imaging AUC itself because of the volume of those potentially available, according to CMS officials.",
"CMS plans to establish priority clinical areas, and providers with low adherence to appropriate ordering—as determined by the AUC—in those areas will be subject to prior authorization.",
"The agency intends to establish a number of priority clinical areas—potentially including low back pain, nontrauma headache, or acute chest pain—through rulemaking beginning in 2016.",
"CMS officials stated that, given the variety of clinical scenarios for which imaging services may be ordered, the aim of establishing priority clinical areas is to narrow the potential scope of prior authorization.",
"Medicare services with associated AUC developed by provider-led entities represent potential candidates for AUC program expansion.",
"Medical specialty societies and health care researchers—including the American Society for Radiation Oncology, the American Society for Clinical Pathology, and researchers at Harvard Medical School—have compiled lists of services considered to be of questionable or low value in certain clinical circumstances.",
"GAO reviewed 36 of these services and found that provider-led entities have developed associated AUC for more than half of them, according to a database of clinical practice guidelines maintained by Agency for Health Research Quality (AHRQ).",
"Specifically, GAO found associated AUC across several service categories, including radiation therapy, clinical pathology, cardiovascular testing and procedures, cancer screenings, diagnostic and preventive testing, and preoperative testing.",
"In this report, GAO describes (1) CMS's plans for implementing the imaging AUC program and (2) examples of questionable- or low-value nonimaging services where provider-led entities have developed AUC, among other objectives.",
"GAO reviewed CMS's July 2015 Federal Register notice of proposed rulemaking outlining its initial plans for implementing components of the imaging AUC program and also interviewed CMS and AHRQ officials.",
"To identify services for potential AUC program expansion, GAO focused on 36 nonimaging services deemed to be of questionable or low value as identified by the American Society for Radiation Oncology, the American Society for Clinical Pathology, and a 2014 study by researchers at Harvard Medical School.",
"GAO also examined AHRQ's National Guideline Clearinghouse to determine whether AUC developed by provider-led entities were associated with those 36 services.",
"GAO did not evaluate the extent to which the associated AUC are suitable for program implementation.",
"Also, the resulting set of services is illustrative and not a comprehensive list of candidates for potential AUC program expansion."
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CRS_R43366
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{
"title": [
"",
"Introduction",
"Impacts of Naturalization",
"Rights of Citizenship",
"Outcomes for the United States",
"Naturalization Requirements",
"Continuous Residence",
"Good Moral Character",
"English Language Proficiency and Civics Knowledge",
"The Naturalization Process",
"Application Procedures",
"Child Naturalization",
"Military Naturalizations50",
"Same-Sex Marriage",
"Naturalization Oath of Allegiance",
"Dual Citizenship73",
"Loss of Citizenship",
"Expatriation",
"Revocation",
"Recent Naturalization Trends",
"Naturalization Petitions",
"Naturalization Trends and Determinants",
"Issues for Congress",
"Backlogs, Resources, and USCIS Capacity",
"Naturalization Fees",
"Streamlining Military Naturalizations",
"English Proficiency Requirement",
"Naturalization Exam",
"Oath of Allegiance",
"Birthright Citizenship",
"Proposed Naturalization Administrative Reforms"
],
"paragraphs": [
"",
"Naturalization is the process by which an immigrant attains U.S. citizenship after he or she fulfills requirements established by Congress and outlined in the Immigration and Nationality Act (INA). U.S. immigration policy gives all lawful permanent residents who meet the naturalization requirements the opportunity to become citizens.\nApplying for citizenship is a voluntary act and represents an important milestone for immigrants. Naturalization and citizenship are generally viewed as a measure of immigrants' assimilation and socioeconomic integration to the United States. The policy manual of U.S. Citizenship and Immigration Services (USCIS) of the Department of Homeland Security (DHS) states:\nUnited States citizenship is a unique bond that unites people around civic ideals and a belief in the rights and freedoms guaranteed by the U.S. Constitution. The promise of citizenship is grounded in the fundamental value that all persons are created equal and serves as a unifying identity to allow persons of all backgrounds, whether native or foreign-born, to have an equal stake in the future of the United States.\nNaturalization requirements include U.S. residence (typically five years), the possession of good moral character, demonstrated English proficiency, and a basic knowledge of U.S. civics and history. (See \" Naturalization Requirements \" below.)\nPractically, naturalized immigrants gain important benefits, including the right to vote, security from deportation, access to certain public-sector jobs, and the ability to travel abroad on a U.S. passport. U.S. citizens are also advantaged over lawful permanent residents (LPRs) for sponsoring relatives to immigrate to the United States. Despite the benefits of U.S. citizenship status over lawful permanent residence status, substantial numbers of LPRs who are eligible to naturalize have not done so.\nCongress is currently considering extensive reforms to U.S. immigration laws which, if enacted in some form, could affect naturalization policy and the number of persons who naturalize each year. The Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ) passed by the Senate in June 27, 2013 included several naturalization-related provisions. The bill would grant legal status for many unauthorized aliens currently residing in the United States; increase the number of LPRs admitted under family- and employment-based provisions of the INA; and ease naturalization requirements for older and disabled LPRs. Such provisions would increase the number of immigrants eligible to naturalize.\nThe House has reported four immigration bills, including H.R. 2278 , the Strengthen and Fortify Enforcement Act (SAFE Act), and H.R. 2131 , the Supplying Knowledge-based Immigrants and Lifting Levels of STEM Visas Act (SKILLS Visa Act). These two bills contain provisions that would alter current admission levels of family- and employment-based immigration, as well as naturalization criteria, which, in turn, would alter the number of immigrants eligible to naturalize.\nThis report reviews the rights and obligations that come with naturalization. It examines the naturalization process, discusses recent trends regarding who, among the roughly 1 million immigrants entering the United States each year, ultimately becomes a U.S. citizen, and discusses recent naturalization-related policy issues. While the process of naturalization can be analyzed relative to different legal statuses, the emphasis of this report is limited to the naturalization of lawful permanent residents.",
"",
"The Constitution and laws of the United States give many of the same rights to both non-citizens and U.S. citizens living in the United States. However, only U.S. citizens may\nvote in federal, state, and most local elections; receive U.S. citizenship for their minor children born abroad; travel with a U.S. passport and receive diplomatic protection from the U.S. government while abroad; receive full protection from deportation and loss of residence rights; meet the citizenship requirement for federal and many state and local civil service employment, including jobs with law enforcement agencies and Defense Department contractors; receive the full range of federal public benefits and certain state benefits; participate in a jury; and run for elective office where citizenship is required.\nU.S. citizens may also sponsor family members living abroad for legal permanent residence to a greater extent than LPRs (i.e., married minor and adult children, and siblings). U.S. citizens may sponsor certain relatives for legal permanent residence—spouses, minor unmarried children, and parents—outside of numerical limits established in the INA. As such, their sponsored relatives may immigrate to the United States immediately without having to wait for a visa. In contrast, LPRs must sponsor relatives for LPR status within numerically limited family preference categories that require waiting for a visa to become available.\nOther benefits from naturalization include access to public benefits which may either be restricted to only U.S. citizens or may require five to seven years of LPR status. Access to state and local public benefits according to legal status varies by state.\nCitizenship is permanent and relieves one of the continuous residency requirements LPRs must meet to maintain their legal status as well as to preserve their option to naturalize (see \" Continuous Residence \" below). Except for acts that bear on the integrity of the naturalization process itself, citizenship through naturalization is as secure as citizenship acquired at birth (see \" Dual Citizenship \" below).",
"The United States benefits from having eligible foreign-born persons naturalize and acquire U.S. citizenship. By naturalizing, the foreign born are able to vote in public elections, participate in jury duty, and run for elective office where citizenship is required. Symbolically and legally, naturalization represents an individual's commitment to his or her new country, sufficiently so that Congress has sometimes introduced legislation to facilitate naturalization and discourage dual citizenship (see \" Dual Citizenship \" below).\nIn addition to greater civic participation and commitment, empirical research offers evidence of economic benefits to the foreign born who naturalize, including a number of studies showing significant wage gains after controlling for personal characteristics such as education and work experience. Such impacts can be considerable when aggregated to the national level.",
"To qualify for U.S. citizenship, LPRs must meet four major requirements. They must\nbe at least 18 years of age; reside continuously in the United States for five years (three years for spouses of U.S. citizens); be of good moral character; demonstrate the ability to read, write, speak, and understand English; pass an examination on U.S. government and history; and be willing and able to take the naturalization Oath of Allegiance.\nUSCIS is responsible for reviewing all naturalization petitions to ensure applicants meet U.S. citizenship eligibility requirements. This assessment includes security and criminal background checks, a review of the applicant's entire immigration history, an in-person interview; an English test, and a civics knowledge exam. Petitioners bear the burden of proof to demonstrate that they entered the United States lawfully. Upon approval, they must take an oath of allegiance to the United States and renounce allegiance to any foreign state. Persons whose naturalization applications have been denied may request a hearing before an immigration officer.",
"To be naturalized, a person admitted as an LPR must have resided continuously for at least five years within the United States prior to the date he or she filed a naturalization application. For periods totaling at least half of that time, the individual must have been physically present in the United States. The individual also must have lived for at least three months within the State or district in which he or she filed the application.\nThe period of continuous residence required for naturalization is broken by an absence of over a year unless the alien is employed abroad by the government, an international organization, a research institute, or an American company engaged in foreign trade. An absence of between six months and one year presumptively breaks continuous residence unless the petitioner can establish that he or she did not abandon U.S. residence during that period.\nCertain classes of LPRs either are exempt from the residency requirement or are subject to shorter residency periods. Unmarried children under age 18 living with a citizen parent are exempt from any residency requirement. The residency requirement for spouses of American citizens is three years instead of five years, and the physical presence requirement is one and a half years. Residency requirements also are modified for other special classes.",
"To be eligible for naturalization, petitioners must demonstrate that they have been persons of good moral character during the applicable statutory period (five years in most cases) preceding their petition. The definition of good moral character can be found not in the INA but in case law interpretation. However, the INA bars a finding of good moral character if a naturalization applicant, over the course of the applicable statutory period, commits certain crimes or engages in certain illegal or what are widely considered immoral acts and behaviors.\nAnyone convicted of an aggravated felony at any time is statutorily barred from naturalization. Aggravated felonies according to the INA include murder, rape, and sexual abuse of a minor; illegal trafficking in firearms; supervising a prostitution business; receiving stolen property; and, fraud or deceit in which the victims' losses exceed $10,000, among other offenses.\nThe USCIS naturalization examiner may go beyond what is specified in the INA to assess good moral character. For example, failure to pay child support may be a significant factor. Although adultery was removed as a statutory bar to naturalization in 1981, it may still be a basis for denying a petition under certain conditions. The INA prohibits naturalization of persons opposed to government law, persons who favor totalitarian forms of governance, and deserters from the Armed Forces.",
"Persons wishing to be naturalized must demonstrate an understanding of English, specifically an ability to read, write, and speak words in ordinary usage in the English language. The language requirement is waived for those who are at least 50 years old and have lived in the United States at least 20 years, or who are at least 55 years old and have lived in the United States at least 15 years. For individuals for whom the language requirement is waived, the civics test is given in their native language. Special consideration on the civics requirement is to be given to aliens who are over 65 years and have lived in the United States for at least 20 years. Both the language and civics requirements are waived for those unable to comply because of physical or developmental disabilities or mental impairment. LPRs who serve in the U.S. military are eligible for expedited processing and waivers of certain requirements (see \" Military Naturalizations \" below).",
"",
"Naturalization applicants file the USCIS Form N-400 naturalization application with USCIS along with a $680 fee. Following formal acknowledgement of receipt of the application, USCIS instructs applicants regarding a mandatory appointment to have their fingerprints recorded. USCIS then schedules interviews with the applicants. During the interview, applicants are tested on their English ability and civics knowledge. They have the option of taking a standardized civics test or of having the INS examiner quiz them about civics during the naturalization interview. Interview and exam results are provided to applicants at the end of the interview.\nThose who pass their interviews and exams become American citizens upon taking the Oath of Allegiance to the United States in a naturalization ceremony that can occur either the same day or in a ceremony at a later date. At the time of the naturalization ceremony, LPRs are expected to bring several USCIS documents, including their Permanent Resident Card (\"green card\") which they will no longer need. Lost cards may warrant further investigation and the demand for a police report. After an LPR has taken the Oath, USCIS issues a naturalization certificate (Form N-550) to document the individual's new status as a U.S. Citizen.",
"The INA specifies three general ways for a child to obtain citizenship through his or her parents, depending on whether or not the child was born in the United States, and for children born overseas, whether or not they reside in the United States. These sets of regulations are summarized as follows:\nA child born in the United States automatically acquires U.S. citizenship regardless of the legal status of his or her parents, based on the principle of jus soli and codified in the Citizenship Clause of the Fourteenth Amendment of the U.S. Constitution and Section 301(a) of the INA.\nA child born outside the United States who resides in the United States automatically acquires U.S. citizenship at birth if: (1) at least one parent, including an adoptive parent, is a U.S. citizen by birth or naturalization; (2) the child is under 18 years of age; (3) the child is an LPR; and (4) the child is residing in the United States in the legal and physical custody of the citizen parent.\nA child born outside the United States who reside s outside of the United States does not automatically acquire U.S. citizenship. That child may become a U.S. citizen if a U.S. citizen parent applies for it on their behalf. The following conditions must be met: (1) at least one parent, including an adoptive parent, is a U.S. citizen by birth or naturalization; (2) the U.S. citizen parent must have resided at least five years in the United States, of which at least two years were after his or her 14 th birthday; (3) the child is under 18 years of age; (4) the child is residing outside of the United States in the legal and physical custody of the citizen parent; (5) the child has been lawfully admitted temporarily to the United States and remains in lawful status.",
"The INA contains several provisions facilitating the application and naturalization process for foreign-born military personnel of most branches of the U.S. armed forces and recently discharged members. Requirements and qualifications (see \" Naturalization Requirements \") are similar, but military personnel are exempt from residence and physical presence requirements. The INA distinguishes between peacetime and wartime service. For current or past peacetime military service, naturalization applicants are not required to meet the naturalization residency requirements if they apply while still in the service or within six months of discharge. Service must be for periods aggregating at least one year, and separation must not occur under anything except honorable conditions. Applicants must also be lawful permanent residents.\nFor current or past wartime military service, naturalization applicants are also not required to meet the naturalization residency requirements, but there are no conditions regarding the timing of the applicability of this exemption. Service of any length of time during a period of military hostilities, even one day, qualifies the applicant for naturalization. Separation must not occur under anything except honorable conditions. Wartime applicants need not be lawful permanent residents, as long as they are present in the United States at the time of their enlistment or reenlistment. Since 2002, noncitizens serving honorably in the U.S. armed forces on or after September 11, 2001 may file immediately for citizenship.\nMilitary naturalization applicants are exempt from USCIS naturalization fees. Spouses of U.S. armed forces personnel stationed overseas who apply for naturalization may have their time abroad counted as residence and physical presence in the United States and may complete the naturalization process abroad. Similar provisions apply to children of U.S. armed forces personnel.\nSince August 2009, the Naturalization at Basic Training Program has offered enlistees the option to naturalize upon graduation from basic training. Citizenship obtained through military service may be revoked if the individual obtaining it separates from the military under \"other than honorable conditions\" before completing five years of honorable service. In FY2012, USCIS naturalized 8,693 military service members. Between FY2002-FY2012, USCIS naturalized 83,532 members, mostly in the United States.",
"Following the June 2013 Supreme Court decision holding that Section 3 of the Defense of Marriage Act (DOMA) was unconstitutional, President Obama directed federal departments to implement the decision for federal benefits for same-sex legally married couples. USCIS was directed to review immigration visa petitions filed on behalf of same-sex spouses in the same manner as those filed on behalf of opposite-sex spouses. For purposes of naturalization, time spent in marital union with a same-sex spouse is now being treated exactly the same as opposite-sex marriages for fulfilling the required residence period.",
"An alien seeking to become a naturalized citizen must take the Naturalization Oath of Allegiance to the United States of America before citizenship can be granted:\nI hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty, of whom or which I have heretofore been a subject or citizen; that I will support and defend the Constitution and laws of the United States of America against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I will bear arms on behalf of the United States when required by law; that I will perform noncombatant service in the Armed Forces of the United States when required by law; that I will perform work of national importance under civilian direction when required by the law; and that I take this obligation freely, without any mental reservation or purpose of evasion; so help me God.\nIn addition, naturalization applicants must renounce any hereditary titles or orders of nobility in a foreign state. The oath of allegiance may be modified for conscientious objectors to military service or for individuals preferring to affirm (instead of swear to) the substance of the oath.\nApplicants for naturalization may choose to have the oath administered either by USCIS (Department of Homeland Security) or an immigration judge (Department of Justice). They must appear in person in a public ceremony which must be held as frequently as necessary to ensure timely naturalization. Anyone absent for more than one scheduled oath ceremony without good cause will be presumed to have abandoned his or her intent to be naturalized.",
"Dual citizenship refers to an individual's possession of citizenship for two countries at the same time. Each country has its own citizenship laws that define the nationality status of its own citizens. Because such laws generally do not coincide, persons may have dual nationality by automatic operation of different laws rather than by choice. For example, a child born in a foreign country to U.S. citizen parents may be both a U.S. citizen and a citizen of the country of birth. Likewise, a child born in the United States to foreign-born parents not only acquires U.S. citizenship at birth but may also acquire the citizenship of his or her parents. U.S. citizens who marry alien nationals may acquire the citizenship of their spouses' countries. Most countries disfavor dual citizenship because of questions raised over the national's loyalties and the singularity of commitment that characterizes citizenship and allegiance. Within the past two decades, and for a variety of reasons, a number of countries such as Mexico, Columbia, and Brazil have facilitated dual citizenship by passing laws permitting their expatriates the right to naturalize in other countries without losing citizenship from their countries of origin.\nThe United States has no authority to prohibit another country from continuing to treat an individual as its citizen. However, the United States considers that person, upon naturalization, to have renounced other citizenships and to be only a U.S. citizen. Because some individuals continue to exercise rights in other countries, some have expressed concerns that those countries may not know that these individuals have renounced such citizenship upon naturalizing in the United States. Such concerns about divided national loyalties have motivated legislative proposals to alert foreign countries about the naturalization of their former citizens.",
"U.S. citizens may lose their citizenship in two ways: voluntarily, through expatriation, or involuntarily, through denaturalization.",
"All U.S. citizens may lose citizenship through expatriating acts, including\nvoluntary naturalization in a foreign country after age 18; making a formal declaration of allegiance to a foreign country after age 18; serving in the armed forces of a foreign country engaged in hostilities against the United States; serving in the armed forces of a foreign country as an officer; holding an office under the government of a foreign country if foreign nationality is acquired or if a declaration of allegiance is required; renunciation of citizenship before a U.S. diplomatic or consular officer abroad; formal written renunciation of citizenship during a state of war if the Attorney General approves the renunciation as not contrary to the national defense; and conviction of treason, seditious conspiracy, or advocating violent overthrow of the government.\nThe Supreme Court has held that expatriating acts alone are not sufficient for expatriation unless undertaken with intent to relinquish U.S. citizenship. This restriction also has been enacted in statute. The requisite intent to relinquish need not be express but may be inferred from the circumstances.\nUnlike citizenship revocation (see \" Revocation \" below), expatriation or loss of nationality does not have a retrospective effect. Hence, loss of citizenship through expatriation does not affect that of \"derivative\" citizens—spouses and children—who acquired their citizenship by virtue of their relationship with a \"principal\" citizen.",
"A naturalized citizen may be \"denaturalized\" (i.e., have his or her citizenship revoked) on the basis that the citizenship was procured illegally, by concealment of material fact, or by willful misrepresentation. Various acts occurring after naturalization are considered evidence of misrepresentation or suppression at the time of naturalization. For example, if a naturalized citizen joins a subversive organization within five years of becoming a citizen, and membership in that group would have precluded eligibility for naturalization under the INA, then the joining of the organization is held to be prima facie evidence raising a rebuttable presumption that naturalization was obtained by concealing or misrepresenting how attached to the United States the citizen was when naturalized. Citizenship may also be revoked because of less than honorable discharge from the U.S. armed services.\nCitizenship revocation must be initiated by a U.S. district attorney and must occur in the district where the naturalized citizen resides. If a naturalized citizen is convicted of knowingly procuring naturalization in violation of law, the court in which that conviction is obtained has jurisdiction to revoke that person's citizenship. In both cases, the court in which the revocation occurs must cancel the certificate of naturalization and notify the Attorney General of that action. The holder of the certificate of naturalization must return it to the Attorney General.\nThe effect of denaturalization is to divest a person of their status as a U.S. citizen and to return them to their former status of alienage. Once final, the denaturalization is effective as of the original date of the certificate of naturalization.\nDerivative citizens also lose their citizenship under these circumstances. If citizenship is revoked based on \"procurement by concealment of a material fact or by willful misrepresentation,\" derivative citizens also lose their citizenship regardless of where they are living . If citizenship is revoked because of membership in a subversive organization or less than honorable discharge from the Armed Forces, derivative citizens lose their citizenship o nly if they are living abroad .",
"",
"The number of persons petitioning to naturalize has increased over the past two decades, from just over 200,000 in FY1991 to just under 900,000 in FY2012 ( Figure 1 and Appendix A ).\nNaturalization petition volume peaked in FY1997 and FY2007. These increases have been attributed to legislation and demographic factors. Legislatively, the Immigration Reform and Control Act of 1986 (IRCA) legalized about 2.8 million LPRs between 1986 and 1989 who then became eligible to naturalize in the mid-1990s. Four years later, the Immigration Act of 1990 increased the limits on legal immigration to the United States, among other provisions, which also resulted in increased numbers of persons petitioning for naturalization by the mid-1990s. USCIS has also attributed the 2007 surge in naturalization petition volume to several factors including a \"green card\" replacement program, a broad-based increase in USCIS fees that took effect in July 2007, and grassroots campaigns to increase naturalizations prior to the 2008 elections.\nDemographically, the number of legal permanent residents admitted to the United States or adjusting status averaged roughly 418,000 each year between 1966-1980; 654,000 between 1981-1995; and 957,000 between 1996-2010, substantially enlarging the pool of people eligible to naturalize. With such increases, processing lags occurred. USCIS expended efforts to reduce the backlog during the mid-2000s which eliminated the processing backlog for N-400 naturalization petitions by 2006.\nAlthough the number of petitions denied has always been considerably less than the number of naturalizations, the trends for naturalizations and naturalization petition denials exhibited a similar pattern until 2003. Since then, the number of petitions denied has declined from roughly 103,000 in 2004 to 66,000 in 2012. During the same period, the number of naturalizations increased from 537,000 to 757,000 ( Appendix A ).",
"Despite increasing numbers of naturalization petitions filed in recent years, the number of naturalizations has not kept pace with the overall growth of the foreign-born population. The naturalized percentage of the foreign born peaked in 1950 (74.5 %), reflecting high naturalization rates among refugees after World War II. After 1950, it declined, reaching its lowest point of 40.3% in 2000 before increasing to 43.7% in 2010. In 2010, the percentage of foreign born who were naturalized was near its lowest level since the Census Bureau began asking census respondents about their citizenship in 1920 ( Figure 2 ).\nIn 2012, an estimated 40.8 million foreign-born persons resided in the United States, roughly 13.0% of the total U.S. population. Of these, 18.7 million self-reported their legal status as naturalized citizens. The remaining 22.1 million noncitizens included an estimated 8.8 million who were eligible to naturalize but had not done so. Foreign born who are eligible to naturalize may not do so for a variety of reasons. Other foreign born are not eligible to naturalize, either because they are LPRs with insufficient years of U.S. residency, or because they are nonimmigrants or unauthorized aliens, neither of whom are permitted to naturalize. Despite relatively low naturalized proportions among all foreign born ( Figure 2 ) the naturalized proportion of LPRs has increased in recent decades, from 38% in 1990 to 56% by 2011.\nMany factors affect who naturalizes as well as how many naturalization petitions are filed each year. Country of origin significantly affects who naturalizes ( Table 1 ). Foreign born from Mexico and several other Latin American countries have among the lowest naturalized percentages. These low proportions have several explanations, including geographic proximity, which can increase the likelihood that individuals maintain strong ties to their countries of origin; large numbers of recent legal immigrants, which reduces the proportion of all foreign born with at least five years of U.S. residence; and sizable numbers of unauthorized aliens who are ineligible to naturalize.\nIn contrast, foreign born from countries such as Vietnam, Iran, and Taiwan all have rates exceeding 70%. Countries whose immigrants show relatively high naturalization proportions are often characterized by large geographic distance from the United States, less democratic or more oppressive political systems, and/or geopolitical factors and calamities that initiate flows of refugees and asylees.\nIn addition, immigrants from countries with low proportions of naturalized citizens spend more years as LPRs before they naturalize. For example, in 2012, African and Asian immigrants, whose naturalized proportions are relatively high, spent a median of five and six years as LPRs, respectively, prior to naturalizing. By contrast, immigrants from North America (including Canada, Mexico, and Central America) spent a median of 10 years as LPRs prior to naturalizing.\nApart from country-level characteristics, individual characteristics also influence the propensity to naturalize. Younger immigrants, who generally possess weaker attachments to their countries of origin and more years to benefit from citizenship, are more likely to naturalize than older immigrants. Immigrants from Asian, European, and English-speaking countries are more likely to naturalize than immigrants from elsewhere. Immigrants in professional, managerial, and other occupations correlated with higher education levels appear more likely to naturalize than less educated immigrants.",
"",
"In recent years, N-400 naturalization petitions have accounted for almost 15% of all petitions received and processed by USCIS, making it the second most popular immigration petition handled by the agency (after I-765 Employment Authorization petitions).\nConcerns regarding USCIS' total petition processing capability sometimes receive attention when events transpire to cause large numbers of foreign nationals to petition for immigration benefits. If Congress does pass major reforms to U.S. immigration laws, such changes could substantially alter the number of legal immigrants admitted each year as well as the legal status of sizeable numbers of foreign-born who reside in the United States. Changes to both of these populations, in turn, could increase considerably the number of USCIS N-400 naturalization petitions filed.\nUSCIS has made substantial efforts in recent years to modernize its business processes. Currently, the agency reports that N-400 naturalization petition processing times average 4.5 months, well within its goal of no more than six months. Recent evidence of the agency's ability to process sudden large influxes of immigration petitions occurred with the Deferred Action for Childhood Arrivals (DACA) initiative that was announced on June 15, 2012. Two months later, USCIS began accepting DACA petitions. As of August 31, 2013, one year later, USCIS had received and processed 588,725 petitions. At the same time, the number of pending USCIS petitions since August 2012 has steadily increased, which suggests that resources devoted to processing DACA petitions may have slowed processing for other USCIS petitions.",
"USCIS currently charges naturalization applicants $680 which includes a $595 application fee and an $85 fee for recording biometric information. The amount of the naturalization fee raises several issues for Congress, including whether it discourages persons from naturalizing due to the expense, and whether it accurately reflects USCIS's cost to process naturalization applications. Empirical studies suggest that the volume of naturalization petitions filed may be inversely related to the naturalization fee amount.\nGraphing the volume of N-400 naturalization petitions filed each fiscal year against the amount of the naturalization fee in that year ( Figure 3 ) suggests that fee increases in 1998, 2002, 2004, and 2007 were preceded by greater petition volume followed in the subsequent year by declining petition volume. Nevertheless, other factors described in \" Naturalization Petition \" above also explain application volume increases apart from fee increases.\nNaturalization fee increases are usually subsumed within across-the-board USCIS fee increases for many types of petitions based upon audits of the costs of providing immigration services/benefits. Proponents of fee increases maintain that immigration benefits such as naturalization should be self-financing and that the beneficiaries should bear the full cost of processing a naturalization petition. Yet some question whether fee increases discourage eligible LPRs from naturalizing. Others contend that naturalization fees in the United States are substantially higher than comparable citizenship fees in other OECD countries.",
"Since the beginning of Operation Iraqi Freedom in March 2003, Congress has expressed interest in streamlining and expediting naturalizations for military personnel and in providing immigration benefits for their immediate relatives. The reported deaths in action of noncitizen soldiers drew attention to the immigration laws that grant posthumous citizenship and to the advantages of further expediting naturalization for noncitizens serving in the U.S. military. Legislation has focused on further streamlining procedures or extending immigration benefits to immediate relatives of U.S. service members. In the 113 th Congress, a legislative proposal would make eligible for naturalization any person who serves or has served under honorable conditions as a member of the U.S. Armed Forces in support of contingency operations in the same way as if the person had served during a period of presidentially-designated military hostilities, among other related provisions. A current legislative proposal would treat noncitizen U.S. service members who have received combat awards as having satisfied certain naturalization requirements, including good moral character, English/civics knowledge, and honorable service/discharge. In addition, the proposal would eliminate the INA provision that currently allows a U.S. citizen to renounce citizenship during a time of war if the Attorney General approves the renunciation as not contrary to the interest of national defense.",
"Some in Congress have expressed interest in facilitating language and civics instruction as a means to promote naturalization. Several federal agencies currently support these objectives. Among these, the USCIS Office of Citizenship provides English and citizenship training directly and through public/private partnerships. It also funds citizenship preparation services through its Citizenship and Integration Grant Program. The U.S. Department of Education offers grants to states to improve English skills among adults who are not enrolled in school. Several bills have been introduced that would promote English literacy and civics education for immigrants preparing to naturalize. A current legislative proposal contains provisions waiving the English and history and civics naturalization requirements for older and disabled individuals.\nDespite these and other federal adult education programs, as well as programs run by nonprofit organizations, demand for adult English language and civics education services remains high. Findings from the 2003 National Assessment of Adult Literacy and U.S. Census data on English language proficiency among the foreign born suggest that more immigrant adults could benefit from English literacy education. USCIS has called for more innovative approaches to increase immigrants' access to quality English learning opportunities as well as adult educators' access to pertinent civics education training. Some have advocated for a White House committee on immigrant integration or the establishment of a foundation affiliated with the USCIS that would accept private donations to support programs that help immigrants integrate. Others have also called for a public private partnership to facilitate a more stable stream of private funding for efforts to promote naturalization. A current legislative proposal would address several of these recommendations.\nThose opposing such expenditures argue that English language proficiency as well as civics education is the responsibility of immigrant s and not U.S. taxpayer s . They contend that the acquisition of citizenship is a choice that is not imposed upon LPRs who enjoy many of the same benefits of living in the United States as citizens.",
"Many LPRs eligible to naturalize, particularly persons age 65 and older, have not done so because of concerns over passing the English and civics naturalization examinations. In 2008, USCIS revised the naturalization civics exam to make it more conceptual as well as consistent across its 86 district offices, and in 2012, the pass rate stood at 92%. Nevertheless, USCIS application data show increasing numbers of persons submitting USCIS Form N-648 Medical Certification for Disability Exceptions petitions for exam waivers on the basis of medical conditions. A current legislative proposal contains provisions that would expand current exemptions from the English and civics exam requirement based on age, physical/mental disability, and years of U.S. residency.",
"Legislative proposals regarding the naturalization oath of allegiance have centered on incorporating into the oath greater emphasis on allegiance to the United States and greater civic responsibility; emphasizing more publicly visible and patriotically symbolic ceremonies; and permitting members of Congress to administer the oath of allegiance at naturalization ceremonies. Some have proposed that all naturalization ceremonies be conducted solely in English, and that as a requirement for naturalization, a uniform language testing standard require all citizens to read and understand the English language text of the Declaration of Independence, the U.S. Constitution, and the laws of the United States.",
"Concerns about illegal immigration have led some legislators to reexamine the long-established tenet of U.S. citizenship that a person who is born in the United States and subject to its jurisdiction is a citizen of the United States regardless of parental legal status. This concept of birthright citizenship is codified in the Citizenship Clause of the Fourteenth Amendment of the U.S. Constitution and Section 301(a) of the INA. While a thorough discussion of birthright citizenship is beyond the scope of this report, recent Congresses have seen legislation introduced that would revise or reinterpret the Citizenship Clause and related citizenship statute.",
"Those favoring a more accessible naturalization process have criticized the existing process on several grounds, notably its current cost (see \" Naturalization Fees \"). Some advocates, supporting their arguments with evidence about immigrants' price sensitivity to the cost of naturalization, have proposed reforms centering on making information about fee waivers more widely known and providing more payment options for naturalization fees. Many also characterize the naturalization application forms and instructions as excessively complex and unclear, with potential legal consequences for incorrect responses. They contend that prospective naturalization petitioners may be deterred from applying, and that simplifying the language in the N-400 application and instructions would make the naturalization process more accessible. Others raise concerns over the naturalization residency requirements (see \" Continuous Residence \" above) which disadvantages LPRs based overseas for employment. Such individuals must wait until they physically reside in the United States to fulfill the naturalization requirements, prolonging their time required to naturalize.\nAppendix A.\nAppendix B. Selected Links to Naturalization Information and Application Materials\nNATURALIZATION INFORMATION\nGuide to Naturalization\nhttp://www.uscis.gov/files/article/M-476.pdf\n10 Steps to Naturalization\nhttp://www.uscis.gov/USCIS/files/M-1051.pdf\nI am a Permanent Resident — How Do I Apply for U.S. Citizenship?\nhttp://www.uscis.gov/USCIS/Resources/B3en.pdf\nNaturalization Information for Military Personnel\nhttp://www.uscis.gov/files/form/m-599.pdf\nUSCIS Policy Manual: Citizenship and Naturalization\nhttp://www.uscis.gov/policymanual/HTML/PolicyManual-Volume12.html\nNATURALIZATION APPLICATION MATERIALS\nN-400 Application and Instructions for Naturalization\nhttp://www.uscis.gov/files/form/n-400.pdf\nInstructions for N-400 Application for Naturalization\nhttp://www.uscis.gov/files/form/n-400instr.pdf\nDocument Checklist\nhttp://www.uscis.gov/files/article/attachments.pdf\nCitizenship Resource Center\nhttp://www.uscis.gov/portal/site/uscis/citizenship"
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"question": [
"How can lawful permanent residents become U.S. citizens?",
"How can LPRs become naturalized?",
"How comprehensive is the naturalization process?",
"To what extent are accommodations provided for individuals who may need them?",
"How is naturalization viewed by many immigrants?",
"How does naturalization benefit individuals?",
"How does naturalization benefit relatives of the naturalized individual?",
"To what extent do LPRs (in general) naturalize?",
"How is the propensity to naturalize distributed across age ranges and occupation?",
"To what extent does the means of immigration affect naturalization rates?",
"How does the political climate of home-countries affect naturalization rates?",
"Specifically, how do the naturalization rates from the U.S.'s neighbors in Central America compare to naturalization rates as a whole?",
"To what extent is naturalization accessible for all LPRs?",
"How feasible would removing the naturalization fees be?",
"According to political leaders, to what extent should the government promote and facilitate naturalization?",
"How has the naturalization process changed in recent years?"
],
"summary": [
"Naturalization is the process that grants U.S. citizenship to lawful permanent residents (LPRs) who fulfill requirements established by Congress in the Immigration and Nationality Act (INA).",
"In general, U.S. immigration policy gives all LPRs the opportunity to naturalize, and doing so is a voluntary act.",
"LPRs in most cases must have resided continuously in the United States for five years, show they possess good moral character, demonstrate English competency, and pass a U.S. government and history examination as part of their naturalization interview.",
"The INA waives some of these requirements for applicants over age 50 with 20 years of U.S. residency, those with mental or physical disabilities, and those who have served in the U.S. military.",
"Naturalization is often viewed as a milestone for immigrants and a measure of their assimilation and socioeconomic integration to the United States.",
"Practically, naturalized immigrants gain important benefits, including the right to vote, security from deportation in most cases, access to certain public-sector jobs, and the ability to travel with a U.S. passport.",
"U.S. citizens are also advantaged over LPRs for sponsoring relatives to immigrate to the United States.",
"Despite the clear benefits of U.S. citizenship status over LPR status, millions of LPRs who are eligible to naturalize do not do so.",
"Research on determinants of naturalization suggests that the propensity to naturalize is positively associated with youth and educational attainment.",
"Those who immigrate as refugees and asylees are more likely to naturalize than those who immigrate as relatives of U.S. residents.",
"Immigrants from countries with less democratic or more oppressive political systems are more likely to naturalize than those from more democratic nations.",
"Immigrants from Mexico or other nearby countries in Central America have among the lowest percentages of naturalized foreign born.",
"Immigrant advocacy organizations contend that the current level of naturalization fees discourages immigrants from seeking U.S. citizenship.",
"Other immigration policy observers argue that current fees recover the full cost of a process that is intended to be self-financing.",
"Some in Congress have repeatedly expressed interest in facilitating language and civics instruction as a means to promote naturalization. Others argue that English language proficiency as well as civics education is the responsibility of immigrants and not the federal government.",
"Recent efforts have focused on further streamlining and expediting naturalizations for military personnel and in providing immigration benefits for their relatives. Proposals have also been introduced that would revise the naturalization oath to place greater emphasis on allegiance to the United States."
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CRS_R44893
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{
"title": [
"",
"Office on Violence Against Women (OVW)",
"Office of Justice Programs (OJP)",
"Research, Evaluation, and Statistics",
"State and Local Law Enforcement Assistance",
"Juvenile Justice Programs",
"Community Oriented Policing Services (COPS)"
],
"paragraphs": [
"E ach year, Congress and the Administration provide funding for a variety of grant programs through the Department of Justice (DOJ). These programs provide support to state, local, and tribal governments and nonprofit organizations for a variety of criminal justice-related purposes, such as combatting violence against women, reducing backlogs of DNA evidence, supporting community policing, assisting crime victims, promoting prisoner reentry, and improving the functioning of the juvenile justice system. These programs are funded through five accounts in the annual Commerce, Justice, Science, and Related Agencies (CJS) appropriations act:\nViolence Against Women Programs; Research, Evaluation, and Statistics; State and Local Law Enforcement Assistance; Juvenile Justice Programs; and Community Oriented Policing Services.\nThis report provides an overview of congressional actions to fund DOJ's grant programs through these accounts for FY2018. The report also provides information on FY2017 appropriations for DOJ's grant programs.\nThe amounts in this report reflect only new funding made available at the start of the fiscal year. Therefore, the amounts do not include any rescissions of unobligated or deobligated balances that may be counted as offsets to newly enacted appropriations.",
"The Office on Violence Against Women (OVW) was established to administer programs created under the Violence Against Women Act (VAWA) of 1994 ( P.L. 103-322 ). These programs provide financial and technical assistance to communities around the country to facilitate the creation of programs, policies, and practices designed to improve criminal justice responses to domestic violence, dating violence, sexual assault, and stalking.\nThe Trump Administration's FY2018 budget request for OVW was largely in-line with what was provided for FY2017. The Administration's budget request would have cut, relative to FY2017 funding, $2.0 million from the grant program that is designed to improve the criminal justice response to sexual assault, domestic violence, dating violence, and stalking; $1.0 million from grants that are designed to prevent domestic violence in rural jurisdictions; and $1.5 million from grants that assist Indian tribes in planning, implementing, and exercising criminal jurisdiction over non-Indians who commit crimes of domestic violence or dating violence or violate certain protection orders in Indian country. The Administration's budget request would have increased funding by $1.0 million, relative to FY2017 funding, for a program to increase states' allocations under the STOP formula grant program if the state has a law that allows women to terminate the parental rights of rapists.\nThe Administration proposed supplementing $35.0 million in appropriations from the General Fund of the Treasury for the OVW account with a $445.0 million transfer from the Crime Victims Fund. For FY2017, Congress and the Administration supplemented appropriations from the General Fund of the Treasury for OVW with a $326.0 million transfer from the Crime Victims Fund.\nThe House-passed bill ( H.R. 3354 ) would have funded nearly every program under the OVW account at the FY2017 level. The House-passed bill included a $0.5 million increase for research on violence against women relative to FY2017 funding. The proposed $45.5 million increase in the OVW account relative to FY2017 funding was due to the House proposing to fund grants for victims of trafficking through the OVW account rather than the State and Local Law Enforcement Assistance account, where the appropriation for this program is traditionally provided. The House-passed bill did not recommend transferring any funding from the Crime Victims Fund to the OVW account.\nThe Senate committee-reported bill ( S. 1662 ) would have also largely funded programs under the OVW account at the FY2017 level. The two exceptions were $1.0 million increases, relative to FY2017 funding, for both transitional housing assistance and grants for rural domestic violence and child abuse enforcement assistance. The committee-reported bill included a $379.0 million transfer from the Crime Victims Fund to the OVW account.\nCongress and the Administration provided $492.0 million for OVW for FY2018, all of which comes via a transfer from the Crime Victims Fund. FY2018 funding was $10.5 million greater than FY2017 funding and $12.0 million more than the Administration's request. In general, for FY2018 OVW programs were funded at the FY2017 level, but there were a few programs that received an increase. Congress and the Administration provided, relative to FY2017 funding, an additional $5.0 million for transitional housing assistance grants, an additional $5.0 million for grants to assist victims of domestic violence in rural areas, and an additional $0.5 million for research related to violence against women.",
"The Office of Justice Programs (OJP) manages and coordinates the National Institute of Justice; Bureau of Justice Statistics; Office of Juvenile Justice and Delinquency Prevention; Office of Victims of Crimes; Bureau of Justice Assistance; Office of Sex Offender Sentencing, Monitoring, Apprehending, Registering, and Tracking; and related grant programs.",
"The Research, Evaluation, and Statistics account funds the operations of the Bureau of Justice Statistics (BJS) and the National Institute of Justice (NIJ), among other things.\nThe Administration's FY2018 request for the Research, Evaluation, and Statistics account was $22.0 million greater than FY2017 funding. The proposed increase was entirely the result of the Administration requesting funding for the Regional Information Sharing System (RISS) program under this account. For FY2017, Congress and the Administration provided funding for the RISS program under the Community Oriented Policing Services (COPS) account. The Administration's budget request would have decreased funding for both the Bureau of Justice Statistics (-$4.5 million) and the National Institute of Justice (-$3.5 million) relative to FY2017 funding.\nThe House bill would have funded BJS at the FY2017 level and reduced funding for NIJ by $1.0 million relative to FY2017 funding. The House declined to adopt the Administration's proposal to fund RISS through the Research, Evaluation, and Statistics account (funding for this program was provided under the Community Oriented Policing Services account). In addition, the House bill would have eliminated funding for the forensic sciences improvement initiative.\nThe Senate committee-reported bill would have reduced funding for BJS by $0.5 million relative to FY2017 funding, but would have funded NIJ at the FY2017 level. The committee declined to provide funding for RISS under the Research, Evaluation, and Statistics account (funding for this program is provided under the COPS account). The committee-reported bill would have also eliminated funding for the forensic sciences improvement initiative.\nCongress and the Administration funded the Research, Evaluation, and Statistics account at $90.0 million for FY2018, an amount that is $1.0 million more than FY2017 funding, but $21.0 million less than the Administration's request. The reduced funding relative to the Administration's request is the result of not funding the Forensic Science Improvement program and providing funding for RISS under the COPS account. Congress and the Administration provided increased funding, relative to FY2017 funding, for both BJS (+$2.5 million) and NIJ (+$2.5 million).",
"The State and Local Law Enforcement Assistance (S&LLEA) account includes funding for a variety of grant programs to improve the functioning of state, local, and tribal criminal justice systems. Programs that have traditionally been funded under this account include the Edward Byrne Memorial Justice Assistance Grant (JAG) program, the Drug Courts program, the State Criminal Alien Assistance Program (SCAAP), and DNA backlog reduction grant programs.\nFor FY2018, the Trump Administration requested $940.5 million for the S&LLEA account, which included a proposed $73.0 million transfer from the Crime Victims Fund. The Administration's budget would have eliminated funding for SCAAP (-$210.0 million) and the Byrne Criminal Justice Innovation program (-$17.5 million). The budget also included, relative to FY2017 funding, a $70.5 million reduction for JAG, $20.0 million reductions for both the DNA Analysis and Capacity Enhancement program and the Second Chance Act, and a $30.0 million reduction for the Comprehensive School Safety Initiative. The Administration also proposed to eliminate funding for the Community Trust and Opioids Initiatives, though it requested funding for many of the programs funded under both initiatives as their own line items in the S&LLEA account. The Administration proposed funding grant programs to help law enforcement agencies purchase armor vests and body-worn cameras with set-asides from the JAG program. For FY2017, both of these programs were funded as their own line items in the S&LLEA account.\nThe Administration's budget request would have increased funding for two programs that focus on combatting violent crime. The FY2018 budget request included $70.0 million for a program to reduce gang and gun violence, also referred to as Project Safe Neighborhoods (PSN). For FY2017, Congress and the Administration provided $6.5 million for PSN as a set-aside from JAG. The Administration proposed changing PSN from a competitive grant program to a block grant program. The Administration also requested $5.0 million for a National Crime Reduction Assistance Network, which would have provided training and technical assistance to cities to support violence reduction strategies.\nThe House-passed bill included $1.189 billion for the S&LLEA account. The House declined to adopt many of the Administration's funding proposals, such as supplementing funding for the account with a transfer from the Crime Victims Fund, increasing funding for Project Safe Neighborhoods, and eliminating funding for the SCAAP and Byrne Criminal Justice Innovation programs (funding for the latter is provided under the Community Oriented Policing Services account and is $7.5 million less than FY2017 funding). The House-passed bill would have moved funding for several programs—grants under the Second Chance Act, the Community Trust Initiative, and grants for community teams to reduce sexual assault kit backlogs—to the COPS account. The House bill would have generally funded most programs under the S&LLEA account at the FY2017 level, but the House bill would have reduced funding for both the Comprehensive School Safety and Emergency Federal Law Enforcement Assistance programs by $5.0 million relative to FY2017 funding. The House bill also included, relative to FY2017 funding, a $112.0 million increase for JAG, a $20.0 million increase for SCAAP, and a $22.0 million increase for programs authorized by the Comprehensive Addiction and Recovery Act of 2016 (CARA, P.L. 114-198 ).\nThe Senate committee-reported bill included $1.171 billion for the S&LLEA account. The committee also declined to adopt many of the Administration's funding proposals, including the proposal to supplement funding for the account with a transfer from the Crime Victims Fund, increasing funding for Project Safe Neighborhoods, and eliminating funding for the SCAAP and Byrne Criminal Justice Innovation programs. While the committee-reported bill would not have eliminated funding for SCAAP, it included a $110.0 million cut to the program relative to FY2017 funding. The committee-reported bill would have generally funded all programs under the S&LLEA account at the FY2017 level, but it included increases for JAG (+$1.5 million); grants to prevent economic, white collar, and cybercrimes (+$1.0 million); grants under the Second Chance Act (+$2.0 million); the Paul Coverdell Forensic Sciences Improvement program (+$0.5 million); and programs authorized under CARA (+$8.0 million) relative to FY2017 funding.\nCongress and the Administration provided $1.680 billion for the S&LLEA account for FY2018. The enacted amount was $399.5 million more than FY2017 funding and $739.5 million more than the Administration's request. In general, Congress declined to adopt the Administration's funding proposals for the S&LLEA account, including supplementing appropriations from the General Fund of the Treasury with a transfer from the Crime Victims Fund, eliminating funding for SCAAP and the Byrne Criminal Justice Innovation program, and cutting funding for JAG, DNA initiatives, and the Comprehensive School Safety Initiative relative to FY2017 funding. Congress and the Administration did not provide funding for a National Crime Reduction Assistance Network. In addition, Congress and the Administration did not provide the $70.0 million the Administration requested for PSN, but funding for the program was increased by $13.5 million for FY2018. Several other programs received increased funding for FY2018:\nComprehensive Addiction and Recovery Act grants (+$132.0 million), grants for trafficking victims (+$32.0 million), drug courts (+$32.0 million), SCAAP (+$30.0 million), grants for criminal justice and mental health collaboration (+$18.0 million), Second Chance Act grants (+$17.0 million), the Residential Substance Abuse Treatment program (+$16.0 million), prescription drug monitoring (+$16.0 million), veterans treatment courts (+$13.0 million), and JAG (+$12.5 million).\nCongress and the Administration reauthorized the Matching Grant Program for School Security (commonly referred to as the \"Secure Our Schools program\") as a part of the Consolidated Appropriations Act, 2018 (Title V of Division S of P.L. 115-141 ). The Consolidated Appropriations Act, 2018 requires all funds provided for the Comprehensive School Safety Initiative ($75.0 million) for FY2018 to be used for grants under the Secure Our Schools program.\nCongress and the Administration also reestablished a line-item appropriation for tribal assistance ($35.0 million) that was eliminated under the S&LLEA account for FY2017. For FY2017, Congress and the Administration authorized DOJ to use up to 7% of the funding available under the State and Local Law Enforcement Assistance, Juvenile Justice Programs, and Community Oriented Policing Services account, with a few exceptions, for tribal justice assistance programs. The Consolidated Appropriations Act, 2018, does not authorize DOJ to set aside funds for tribal assistance programs. Instead, tribal assistance will be provided through specific line-item appropriations (i.e., tribal assistance under the S&LLEA account, the Tribal Youth Program under the Juvenile Justice Programs account, and tribal law enforcement assistance under the COPS account).",
"The Juvenile Justice Programs account includes funding for grant programs to reduce juvenile delinquency and help state, local, and tribal governments improve the functioning of their juvenile justice systems.\nThe Administration's FY2018 request for Juvenile Justice Programs was $17.5 million less than FY2017 funding. The $229.5 million the Trump Administration requested for this account included a transfer of $92.0 million from the Crime Victims Fund. The overall proposed reduction in funding for this account relative to FY2017 funding was almost solely attributable to a $22.0 million reduction in funding for youth mentoring grants. The Administration's budget request included increases, relative to FY2017 funding, for Part B formula grants (+$3.0 million), Title V delinquency prevention grants (+$2.5 million), and grants to improve juvenile indigent defense (+$0.5 million).\nThe House-passed bill included $175.5 million for the Juvenile Justice Programs account. The House bill would have eliminated funding for Part B State Formula grants, Title V Delinquency Prevention grants, and grants to improve indigent defense for juveniles. The remaining programs would have been funded at the FY2017 level. The House did not adopt the Administration's proposal to supplement funding for this account with a transfer from the Crime Victims Fund.\nThe bill reported by the Senate Committee on Appropriations included a $13.0 million increase for the Juvenile Justice Programs account ($260.0 million). The committee-reported bill included increases for Part B State Formula grants (+$5.0 million), Title V Delinquency Prevention grants (+$4.5 million), and Missing and Exploited Children programs (+$3.5 million). The committee did not adopt the Administration's proposal to supplement funding for this account with a transfer from the Crime Victims Fund.\nFY2018 enacted funding for the Juvenile Justice Programs account is $282.5 million, which is $35.5 million greater than FY2017 funding and $53.0 million greater than the Administration's request. Congress declined to supplement appropriations from the General Fund of the Treasury for this account with a transfer from the Crime Victims Fund. Every program was funded at or above the FY2017 level. Congress and the Administration provided increases, relative to FY2017 funding, for youth mentoring grants (+$14.0 million), Title V delinquency prevention grants (+$13.0 million), Part B formula grants (+$5.0 million), and missing and exploited children programs (+$3.5 million). The Consolidated Appropriations Act, 2018 also reestablished funding for the Tribal Youth program, which was eliminated in FY2017, and includes funding for a new opioid affected youth initiative.",
"The Community Oriented Policing Services (COPS) Office awards grants to state, local, and tribal law enforcement agencies throughout the United States so they can hire new officers, train them in community policing, purchase and deploy new crime-fighting technologies, and develop and test new and innovative policing strategies.\nThe Administration requested $218.0 million for COPS for FY2018, which was $3.5 million less than FY2017 funding. The budget request would have increased funding for the COPS Hiring Program, and within this amount reestablished a set-aside for assistance to tribal law enforcement. However, the budget request would have eliminated funding for antimethamphetamine and antiheroin task forces.\nThe House-passed bill included $240.5 million for the COPS account, but it would have eliminated funding for many programs that are traditionally administered by the COPS Office. Most of the programs in the House bill that would have been funded under the COPS account have traditionally received funding under the S&LLEA account.\nThe Senate committee-reported bill included $226.5 million for the COPS account. The committee-reported bill included a $13.0 million increase for the COPS hiring program and a $2.0 million increase for antiheroin task forces relative to FY2017 funding.\nCongress and the Administration funded the COPS account at $275.5 million for FY2018. This amount is $54.0 million greater than FY2017 funding and $57.5 million greater than the Administration's request. Congress and the Administration increased funding for the COPS hiring program by $31.0 million relative to FY2017 funding, and within that amount, reestablished a set-aside for tribal law enforcement assistance ($30.0 million). There is also a $22.0 million increase for antiheroin task forces relative to FY2017 funding. In the Consolidated Appropriations Act, 2018, funding for the POLICE Act—which allows COPS funds to be used to provide active shooter training—is its own line item in the COPS account rather than being funded as a set-aside from the hiring program, and funding for program increased by $2.5 million for FY2018."
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{
"question": [
"How are justice-related grants processed through the Federal Government?",
"How do DOJ grants promote the interest of justice in the United States?",
"How are the grants apportioned?",
"To what extent are the DOJ's grants well-funded?",
"How was the apportioned amount distributed between accounts?",
"What portion of the total funding includes outside sources?",
"How have funding levels changed from the last fiscal year?",
"To what extent were these changes uniform across all programs?",
"To what extent did the Congressional action match the Administration's requests?"
],
"summary": [
"Each year, Congress and the Administration provide funding for a variety of grant programs through the Department of Justice (DOJ).",
"These programs are used to fund state, local, and tribal governments and nonprofit organizations for a variety of criminal justice-related purposes, such as efforts to combat violence against women, reduce backlogs of DNA evidence, support community policing, assist crime victims, promote prisoner reentry, and improve the functioning of the juvenile justice system.",
"These programs are funded through five accounts in the annual Commerce, Justice, Science, and Related Agencies (CJS) appropriations act: Violence Against Women Programs; Research, Evaluation, and Statistics; State and Local Law Enforcement Assistance; Juvenile Justice Programs; and Community Oriented Policing Services.",
"Congress and the Administration funded DOJ's five grant accounts at $2.820 billion for FY2018.",
"This amount includes $492.0 million for the Violence Against Women Programs account; $90.0 million for the Research, Evaluation, and Statistics account; $1.680 billion for the State and Local Law Enforcement Assistance account; $282.5 million for the Juvenile Justice Programs account; and $275.5 million for the Community Oriented Policing Services account.",
"Total funding includes $492.0 million that is to be transferred from the Crime Victims Fund to the Office on Violence Against Women.",
"In general, most DOJ grant programs were funded at or above the FY2017 level.",
"Many of the programs that received the largest increases in funding are related to combatting opioid abuse.",
"Congress also largely declined to accept the Administration's proposals to eliminate funding for several grant programs, such as the State Criminal Alien Assistance program, and to decrease funding for other programs."
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CRS_RS22640
|
{
"title": [
"",
"Introduction",
"Comparison of U.S. and Chinese Merchandise Trade Data",
"Delving into the Data: Examining HS Code",
"Explaining the Differences: Literature Summary",
"Technical Explanations",
"Official Definitions of Exports and Imports",
"Definition of Territory",
"Timing",
"Declaration of Country of Origin",
"Exchange Rates",
"Non-Technical Explanations",
"Value Differences in Direct Trade",
"Under-Invoicing",
"Intermediation",
"Joint China-U.S. Studies of Discrepancies",
"Implications for Congress",
"Selected Bibliography on the Differences Between U.S. and Chinese Bilateral Trade Figures"
],
"paragraphs": [
"",
"The U.S. merchandise trade deficit with the People's Republic of China (China) remains a major source of bilateral tension. Some Members of Congress and other U.S. government officials often point to the bilateral trade imbalance as evidence that China is not competing fairly in the global market. In March 2018, the Trump Administration reportedly asked China to develop a plan to reduce the bilateral trade deficit by $100 billion.\nOn March 31, 2017, President Trump issued Executive Order 13786, which states:\nWithin 90 days of the date of this order, the Secretary of Commerce and the United States Trade Representative (USTR), in consultation with the Secretaries of State, the Treasury, Defense, Agriculture, and Homeland Security, and the heads of any other executive departments or agencies with relevant expertise, as determined by the Secretary of Commerce and the USTR, shall prepare and submit to the President an Omnibus Report on Significant Trade Deficits (Report).\nPresident Trump also issued Executive Order 13796, \"Addressing Trade Agreement Violations and Abuses,\" on April 29, 2017, which, among other things, requires the Secretary of Commerce and the USTR to \"conduct comprehensive performance reviews\" of \"all trade relations with countries governed by the rules of the World Trade Organization with which the United States does not have free trade agreements but with which the United States runs significant trade deficits in goods.\" China is one such country.\nDespite the priority the Trump Administration has placed on reducing bilateral trade deficits in general, and with China in particular, according to official U.S. trade statistics, the overall U.S. merchandise trade deficit and the bilateral deficit with China increased in 2017 and 2018. The overall deficit rose from $736.6 billion in 2016 to $795.7 billion in 2017, and $878.7 billion in 2018. The bilateral deficit with China accounted for 47.1%, 47.2%, and 47.7% of the total merchandise trade deficit for the last three years, respectively.\nDebate over this trade deficit is hampered by disagreement between the two countries on how large the deficit actually is. According to official U.S. figures, China has surpassed Canada as the largest supplier of U.S. imports, running up a bilateral merchandise trade surplus in 2018 of $419.2 billion. However, according to official Chinese figures, China's trade surplus with the United States in 2018 was $323.9 billion—$95.9 billion less than the U.S. figure (see Table 1 ).\nThe U.S. trade deficit with China plays a role, directly and indirectly, in proposed legislation addressing bilateral trade relations. The Fair Trade with China Enforcement Act ( H.R. 704 and S. 2 ), for example, refers to \"a severely imbalanced trading relationship\" with China, and would impose restrictions on Chinese investment in the United States \"due to its negative effect on the United States trade deficit and wages of workers in the United States.\" The United States Reciprocal Trade Act ( H.R. 764 ) finds, \"The lack of reciprocity in tariff levels and nontariff barriers contributes to the large and growing United States trade deficit in goods, which is a drag on economic growth and undermines economic prosperity.\" The act would authorize the President to negotiate an agreement with a country that has higher tariff or nontariff barriers than the United States, or impose additional duties on that country's exports to the United States.",
"Table 1 lists the official trade statistics from the United States and China for the years 2001 to 2018, using official trade data. From the U.S. perspective, its bilateral trade deficit with China more than quintupled in value over the last 18 years, from just over $83 billion in 2001 to over $419 billion in 2018. However, from the Chinese view, its bilateral trade surplus with the United States increased more than 11-fold, from about $28 billion in 2001 to more than $323 billion in 2018.\nTable 1 reveals that most of the discrepancy between the trade data from the two nations stems from significantly different figures for China's exports to the United States. The difference between the U.S. and Chinese figures for U.S. exports to China was generally less than $10 billion until 2011, but the discrepancy has been rising in recent years. China's figures for its exports to the United States differed from U.S. figures by $48.3 billion in 2001 and $61.1 billion in 2018.",
"The most widely used international system for classifying traded goods is the Harmonized Commodity Description and Coding System, commonly referred to as the Harmonized System or simply HS Code. Every product traded is classified into a 10-digit code. The first two digits of the product's code correspond to one of the 98 HS \"chapters,\" that classify all goods in general categories. The U.S. International Trade Commission maintains the U.S. version of the HS Code, officially called the \"Harmonized Tariff Schedule of the United States,\" or HTS. Since both the United States and China use the same HS chapters, it is possible to compare the trade data at this level.\nTable 2 lists in rank order the top five HS chapters where the value of U.S. imports from China exceeds the value of Chinese exports to the United States for 2018. The top five HS chapters—footwear (64), machinery (84), electrical machinery (85), optical and medical instruments (90), and toys and sporting goods (95)—account for more than 94% of the difference between the U.S. and Chinese figures for U.S. imports from China (or Chinese exports to the United States).\nAll five of these chapters also ranked high according to both countries in terms of their absolute value of trade. Machinery (84), electrical machinery (85), and toys and sporting goods (95) were among the top five ranked chapters in terms of the value of imports from China, according to the United States, and accounted for 54.7% of the total value of imports in 2018. The same three chapters were among the top five sources of exports to the United States, according to China, and accounted for 50.5% of the total value of exports in 2018.\nIn addition, China's export value for four chapters exceeded U.S. import value by more than $1 billion (in order): Railway equipment (86) - $2.856 billion; knit apparel (61) - $2.840 billion; woven apparel (62) - $1.618 billion; and non-railway vehicles (87) - $1.130 billion.\nOn the other side of the trade equation, there were 10 chapters where China's imports exceeded U.S. exports by more than $1 billion: miscellaneous grains (12); mineral fuel (27); pharmaceutical products (30); miscellaneous chemical products (38); plastic (39); precious stones and metals (71); machinery (84); electrical machinery (85); non-railway vehicles (87); and optical and medical equipment (90). In one chapter—railway equipment (86)—U.S. exports exceeded Chinese imports by more than $1 billion.\nOn both sides of the trade balance equation, two of the greatest differences in the official trade statistics of the two nations occurred in the same HS chapters—machinery (84) and electrical machinery (85). The discrepancies between the official trade statistics for these two types of goods have been consistently large for flows in both directions since 2001, indicating a systemic difference in the evaluation of the bilateral trade of these goods.",
"The question as to why China's official statistics (on trade flows) are routinely much lower in value than the official U.S. trade statistics has been and continues to be the subject of analysis by scholars, government officials, and other interested parties. Nor is the issue unique to the United States; Canada also reports bilateral trade statistics that differ significantly from China's reported figures, and has investigated the reasons for those differences.\nThe following is a short review of some of the key explanations provided in this literature, categorized into \"technical\" and \"non-technical\" explanations. \"Technical\" explanations refer to procedural or administrative causes for the discrepancies; \"non-technical\" explanations include causes arising from non-procedural or non-administrative sources.",
"",
"In its official statistics, China evaluates exports using the more commonly used \"free on board\" (F.O.B.) terms, and evaluates imports using \"cost, insurance, and freight\" (C.I.F.) terms. The use of F.O.B. for exports and C.I.F. for imports is a common, but not universal, international practice. The United States, however, reports its exports using \"free alongside\" (F.A.S.) terms and values imports using a customs definition. As a result, official U.S. trade data place a lower value on both U.S. exports to China and imports from China than the official Chinese data. In addition, direct comparisons of the official U.S. and Chinese trade balances reported in the media are potentially misleading, because the goods trades are being evaluated using different methods. For more accurate direct comparisons, the trade data for both nations should be evaluated using the same terms.",
"The United States includes Puerto Rico and the U.S. Virgin Islands in its trade data; China does not. China treats Puerto Rico and the U.S. Virgin Islands as separate customs territories. According to most studies, this is a comparatively minor source of difference in the trade figures.",
"Because of the distance between China and the United States, it takes time between the export of the goods from China and their import in the United States. Goods in transit at the end of the year are counted as exports by China, but not as imports by the United States. However, the lag between shipments occurs at the beginning and the end of the year, thus minimizing the effect of timing on the overall trade balance difference.",
"The current practice of U.S. Customs is to rely on the declaration of the importer to determine the country of origin. Some analysts believe that importers are misidentifying a significant amount of imports as Chinese.",
"Because China's currency, the renminbi (RMB), is allowed to fluctuate within a small range, the exchange rate between the renminbi and the U.S. dollar changes over time. The value of a shipment may change between the date it leaves China and the date it arrives in the United States due to changes in the exchange rate. Although the renminbi has appreciated against the U.S. dollar over the last decade, exchange rate changes are generally not considered a major factor in the discrepancy in the trade figures.",
"",
"According to two joint China-U.S. studies (see \" Joint China-U.S. Studies of Discrepancies \" below), about half of the merchandise trade discrepancy between U.S. imports from China and Chinese exports to the United States—or eastbound trade—is attributable to changes in the values of the export price in China and the import value in the United States for goods shipped directly between the two countries. Part of the difference may be caused by mid-shipment transfers in ownership resulting in the new owner adding a markup in the price. Another possible explanation is intentional under-invoicing of exports (see below).",
"Some analysts believe that Chinese importers may intentionally under-value imports from the United States to lower the import tariff due on the shipment. In addition, some analysts believe that Chinese exporters may intentionally under-value exports to the United States to maximize their net proceeds overseas for various tax and regulatory reasons. More recently, bilateral trade figures may have been distorted by \"phantom goods\" shipments from China to the United States (and other locations) used to disguise attempts to move financial capital offshore. Due to the \"hidden nature\" of under-invoicing, it is difficult to assess how much, if at all, this may be contributing to the differences in the trade data.",
"Although estimates vary, many analysts agree that a large portion of China's exports arrive in the United States via a third party, Hong Kong being the most commonly identified location. The intermediation of shipments raises two sources of discrepancies. First, the exporter from China may not know that the goods eventually will be shipped to the United States, and may therefore list the third party (e.g., Hong Kong) as its destination, but U.S. Customs may list the source of shipment as being China, based on U.S. laws and regulations. Second, the value of the shipment may change—with or without any actual change in the goods—between its arrival in and departure from the third location. The joint China-U.S. study of discrepancies in merchandise trade statistics determined that value differences account for about half of the differences between Chinese and U.S. trade statistics.",
"In April 2004, the 15 th JCCT established a statistical working group, with representatives of China's Ministry of Commerce and General Administration of Customs, and the U.S. Department of Commerce and Office of the USTR. The initial focus of the working group was to examine the \"unusually large and growing statistical discrepancies in the bilateral merchandise trade data officially published by [the] two countries.\" The Working Group subsequently decided to conduct a reconciliation study to determine the causes of the discrepancies. However, the Working Group stated that the results of the study were not intended to imply errors in either nation's statistical systems and/or methods of calculating official merchandise trade data.\nUnder the auspices of the U.S.-China Joint Commission on Commerce and Trade (JCCT), China's Ministry of Commerce and the U.S. Department of Commerce and Office of the U.S. Trade Representative (USTR) have conducted two studies to determine the causes of the statistical discrepancies in the official merchandise trade data reported by both nations. The first report was released in October 2009; the second in December 2012.\nThe main conclusions of the two studies are largely the same. The greatest discrepancy is in the \"eastbound trade\" data, which accounts for 80%-90% of the overall difference in annual trade balance. Roughly half of the \"eastbound trade\" data discrepancy can be attributed to goods that \"leave China, enter the commerce of intermediate countries or regions, and then [are] re-exported to the United States.\"",
"The release of the official U.S. annual trade figures has been frequently followed by expressions of concern about the size of U.S. bilateral trade deficit with China. According to official U.S. trade figures, the bilateral trade deficit with China in 2017 was more than five times the size of the next largest bilateral trade deficit (Mexico, $71.1 billion) and greater than the sum of the next eight largest bilateral trade deficits.\nChina has not accepted the \"accuracy\" of the official U.S. figure for the Sino-U.S. trade balance for at least two decades. A 1997 White Paper issued by China's State Council, \"On Sino-US Trade Balance,\" states, \"Statistics and analyses prove it true that Sino-US trade has been in favour of China in recent years, but it is obvious that the size of the US deficit has been largely exaggerated by the US side.\" In 2007, China's Foreign Ministry spokeswoman, Jiang Yu, said, \"imbalances in China-U.S. trade are an objective fact, but this is also related to the two sides' different statistical methods.\"\nAlso, when considering means or actions designed to reduce the U.S. trade deficit with China, it is useful to know which goods are the main sources of discrepancies between Chinese and U.S. trade figures, and how important they are in the overall trade flow between the two nations, so that \"trade remedies\" may be better targeted at the perceived problem. According to this report, the main problems appear to be in the trade figures for electrical machinery, machinery, and toys and sporting goods.\nFor those causes of the differences resulting from data compilation—such as misidentification of value or country of origin of imports—Congress may choose through oversight or other means to encourage the responsible U.S. agency to examine and adjust its procedures for compiling trade data. In addition, Congress may decide to press or otherwise encourage China's customs services to conduct a similar review of its trade compilation procedures. In other cases, more detailed analysis of the trade data may be helpful in persuading China to amend or alter its laws, regulations, and policies pertaining to the import or export of goods to the United States.",
"\"Accounting for Discrepancies in Bilateral Trade: The Case of China, Hong Kong, and the United States,\" by Michael J. Ferrantino and Zhi Wang, China Economic Review , vol. 19 (2008), pp. 502-520.\nAdjusted Estimates of United States-China Bilateral Trade Balances—An Update . K.C. Fung, Lawrence J. Lau and Yangyan Xiong. June 2006. Stanford Center for International Development, Working Paper No. 278.\nComparing Canada's and China's Bilateral Trade Data . China-Canada Joint Working Group on Trade Statistics Reconciliation. August 29, 2018.\nMethodology of U.S.-China-Hong Kong Triangular Merchandise Trade Statistic Reconciliation . Alexander Hammer, Lin Jones, and Zhi Wang. August 2013. Office of Economics Research Note, U.S. International Trade Commission, No. RN-2013-08A.\nReport on the Statistical Discrepancy of Merchandise Trade Between the United States and China, Report by the Joint Commission on Commerce and Trade Statistical Working Group, October 2009.\nThe Second Phase Report on the Statistical Discrepancy of Merchandise Trade between the United States and China , Report by the Joint Commission on Commerce and Trade Statistical Working Group, December 2012.\nStatistical Differences in Sino-US Trade Balance . February 12, 2007. China Online. http://chinaculture.about.com/library/china/whitepaper/blstrade2.htm .\nThe U.S.-China Bilateral Trade Balance: Its Size and Determinants . Robert C. Feenstra, Wen Hai, Wing T. Woo, and Shunli Yao. May 1998. Paper presented at the UNDP-HIID Conference on China's Integration in the Global Economy, January 17, 1998.\nThe U.S.-China Trade Imbalance: How Big Is It Really? Sarah Y. Tong. March 2005. China: An International Journal. Volume 3, No. 1, pp. 131-154."
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"question": [
"To what extent does the Sino-US trade deficit affect bilateral trade relations?",
"Why is the trade deficit a point of contention?",
"How does the Administration plan to approach the deficit?",
"How has the deficit affected the legislative process?",
"How does this report approach the trade deficit?",
"How does the report account for data discrepancies?",
"To what extent is the deficit due to any specific types of goods?",
"Of these, which goods were the source of the main difference?",
"How have both countries responded to the differences in trade data?",
"How has the group examined the discrepancies?",
"To what extent are the findings politically neutral?"
],
"summary": [
"The size of the U.S. bilateral trade deficit with China has been and continues to be an important issue in bilateral trade relations.",
"President Trump and some Members of Congress view the deficit as a sign of unfair economic policies in China.",
"The Trump Administration has reportedly asked China to develop a plan to reduce the bilateral trade deficit by $100 billion.",
"In the 116th Congress, the Fair Trade with China Enforcement Act (H.R. 704 and S. 2) and the United States Reciprocal Trade Act (H.R. 764) mention U.S. trade deficits as a reason for the proposed legislation.",
"This report examines the differences in the trade data from the two nations in two ways.",
"First, it compares the trade figures using the Harmonized Commodity Description and Coding System (Harmonized System) to discern any patterns in the discrepancies between the U.S. and Chinese data.",
"This comparison reveals that more than 94% of the difference in the value of China's exports to the United States in 2018 was attributable to five types of goods.",
"Those five types of goods, in order of the size of the discrepancy, were electrical machinery, machinery, toys and sporting goods, optical and medical equipment, and footwear.",
"In light of the differences in the official bilateral merchandise trade data, the U.S.-China Joint Commission on Commerce and Trade (JCCT) established a statistical working group in 2004.",
"The working group has released two reconciliation studies (in 2009 and 2012) to identify the causes of the statistical discrepancies.",
"The Working Group stated that the adjustments contained in the two studies are not meant to imply errors in the official statistics of either country."
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CRS_R43399
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{
"title": [
"",
"Introduction",
"U.S.-EU Vehicle Trade",
"How the United States and the EU Set Standards",
"Safety Standards",
"Evolution of U.S. Safety Standards",
"The U.S. Approval Process",
"EU Vehicle Safety Regulation",
"United Nations Agreement",
"EU Directives",
"The EU Approval Process",
"Emissions Standards",
"Evolution of U.S. Vehicle Emission Standards56",
"U.S. Vehicle Emission Standards and Implementation69",
"U.S. Certification and Test Procedures",
"EU Vehicle Emission Standards",
"History79",
"EU Vehicle Emission Standards and Implementation",
"EU Certification and Test Procedures",
"Comparison of U.S. and EU Vehicle Emission Standards",
"Fuel Economy and Greenhouse Gas Emission Standards",
"U.S. Standards Process",
"EU Standards Process",
"Comparison of U.S. and EU GHG and Fuel Economy Standards",
"The Role of Nongovernmental Organizations (NGOs)",
"Recent Efforts for Regulatory Convergence",
"Pathways to Convergence",
"Appendix. Detailed Comparison of U.S. and EU Vehicle Emissions Standards"
],
"paragraphs": [
"",
"In November 2011, President Obama and leaders of the European Union (EU) named a High Level Working Group on Jobs and Growth to recommend steps to broaden transatlantic economic ties. In its final report, issued in February 2013, the working group called for a new bilateral agreement to govern transatlantic trade and investment. Such an agreement, the working group urged, should provide for \"the promotion of more compatible approaches to current and future regulation and standard-setting and other means of reducing non-tariff barriers to trade.\"\nOne month later, President Obama notified Congress that the United States would enter into negotiations with the EU to seek a free trade agreement, referred to as the Transatlantic Trade and Investment Partnership (TTIP). The negotiations, the President wrote, would\nseek greater compatibility of U.S. and EU regulations and related standards development processes, with the objective of reducing costs associated with unnecessary regulatory differences and facilitating trade, inter alia by promoting transparency in the development and implementation of regulations and good regulatory practices, establishing mechanisms for future progress, and pursuing regulatory cooperation initiatives where appropriate.\nThe formal TTIP negotiations began in July 2013. Motor vehicle safety and emissions standards are areas where the United States and the EU could break new ground. Trade in vehicles and parts between the United States and the EU reached $57 billion in 2012, and numerous companies manufacture on both sides of the Atlantic. The major U.S. and European motor vehicle manufacturer associations have called for TTIP to provide for mutual recognition of existing technical standards and the creation of a U.S.-EU process for harmonization of future vehicle regulations. Such steps, an industry alliance has contended, would \"increase trade, lower costs, create jobs and improve the international competitiveness of the industry\" in both North America and Europe. The alliance estimates that current non-tariff barriers on vehicles are equivalent to a 26% tariff on vehicle imports. It projects that elimination of tariffs and just 10% of non-tariff barriers could raise U.S. vehicle and parts exports to the EU by over 200% and EU parts and vehicle exports to the United States by 71%.\nSafety, fuel efficiency, and emissions standards differ between the two regions (see Table 1 ), due to historical differences in producer and consumer preferences as well as the role of government in industry practices. The United States and the EU have different standards even for an item as simple as a seat belt. Some of these differences may reflect past efforts to protect domestic vehicle industries against foreign competition, and others may result from different legal traditions or divergent views as to the best way of achieving goals such as cleaner air and reduced oil consumption.\nPast auto agreements have been effective in leading to a more globalized auto industry. The 1965 motor vehicle agreement between the United States and Canada and the 1994 North American Free Trade Agreement (NAFTA) removed barriers to trade and cross-border trade in autos and established a more regional motor vehicle industry in the process. The Trans-Pacific Partnership, a separate negotiation involving the United States and 11 other Pacific Rim countries, could have a similar effect. With respect to the auto industry, TTIP represents another effort to extend these regional templates to encompass a greater share of trade and investment.",
"The EU and the United States are the second- and third-largest vehicle producers in the world (see Figure 1 ), together accounting for nearly one-third of global auto production. In 2012, the EU 27 produced more than the United States—16.2 million vehicles compared to 10.3 million. Sales in each region were about the same in 2012: 14.8 million vehicles sold in the United States and 14.3 million in the EU. The remainder of EU production was exported, much of it to the U.S. market.\nSeventeen of the EU member states manufacture vehicles. Germany is by far the largest auto producer within the EU (see Figure 2 ). The five top countries—Germany, Spain, France, United Kingdom and Czech Republic—manufacture more than 76% of all vehicles produced in the EU. In the United States, vehicles are manufactured in 15 states.\nUnlike some consumer goods, such as computers and apparel, most vehicles are sold in the region where they are produced because of local consumer preferences and vehicle standards. In 2012, imports constituted about 20% of U.S. sales, and about 17% of sales in the EU.\nIn some cases, a vehicle that is entirely legal in one country may not be sold in another due to differing fuel efficiency, safety, and emissions standards, unless the manufacturer is willing to make major investments to bring the vehicle into compliance. For example, Ford Motor Company's ECOnetic high-efficiency diesel engine, made in Great Britain, gets up to 71 miles per gallon (mpg) of fuel. This engine is not sold in North America because it does not comply with U.S. and Canadian emissions standards. Ford has determined that expanding its Mexican engine plant to make a redesigned version of the ECOnetic for North America would cost $350 million, and it does not believe consumer demand justifies the expenditure.\nIncreasingly, however, auto manufacturers and their parts suppliers have sought to organize their production on a global basis. The German automaker BMW, as an example, produces sport utility vehicles for markets worldwide from a plant in South Carolina. Greater commonality in regulation would make it easier for automakers and parts makers to coordinate production across major markets. This is consistent with individual companies' efforts to reduce costs with new design and production plans, such as the following:\nReducing platforms. Automakers are developing global vehicle platforms that will reduce the number of models sold around the world, while consolidating suppliers and cutting costs. For example, the new Jeep Cherokee and Dodge Dart are based on Fiat's Compact Wide platform. The Ford Focus was developed in Europe but is built with similar components in the United States, China, Germany, Russia, and Thailand and sold in 130 countries. Joining forces to meet tightening world emission standards. Many countries, including the United States, have adopted new standards that will be costly for manufacturers to meet. Automakers have responded by creating partnerships to develop more powerful batteries, multispeed transmissions, techniques to improve engine efficiency, and other technological advances. Along these lines, BMW and Toyota have agreed to jointly develop fuel cell technology. Growing U.S. interest in diesel-powered vehicles. About half of all the passenger cars sold in Europe have diesel engines, which are more efficient than gasoline engines and emit a lower level of some greenhouse gases. Many automakers believe that offering diesels (as well as higher-performing gasoline, electric, and hybrid vehicles) will be necessary to meet higher U.S. fuel efficiency and greenhouse gas emissions standards currently projected between now and 2025. Having similar standards for diesel engines in the two regions could reduce design and manufacturing costs.",
"The processes by which the United States and the EU establish vehicle safety, fuel efficiency, and emission standards have evolved in different ways. In the United States, private standards and state regulation prevailed until the 1960s and 1970s, when federal legislation was passed. Since then, Congress has delegated vehicle regulation to federal agencies, occasionally providing specific direction through legislation. In Europe, a system of governmental control over autos was more prevalent, first in each country and later through the EU. EU directives passed by the European Parliament have the force of regulations, thereby vesting the legislators with a more direct role in the regulatory process than is the case in the United States.",
"",
"In the early decades of the automobile, U.S. vehicles were lightly regulated by a combination of state and private sector standards. While one industry magazine called for national motor vehicle standards as early as 1902, it did so mainly to reassure would-be buyers of the structural integrity these new, little-understood machines. Writing about this era, one author noted that\nRegulating either driver conduct or vehicle design at the national level did not conform to existing political ideas about the appropriate federal division of responsibilities or to contemporary jurisprudential understandings of the federal government's constitutional power to regulate interstate commerce.... The only useful and politically acceptable action Congress might take was to help the states and localities construct more and better roads.\nThe Society of Automotive Engineers (SAE), a professional association founded in 1905, became the primary source of vehicle safety and emission rules for many decades. State governments often used SAE recommendations to enact requirements for vehicle equipment, such as dual brakes, headlamps, and windshield wipers. Other SAE standards were adopted directly by manufacturers.\nThe first step toward a nationwide system of vehicle regulation came in 1926, when a voluntary Uniform Vehicle Code was drafted to replace the many different state rules. Among other things, the code specified the types of lighting, reflectors, brakes, mirrors, and tires that cars should have. These ideas were widely accepted by the states: by 1946, 30 of the then 48 states (plus the District of Columbia) had adopted the Uniform Vehicle Code; 13 had implemented portions and only six had taken no action.\nWith the start of the Interstate Highway system in the 1950s, greater automobile travel, and rising highway deaths, the interest in vehicle safety grew. Between 1962 and 1964, Congress passed three safety bills into law, including a seat belt regulation. These laws set the stage for more ambitious legislation a few years later. For example, the legislation establishing safety requirements for federal fleet vehicles led to the promulgation of 17 standards by 1966, prompting some in Congress to question why similar standards did not apply to vehicles purchased by average consumers.\nThe most significant change in U.S. vehicle safety regulation came with the National Traffic and Motor Vehicle Safety Act of 1966. Senator Abraham Ribicoff, one of the advocates of the new legislation, said during floor debate that \"this problem is so vast that the Federal Government must have a role. It is obvious the 50 states cannot individually set standards for the automobiles that come into those 50 States from a mass production industry.\" Curtailing auto-related highway deaths was a major impetus.\nAs passed unanimously by both houses of Congress and signed by President Johnson, the legislation had two parts:\nthe Highway Safety Act of 1966 mandated that each state put in place a highway safety program in accordance with federal standards that would include improving driver performance, accident records systems and traffic control; and the National Traffic and Motor Vehicle Safety Act of 1966 directed the Secretary of Commerce (later changed to the Secretary of Transportation when that agency was established in 1967) to issue safety standards for all motor vehicles beginning in January 1967. A National Traffic Safety Agency was established to carry out the provisions; it was renamed the National Highway Traffic Safety Administration (NHTSA) in 1970.\nSenator Warren Magnuson, chairman of the Commerce Committee, argued that Congress was implementing a limited type of regulation, saying in his floor statement,\nThe committee also recognizes that the broad powers conferred upon the Secretary, while essential to achieve improved traffic safety, could be abused in such a manner as to have serious adverse effects on the automotive manufacturing industry. The committee is not empowering the Secretary to take over the design and manufacturing functions of private industry. The committee expects that the Secretary will act responsibly and in such a way as to achieve a substantial improvement in the safety characteristics of vehicles.",
"Since it was established, NHTSA has issued dozens of safety standards, and it maintains an extensive database on vehicle crashes. However, the agency neither approves motor vehicles or parts as complying with its standards nor collects information from manufacturers as to compliance. The law puts the onus for enforcement of federal standards on automakers themselves. It provides that \"A manufacturer or distributor of a motor vehicle or motor vehicle equipment shall certify to the distributor or dealer at delivery that the vehicle or equipment complies with applicable motor vehicle safety standards prescribed under this chapter.... Certification of a vehicle must be shown by a label or tag permanently fixed to the vehicle ...\"\nThe law also makes manufacturers responsible for testing of vehicles and liable for recalls and penalties if they are later found not to meet NHTSA's standards. After a new model is in the market, NHTSA buys vehicles from dealers and tests them at its own facilities to determine whether they comply with current standards. If NHTSA determines there is noncompliance, it can encourage the manufacturer to recall the model to correct the problem or can order a recall.",
"In contrast to the U.S. system of self-certification, the comparable EU vehicle system is based on government regulatory approval in advance of manufacturing.\nUntil the 1950s, European vehicle safety regulations developed separately in each country. Interest in harmonizing vehicle regulation emerged as part of the process of European economic integration. The European vehicle regulatory regime now includes both EU directives, which must be implemented by all member states, and standards promulgated through a United Nations (UN) organization, which may be implemented at the discretion of a national government.",
"In 1952, the United Nations (U.N.) established the Working Party on the Construction of Vehicles—known as Working Party 29 or WP. 29—a subsidiary body of the Inland Transport Committee of the United Nations Economic Commission for Europe (UNECE). The objective of WP.29 is to \"initiate and pursue actions aimed at the worldwide harmonization or development of technical regulations for vehicles.\" WP.29 administers a 1958 agreement on vehicle construction and two related agreements which were adopted by some European countries to promote EU-wide integration of vehicle design, construction and safety. UNECE standards deal with vehicle safety, environmental protection, fuel efficiency, and anti-theft performance.\nSignatories to the 1958 U.N. agreement commit to mutual recognition of approvals for vehicle components, so that a component approved for use in one signatory country will be automatically approved in all others. UNECE regulations do not cover the whole vehicle, only its parts. WP.29's voting members are limited to government representatives, but automakers, trade associations, and other nongovernmental organizations also participate in its meetings.\nThe United States did not sign the 1958 UNECE agreement because it would require mutual recognition of standards generated outside the United States. After U.S. self-certification began in 1967, the UNECE approach was seen as incompatible with the U.S. process. Because the United States remained outside of UNECE, many U.S.-made vehicles could not be exported to many countries without modifications.\nHowever, the United States did sign a 1998 UNECE agreement which establishes global technical regulations (GTRs), effectively transforming the U.N. body into an organization with a global approach now called the World Forum for Harmonization of Vehicle Regulations. It promulgates regulations affecting vehicle safety, environmental protection, energy efficiency, and anti-theft performance. Unlike the 1958 agreement, there is no requirement for type approval and mutual recognition of approvals. GTRs are issued in a UN Global Registry and contracting parties use their own regulatory process to implement them.",
"Alongside UNECE, the European Economy Community (renamed the European Community in 1993) and its successor, the EU, have sought to promote a single European market in motor vehicles. Tariffs on cars traded between member states were eliminated in 1968. In 1970, the European Community enacted a framework that laid the basis for vehicle approval harmonization across all member states.\nInitially, European working groups on vehicle safety issues based their work on U.S. standards and practice because the United States had established a federal safety program earlier. It has been suggested that one reason for the slow development of European standards (and hence reliance on the UNECE standards process) was that some European automakers \"preferred to limit the extension of standards to those that would create obstacles to the invasion of foreign vehicles into their national markets.\" Over time, the balance shifted to favor more similarity between U.S. and EU standards.",
"Since 1970, the EU has used the Whole Vehicle Type Approval system, under which production samples of new model cars must be approved by national government authorities prior to the vehicle entering the market. An automaker must submit the \"type\" of vehicle it intends to manufacture and sell to the proper authority in any country that is a signatory to the 1958 UNECE agreement. All EU member states enforce the EU standards. EU member states may choose which UNECE standards they wish to incorporate into their national regulations. Unlike the UNECE standards, the EU system applies to a complete vehicle, often taking into account the UNECE standards promulgated for specific auto parts.\nNearly every EU country has either a government agency or designated privately-owned test houses that conduct testing to ensure new models will meet all standards. Once formal approval is obtained, the automaker then issues a \"certificate of conformity\" for each vehicle manufactured, attesting that it conforms to the approved type. Once an EU member state approves a new vehicle, it can be marketed throughout the EU.\nThe EU agreed in 2007 that the UNECE regulations would be incorporated into the EU type-approval procedure. Legislative work at the EU level is led by European Commission's Directorate of Enterprise and Industry. Vehicle safety promotion is also pursued by the European Commission through initiatives such as DG Transport's EU road safety action program and DG Information and Society's E-safety and Intelligent Car initiatives.",
"",
"Programs to address air pollution in the United States originated in the first half of the twentieth century and were accelerated after World War II. A critical aspect of the air quality problem in urban areas has been ground-level ozone production, commonly referred to as \"smog.\"\nIndependent analysis in the mid-1950s identified the automobile as a key source of ground-level ozone. Research has since demonstrated that cars and other mobile sources are responsible for a variety of other air pollutants, including carbon monoxide (CO), hydrocarbons (HC), nitrogen oxides (NO x ), particulate matter (PM), air toxics, and greenhouse gases (GHG). Emissions of hydrocarbons and NO x from motor vehicles are responsible for contributing to the formation of ground-level ozone. Further, motor vehicles represent the largest domestic source of air toxics, or pollutants known or suspected to cause cancer or other serious health or environmental effects. Finally, vehicles have been determined to contribute approximately one quarter of domestic GHG emissions, which trap heat in the earth's atmosphere, contributing to global climate change.\nThe federal government first addressed air pollution in 1955 in the Federal Air Pollution Control Act, which provided funding to state and local governments to \"protect the primary responsibilities and rights of the state and local governments in controlling air pollution.\" In 1959, California became the first state to address pollution from cars with legislation directing the state Department of Public Health to establish air quality standards and necessary controls for motor vehicle emissions. Following California's lead, in 1960 Congress directed the Surgeon General to study the \"various substances discharged from the exhausts of motor vehicles.\"\nThis regulatory pattern continued throughout the 1960s, as California authorities established control requirements and the U.S. government followed suit a few years later. For example, California required the control of crankcase emissions in 1961and set the first HC and CO emissions regulations in 1964. The federal Motor Vehicle Air Pollution Control Act of 1965 adopted both the California crankcase and tailpipe emissions standards for 1968 model-year vehicles. This act engaged the federal government for the first time in the actual regulation of vehicle emissions.\nCongress's provision for national emissions standards was based primarily on testimonies by the Department of Health, Education, and Welfare (HEW) and the automotive industry about the potential problems that would be created for vehicle manufacturers by divergent state standards. Congress strengthened federal authority in 1967 by explicitly preempting states from adopting or enforcing new motor vehicle emission standards in the Air Quality Act of 1967. This preemption provision (with California as the sole exemption) remains in effect today as Section 209(a) of the Clean Air Act (CAA).",
"At present, the federal government manages vehicle emissions controls, although the state of California remains a major force in shaping national legislation and regulations. Emission standards for engines and vehicles, including emission standards for greenhouse gases, are currently established by the U.S. Environmental Protection Agency. EPA authority to regulate vehicle emissions—and air quality in general—is based on the Clean Air Act. As with safety regulations, the development of vehicle emission standards by EPA is in accordance with the federal rulemaking process. New regulations are first published as proposed rules, and following a period of public discussion may be withdrawn, approved, or amended before entering into force.\nCurrent EPA emissions standards for vehicles (referred to as \"Tier 2\" requirements) regulate CO, NO x , PM, and HC emissions. Under the Tier 2 regulation, the same emission standards apply to all vehicle weight categories, (i.e., cars, minivans, light-duty trucks, and SUVs have the same emission limit). Further, the same emission limits apply to all vehicles regardless of the fuel they use. While a number of U.S. states have a significant legal basis in advancing emissions regulations to aid in their attainment of National Ambient Air Quality Standards (NAAQS), California is the only state vested by the CAA with the authority to develop its own emission regulations if EPA grants the state a waiver. California emission standards are administered by the California Air Resources Board, a regulatory body within the California Environmental Protection Agency. The CAA allows other states a choice between implementing federal emission standards or adopting the California requirements.\nThe evolution of U.S. emission standards for light-duty, gasoline-fueled vehicles is traced in Table A-1 of the Appendix . \"Tier 2\" standards—the current regulatory regime—have been in place since 2004. EPA announced proposed Tier 3 standards on March 29, 2013. In addition to exhaust emission standards, U.S. regulations address many other emission-related issues.",
"Anyone wishing to sell an engine or vehicle within the United States must demonstrate compliance with the CAA and all applicable EPA regulations. This approval process differs from the self-certification used by NHTSA and is closer to the EU type approval system for safety and emissions regulations.\nOnce EPA sets emission standards for a particular engine and/or vehicle category, manufacturers must produce engines that meet those standards by a specified date. Conformity is determined under test procedures specified by EPA. The most common testing procedure used by EPA is the Federal Test Procedure, as mandated by the Energy Tax Act of 1978. Tests are based on the Urban Dynamometer Driving Schedule to reflect typical driving patterns (e.g., city, highway, aggressive, and use of air conditioning). Currently, EPA uses a three-tiered compliance strategy for light-duty vehicles: (1) pre-production evaluation to certify vehicles prior to sale; (2) a production evaluation on the assembly line for early evaluation of production vehicles, and (3) a final clearance applied to verify that properly maintained vehicles continue to meet the standards after several years of use.",
"",
"Environmental matters were not included in the EU's founding Treaty of Rome. Prior to the mid-1980s, UNECE produced regulations relating to safety, environmental protection, and energy efficiency. It was a common practice for EU member countries to adopt standards and regulations similar to those issued by UNECE, but each country retained authority to adjust the UNECE standards as it saw fit.\nThe member states signed the Single European Act (SEA) in 1985 with a goal of unifying the European market by 1992. Under the SEA, auto emissions regulations were harmonized across Europe in 1987. Initially, the harmonized standards were less strict than US standards. Similar to the 1970 U.S. Clean Air Act proviso for California, the SEA allows member states to enact measures more stringent than those enacted by the EU.",
"Vehicle exhaust emissions were regulated in Europe beginning in 1970. Directive 70/220/EEC covered CO, NO x , PM, and HC emissions from gasoline-fueled light-duty vehicles. In June 1991, the Council of Ministers of the European Council adopted the Consolidated Emissions Directive (commonly referred to as \"Euro 1\") which ushered in the current regulatory regime for vehicle emission standards in Europe. Current standards (referred to as \"Euro 5\") cover CO, NO x , PM, and HC emissions, and differentiate between gasoline and diesel vehicles. Euro 6 standards are scheduled to be implemented in September 2014 (strengthening NO x standards for diesel vehicles). The evolution of EU exhaust emission standards for light-duty, gasoline- and diesel-fueled vehicles is traced in Table A-2 of the Appendix .",
"Under the type approval process, emissions are currently tested using the New European Driving Cycle (NEDC) (ECE 15 + EUDC) chassis dynamometer procedure. Effective in 2000 with the Euro 3 standard, the test procedure was modified to eliminate the engine warm-up period before the beginning of emission sampling, bringing the test more in line with the U.S. Federal Test Procedure. Further, the Euro 5/6 implementing legislation introduced a new PM mass emission measurement method which is similar to the U.S. procedure introduced in 2007.",
"Vehicle emissions standards established by the EU and the United States are not directly comparable because of the differences in the testing procedures and approval processes.\nApproval Process . Both the European and the U.S. systems of compliance are based on a version of \"type approval.\" However, in the EU, emission standards only apply when the vehicle is produced (conformity of production). Once the vehicle leaves the factory and enters service, the manufacturer has no liability for its continued compliance with emission limits. Surveillance testing, mandatory emissions system warranties, recall campaigns, and other features of U.S. emissions regulation are not incorporated in the European regulatory structure. Test Procedure . A key difference between the EU and the United States is the test procedure, in particular the drive cycle that a car has to go through on a roller bench while the exhaust gas is being collected and analyzed. The EU uses the New European Drive Cycle (NEDC) and the United States uses the Federal Test Procedure (FTP). Differences between the two include distance, duration, and vehicle speed, as well as factors such as whether the vehicle must begin at a cold start or whether there is a warm-up period.\nIn terms of stringency—that is, the level of emission control technology required for compliance—some observers have noted that the European emission standards have historically lagged behind the U.S. standards. This lag may be attributed to the complex, consensus-based approach to standard setting originally used by UNECE and by the difficulty of obtaining agreement among so many individual countries. With the recent shift to decision procedures requiring less-than-unanimous agreement within the European Commission, it has been possible for the Commission to adopt more stringent emission standards. A comparison of current emissions standards for selected pollutants (including non-methane organic gases [NMOG], nitrogen oxides [NOx], and particulate matter [PM]) is shown in Figure 3 . For a more detailed survey of the standards in each region, see the Appendix .",
"",
"In the United States, establishing fuel economy standards is a function of direct statutory authority from Congress, with NHTSA administering the congressionally established standards.\nThe United States first issued vehicle fuel economy standards in response to the Organization of the Petroleum Exporting Countries (OPEC) oil embargo of 1973, which caused imported crude oil prices to rise by 300% in 1974. In the Energy Policy and Conservation Act of 1975 (EPCA), Congress established Corporate Average Fuel Economy (CAFE) standards for new passenger vehicles starting with model year (MY) 1978. From 1975 to 1988, the average fuel economy of new automobiles increased 81%, from 15.8 to 28.6 mpg. EPCA prohibited states from issuing their own fuel efficiency standards. Prior to 2007, NHTSA had very little authority to modify passenger car standards without congressional direction. However, under the Energy Independence and Security Act of 2007 (EISA) —which raised the fuel economy standards of passenger vehicles, light trucks, and sport utility vehicles to a combined average of at least 35 mpg by 2020—Congress granted NHTSA broader authority to establish and modify CAFE standards.\nThe most significant recent change in fuel economy standards took place outside of the previous channel of congressional action. In 2009, the Obama Administration, some state regulators, and the auto industry crafted a federal program to implement new light duty vehicle fuel efficiency standards linked to greenhouse gas (GHG) emission standards. This agreement grew out of the fuel efficiency standards passed by Congress in 2007, a Supreme Court decision confirming federal authority to regulate greenhouse gas emissions of vehicles under the CAA, and GHG emission standards enacted in California and subsequently adopted by 13 other states and the District of Columbia. The agreement enabled automakers to manufacture vehicles that are in compliance with both federal and state requirements under the Clean Air Act as well as the CAFE standards. The combined CAFE/GHG standards have made standard setting more complex, as NHTSA and EPA issue separate standards but act in concert.\nThe combined standards call for fleet-average passenger car and light truck GHG emissions of no more than 163 grams per mile by 2025. This translates to average fuel economy of 54.5 mpg. The CO 2 emissions target for any given vehicle depends on its track width (the horizontal distance between the tires) and its wheelbase (the distance from the front to the rear axles); no specific vehicle must meet a specific target, but a manufacturer's fleet average must be below the sales-weighted average of the targets. This measurement procedure allows heavier cars to have higher emissions than lighter cars while preserving the overall fleet average. As a result, each manufacturer will have its own fleet-wide standard which reflects the vehicles it chooses to produce. For a summary of the 2012 CAFE and GHG vehicle standards, see Table A-3 of the Appendix .\nThe regulation also includes a system of averaging, banking, and trading (ABT) of credits, based on a manufacturer's fleet average CO 2 performance. Credit trading is allowed among all vehicles a manufacturer produces, both cars and light trucks, as well as between companies. Further program flexibilities include Air Conditioning Improvement Credits, Advanced Technology Credits, Off-Cycle Innovative Technology Credits, Early Credits, and Flex-fuel and Alternative Fuel Vehicle Credits.\nCAFE and GHG emission certification is typically based on fuel economy and emission data provided by vehicle manufacturers after two laboratory test cycles dictated by EPA. This procedure is sometimes referred to as the EPA 2-cycle test. CAFE values—used to determine manufacturers' compliance with the average fuel economy standards—are generally higher than typical fuel efficiency in real-world operation or as published by the government or posted on new vehicles. This discrepancy reflects the fact that the EPA 2-cycle test is not wholly representative of vehicle operation patterns and technology as well as the fact that CAFE figures can include other credits and flexibilities.",
"The EU does not set fuel economy standards for vehicles directly in terms of fuel consumption for a given distance traveled. Instead, it sets standards for GHG emissions in terms of the mass of CO 2 , measured in grams, emitted from a vehicle's tailpipe per kilometer driven (g/km). These standards can be used to estimate fuel economy for vehicles sold in Europe.\nThe first carbon dioxide emission targets for new passenger cars in Europe were set in 1998-99 through voluntary agreements between the European Commission and the automotive industry. These agreements targeted fleet-average CO 2 emissions of 140 g/km by 2008-09. While significant CO 2 emission reductions were achieved in the initial years, after 2004 the manufacturers failed to meet their targets through voluntary actions. In response, the Commission developed a mandatory CO 2 emission reduction program, and CO 2 emission targets for new passenger cars were adopted in April 2009. The regulation established a fleet-average CO 2 emission target of 130 g/km by 2015 and defined a long-term target of 95 g CO 2 /km by 2020.\nThe standards include incentives for vehicles with CO 2 emissions below 50 g/km and for those running on a mixture of 85% ethanol (E85). Certain flexibilities are available for manufacturers, including credits for technology innovations, pooling between manufacturers, and exemptions for low-volume manufacturers. The regulations cover only CO 2 emissions; other greenhouse gases are not regulated. Emission limits are set according to the mass of vehicle using a fleet-average limit value curve. As with the other EU regulated vehicle emissions, CO 2 emissions are measured over the NEDC test cycle.",
"The United States regulates the fuel efficiency of each manufacturer's new-vehicle fleet through the CAFE standards, and separately imposes standards for GHG emissions from new mobile sources. The EU does not directly regulate vehicle fuel efficiency, although regulation of GHG emissions pushes manufacturers to achieve greater fuel efficiency.\nComparing vehicle GHG and/or fuel economy standards between the two regions is challenging because these standards differ greatly in structure, form, and underlying testing methods. For example, the EU and the U.S. test cycles differ in terms of average speed, duration, distance, acceleration and deceleration characteristics, and frequencies of starts and stops—all factors which significantly affect the data returned by the tests. Further, the U.S. standard regulates all the GHG emissions from the vehicle (e.g., CO 2 , NO x , CH 4 ) in terms of CO 2 -equivalents; the EU regulates only carbon dioxide emissions. Additionally, the EU sets fleet-average GHG emissions standards in relationship to the mass of a vehicle, whereas the United States sets fleet-average standards based on the vehicle \"footprint.\" Finally, the EU and United States use varying definitions of vehicle categories and weight classes, with proposed targets based on projected sales of vehicles in different size and/or weight classes within each region.\nIn general the EU GHG standards—and by extension, fuel economy standards—return a greater sales-based and fleet-wide emission reduction than those in the United States. Figure 4 represents an estimate of historical and projected fuel economy targets, adjusted for the factors outlined above.",
"In the United States and the EU, NGOs play a role in the setting of vehicle standards, including these entities:\nSociety of Automotive Engineers ( SAE ) remains involved in developing recommended standards for industry and has issued or updated about 2,000 motor vehicle standards in the past five years. Many address manufacturing processes, not auto safety or emissions. About 10% of NHTSA and EPA standards are based on work SAE has already done and, in those cases, NHTSA and EPA rules are based on the specific SAE standards. International Organization for Standardization (ISO) was founded in 1947 and develops voluntary international standards for many products and services. Standards are typically developed through negotiation in technical committees comprising representatives of many countries. ISO has developed nearly 20,000 standards across a range of industries. For example, a 2010 ISO standard addressed automotive crankshaft bearings. International Electrotechnical Commission (IEC) is a private organization founded in 1906 that develops and publishes international standards for electrical, electronic, and other related technologies. Its standards are voluntary and based on consensus among government, academic, industry, and consumer representatives. IEC standards related to motor vehicles concern charging system architecture, lithium batteries, and other aspects of electric vehicles.\nVarious other private-sector advocacy groups are engaged in identifying and publicizing new vehicle standards. In the United States, these include the Insurance Institute for Highway Safety, American National Standards Institute (ANSI), National Safety Council, the Center for Auto Safety, and Advocates for Highway and Auto Safety. In the EU, nonprofit groups such as the European Transport Safety Council and Transport & Environment participate in the EU standard-setting process.",
"European, U.S. and Japanese auto industry groups sought common regulatory ground in 1996, when they proposed that the United States, the EU, Japan, and UNECE harmonize regulation of five vehicle components, including windshield wipers, defoggers, and seat belt assemblies. They believed that these five components were functionally equivalent, although each was slightly different. The regulatory bodies did not agree to any changes, however, because the data-driven review process made it difficult to prove functional equivalency of even a standard component such as a seat belt.\nThis experience suggested that obtaining functional equivalency determinations from regulatory agencies might be difficult. An alternative approach was developed in the 1998 UN agreement on global technical regulations, which created a global registry of processes and common technical standards. This initiative, resulting in the creation of the World Forum for Harmonization of Vehicle Regulations, has resulted in agreement on only 13 global technical regulations to date.\nSimultaneously, there has been a transatlantic dialogue on autos since the mid-1990s through the U.S.-EU High-Level Regulatory Cooperation Forum. In 1995, President Clinton signed an action plan which sought to move the United States and Europe toward regulatory conformity and to encourage collaborative testing and certification. The 1996 TransAtlantic Automotive Industry Conference on International Regulatory Harmonization produced a report on the auto sector, including ten principles to guide steps toward convergence. NHTSA sent a report to Congress in April 1997 discussing potential harmonization of U.S. and European side impact standards. A similar bilateral regulatory initiative has been under way since 2011 with Canada.\nAn EU initiative, the Competitive Automotive Regulatory System for the 21s Century, or CARS 21, has also explored harmonization issues. A 2012 CARS 21 report recommended exploration of ways to bring about \"stronger internationalisation of the regulatory environment\" related to autos. In 2006, CARS 21 called for gradually replacing some EU laws with UN regulations, and more than 40 EU directives have been replaced with corresponding UN regulations since that time.",
"There are different ways in which the United States and the EU could address convergence of automotive regulations under TTIP. These include the following:\nH armonization of rules . Harmonization need not mean having identical rules in both regions. From the viewpoint of auto manufacturers, it means minimizing unnecessary differences in regulations so that a \"single vehicle standard can be built to satisfy all requirements.\" C omprehensive mutual recognition . This approach would permit automakers to sell vehicles in either market if they meet either a U.S. standard or a standard accepted in the EU. A car certified as compliant with U.S. safety, emission, and fuel efficiency standards would be accepted as compliant in the EU, and vice versa. This approach is how the EU certification process works. S elective mutual recognition . This approach would identify certain major standards for which TTIP could provide mutual recognition, rather than providing mutual recognition of all standards. U.S. and European automakers have identified occupant crash protection, side impact protection, child restraint systems, and some emissions standards as priorities for selective mutual recognition. F orward-looking rules . A fourth option would be to forge an agreement on emerging regulations, such as those dealing with electric and fuel cell vehicles, rather than focusing on existing regulations. Under this approach, the United States and the EU would commit to jointly develop standards covering new issues or technologies.\nThe pending free trade agreement between the EU and Canada may influence the direction of TTIP. The full text of the agreement has not been released, but according to an EU statement, \"Canada will recognise a list of EU car standards and will examine the recognition of further standards. This will make it much easier to export cars to Canada.\" The agreement is also said to allow Canadian vehicles to be certified in Canada for the EU market.\nConvergence of vehicle standards has potential drawbacks. One aspect pertains to the lack of speed with which governmental agencies—whether in the United States or Europe—can address new technologies and vehicle innovations. The rule-making process is already lengthy, and the need for international coordination could make it even longer. This raises the prospect that technologies that could reduce accidents—such as new types of headlamps that can illuminate the road better without blinding oncoming drivers—may be delayed in reaching the market. Additionally, the EU acknowledges that if vehicle standards become international, there could be less room for legislative scrutiny and for involvement by regional and national interest groups .\nU.S. consumer advocacy groups have raised similar concerns, writing U.S. and EU leaders in July 2013 that TTIP \"must not limit the United States or the EU (or its member states) from adopting and enforcing standards that provide higher levels of consumer, worker, and environmental protection.\"\nCongress could play an important role if a TTIP agreement contains significant provisions related to auto safety, emissions, and fuel economy regulations. Congress established the U.S. government agencies whose regulations are the focus of the negotiations on automobile standards, and it has retained a strong oversight interest in vehicle safety and emissions. If the TTIP effort to obtain mutual recognition or harmonization affects agencies' authority or changes the ways in which automotive regulations are developed and implemented, Congress may well be asked to modify the underlying statutes that govern motor vehicle safety, emissions, and fuel efficiency.",
"Emission Standards\nU.S. Vehicle Emission Standards and Implementation\nThe Clean Air Act Amendments (CAAA) of 1990 ( P.L. 101-549 ) established standards to limit tailpipe emissions from new motor vehicles effective in 1994. These Tier 1 standards applied to all new light-duty vehicles, such as passenger cars, light-duty trucks, sport utility vehicles (SUVs), minivans, and pick-up trucks, and covered the four major pollutants (CO, NO x , PM, and HC [subdivided as Total Hydrocarbons (THC) and Non-Methane Hydrocarbons (NMHC)]). Separate sets of standards were defined for each vehicle category, with more relaxed limits for heavier vehicles. The CAAA also required EPA to study the need for more stringent \"Tier 2\" emission standards. Subsequently, EPA promulgated \"Tier 2\" standards on February 10, 2000.\nThe Tier 2 regulations introduced more stringent numerical emission limits and a number of additional changes that tightened the standards for larger vehicles. Under the Tier 2 regulations, the same emission standards apply to all vehicle weight categories. Further, the same emission limits apply to all vehicles regardless of the fuel they use. Since light-duty emission standards are expressed in grams of pollutants per mile, vehicles with large engines (such light trucks or SUVs) were required to use more advanced emission control technologies than vehicles with smaller engines. To provide flexibility to vehicle manufacturers, the Tier 2 emission standards were structured into eight permanent and three temporary certification levels of different stringency, called \"certification bins.\" Manufacturers had a choice to certify particular vehicles to any of the available bins, but were required to meet a fleet-average requirement for NO x emissions in any given model year.\nU.S. emissions standards are shown in Table A-1 . (Note that Tables A-1 and A-2 are not strictly comparable because U.S. standards are based on grams per mile and EU standards are based on grams per kilometer.\nEU Vehicle Emission Standards and Implementation\nIn June 1991, the Council of Ministers of the European Council adopted the Consolidated Emissions Directive (commonly referred to as \"Euro 1\") under which exhaust emission standards for all passenger cars, including diesels, were certified. The Council of Ministers has since adopted several stricter revisions to the Euro 1 standards; and, in September of 2014, Euro 6 standards will be introduced.\nEU emission limits for each \"Euro\" stage are summarized in Table A-2 .\nFuel Economy and Greenhouse Gas Standards\nU.S. Fuel Economy and GHG Standards and Implementation\nThe 2012 CAFE and GHG vehicle standards call for combined passenger car and light truck greenhouse gas emissions of no more than 163 grams per mile by 2025. This translates into a 54.5 mile-per-gallon equivalent. The GHG standards are based on CO 2 emissions-footprint curves, where each vehicle has a different CO 2 emissions compliance target depending on its \"footprint\" value, related to the size of the vehicle—an approach first introduced in the reformed CAFE (2008-2011) standards for light trucks. Table A-3 shows the projected fleet-wide CO 2 emission and fuel economy requirements. The EPA CO 2 -equivalent fuel economy figures are different from the CAFE figures because the EPA allows additional CO 2 credits for air conditioning improvements and other flexibilities.\nIn addition to the fleet-average CO 2 emission targets, the rule also includes emission caps for tailpipe nitrous oxide and methane emissions (N 2 O: 0.010 g/mile and CH 4 : 0.030 g/mile). The regulation also includes a system of averaging, banking, and trading (ABT) of credits, based on a manufacturer's fleet average CO 2 performance. Credit trading is allowed among all vehicles a manufacturer produces, both cars and light trucks, as well as between companies.\nEU GHG Standards and Implementation\nThe EU does not issue fuel economy standards similar to the U.S. CAFE standards. As shown in Table A-4 , EU fleet-average CO 2 emission targets as required by EU Regulation (EC) No 443/2009 are 130 g/km to be reached by 2015 and a long-term target of 95 g/km to be reached by 2020."
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"question": [
"How has this Administration attempted to expand trade?",
"How does the Administration plan to do so?",
"What affect do motor vehicles have on the trade process?",
"How are regulatory processes changing to match this?",
"How else might the regulatory process be challenged?",
"How do EU and US safety standards differ?",
"To what extent are the rules regarding emissions similar?",
"How similar are the \"type approval\" systems for engines?",
"To what extent are fuel efficiency standards similar?",
"How could a TTIP agreement promote convergence of automobile regulation?",
"How can such an agreement be approved?",
"To what extent will the agreement modify existing statutes?"
],
"summary": [
"In March 2013, President Obama notified Congress that his Administration would seek a comprehensive Transatlantic Trade and Investment Partnership (TTIP) with the European Union (EU).",
"In addition to addressing tariffs and other trade restrictions, the negotiations seek to reduce regulatory barriers to transatlantic commerce.",
"Among the barriers under discussion are those affecting motor vehicles. Although many automakers build and sell cars in both regions, they must comply with very different safety, fuel economy, and emissions standards, as well as different regulatory processes.",
"TTIP negotiators are seeking to identify ways to narrow the regulatory differences, potentially reducing costs and spurring additional trade in vehicles.",
"The complexity of complying with different greenhouse gas emissions regulations is also a factor in the industry's support.",
"U.S. automakers self-certify that they are meeting U.S. vehicle standards. In Europe, vehicles must obtain \"type approval\" from a government before an automaker can bring out a new model.",
"While U.S. and EC rules address a similar range of pollutants, including carbon monoxide, nitrogen oxide, and non-methane organic oxides, allowable emissions levels in the EU are different from those in the United States—and they are stricter in more than a dozen U.S. states than in the other states.",
"The United States and the EU have similar \"type approval\" systems for new engine models.",
"Auto manufacturers selling in the United States must meet the Corporate Average Fuel Economy (CAFE) standards enforced by the National Highway Traffic Safety Administration (NHTSA). Under the Obama Administration, greenhouse gases (GHG) in vehicle emissions are being regulated for the first time, making fuel economy standard-setting a joint venture between NHTSA and EPA. The EU does not directly set fuel economy standards, but it effectively does so by regulating greenhouse gas emissions of new vehicles.",
"There are several different ways a TTIP agreement could promote convergence of automobile regulation, from harmonizing existing U.S. and EU rules to providing for mutual recognition of some or all automotive standards.",
"If a TTIP agreement is reached, it will be subject to congressional approval.",
"To the extent that such an agreement would require changes in motor vehicle regulatory processes or standards, it is possible that Congress will be asked to modify statutes that govern motor vehicle safety, emissions, and fuel economy."
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CRS_R43581
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{
"title": [
"",
"Background",
"Overview of Ex-Im Bank Policies",
"Financial Products",
"Direct Loans",
"Medium- and Long-Term Loan Guarantees",
"Working Capital Financing",
"Export Credit Insurance",
"Specialized Finance Products",
"Activity Level",
"Focus Areas",
"Authorizations of Credit and Insurance Support by Ex-Im Bank",
"Portfolio Exposure",
"Ex-Im Bank Budget20",
"Risk Management",
"Ex-Im Bank in an International Context",
"International Rules on Official Export Credit Activity",
"Growth in Unregulated Financing",
"Developments in International Export Credit Negotiations",
"Selected Issues for Congress",
"Status of Ex-Im Bank Authority",
"\"Clean Renewal\" or Renewal with Limited Changes",
"Renewal with Substantive Reforms",
"Lapse in Authority",
"Reorganization of Functions",
"Exposure Limit",
"Ex-Im Bank Policies",
"Content",
"Economic Impact Analysis",
"Environmental Policy",
"Shipping",
"Co-Financing",
"Tied Aid",
"Mandates Targeting Ex-Im Bank Activity to Specific Sectors",
"Risk Management and Financial Accounting",
"Effectiveness of International Rules on Government-Backed Export Credit Activity",
"Congressional Outlook",
"Appendix. International Government-Backed Export Credit Activity"
],
"paragraphs": [
"The Export-Import Bank of the United States (Ex-Im Bank or the Bank), a wholly owned U.S. government corporation, is the official export credit agency (ECA) of the United States. Its mission is to assist in the financing of U.S. exports of goods and services to support U.S. employment. Ex-Im Bank is among the federal government agencies involved in promoting U.S. exports of goods and services.\nIt operates under a general statutory charter, the Export-Import Bank Act of 1945, as amended (P.L. 79-173; 12 U.S.C. §635 et seq.). A FY2015 continuing resolution (§147 of P.L. 113-164 ) includes a provision extending Ex-Im Bank's authority through June 30, 2015. Ex-Im Bank previously was authorized through September 30, 2014 ( P.L. 112-122 ). The 114 th Congress may debate whether to renew Ex-Im Bank's authority and, if so, for how long and under what terms; and if not, the possibility of other policy options.\nThis report provides (1) a general background of Ex-Im Bank; (2) a discussion of the international context of the Bank; (3) analysis of key issues that Congress may consider in a reauthorization debate; and (4) the congressional outlook on Ex-Im Bank. Other CRS resources on Ex-Im Bank include CRS Report R43671, Export-Import Bank Reauthorization: Frequently Asked Questions , coordinated by [author name scrubbed]; CRS Report IF10017, Export-Import Bank (Ex-Im Bank) Reauthorization , by [author name scrubbed]; and CRS Report IF00039, Export-Import (Ex-Im) Bank and the Federal Budget (In Focus) (pdf), by [author name scrubbed].",
"On a demand-driven basis, Ex-Im Bank seeks to provide financing (1) when the private sector is unwilling, or unable, to undertake alone such financing at commercially viable terms; and/or (2) to meet foreign competition by countering government-backed financing offered by other countries to their companies. The rationales behind Ex-Im Bank's activities are subject to congressional debate.",
"Congress sets statutory requirements for Ex-Im Bank's activity in its charter (see Table 1 for summary). Under the charter, Ex-Im Bank's financing must offer a \"reasonable assurance of repayment\" and must supplement, not compete with, private sources of financing. The charter also includes other statutory requirements that serve as the basis for Ex-Im Bank's policies, for example, with respect to providing terms that are fully competitive with other ECAs, economic and environmental considerations, and focusing on supporting specific types of exports. Ex-Im Bank also abides by the Organization for Economic Co-operation and Development (OECD) Arrangement on Officially Supported Export Credits (the \"Arrangement\"), which establishes terms and conditions for the export credit agencies of the United States and other participants (discussed later).",
"Ex-Im Bank groups its financial products into four main categories: (1) direct loans; (2) loan guarantees; (3) working capital finance; and (4) export credit insurance. Its commitments and repayment periods can range from short-term (less than one year); to medium-term (one to seven years); to long-term (more than seven years). The Bank may determine repayment terms based on variables such as buyer, industry, and country conditions; common repayment terms that the market gives such products; terms of international rules on export credit activity; and the matching of terms offered by foreign ECAs. Ex-Im Bank, a demand-driven agency, charges interest, risk premia, and other fees for its services.",
"Ex-Im Bank provides direct loans to foreign buyers of U.S. goods and services, usually for U.S. capital equipment and services (see Figure 1 ). Direct loans have no minimum or maximum size, but generally involve amounts of more than $10 million. The Bank extends to the U.S. company's foreign customer a loan covering up to 85% of the U.S. contract value. Direct loans are available for medium- and long-term transactions, but most commonly are offered on a long-term basis. The direct loans carry fixed interest rates and generally are made at terms that are the most attractive allowed under the provisions of the OECD Arrangement. The specific rates charged by Ex-Im Bank are based on the Commercial Interest Reference Rates (CIRR).\nPrior to 1980, Ex-Im Bank's direct lending program was its chief financing vehicle. Both the budget authority requested by the Administration and the level approved by Congress for direct lending dropped sharply during the 1980s, reportedly as a target of budget cuts. In the past decade, demand for Ex-Im Bank direct loans has been limited, because commercial interest rates were low. According to the Bank, demand for direct loans increased significantly with the international financial crisis of 2008-2009, as banking problems limited the ability of commercial banks to originate export finance transactions at competitive rates.",
"Ex-Im Bank provides medium- and long-term guarantees of loans made by a lender to a foreign buyer of U.S. goods and services, promising to pay the lender, if the buyer defaults, the outstanding principal and accrued interest on the loan (see Figure 2 ).\nLoan guarantees are intended to cover repayment risk. Medium- and long-term loan guarantees are typically used to finance purchases of U.S. capital equipment and services. Unlike insurance (discussed below), loan guarantees are unconditional —representing Ex-Im Bank's commitment to a commercial bank for full repayment in the event of a default. There is no limit on the transaction size for a loan guarantee. Ex-Im Bank provides a guarantee of up to 85% or 100% of the U.S. content, whichever is lower, with a minimum 15% down payment required from the buyer. It provides coverage for 100% of the commercial and political risks of borrower repayment.",
"Ex-Im Bank's working capital program is intended to facilitate finance for businesses, primarily small businesses, which have exporting potential but need working capital funds (e.g., to buy raw materials or supplies) to produce or market their goods or services for export.\nWorking capital guarantees provide repayment guarantees to lenders (primarily commercial banks) on secured, short- and medium-term working capital loans made to qualified exporters. They can be for a single loan or a revolving line of credit, and typically are for one year, but can be extended to up to three years. Working capital guarantees cover up to 90% of the principal and interest on a loan made to an exporter by a private lender for export-related accounts receivables, and up to 75% for export-related inventory. Generally, each product must have more than 50% U.S. content based on all direct and indirect costs for eligibility. The interest rates for working capital loans guaranteed by Ex-Im Bank are set by the commercial lender. The working capital guarantees are secured by export-related accounts receivable and inventory (including work-in-process). The collateral requirement under the guaranteed loan to issue letters of credit is 25% of the face value of the letter of credit, compared with the standard 100% cash collateral generally required by the private sector. On a case-by-case basis, the letter of credit collateral requirement may be lowered to 10%.\nWorking capital loans are fixed-rate lines of credit to small business exporters of up to $500,000 for a 6-month or 12-month period.",
"Ex-Im Bank provides insurance policies to exporters and lenders to protect against losses of non-repayment for commercial and political reasons. Like loan guarantees, insurance is intended to reduce the risks involved in exporting by protecting against commercial or political uncertainty. However, in contrast, insurance is conditional on the fulfillment of various requirements for Ex-Im Bank to pay a claim (e.g., compliance with underwriting policies, deadlines for filing claims, payment of premiums and fees, and submission of proper documentation).\nThe Bank issues short-term insurance policies to U.S. exporters to reduce their risk of nonpayment by the foreign buyer. Insurance, for example, could allow the exporter to extend more competitive terms of credit to foreign buyers (see Figure 3 ) and/or provide additional working capital to increase the exporter's borrowing base. Short-term exporter insurance is available for products shipped from the United States and with at least 50% U.S. content (excluding mark-up). Ex-Im Bank offers a renewable one-year policy that generally covers up to 180-day terms, but can be extended up to 360 days for qualifying transactions. It also maintains short-term insurance policies for lenders. Depending on the policy, the Bank will cover 90%-95% of nonpayment losses due to commercial and political risks.\nEx-Im Bank can extend medium-term insurance, generally up to five years and with a maximum cover of $10 million, to both exporters and lenders, covering one or a series of shipments. The Bank will insure up to 85% of the contract price prior to delivery. If the foreign content is more than 15%, it will only support the U.S. portion. It requires the buyer to make cash payment to the exporter equal to 15% of the net U.S. contract value. It covers 100% of nonpayment due to commercial and political risk.",
"Ex-Im Bank's programs include specialized finance products, such as:\nproject finance, which is limited recourse finance to newly created companies, usually in amounts greater than $10 million. Project finance typically covers large, long-term infrastructure and industrial projects (e.g., airport construction, oil and gas power sector projects, wind turbines), involving multiple contracts for completion and operation. Sponsor support during construction, combined with the project's future cash flows, form the basis for the Bank's analysis of the creditworthiness of the project, as well as its source of repayment (rather than repayments by foreign governments, financial institutions, or established corporations). Repayment terms are generally up to 14 years, but can be up to 18 years for renewable energy projects. structured finance, which is finance to existing companies located overseas, based on their balance sheets and other sources of collateral or security enhancements. Through structured finance, Ex-Im Bank has financed fiber-optic cable, oil and gas projects, air traffic control systems, satellites, and manufacturing equipment. Repayment terms generally are for up to 10 years, but can be up to 12 years for power transactions. transportation finance , including for aircraft, ship, and railroad exports, based on the guidelines set by specific sector understanding under the OECD Arrangement.",
"",
"While Ex-Im Bank is a demand-driven agency, it has certain focus areas. Congress requires Ex-Im Bank to support certain types of exports, that is, exports by U.S. small businesses, U.S. exports related to renewable energy sources, and U.S. exports to sub-Saharan Africa. The Bank also seeks to support U.S. exports based on Administration goals and policy initiatives. For example, under the Obama Administration, Ex-Im Bank has been involved in efforts to boost U.S. exports worldwide as part of the National Export Initiative, as well as regional initiatives for sub-Saharan Africa and the Asia-Pacific region. Key focus areas for the Bank include the following.\nGeographical focus: The Bank is open to supporting buyers of U.S. exports in around 190 countries around the world. Congress has identified sub-Saharan Africa as a priority region. Countries subject to U.S. sanctions are ineligible for Ex-Im Bank support, as well as certain other countries, including those under the charter's current Marxist-Leninist prohibition. Sectoral focus: Ex-Im Bank has identified several industries with high potential for U.S. export growth: oil and gas, mining, agribusiness, renewable energy, medical equipment and services, construction equipment and services, aircraft, and power generation and related services. Infrastructure development in emerging economies is a major focus of the Bank's financing. Military or defense items, as well as sales to military buyers, generally are ineligible for support, with certain exceptions. Focus on specific types of exporters: Ex-Im Bank has a long-standing focus on supporting exports of U.S. small- and medium-sized enterprises (SMEs).",
"In the context of Ex-Im Bank's activities, its authorizations are the new commitments for credit and insurance that the agency approves each year. Ex-Im Bank authorized 3,746 transactions in the amount of $20.5 billion in FY2014, down from 3,842 transactions totaling $27.3 billion in FY2013 (see Figure 4 ). Following several years of record highs in authorizations since the 2008-2009 financial crisis, Ex-Im Bank's authorizations have declined over the past couple of years with improvements in the lending environment, among other factors. U.S. small businesses account for the majority of Ex-Im Bank's transactions by number (89% in FY2014), while larger companies represent the majority by dollar amount . Ex-Im Bank reported that almost 56% of its total authorizations for FY2014 supported infrastructure projects.\nEx-Im Bank has met its 20% small business target from Congress in some years, but has fallen short in other years, based on authorization amount (see Table 2 ). At the same time, small business transactions supported by the Bank constitute the majority of Ex-Im Bank's transactions by number. The Bank's support for renewable energy exports, while increasing, has been below the 10% target, possibly due, in part, to market limitations. Ex-Im Bank's support for sub-Saharan Africa also reflects an overall uptick in activity, compared to previous years. While the Bank seeks to support these export goals, its actual activity depends on alignment with commercial interests, as it is demand-driven.\nFor FY2014, Ex-Im Bank estimates that its authorizations of $20.5 billion are in support of $27.5 billion of U.S. exports and 164,000 U.S. jobs. Ex-Im Bank finances around 2% of U.S. exports annually, but possibly a higher percentage for certain sectors of the U.S. economy.",
"Ex-Im Bank's charter places a statutory limit on the aggregate amounts of loan, guarantees, and insurance that the Bank can have outstanding at any one time (oftentimes referred to as the Bank's exposure cap/ceiling/limit). The outstanding principal amount of all loans made, guaranteed, or insured by Ex-Im Bank is charged at the full value against the limitation.\nIn FY2014, Ex-Im Bank reported an exposure of $112.0 billion—below the $140 billion statutory cap for that year—distributed across financial products, geographic regions, and economic sectors (see Figure 5 ). This represents a decrease following recent years of record highs in Ex-Im Bank's exposure level. Prior years' growing levels of exposure were associated largely with increased demand for Ex-Im Bank's services during the financial crisis as commercial lending declined, as well as possibly greater demand in emerging markets for U.S. exports; increased usage of the Bank by key customers, such as those in the satellite sector; and greater Ex-Im Bank outreach.",
"As with other federal credit programs, beginning with FY1992, Ex-Im Bank's activities have been subject to the Federal Credit Reform Act of 1990 (FCRA, P.L. 101-508 ), which was intended to measure more accurately the cost of federal credit programs and to make the cost of such credit programs more comparable to direct federal outlays for budgetary purposes. For a given fiscal year, under FCRA, the cost of federal credit activities, including those of Ex-Im Bank, is reported on an accrual basis equivalent with other federal spending, rather than on a cash flow basis , as used previously. Under FCRA's rules, credit subsidy estimates are calculated by discounting them using the rates on U.S. Treasury securities with similar terms to maturity—which traditionally have been considered to be risk-free—and are below the rates of commercial loans.\nBetween 1992 and 2008, the Bank received direct appropriations for its administrative expenses and FCRA credit subsidy for those years in which the subsidy was estimated to be positive. Since 2008, Congress and the President gave the Bank permission to use its offsetting collections (e.g., interest, premia, and other fees charged for activities) to fund its administrative and program expenses and to retain a limited amount of any excess collections (\"carryover funds\") for a certain amount of time. The appropriations language stipulates that the receipts collected by Ex-Im Bank are credited as offsetting collections in the federal budget and are intended to cover the cost of the Bank's operations. Therefore, the offsetting collections are intended to reduce the appropriations from the General Fund to $0.\nAt the start of the fiscal year, the U.S. Treasury provides Ex-Im Bank with an \"appropriation warrant\" for operating costs and administrative expenses. The amount of the warrant is established by the spending limits set by Congress and agreed to by the President in the appropriations process. According to Ex-Im Bank, it uses these offsetting collections to repay the warrant. Thus, Ex-Im Bank initially receives funds from the U.S. Treasury and subsequently repays those funds as offsetting collections come in.\nIn addition, borrowings from the U.S. Treasury are used to finance medium- and long-term loans, and carry a fixed interest rate. Ex-Im Bank repays these borrowings primarily as repayments are received from recipients of its medium- and long-term loans.\nAs part of the annual appropriations process, Congress and the President set an upper limit on the level available to the Bank for its activities and provide a direct appropriation for its Office of Inspector General (OIG). FY2014 appropriations legislation set an upper limit of $115.5 million for Ex-Im Bank's administrative expenses and provided $5.1 million for the Bank's OIG (see Table 3 ). No additional appropriation was needed as the credit subsidy calculated under FRCA was estimated to be negative for FY2014. Congress also allowed carryover funds of up to $10 million to remain available until September 30, 2017. For FY2015, the Bank has an upper limit of $106.3 million for administrative expenses, funding of $5.8 million for the OIG, and up to $10 million in carryover authority until September 30, 2018.\nEx-Im Bank states that it contributes regularly to the U.S. Treasury. In FY2014, Ex-Im Bank reported transferring $674.7 million to the Treasury after covering operating expenses. This amount is on a cash basis, and is different than the amount calculated on a budgetary basis.",
"Ex-Im Bank seeks to manage the risks it faces in its transactions (see Table 4 ). Its charter requires a reasonable assurance of repayment for all transactions supported by the Bank and for the Bank to have reasonable provisions for losses. The Bank has a system in place to mitigate risks through credit underwriting and due diligence of potential transactions, as well as monitoring risks of current transactions. If a transaction has credit weaknesses, the Bank will try to restructure it to help prevent defaults and increase the likelihood of higher recoveries if the transaction does default. Ex-Im Bank also has a claims and recovery process for transactions in default. The effectiveness of Ex-Im Bank's risk management is subject to congressional debate (see discussion in \" Selected Issues for Congress \").\nEx-Im Bank's reserves for loan losses total more than $4 billion. The Bank reported a default rate of 0.175% as of September 2014, which it provides quarterly to Congress. According to a non-partisan Government Accountability Office (GAO) study, the ultimate impact of Ex-Im Bank's recent business on default rates is not yet known as it contains a large volume of transactions that have not reached their peak default periods. GAO also has stated that trends in Ex-Im Bank's default rate should be viewed with caution because of limitations in the agency's analysis of its financial performance.\nSince 1992, Ex-Im Bank has been able to recover 50 cents on the dollar on average for transactions in default. Backed by the U.S. government, Ex-Im Bank can take legal action against obligors for transactions in default. It is also able to recover assets because its loans are heavily collateralized, as a high percentage of its transactions are asset-backed (e.g., aircraft).",
"As international trade has grown, trade finance has expanded. Some 80%-90% of world trade relies on trade finance, and the global market for trade finance is estimated to be at around $10 trillion a year. In addition to financing through government-backed ECAs, the private sector also provides export financing, including through commercial backs, capital markets, lessors, and manufacturing self-financing. While the private sector is the leading source of export finance, ECAs are considered in the trade finance community to play an important role in certain niches. Most developed countries and many developing countries have ECAs. An estimated 60 ECAs exist worldwide.\nThe relative attractiveness of seeking export financing through the private sector, ECAs, or a combination of both can change depending on credit market conditions in the private sector, as well as how ECA financing terms may change or respond to these market conditions. The role of ECAs may be more prominent, in part, due to tight credit market conditions associated with the 2008-2009 international financial crisis and the regulatory impact of Basel III on commercial banks. Private lenders and insurers conduct the majority of short-term export financing, though ECAs may play an active role in supporting certain sectors, such as taking on risks of financing small business exports. ECAs also appear to be more heavily involved in longer-term export financing, including financing for complex, multi-billion dollar sales such as aircraft and infrastructure projects. In such sectors, the private sector plays an active role, but in certain cases, ECA support can help make transactions more commercially attractive by mitigating risks of financing or by providing another source of funding to diversify risks.",
"The Organization for Economic Co-operation and Development (OECD) Arrangement on Officially Supported Export Credits (the \"OECD Arrangement\") guides the scope of certain financing activities of Ex-Im Bank and other participating foreign ECAs (generally developed countries). The United States generally opposes subsidies for exports of commercial products. Since the 1970s, the United States has led efforts within the OECD to adopt international protocols which reduce the subsidy level in export credits by raising the interest rates on government-provided export credits to reflect market levels more closely.\nThe OECD Arrangement, which came into effect in April 1978, establishes minimum interest rates and premiums, maximum repayment terms, guidelines for classifying risk, and other terms and conditions for government-backed export financing. The Arrangement has been revised a number of times over the years. For example, participants agreed to tighten restrictions on the use of tied aid (see text box ). In addition, sector understandings govern the terms and conditions of exports of, for example, civilian aircraft, ships, nuclear power plants, renewable energy, and railway infrastructure.\nOECD member countries also have agreed to other guidelines for official export credit. For example, in 2007, members agreed to revise guidelines on environmental procedures, referred to as \"Common Approaches on Environment and Officially Supported Export Credits.\" These guidelines call for member governments to review projects for potential environmental impacts; to assess them against international standards, such as those of the World Bank; and to provide more public disclosure for environmentally sensitive projects. The OECD also adopted new guidelines on sustainable lending principles that aim to help developing countries avoid a renewed build-up of debt after receiving debt relief, as well as an anti-bribery agreement.\nExport credit financing that is covered by the OECD Arrangement generally is exempt from the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM), which disciplines the use of export subsidies and the actions countries can take to counter the effects of these subsidies. The SCM Agreement is interpreted to indicate that, for non-agricultural products, an export credit practice in conformity with the OECD Arrangement on export credits shall not be considered as an export subsidy prohibited by the SCM Agreement.",
"The OECD Arrangement does not cover all officially supported export credit activity. According to Ex-Im Bank, in 2013, traditional OECD export financing support represented 34% of total government-backed trade-related support (see Figure 7 ). Sources of government-backed export financing support that are unregulated by the OECD Arrangement are (1) emerging economies that are not a part of the OECD providing export financing through their ECAs; and (2) OECD members providing forms of export financing that are not regulated by the OECD Arrangement.\nEmerging markets such as China, Brazil, and India are not members of the OECD, but are increasingly active providers of government-backed export credit financing. In 2013, new medium- and long-term government-backed export financing conducted by the 34 members of the OECD as a whole stood at $97.9 billion, down about 22% from 2012 (see Figure 8 ; see Appendix for expanded data). U.S. new medium- and long-term support totaled $14.5 billion in 2013. In contrast, the combined new medium- and long-term financing provided by selected emerging markets was $55.4 billion, up a little over 10% from 2012. Notably, China alone accounted for at least $45 billion of such financing in 2013.\nThe government-backed export credit activities of these non-OECD countries may not comply with international export credit standards. China, Brazil, and India may offer below-market and concessionary financing alternatives with which it is difficult for ECAs of OECD members to compete (see text box ). For example, in 2011, Brazil's largest landline telephone company reportedly chose to purchase network equipment from China's Huawei Technologies because of access to China Development Bank's $30 billion credit line, a two-year grace period on payments, and an interest rate of two percentage points below the London interbank offered rate (LIBOR). Officially backed export credit activity by emerging economies may increase in strategic markets, such as oil and gas, renewable energy, and natural resources extraction. For instance, Chinese ECAs \"have shown strong signs of growing usage of export credits for export promotion purposes, especially in Africa, where they were offering preferential loans either in exchange for much needed resources (e.g., oil) or low cost loans on very extended repayment terms on projects in order to gain market share.\" In November 2013, the Export-Import Bank of China announced that Chinese state-owned banks would be providing about $1 trillion in financing through 2025 for transportation infrastructure projects in Africa.\nThe ECAs of OECD member countries also conduct export credit financing and other activities that fall outside of the Arrangement. One form of unregulated financing is the \"market window,\" which is a government-owned entity or program that offers export credits on market terms. Market windows generally do not operate on purely commercial terms, as they tend to receive benefits from their government status that commercial lenders cannot access. Many ECAs operate market windows, such as Canada, Germany, and Italy; Ex-Im Bank does not have a market window. It is difficult to obtain data on market window operations of foreign countries. Another form of unregulated financing is untied lending support, which is credit support extended by a government entity to a recipient for the purpose of providing credit for strategic interests of the donor country. Because the untied loan is not tied to exports, it is not subject to the OECD export credit guidelines.",
"As stated previously, the United States historically has led efforts to impose international disciplines on government-backed export credit activity. The 2012 Ex-Im Bank reauthorization act went further, directing the Secretary of the Treasury (which takes the lead on U.S. international export credit negotiations) to negotiate to reduce and eliminate government-backed ECA financing altogether. Congress also required the Secretary of the Treasury to negotiate with all countries that finance air carrier aircraft through funds from a state-sponsored entity to reduce and eliminate aircraft export credit financing for all aircraft covered by the 2007 OECD Aircraft Sector Understanding. These efforts reportedly have run into difficulty in the OECD. While exports play an important role in the U.S. economy, the economies of other countries are far more reliant on exports, constituting a larger share of their respective gross domestic product (GDP). Moreover, other OECD countries presumably would be reluctant to terminate their export credit programs while countries outside of the OECD, such as China, Brazil, and India, could continue their financing programs.\nSeparately, the United States and China announced that they would establish an International Working Group on Export Credits (IWG) to develop a new set of international guidelines for official export credit support. The IWG reportedly has met six times as of November 2014. Past discussion has included a focus on developing guidelines for the ships and medical equipment sectors, and future discussions may include a focus on developing horizontal, broadly applicable guidelines.",
"",
"Over time, Congress has debated the acceptability of federal support for U.S. exports, with the debate growing more complex as the global marketplace has become more competitive. Ex-Im Bank's authority has been extended through June 30, 2015, by the FY2015 continuing resolution (CR) (§147 of P.L. 113-164 ).\nAs Ex-Im Bank's new sunset date nears, Congress may take up consideration of Ex-Im Bank's authority. The Administration's legislative proposal submitted in April 2014 requested, among other things, an extension of Ex-Im Bank's authority through FY2019 and an incremental increase in its exposure to $160 billion by FY2018. Members of Congress hold a range of views regarding how to address the status of Ex-Im Bank's authority. In the 114 th Congress, legislation related to Ex-Im Bank reauthorization includes the following.\nH.R. 597 (Fincher) would extend Ex-Im Bank's authority through FY2019 and reduce its exposure cap to $130 billion. It also would provide for certain reforms, such as on ethics, fraud controls, requirements for applicants to demonstrate inability to obtain credit elsewhere, auditing, earnings retention for possible losses, risk sharing, and loan terms; negotiations with the possible goal of eliminating export credit financing; and negotiations with non-OECD members to bring those countries into a multilateral export credit agreement, among other provisions. H.R. 1031 (Waters) would extend Ex-Im Bank's authority through FY2022 and incrementally raise its exposure cap to $160 billion by FY2022, subject to certain conditions. It also would include certain reforms, such as on ethics, fraud controls, auditing, due diligence, and risk sharing; negotiations with non-OECD members to bring those countries into a multilateral export credit agreement; and identification of non-OECD Arrangement countries not in compliance with the WTO Agreement on Subsidies and Countervailing Measures, among other provisions. H.R. 1605 (Amash) would abolish Ex-Im Bank. It reportedly is the same as a bill introduced in the 113 th Congress ( H.R. 2263 ), which included specifications for Ex-Im Bank's wind-down. S. 819 (Kirk) would extend Ex-Im Bank's authority through FY2019 and reduce its exposure cap to $135 billion for each of FY2015-FY2019, subject to certain conditions. It also would include certain reforms, such as on loan loss reserves, fraud controls, ethics, risk management, auditing, the small business financing target, and loan terms; international negotiations with the possible goal of eliminating export credit financing; and negotiations with non-OECD members to bring those countries into a multilateral export credit agreement, among other provisions. S. 824 (Shaheen) would extend Ex-Im Bank's authority through FY2022 and incrementally raise its exposure cap to $160 billion by FY2022, subject to certain conditions. It also would include certain reforms, such as on the small business financing target, risk sharing, ethics, fraud controls, auditing, project monitoring, and due diligence; negotiations with non-OECD members to bring those countries into a multilateral export credit agreement; and identification of non-OECD Arrangement countries not in compliance with the WTO Agreement on Subsidies and Countervailing Measures, among other provisions.\nCertain policy options are discussed below.",
"Options for a renewal of Ex-Im Bank's charter include a \"clean reauthorization,\" extending its termination date, or reauthorization with limited changes, such as revising its exposure cap. Some Members of Congress have called for reauthorization of Ex-Im Bank in its current form—as an independent federal government agency that serves as the official ECA of the United States. Among those that favor a renewal of the Bank's charter, some may call for a \"clean reauthorization\" or renewal with limited changes, while others may support a reauthorization that includes certain reforms to the Bank, such as to its policies or risk management practices (see discussion below).\nProponents of Ex-Im Bank reauthorization hold that the Bank is critical in supporting U.S. jobs and U.S. exports by addressing market failures (such as imperfect information and barriers to entry) and leveling the playing field by countering foreign government-backed export financing activity. They say that U.S. government backing of Ex-Im Bank activity can make certain transactions (e.g., for large infrastructure projects or for small business exports) more commercially attractive by mitigating and diversifying risks, as well as provide the Bank leverage to guarantee repayment or recover assets in a way not available to the private sector.\nCritics of Ex-Im Bank may concede that the Bank's programs can help individual firms, but hold that its programs shift production among sectors within the economy and do not add permanently to the overall level of U.S. exports. They contend that the Bank competes with, or crowds out, private sector activity; the Bank picks \"winners and losers\" through its support and operates as a form of \"corporate welfare\"; poses a risk to taxpayers through its activities; and that the private sector is more efficient and better suited than the federal government to finance exports. Critics of the Bank also may call for intensified U.S. efforts through the OECD, as well as other venues, to eliminate all government-backed export credit activity internationally.\nAn issue related to renewal of Ex-Im Bank is the length of time to extend the Bank's authority. Shorter extensions of authority in the past arguably have given Congress the opportunity to weigh in on Ex-Im Bank operations more frequently through the lawmaking process, while a longer extension could enhance the Bank's long-term planning ability and provide more assurance to clients of its viability. The most recent stand-alone renewal of Ex-Im Bank's authority, which occurred in 2012, was for about two years and four months ( P.L. 112-122 ). Recent longer-term extensions have been around four to five years and, going further back in the Bank's history, as long as approximately six to seven years. Congress also has extended Ex-Im Bank's authority on a short-term basis, including provisions in continuing resolutions. For instance, the FY2015 continuing resolution ( P.L. 113-164 ), passed in the 113 th Congress, includes a provision extending Ex-Im Bank's authority through June 30, 2015.",
"Renewal of Ex-Im Bank's charter could include more substantive reforms, such as to its authorities, policies, and risk management practices (discussed further below). Such reforms could be motivated by a range of reasons, including enhancing Ex-Im Bank's ability to fill in gaps in private sector financing and offsetting competition from foreign ECAs; limiting the size and scope of its activities and its exposure to U.S. taxpayers; and furthering efforts to eliminate all ECA activity. Proposed reforms may raise, among other things, issues regarding the extent to which such changes would balance Ex-Im Bank's core mission to boost U.S. and jobs with supporting other policy interests.",
"Some Members of Congress support allowing Ex-Im Bank's authority to expire. Some may favor a temporary expiration until consensus is reached on certain reforms to require of the Bank, while others may call for a permanent expiration. Congress could allow Ex-Im Bank's authority to expire by taking no action, or alternatively, by passing legislation that, for instance, sets specific parameters for a wind-down in its functions. Uncertainty over whether Congress would renew Ex-Im Bank's authority in 2014 reportedly led, in some instances, to foreign buyers selecting other suppliers over U.S. suppliers for certain export contracts, out of concern about financing.\nGenerally speaking, according to Ex-Im Bank, if its authority were to lapse, no new commitments (including new loan, guarantee, or insurance transactions) could be approved by its Board of Directors or under delegated authority, but prior obligations (including disbursements on already-approved final commitments) could continue. The Bank could continue to make expenditures in its operations (including salary, rent, etc.), while developing a plan for orderly liquidation. It is unclear what form a liquidation plan would take. The primary statutory basis for Ex-Im Bank's activities under a lapse in authority is found in its charter in 12 U.S.C. §635f (see text box ).\nBeyond the specific impact of a lapse on Ex-Im Bank's day-to-day functions, there is broader debate about its implications for the U.S. economy in the long term, with stakeholders' positions based on their views of the validity of Ex-Im Bank's rationales, that is, to fill in gaps in private sector financing and offset competition from foreign ECAs. From one perspective, the absence of Ex-Im Bank financing could adversely affect particular U.S. firms or their employees that use Ex-Im Bank support in cases where they face difficulty accessing financing from the private sector at competitive terms. From another perspective, there are doubts over whether the absence of Ex-Im Bank support would affect the overall level of exports and employment in the United States. Given the various factors that affect U.S. export and employment levels, it may be difficult to determine the precise impact of the presence or absence of Ex-Im Bank financing on the U.S. economy in the long run.\nIn terms of competitiveness, supporters of the Bank argue that, without Ex-Im Bank financing, it may be difficult for certain U.S. companies to compete for export contracts on a \"level playing field\" with foreign competitors that receive support from their government-backed ECAs or may lead to U.S. sourcing in overseas markets. They argue that a lapse in Ex-Im Bank's authority would amount to \"unilateral disarmament,\" given continued operations by other countries of their ECA programs—for many of whom exports constitute a larger part of the national economy and ECAs are a core part of their national export strategies. Critics argue that allowing the Bank's authority to lapse would provide the United States with an opportunity to lead by example in efforts to eliminate government-backed ECA programs internationally, and enable the United States to focus on what they view as more effective ways to boost U.S. exports, such as through U.S. tax reform or the negotiation and enforcement of international trade agreements.",
"Reorganization of Ex-Im Bank's functions may be considered as an alternative to reauthorization or a lapse in authority. Motivations could include an interest in increasing the effectiveness and efficiency of government export promotion services, reducing their costs, and eliminating duplicative activities. Various reorganization proposals have been considered over time. These have included proposals to consolidate certain trade and export finance functions of various government agencies into a \"Department of Trade.\" In recent years, the reorganization debate has been renewed with President Obama's proposal in 2012 to reorganize the business- and trade-related functions of Ex-Im Bank and certain other federal entities into one department, a proposal reiterated in the President's FY2016 budget request.\nTrade reorganization discussions have rekindled policy debates about whether reorganization would reduce costs and improve the effectiveness of trade policy programs, or undermine the effectiveness of federal agencies, given their differing missions, and result in the creation of larger, more costly bureaucracy. While some stakeholders argue that consolidation of trade functions would result in more streamlined federal export assistance, others contend that it may result in federal services that are not responsive to the specific needs of certain exporter groups. Reorganization discussions also have renewed debates about whether overlap in services provided by federal government agencies constitutes duplication or the use of the same or similar tools to meet different goals.",
"If Congress decides to reauthorize Ex-Im Bank, it may consider whether to revise the Bank's exposure cap. When Congress established the Bank as an independent agency in 1945, it authorized a limit on the Bank's outstanding aggregate credit and insurance authority that was no greater than three and one-half times the Bank's authorized stock of $1 billion. Since then, Congress has periodically raised the Bank's exposure cap (see Table 5 ). The 2012 reauthorization act increased the Bank's exposure cap from the previous limitation of $100 billion incrementally to $140 billion in FY2014, with the increase in the exposure cap contingent on the Bank maintaining a default rate on payment obligations under its financing of less than 2% and on meeting various reporting requirements.\nSome stakeholders favor increasing Ex-Im Bank's exposure cap, based on the Bank's role in supporting U.S. exports. Others support maintaining or reducing the exposure cap, based on concerns over Ex-Im Bank's ability to prudentially manage its portfolio (see discussion below). The Administration's legislative proposal submitted in April 2014 to reauthorize the Bank requested an incremental increase of the Bank's exposure cap to $160 billion by FY2018. Legislation introduced in Congress has varied (see \" Status of Ex-Im Bank Authority \" section above).",
"Ex-Im Bank's policies could be part of the reauthorization debate. Congress could choose to pass a \"clean reauthorization\" that introduces no major changes to the Bank's policies. Proponents may argue that Congress has struck a fair balance among the various stakeholder interests—such as business and labor interests—in its present requirements of Ex-Im Bank and that adjustments to this balance are unwarranted. However, a number of long-standing debates concerning the Bank's policies remain. Should Congress consider revisions to Ex-Im Bank's policies, at issue is the extent to which potential changes would (1) balance Ex-Im Bank's core mission to boost U.S. exports and jobs with supporting other policy interests; and (2) compare to the policies of foreign ECAs, which may have different mandates and priorities, but nevertheless serve as competitors to Ex-Im Bank. Certain policies that may be debated are summarized below.",
"\"Content\" relates to the amount of domestic and foreign content (e.g., labor, materials, and overhead costs) associated with the production of an export. The OECD Arrangement contains no specific guidelines regarding content requirements. Each ECA generally establishes its own guidelines in this area. Ex-Im Bank's content policy is based on its congressional mandate to support U.S. jobs, viewing content to be \"a proxy to evidence support for U.S. jobs.\" The policy is intended to encourage U.S. companies to maximize their sourcing of U.S. content. However, Ex-Im Bank recognizes that U.S. export contracts may contain goods and services that are foreign-originated and allows financing support for such contracts, subject to certain restrictions and limitations. Under its content policy, for all medium- and long-term transactions, Ex-Im Bank limits its support to the lesser of (1) 85% of the value of all goods and services contained within a U.S. supply contract; or (2) 100% of the U.S. content of an export contract. Thus, if the foreign content exceeds 15%, the Bank's support would be reduced proportionally. For short-term export contracts, the U.S. content requirement for full Ex-Im Bank financing is generally 50%. In contrast to Ex-Im Bank, foreign ECAs generally have lower domestic content requirements, and some even have no domestic content requirements. ECAs of other countries have revised their content policies to reflect the changing nature of manufacturing, including the rise of global supply chains and the sourcing of inputs from multiple countries (see Table 6 ).\nIn the 2012 reauthorization legislation, Congress required Ex-Im Bank to review its domestic content policy for medium- and long-term transactions to \"examine and evaluate the effectiveness of the Bank's policy in maintaining and creating jobs in the [United States]; and in contributing to a stronger national economy through the export of goods and services\" by taking into account various factors, including U.S. employment considerations and competitiveness to foreign ECAs. Following the review, Ex-Im Bank announced certain policy updates. For example, in an effort to increase U.S. services exporters' access to its financing, Ex-Im Bank provided clarification on how its content policy determines the eligibility of a U.S. services provider and a U.S. services contract, as well as how foreign-developed technology and the tools or equipment used to execute a services contract are treated on a content basis. According to Ex-Im Bank, it made no changes to its underlying content policy with these clarifications.\nIn the past, some stakeholders have argued that the Bank's definition of national content does not take into account \"the high value U.S. jobs in R&D [research and development], supply chain management, software design engineering, business development, and marketing, IP [intellectual property] support, branding, and profit,\" which have been considered as limitations to U.S. service providers' ability to use Ex-Im Bank financing. On the one hand, given the proliferation of global supply chains and foreign ECA policies, U.S. exporters have called for greater flexibility in Ex-Im Bank's content policy. For example, industry proposals have included recommendations that Ex-Im Bank lower its domestic content requirement, such as to 50% (the policy for short-term financing); match the average among OECD countries; adopt a policy similar to the European Union ECAs and \"automatically cover non-U.S. content for U.S. FTA [free trade agreement] partners who offer reciprocity for U.S. content under their export credit agencies\"; or expand the definition of domestic content to include, for instance, R&D or other elements that support high-value additions to the U.S. economy. On the other hand, labor groups tend to be concerned about the impact that lowering domestic content requirements may have on employment in the home country. From their point of view, reducing these requirements may result in an outsourcing of labor to other countries. Others counter that the current requirements may induce firms to use other ECAs for alternative sources of financing, which may cause them to shift production overseas.",
"Ex-Im Bank is required to have regulations and procedures to insure that full consideration is given to the extent that any loan or guarantee is likely to have an adverse effect on U.S. industries and U.S. employment. These regulations and procedures are in support of the congressional policy that, in authorizing any loan or guarantee, the Board of Directors must take into account any serious adverse effect of such loan or guarantee. Furthermore, the Bank is prohibited from extending any loan or guarantee that would establish or expand the production of any commodity for export by any other country if the commodity is likely to be in surplus on world markets or the resulting production capacity will compete with U.S. production of a similar commodity and will cause \"substantial injury\" to U.S. producers of a similar commodity. The Bank defines risk of substantial injury as the extension of a loan or guarantee that will enable a foreign buyer to establish or expand foreign production by an amount that is equal to or greater than 1% of U.S. production. The same prohibition applies to loans or guarantees subject to U.S. trade measures, such as anti-dumping or countervailing duties. However, these prohibitions do not apply if the Board of Directors determines that the proposed transaction's short- and long-term benefits to U.S. industry and U.S. employment are likely to outweigh the injury to U.S. producers and U.S. employment of similar commodities.\nLike Ex-Im Bank, other G-7 ECAs have a broad mandate to support transactions that benefit their domestic economy, and base their decision to provide support on economic impact. However, in contrast to foreign ECAs, Ex-Im Bank is required by law to use an economic impact analysis to assess each transaction for potential adverse impact on U.S. industry, which can lead to a denial of financing.\nAmong the key issues in the 2012 reauthorization debate was whether Ex-Im Bank's economic impact analysis sufficiently analyzes the potential impacts to U.S. industry of Ex-Im Bank transactions, including downstream effects. The 2012 reauthorization act required Ex-Im Bank to develop and make publicly available methodological guidelines to be used by the Bank in conducting economic impact analyses. In April 2013, Ex-Im Bank published revised economic impact analysis procedures and guidelines, including for aircraft exports.\nSupporters of Ex-Im Bank maintain that the economic impact analysis requirements ensure that the Bank meets its congressional mandate. At the same time, some U.S. exporters are concerned that the economic impact policies may be overly burdensome, detract from its core mission to support U.S. exports and jobs, and not be competitive to the policies of other ECAs. Other critics continue to be concerned that the economic impact policy does not adequately take into account downstream effects of Ex-Im Bank support.",
"Ex-Im Bank's charter authorizes the Bank to grant or withhold financing support after taking into account the potential beneficial and adverse environmental effects of goods and services for which Ex-Im Bank direct lending and guarantee support is requested. The Bank must conduct an environmental review of all transactions greater than $10 million. Recent developments in Ex-Im Bank's environmental policies related to high-carbon projects, including support for exports for coal-fired power plants, have been subject to congressional action (see text box ). According to Ex-Im Bank, its Environmental and Social Due Diligence Procedures and Guidelines, Supplemental High Carbon Guidelines, and public disclosure requirements (e.g., tracking and publishing greenhouse gas emission data associated with projects) have expanded over time and remain more comprehensive than those of other OECD ECAs. In addition, Ex-Im Bank faces competition from ECAs outside of the OECD, such as China, which tend to be less rigorous in their environmental requirements for financing than OECD countries.\nSupporters of Ex-Im Bank's environmental policy argue that the Bank must balance U.S. exporting interests with environmental policy considerations, per its mandate. However, some U.S. exporters are concerned that Ex-Im Bank's environmental impact policies may be overly burdensome and detract from its core mission to support U.S. exports and jobs. From this standpoint, situations in which Ex-Im Bank denies financing for projects that do not meet environmental requirements are contrary to its mission because it may result in lost export and employment opportunities.",
"Ex-Im Bank's seaborne shipping policy is based on Public Resolution 17 (PR-17, approved March 26, 1934, by the 73 rd Congress), whose purpose is to \"support the U.S. strategic objective of maintaining a merchant marine sufficient to carry a substantial portion of its waterborne export and import foreign commerce.\" Under the shipping policy, most products supported by the Ex-Im Bank must be transported exclusively on U.S. vessels (e.g., direct loans of any amount, guarantees above $20 million, and products with repayment periods of more than seven years). Under limited conditions, a waiver on this requirement may be granted on a case-by-case basis by the U.S. Maritime Administration (MARAD).\nSupporters contend that maintaining U.S. flag vessels is \"critical to U.S. national security\" and \"essential to maintaining a commercial U.S.-flag merchant marine.\" They argue that, from a budgetary standpoint, cargo preference is a \"highly cost efficient way\" to support a privately owned U.S.-flag commercial fleet. Because the goods will be shipped regardless of which ship carries them, and therefore the cost will be incurred regardless, \"requiring that some of the cargoes be shipped on U.S.-flag vessels leverages that basic transportation expense to provide other benefits to the nation at a fraction of direct cost purchase.\" The concern under this view is that otherwise, the U.S. government would have to \"duplicate sealift capacity at enormous expense with government-owned vessels.\" These merchant U.S.-flag vessels are then available to transport U.S. troops and military equipment. Proponents also argue that the cargo preference requirements help to support the U.S. shipping industry and the employment of shipboard crew.\nCritics of the shipping policy argue that \"both U.S. strategic requirements and the global shipping market have changed dramatically.\" U.S. business groups contend that the shipping requirements can make U.S. goods less competitive relative to foreign goods for a host of reasons. While one or more countries used to have similar shipping requirements in the past, the United States appears to be the only country that continues to impose such requirements. There may also be capacity constraints because there are a limited number of U.S. bulk cargo carriers. According to lenders and exporters, the higher rates and the route scheduling challenges associated with shipping with U.S.-flagged vessels can make it difficult for them to use Ex-Im Bank support. In addition, some businesses express concern about processing time and outcomes.",
"Ex-Im Bank introduced the co-financing program in 2001. Co-financing arrangements enable export credit financing from multiple ECAs. They allow goods and services from two or more countries to be marketed to a buyer under a single ECA financing package. According to U.S. exporters and lenders, co-financing arrangements allow Ex-Im Bank to participate with other ECAs on the non-U.S. content portion of an export contract. Otherwise, Ex-Im Bank would be limited to supporting the U.S. portion of the export contract and, from this view, the U.S. exporter may not win the sale because the ECA supported portion was insufficient or the terms and conditions were disadvantageous. In 2013, Ex-Im Bank conducted 51 co-financed transactions. According to the Bank, 99% of the volume, approximately $5 billion, involved some type of aircraft, with the exception of a medical equipment sale and a power transaction. The Bank states that, in most aircraft transactions, without co-financing, the exporter would not have been able to offer the maximum 85% support to its customers in one financing package.\nFollowing a review of its content policy, Ex-Im Bank announced changes to its co-financing arrangements. Under the revised co-financing policy, the Bank is willing to co-finance export contracts with a range of ECAs, if the proposed transaction complies with its statutory and policy requirements and benefits the U.S. economy. Some stakeholders call for more flexibility in Ex-Im Bank's co-financing arrangements.",
"Some U.S. exporters and lenders believe that Ex-Im Bank's tied aid policies may place them at a competitive disadvantage. U.S. exporters have expressed concern that increased tied aid activity by other countries, coupled with the more flexible tied aid rules of other ECAs, has threatened certain U.S. exporter sales prospects. Some groups argue that the tied aid war chest funds should be increased and that the Bank should have more flexibility and authority in initiating tied aid to compete with foreign ECAs for export contracts, rather than limiting its use to a defensive tool. In some cases, it may be difficult for exporters and lenders to make a case for receiving matching support to counter foreign tied aid competition, because of challenges in \"obtaining credible evidence of case-specific financing terms from non-OECD ECA competitors.\"",
"Congressional mandates that require the Bank to focus support on specific exports may raise a number of questions, including the following.\nShould Congress mandate that Ex-Im Bank seek to finance specific types of exports? On one hand, congressional mandates may enable Ex-Im Bank to support strategic, high-growth U.S. economic sectors; U.S. exporters that may need the financing assistance the most (e.g., small businesses); and sectors where federal support can make the most difference (e.g., for renewable energy exports that rely on newer forms of technology and for which commercial banks may be unwilling to provide financing on their own because of actual or perceived risks). On the other hand, such targeted forms of export assistance may be viewed as a mechanism whereby the federal government determines \"winners and losers\" in the market, and, from this standpoint, may lead to economic distortions and harm other productive U.S. firms. Although such requirements give Congress a greater role in guiding Ex-Im Bank's activities, under this view, they may obscure the Bank's core mandate to support U.S. exports and employment.\nTo what extent has Ex-Im Bank fulfilled congressional mandates? Given the demand-driven nature of Ex-Im Bank activities, congressional mandates for Ex-Im Bank to support particular types of U.S. exports can be viewed as statutory \"targets.\" Ex-Im Bank can make financing available for certain purposes, but the actual composition of its financing portfolio depends on commercial interest and demand. Ex-Im Bank has met its 20% small business target from Congress in some years, but fallen short in other years. The Bank's support for renewable energy exports has been below the 10% target, possibly due, in part, to market limitations. Ex-Im Bank's support for sub-Saharan Africa reflects an overall uptick in activity. Notwithstanding Ex-Im Bank's demand-driven nature and market limitations, some stakeholders express concern that Ex-Im Bank's prioritization of activities, allocation of resources, policies, and operations (e.g., application process and approval system) may limit its ability to consistently meet its congressional mandates to support specific exports.\nWhat is the appropriate measure of success? Debates over whether Ex-Im Bank is fulfilling its congressional mandates often have centered on small businesses. Some stakeholders may argue that the focus on the dollar value of Ex-Im Bank support to small businesses is misleading, because larger corporations naturally conduct business requiring greater amounts of support. In addition, the data may not reflect all of the small businesses who benefit from Ex-Im Bank services through their role in the supply chain, such as by supplying parts and services to larger companies that are the direct beneficiaries of Ex-Im Bank financing, or by operating at sub-levels of the supply chain and serving as \"suppliers to the suppliers.\" Others express concern over the amount of Ex-Im Bank financing, by dollar value, that has been directed to large U.S. corporations that they believe are capable of shouldering the risks of exporting to developing countries. For instance, some have criticized the fact that Boeing Corporation, a U.S. aerospace company, historically has been the single largest beneficiary of its support. In addition, some critics do not make a distinction between large and small business support, remaining opposed to taxpayer funds being directed toward private benefits.",
"Congressional concern in Ex-Im Bank's financial soundness and risk management has been longstanding. U.S. taxpayer interests are implicated by Ex-Im Bank because its activities are backed by the full faith and credit of U.S. government and its exposure levels have grown. Such dynamics draw attention to Ex-Im Bank's financial soundness and risk management practices.\nThe 2012 reauthorization act, among other things, required Ex-Im Bank to monitor its default rate, report it on a quarterly basis to Congress, and develop a plan to reduce the default rate if it equals or exceeds 2% (sometimes called \"the 2% rule\"). Pursuant to the 2012 reauthorization act, GAO published reports in March 2013 and May 2013 that reviewed Ex-Im Bank's risk management and reporting practices. GAO found that Ex-Im Bank is moving toward a more comprehensive risk management framework and has made certain improvements over time, including enhancing credit loss modeling with qualitative factors. At the same time, GAO considered further improvement to Ex-Im Bank's risk management practices necessary and provided recommendations to Ex-Im Bank to addressing remaining weaknesses. Ex-Im Bank reported accepting all of GAO's recommendations. To date, according to GAO, Ex-Im Bank has addressed recommendations in the areas of collecting data for estimating losses of transactions; managing financial risks through stress testing and monitoring default rates of sub-portfolios; and forecasting exposure levels. Ex-Im Bank has begun addressing other GAO recommendations regarding its workload and associated operational risks.\nThe Bank also notes other changes it has made in recent years, including appointing a Chief Risk Officer in 2013 to ensure prudential risk management, as well as establishing an Enterprise Risk Committee, modernizing its credit monitoring, creating a Special Assets unit to address emerging credit issues, expanding pro-active monitoring efforts, and improving underwriting criteria.\nAt the same time, debate continues over Ex-Im Bank's risk management and accounting practices, with key questions including the following.\nDoes Ex-Im Bank manage its risk adequately and balance it properly with other considerations ? Supporters of Ex-Im Bank contend that the Bank has adequate systems and staffing in place to manage its risk and poses low risk to U.S. taxpayers. They argue that the Bank has a strong risk management mandate under its charter, which requires the Bank's transactions to have a \"reasonable assurance of repayment\" and for the Bank to have reasonable provisions for losses. They further note Ex-Im Bank's low default rate and high recovery rate. Critics hold that there are weaknesses in the Bank's risk governance and question the methodology used to calculate Ex-Im Bank's expected losses and contributions to the Treasury. They express concern that the Bank's growing exposure and concentrations in that exposure, such as in aircraft, pose a risk to U.S. taxpayers and the federal budget, and point to certain findings in studies by the GAO and Ex-Im Bank's own Office of Inspector General (OIG) over time.\nOther stakeholders caution that the Bank may be becoming too risk-averse. Of particular interest has been heightened credit standards (e.g., higher collateral requirements) introduced by Ex-Im Bank for its medium-term program, whose default rate is higher than that of Ex-Im Bank's overall portfolio. These tighter standards have been associated with a decrease in Ex-Im Bank medium-term lending in recent years, and have raised concerns about the appropriate balance in Ex-Im Bank's risk management with its overall mandate to support U.S. exports.\nDoes Ex-Im Bank have adequate human capital to prudentially manage its growing portfolio? Supporters contend that the Bank, with around 400 full-time equivalents in FY2014, is effective and efficient, and that in areas where weaknesses in risk management have been identified, the Bank is taking corrective measures, such as increasing resources devoted to due diligence and asset monitoring. Critics argue that the Bank does not have enough expertise devoted to underwriting and due diligence. They point to an assertion by Ex-Im Bank's OIG in 2012 that, \"Ex-Im Bank's current risk management framework and governance structure are not commensurate with the size, scope, and strategic ambitions of the institution.\"\nIs the cost of federal credit by Ex-Im Bank appropriately priced? Some stakeholders argue that rules under the Federal Credit Reform Act (FCRA) may understate the cost of loan programs managed by federal credit agencies, and express interest in moving to a fair value system of accounting. As previously noted, under FCRA's rules, budget estimates are calculated by discounting them using the rates on U.S. Treasury securities with similar terms to maturity—which traditionally have been considered risk-free—and are below rates on commercial loans. In contrast, fair value accounting would factor in the market risk, which the non-partisan Congressional Budget Office (CBO) says \"provides a more comprehensive measure of federal costs.\" CBO estimated that between FY2015 and FY2024, Ex-Im Bank's activities would generate a negative subsidy of $14 billion under FCRA (i.e., budgetary savings), but would generate $2 billion in positive subsidy during this period on a fair value basis (i.e., budgetary costs). However, some stakeholders question CBO's assumptions, including for risk, and assert that CBO's assumptions overlook Ex-Im Bank's actual record, for example, in terms of its contributions to the U.S. Treasury and low default rate.",
"Stakeholders have debated whether the OECD Arrangement on Officially Supported Export Credits is effective in leveling the playing field for exporters in the current trading environment. According to the Office of the U.S. Trade Representative (USTR), the OECD Arrangement has saved U.S. taxpayers about $800 million annually, with its minimum interest rate rules limiting subsidized export financing and reducing competition based on below-cost interest rates and long repayment terms by ECAs, and its minimum exposure fees for country risks also reducing costs. The USTR also states that the further leveling of the playing field created by the OECD tied aid disciplines has boosted U.S. exports by $1 billion a year.\nAt the same time, questions about the OECD Arrangement's effectiveness are growing, particularly with the increasing official export credit activity of non-OECD members such as China, Brazil, and India. To the extent that the ECAs of these non-OECD countries provide financing on terms that are more advantageous than those under the OECD Arrangement, Ex-Im Bank and other OECD export credit agencies may find it difficult to compete with such export credit programs. Concerns about the effectiveness of the OECD Arrangement are further heightened due to unregulated financing being conducted by OECD member countries, such as through market windows, which are not subject to the Arrangement.\nTo address concerns about the OECD Arrangement, one possible approach is to focus on strengthening the international disciplines guiding ECA activity. For example, Congress could direct the United States to encourage greater engagement by the OECD with non-OECD emerging market economies on official export credit activity; negotiate rules in the OECD that limit government-backed export credit financing in other developed countries; or pursue a greater role for the World Trade Organization (WTO) in disciplining international ECA activity. On one hand, such efforts may help to level the playing field for U.S. exporters by reducing trade-distorting export credit competition and associated economic losses. On the other hand, changes to the international export credit rules, if achieved, may be slow to materialize, given the complex nature of multilateral and plurilateral negotiations. In addition, developing high-standard, comprehensive rules that cover both developed and developing countries may be a challenge.\nRather than strengthening international rules, another possible approach is to renew efforts by the U.S. Treasury to negotiate to eliminate all government-backed export financing internationally. This perspective often is found with critics of Ex-Im Bank, while supporters of the Bank contend that even if all countries agree to eliminate government-backed export credit activity, there would still be a need for Ex-Im Bank to fill in gaps in private sector financing due to market failures.",
"In recent years, discussion of whether to reauthorize Ex-Im Bank, revise its exposure cap, and make policy and operational adjustments to it, among other issues, has dovetailed with debates about the agency's role in supporting U.S. exports and the appropriate size and scope of the U.S. government. The changing export finance landscape, including the 2008-2009 international financial crisis and the growth of government-backed export financing being conducted by emerging markets, as well as increased questions about Ex-Im Bank's financial soundness and risk management, have intensified congressional interest in Ex-Im Bank. Many of these issues may be focal points in any Ex-Im Bank reauthorization debate in the 114 th Congress.",
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"question": [
"Who operates the official export credit agency of the United States?",
"How does the Export-Import Bank fulfill its obligations?",
"How does the Export-Import Bank maintain its status as the official export credit agency?",
"How certain is the Bank's continuing status as the official ECA?",
"How does the Ex-Im Bank influence billions of dollars worth of transactions in exports?",
"How does this influence compare to its statutory cap?",
"How does the Ex-Im Bank maintain an appropriate level of risk?",
"How has the Bank's risk management played out historically?",
"How does Congress generally view Ex-Im Bank?",
"How do proponents argue that the Bank supports US exports?",
"How do critics believe the Bank is an inefficient use of taxpayer funds?",
"How does Congress assess the Bank's authority?",
"How might Congress alter the Bank in its renewal?"
],
"summary": [
"The Export-Import Bank of the United States (Ex-Im Bank or the Bank), a wholly owned U.S. government corporation, is the official export credit agency (ECA) of the United States.",
"Its mission is to assist in the financing of U.S. exports of goods and services to support U.S. employment.",
"The FY2015 continuing resolution (§147 of P.L. 113-164) extends its general statutory charter (Export-Import Bank Act of 1945, as amended, 12 U.S.C. §635 et seq.) through June 30, 2015.",
"The 114th Congress may debate whether to renew Ex-Im Bank's authority; if so, for how long and under what terms; and if not, other policy alternatives.",
"In FY2014, Ex-Im Bank reported authorizing about $20.5 billion for 3,746 transactions of finance and insurance, to support an estimated $27.5 billion in U.S. exports of goods and services and 164,000 U.S. jobs.",
"Its overall portfolio exposure level in FY2014 was $112 billion—below the $140 billion statutory cap for that year.",
"Ex-Im Bank assesses credit and other risks of proposed transactions, monitors current commitments for risks, and maintains reserves against potential losses.",
"It reported a default rate of 0.175% as of September 2014 (provided quarterly to Congress) and, since 1992, an average recovery rate of 50% for transactions in default.",
"Members of Congress hold a range of views on Ex-Im Bank.",
"Proponents assert that the Bank supports U.S. exports by addressing market failures that dampen export levels and helping U.S. exporters compete against foreign companies backed by their governments' ECAs.",
"Critics oppose the use of taxpayer funds for private benefit, whether for large or small businesses, and contend that the private sector is more efficient in financing exports.",
"The first issue is whether to renew Ex-Im Bank's authority.",
"Scenarios include renewal in a \"clean\" manner or with reforms; a sunset in authority; and a reorganization of its functions."
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{
"title": [
"",
"Introduction",
"What Is the Federal Health Center Program?",
"Statutory Authority and General Requirements9",
"Location Requirements",
"Fee Schedule Requirements",
"Medicaid Coordination and Reimbursement Requirements",
"Governance Requirements",
"Health Service Requirements",
"Reporting and Quality Assurance Requirements",
"Licensing and Accreditation Requirements",
"Grants that Support Federal Health Centers",
"Types of Grants Available to Support Health Centers",
"Grant Eligibility and Awarding Criteria",
"What Is the Health Center Program's Appropriation?",
"",
"What Are the Other Sources of Funding for the Health Center Program?",
"What Are Health Centers?",
"What Types of Health Centers Exist?",
"Community Health Centers",
"Health Centers for the Homeless",
"Health Centers for Residents of Public Housing",
"Migrant Health Centers",
"Comparison of Health Center Types",
"Who Uses Health Centers?",
"What Outcomes Are Associated with Health Center Use?",
"Health Outcomes",
"Cost Outcomes",
"Access to Health Care",
"Quality",
"Which Federal Programs Are Available to Health Centers?",
"National Health Service Corps Providers",
"J-1 Visa Waivers",
"Federally Qualified Health Center Designation95",
"340B Drug Pricing Program100",
"Vaccines for Children Program102",
"Federal Torts Claims Act Coverage",
"Ryan White HIV/AIDS Treatment Grants107",
"Other Federal Grant Programs108",
"Issues for Congress",
"Health Centers and Health Insurance Expansion in the ACA",
"Health Centers and Medicaid Expansion",
"Health Centers and ACA Private Insurance Expansions",
"Health Center Workforce",
"National Health Service Corps Providers",
"Teaching Health Centers",
"Financial Considerations",
"Health Center Appropriations and the Community Health Center Fund",
"Health Center Appropriations and the Budget Control Act",
"Health Center Funding and ACA Care Coordination Initiatives",
"Health Center Funding and State Funding Availability162",
"Health Centers and Cost of Electronic Health Records165",
"Concluding Observations"
],
"paragraphs": [
"",
"The federal health center program awards grants to support health centers: outpatient primary care facilities that provide care to primarily low-income individuals. The program is administered by the Health Resources and Services Administration (HRSA)—specifically by its Bureau of Primary Care—within the Department of Health and Human Services (HHS). The federal health center program is authorized in Section 330 of the Public Health Service Act (PHSA) and supports four types of health centers: (1) community health centers; (2) health centers for the homeless; (3) health centers for residents of public housing; and (4) migrant health centers.\nAccording to HRSA data, over 9,400 unique health center sites (i.e., individual health center facility locations) exist; the majority are community health centers (CHCs). CHCs serve the general low income or otherwise disadvantaged population, whereas the remaining three types of health centers provide care to more targeted low income or otherwise disadvantaged populations (e.g., migrant health workers). Regardless of type, health centers are required, by statute, to provide health care to all individuals regardless of their ability to pay and are required to be located in geographic areas that have few health care providers. These requirements make health centers part of the health safety net—providers that serve the uninsured, the underserved, or those enrolled in Medicaid. Data compiled by HRSA demonstrate that health centers serve the intended safety net population as the majority of patients are uninsured or enrolled in Medicaid.\nThis report provides an overview of the federal health center program including its statutory authority, program requirements, and appropriation levels. The report then describes health centers in general, where they are located, their patient population, and some outcomes associated with health center use. It also describes the federal programs available to assist health center operations including the federally qualified health center (FQHC) designation for Medicare and Medicaid payments. The report concludes with a brief discussion of issues for Congress such as the potential effects of the Patient Protection and Affordable Care Act of 2010 (ACA) on health centers (both the program and individual health centers), the health center workforce, and financial considerations for health centers in the context of changing federal and state budgets. Finally, the report has two appendices that describe (1) FQHC payments for Medicare and Medicaid beneficiaries served at health centers; and (2) programs that are similar to health centers but not authorized in Section 330 of the PHSA.",
"The federal health center program awards grants to support outpatient primary care facilities that provide care to primarily low income individuals. The program is authorized in Section 330 of the PHSA, which also includes definitions of the four types of health centers and program requirements. This section of the report describes the statutory authority for the federal health center program (also called the health center program), program requirements, types of grants awarded in support of the health center program, the health center program's appropriation, and other funding/revenue that health centers receive.",
"Section 330 of the PHSA authorizes grants for health centers and includes the requirements for entities to receive a health center grant. Section 330 requires health centers to provide services to the entire population of their service area regardless of ability to pay. Health centers are also required to document the health needs of the residents in their service area and to update their service area if needed. Health center grantees must (1) be located in specific geographic areas, (2) have an established fee schedule that meets certain requirements, (3) collect reimbursements for individuals enrolled in public or private insurance programs, (4) have appropriate governance, (5) offer specific health services, (6) meet certain reporting and quality assurance requirements, and (7) license providers and seek accreditation. HRSA is required to determine whether health center grantees meet these requirements; the Government Accountability Office (GAO) raised some concerns that the agency may not be providing sufficient oversight of the program and that some health centers may not be meeting these requirements. This report does not evaluate whether health centers meet program requirements; rather, it describes the program's requirements.",
"PHSA Section 330 requires that a health center be located in an area that is designated as medically underserved or as serving a population designated as \"Medically Underserved\" (see text box ).",
"Health centers must establish their own fee schedules that take into account local rates for health services and the costs that the health center incurs providing services. The health center is then required to establish a separate discounted fee schedule, which is then further discounted or waived based on a patient's ability to pay. Ability to pay is determined by the patient's income relative to the federal poverty level. The statute requires that individuals whose income is above 200% of the federal poverty level pay full charges, while individuals whose incomes are at, or below, 100% of the federal poverty level pay only nominal fees.",
"Health centers are required to coordinate with state Medicaid and CHIP plans to provide services to beneficiaries enrolled in these programs. They are also required to seek reimbursement from third party payers such as private insurance plans, Medicare, Medicaid, and CHIP. Health centers are further required to have systems to obtain reimbursements including those used for billing, credit, and collections. These collections provide nearly two-thirds of the health center program's revenue (see Table 4 ).\nAlthough health centers collect reimbursements, GAO found that Medicare payments did not cover the full cost of health center services in nearly two-thirds of the visits they examined. Similarly, the National Association of Community Health Centers (NACHC)—the advocacy group for health centers—reports that the amount received in reimbursements is not sufficient to cover the cost of the health services provided. They found that Medicaid reimbursements covered 81% of the cost of providing services, while Medicare and private insurance reimbursements cover approximately two-thirds. The NACHC also found that the PHSA Section 330 grant amount received per uninsured patient—$312—was less than half the average health center cost per patient of $654.",
"Health centers are required to have a governing board that is primarily made up of health center patients. The governing board provides input on center operational issues including the center's budget, operating hours, management, and oversight. It is required to meet monthly, and must approve the center's director and must approve grant applications submitted by the center.",
"Health centers are required to provide primary care services (as defined in Section 330 of the PHSA and discussed below) and may also provide behavioral health services, case management, and specialty care services. This report section discusses the required services, as well as certain optional services, and then presents some data on services provided at health centers in 2012 (see Table 1 ).\nHealth centers are required to provide primary health services and preventive and emergency health services. In addition to these three types of services (primary, preventive, and emergency), health centers must provide diabetes self-management training for patients with diabetes or renal disease. Primary health services are those provided by physicians or physician extenders (physicians' assistants, nurse clinicians, and nurse practitioners) to diagnose, treat, or refer patients. Primary health services include relevant diagnostic laboratory and radiology services. Preventive health services include well-child care, prenatal and postpartum care, immunization, family planning, health education, and preventive dental care. Emergency health services refer to the requirement that health centers have defined arrangements with outside providers for emergent cases that the center is not equipped to treat and for after-hours care.\nHealth center providers must also have admitting privileges at one or more hospitals located near the health center. This requirement is intended to ensure care continuity for hospitalized health center patients. In instances where a health center physician does not have admitting privileges at a nearby hospital, the health center is required to establish other arrangements to ensure care continuity.\nHealth centers are also required to provide enabling services such as transportation for individuals residing in each center's service area who have difficulty accessing the center, translation services, and health education. Health centers may also provide supplemental services such as additional dental care, mental health services, or substance abuse treatment. Table 1 identifies some specific services tracked in the Uniform Data System (UDS) 2012, the HRSA- required health center grantee reporting system.",
"Health centers are required to report to HRSA certain information and to have quality improvement and assurance plans in place. First, health centers are required to report patient demographics, services provided, staffing information, utilization rates, costs, and revenue to HRSA's UDS. Second, within the UDS, health centers must report on certain clinical outcomes to assess quality. These outcomes are similar to those examined in other health care settings. They include, for example, the percentage of children receiving recommended immunizations by the age of two, the percentage of women who were screened for cervical cancer, and the percentage of patients whose body mass index was assessed and who were referred to appropriate services if found to be obese. Finally, health centers are required to have quality improvement systems in place that include clinical services, management, and patient confidentiality assurances. To meet this requirement, health centers must have a clinical director who reports on quality improvement and assurance activities and conducts periodic assessments of the health center's services to evaluate the quality and appropriateness of services provided. The HHS Inspector General found that more than two-thirds of the health centers they examined conducted quality assessments. HHS has also awarded grants to health centers to implement quality initiatives such as care coordination through mechanisms like medical homes.",
"Health center providers must be properly licensed in the state in which they practice. They must also have admitting privileges at hospitals that health center patients would likely be referred to (see \" Health Service Requirements \"). Furthermore, they must maintain proper credentials during their health center employment.\nHealth centers are not required to be accredited by a national accreditation agency, but HRSA encourages health centers to seek accreditation. Specifically, the agency encourages health centers to seek accreditation from either the Accreditation Association for Ambulatory Health Care (AAHC) or The Joint Commission (TJC). HRSA pays some of the costs of seeking and maintaining accreditation from one of these two accrediting entities.",
"HRSA awards five types of Section 330 authorized grants to support health centers: (1) grants for new health centers; (2) grants to expand services at existing health centers; (3) grants for construction and renovation; (4) planning grants; and (5) grants to reduce infant mortality. This section describes these types of grants, the entities that are eligible to receive grants, and the factors taken into consideration when awarding grants.",
"Five types of grants support health centers. New Access Point (NAP) grants permit existing grantees to establish new sites or new grantees to establish new health centers. ACA funds were used to support these grants in FY2013. Increased Demand for Services (IDS) or Expanded Service (ES) grants are for health centers to expand the number of patients they serve or to provide additional types of services. The Capital Improvement Program (CIP) provides funding for the construction and renovation of health centers. These grants were supported with ARRA appropriated funds and with ACA appropriated funds in FY2011 and FY2012. The fourth type of grants is for entities that are not health centers, to plan and develop health centers. Funds awarded may be used for assessing the health needs of the proposed service population and developing linkages with the community and with health providers in the proposed service area. ACA funds supported these grants in FY2011. The fifth grant program supports activities that aim to reduce infant mortality. These grants have not been awarded in recent years; instead, HRSA supports other infant mortality reduction programs.",
"Public and non-profit entities are eligible to apply for Section 330 grants to operate health centers. The majority of health center grantees operate facilities at more than one site and some operate more than one type of health center. Grants are awarded competitively based on an assessment of the need for services in a given area and the merit of the application submitted. Grants may also be awarded based on certain funding priorities such as creating a rural-urban balance in health center locations. Under statute, HRSA must allocate certain percentages of the health center program's budget to grants that support health centers serving special populations (migrant workers, the homeless, residents of public housing). Specifically, the health center program's budget must be allocated as follows:\nat least 8.6% for grants to centers serving migrant or farmworkers, at least 8.7% for grants to centers serving homeless individuals, and at least 1.2% for grants to centers serving residents of public housing.\nA health center may be of more than one type, for example, a community health center may also operate a migrant health center, but must devote at least 25% of its HRSA grant funding to migrants to be considered to be serving a \"special population.\" In addition to these funding requirements, HRSA is also required to give special consideration, within the competitive grant process, to applications for centers that would serve sparsely populated areas, defined as areas with seven or fewer residents per square mile. GAO found that in order to ensure that these percentages are met, HRSA may adjust funding criteria, thereby funding some applications that may not have scored as high in the competitive process.\nGrant recipients are not required to provide matching funds, but are required to use grant funds to supplement and not supplant funding that had been available prior to the grant. Grant amounts awarded are determined based on the cost of proposed grant activity (see Table 2 ). An entity may receive funding for multi-year projects, but amounts awarded in subsequent years are contingent on (1) congressional appropriations and (2) the entity's compliance with applicable statutory, regulatory, and reporting requirements. At the end of the application period, health centers are required to compete for continued funding.",
"The health center program's appropriation has increased over the past decade, resulting in the establishment of more centers and the ability to serve more patients. From FY2004 through FY2014 (the last year of final appropriation information available), the health center appropriation increased by 119%, from $1.6 billion to $3.5 billion. Over this same time period, the number of health center sites also increased. Beginning in 2002, the George W. Bush Administration began a multi-year effort to expand the health center program by providing funding for new or expanded health centers for 1,200 communities. The program's expansion has continued during the Obama Administration. In FY2009, under the Obama Administration, the health center program received $2 billion under the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5 ). Specifically, ARRA provided $500 million for new sites and expanded services at existing sites. It also provided $1.5 billion for construction, renovation, equipment, and health information technology. The program's expansion may continue under the Patient Protection and Affordable Care Act of 2010 (ACA). ACA, which permanently authorized the health center program, appropriated a total of $1.5 billion for health center construction and repair, and created the Community Health Center Fund (CHCF), which included a total of $9.5 billion for health center operations to be appropriated in FY2011 through FY2015. However, it is not likely that these funds will be used to expand the health center program because in FY2011, FY2012, FY2013, and FY2014, these funds were or will be used to augment reductions to discretionary appropriations to the health center program. The ACA also appropriated funding for health centers to train medical residents and provided funding for care coordination initiatives. Although the program's appropriations increased by 119% since FY2004, the additional appropriated funds have generally been used to expand the number of centers—which increased by 152% —while funding awarded to individual centers increased less rapidly over the time period.\nTable 3 presents the health center program's appropriations from FY2004 through the FY2015 President's budget request. The table also includes amounts appropriated under ARRA and the ACA and the number of grantees in each fiscal year.",
"",
"In addition to amounts received from grants authorized under the program's annual appropriation (i.e., Section 330 grants), health centers receive funding from reimbursements and funding from other sources (e.g., state and local grants). The relative contribution of each of these sources to an individual health center's budget varies by center. However, HRSA compiles this information for the health center program. Table 4 presents data for FY2013, the most recent year of final data available. Medicaid is the largest source of health center revenue (38.5%) and Section 330 grants provide 18.2% of the program's revenue. Amounts received from grants and contracts from state, local, and private foundations provided 16.9% of the program's total revenue in FY2013. (See Table 4 .)",
"This section describes health center facilities funded under the health center program appropriation. It includes a discussion of the four types of health centers funded and compares the services offered and populations served by each center type. The section also describes where health centers are located and outcomes associated with health center use.",
"Four types of health centers exist: (1) community health centers; (2) health centers for the homeless; (3) health centers for residents of public housing; and (4) migrant health centers. The majority of health centers are community health centers (CHCs), which serve a generally underserved population. The other three types of health centers serve more targeted populations. Below describes each type of health center, the population targeted by these centers, and the specific services that each type of center must provide.",
"The majority of health centers are CHCs because these facilities serve the general population with limited access to health care. CHCs are required to serve all residents who reside in the area that the CHC serves (this is also known as the catchment area). CHCs are required to provide \"primary health services\" (see \" Health Service Requirements \"). The CHC-required services are the baseline services that all types of health centers are required to provide. The other three types of health centers may be required to provide certain supplemental services that aim to meet the specific needs of the population they serve. The majority of health center program grant funding is allocated to support CHCs. By statute, 18.5% of the budget must be reserved for grants that support health centers serving special populations; this means that a maximum of 81.5% of the health center program budget may be used to support CHCs.",
"Health Centers for the Homeless (HCHs) provide services to homeless individuals; it is the only federal health program that targets this generally uninsured population. Section 330 defines homeless individuals as those who lack permanent housing or live in temporary facilities or transitional housing. In addition to the services required of all health centers, HCHs are required to provide substance abuse services and supportive services that aim to meet the health needs of the homeless population. HCHs may also provide mobile services and aim to connect homeless individuals with supportive services such as emergency shelter, transitional housing, job training, education, and some permanent housing. Grants are also available for innovative programs that provide outreach and comprehensive primary health services to homeless children and children at risk of homelessness. By statute, HRSA must allocate at least 8.7% of its budget to support these centers.",
"Health centers for residents of public housing are located in public housing and aim to provide primary care to individuals who reside in public housing. These centers provide the services required of CHCs and are not required to provide specific supplemental services. These centers were authorized in 1990 because of congressional concern that public housing residents had worse health than similar (by demographic and economic status) individuals who did not reside in public housing. By statute, HRSA must allocate at least 1.2% of its budget to support these centers.",
"Migrant health centers provide care to migrant farm workers (persons whose principal employment is in agriculture on a seasonal basis and who establish temporary residences for work purposes) and seasonal farm workers (persons whose principal employment is in agriculture on a seasonal basis, but do not migrate for this work). HRSA estimates that they provide care to more than one-quarter of all migrant and seasonal farmworkers. In addition to the general health center requirements, migrant health centers are required to provide certain services specific to their service population's health needs such as supportive services, environmental health services, accident prevention, and prevention and treatment of health conditions related to pesticide exposure. Migrant health centers may be exempt from providing all required services, and may only operate during certain periods of the year. By statute, HRSA must allocate at least 8.6% of its budget to support these centers.",
"Table 5 describes the four types of health centers, their target populations, the services they are required to provide, and the populations they serve. Additional services are assessed relative to the CHC service requirements (see \" Health Service Requirements \").",
"According to HRSA, health centers served 21.1 million patients in 2012. These patients were generally socioeconomically disadvantaged and uninsured or underinsured. The majority of health center patients have incomes at or below the federal poverty level. Nearly a quarter of patients are treated in a language other than English and the majority of health center patients are racial or ethnic minorities. In 2012, nearly one-third of health center patients were identified as African-American and/or Hispanic/Latino. Both of these rates are more than double the proportion of these groups in the overall U.S. population. Table 6 presents some demographic characteristics of the health center patient population in 2012 including age, race, ethnicity, and insurance status.\nFigure 1 and Figure 2 show the locations of health centers funded with PHSA Section 330 grants. These include some school-based health center locations because some grantees use Section 330 funds to support this health center type. Figure 1 shows that community health centers are distributed throughout the country, Figure 1 compared to Figure 2 also shows that community health centers are the most numerous type of sites and that a number of health centers receive grants to operate multiple health center types in the same geographic area.",
"Researchers have found that access to health centers can improve health outcomes and reduce costs for the populations and areas they serve. Research has also found that health centers may increase access to health care for generally underserved populations such as those enrolled in Medicaid and racial and ethnic minorities. This section briefly summarizes the research on the effects of health centers on health, costs, access, and quality.",
"Health centers focus on preventive care and attempt to manage patients' chronic conditions. This focus may improve health by preventing disease and disease-related complications. Research has found that health center patients are more likely to receive preventive health services—including pap tests and influenza vaccinations—and more likely to receive preventive screenings—including mammograms and colonoscopies—when compared to non-health center patients of similar socioeconomic status. Health center patients are also more likely to have their chronic conditions—like diabetes—managed. Finally, health centers aim to increase prenatal care use in low income pregnant women to reduce outcomes associated with infant mortality such as low birth weight. HRSA has found that health centers have made progress in this effort because an increasing number of health center patients initiate prenatal care in their first trimester. This has resulted in fewer health center patients—when compared to the national average—having low birth weight babies—a major cause of infant death.",
"Researchers have found that health centers may lower health care costs by reducing more costly emergency department visits. GAO found that, on average, treatment at health centers is nearly one-seventh the cost of treatment of the same condition in an emergency department. Given these differences in cost, health centers that are successful at reducing emergency department use may reduce health care costs. One study found that counties with health centers have lower emergency room use and that individuals who live near health centers use emergency rooms less. In addition, GAO found that health centers attempt to lower emergency department use in the communities in which they operate by educating patients about services offered at health centers and by offering same day and afterhours appointments.\nHealth centers may also reduce health care costs by preventing unnecessary hospitalizations. A number of studies have examined \"ambulatory sensitive conditions,\" which are conditions that potentially can be treated in an outpatient setting thus avoiding a hospitalization. These studies have found that in communities with health centers, individuals with these conditions were less likely to be hospitalized. Health center patients enrolled in Medicaid were also less likely to be hospitalized and less likely to have an emergency room visit, relative to Medicaid beneficiaries who did not use health centers.\nResearchers have also found that patients who receive the majority of their care at health centers have lower medical costs (41% lower on average) than those who receive the majority of their care through another source. Another study found the difference to be 24%, while a North Carolina study found that health center users' annual health care spending was 62% less than similar patients (matched by demographic characteristics and health status) who were served in other outpatient settings. Regardless of the magnitude of the difference, there appears to be consensus that health centers provide less costly health care than other outpatient settings.\nThe reasons that health centers provide less costly care are debated. The authors of the North Carolina study suggest that health centers provide health care at a lower cost because they can offer discounted services through federal programs (see \" Which Federal Programs Are Available to Health Centers? \"). They also suggest that health centers may provide less overall costly care because their providers work on a salaried basis, and so do not have financial incentives to order additional tests or procedures. In other outpatient settings this may not be the case because providers generally work under a fee-for-service model where they may receive additional remuneration for providing more services. Other studies note that differences in the cost of services (i.e., the cost for a particular procedure or visit) do not explain the difference because health centers are paid the FQHC rate, which should likely be comparable to, or higher than, the rates reimbursed in other outpatient settings. Given differing explanations of how health centers may reduce health care costs, the researchers state that health center costs may be lower because they avert more costly emergency room visits, specialty care, or hospital stays.",
"Health centers aim to provide care to underserved populations and, in doing so, may increase health care access. By definition, health centers are located in areas with few providers including rural and inner city areas. These locations may provide access for populations that are otherwise underserved, for example, because of geography or income. Health centers also serve a more diverse population than do office-based physicians; results from one study indicate health center patients were more likely to be Hispanic or African American. Health centers may also increase access for specific racial and ethnic groups. For example, one study found that health centers increase health care access for Asian Americans, Native Hawaiians, and other Pacific Islanders. Some research has suggested that health centers may reduce health disparities because they provide care to a population that might otherwise have difficultly accessing health care.\nRelative to other providers (such as office-based physicians) health centers are more likely to accept new patients and patients who are unable to pay for services (i.e., charity patients). Health center patients are also more likely to be enrolled in Medicaid or CHIP. As noted, health centers are required to coordinate with Medicaid and CHIP plans and are required to accept all patients regardless of their insurance status or ability to pay. Some researchers have found that private providers may not accept Medicaid patients because of the program's administrative requirements or low reimbursements rates. Given this possibility, health centers may provide access to Medicaid and CHIP patients who would otherwise have difficulty finding care.",
"Recent evaluations have compared the quality of care provided at health centers to that provided in physician offices. One study examined 18 quality measures and found that health centers performed better on 6 measures (related to treatment for congestive heart failure, coronary artery disease, depression, and screening), no differently on 11 measures, and worse on 2 measures (related to diet counseling for at risk adolescence). This was observed despite the study's finding that health centers treat a population with higher rates of comorbidities that may make it more difficult to provide care that meets the criteria required by the quality measures examined. Other studies have examined how health centers manage chronic conditions; for example, one study found that health centers that implemented quality improvement teams to manage asthma succeeded in reducing hospitalizations and emergency department visits due to asthma.\nAnother study compared the quality of health center care to that of Medicaid managed care organizations (MCOs) on selected quality measures, including diabetes and blood pressure control. The study found that there were two groups of health centers: those that exceeded Medicaid MCOs in the selected quality measures (called \"high performing health centers\") and those that were below the Medicaid MCOs (called \"low performing health centers\"). The researchers found that more health centers were considered \"high performing\" (12%) and that relatively few health centers (4%) were considered \"low performing.\" The authors observed that there were differences in the population served by high- and low-performing health centers and that it is possible that these population differences resulted in the quality differences observed. Specifically, \"low performing health centers\" were more likely to serve individuals who were uninsured or homeless and had less revenue from Medicaid. There were also geographic differences in the quality of health center with \"high performing\" health centers mostly located in California, New York, and Massachusetts and with \"low performing health centers\" more often located in southern states.",
"Section 330 grants, on average, cover approximately one-fifth of the cost of operating a health center; the federal government provides other assistance—for example, provider recruitment and financial assistance—that may support individual health center operations. To assist with operations, health centers may employ members of the National Health Service Corps (NHSC), a program that provides scholarships and loan repayments in exchange for a period of service at a health center. The federal government also provides financial support to health centers. For example, it designates health centers as Federally Qualified Health Centers (FQHCs), thereby making these facilities eligible for higher Medicare and Medicaid reimbursement rates. Medicaid is the largest source of reimbursements, providing nearly 39% of all revenue for the health center program (see Table 4 ). The amount received by an individual health center varies by the percentage of the patient population that is enrolled in Medicaid; however, the NACHC estimates that the average health center receives 38.1% of its revenue from Medicaid reimbursements. Health centers are also eligible for discounted prescription drugs and vaccines, and may also receive additional support from grants and loans offered through other federal programs.",
"Health centers are automatically designated as health professional shortage areas (HPSAs) and are therefore eligible for National Health Service Corps (NHSC) providers. The NHSC provides scholarships or loan repayments to health professionals working at specific facilities in HPSAs. About half of Corps members serve in health centers, making the program an important mechanism for health centers to recruit providers. In addition to the NHSC, some states may operate loan repayment programs for health professionals providing care in state designated shortage areas.",
"Health centers may also be able to obtain providers temporarily through special waivers for J-1 visa physicians. In general, foreign medical graduates who entered the country on a J-1 student visa must return to their home country for two years after they have completed their medical training (medical school and residency). J-1 visa waivers permit the two year foreign residency period to be waived if the J-1 visa holder practices primary care in a HPSA. Because health centers are designated as HPSAs, a number of centers may rely on this program to recruit physicians.",
"Health centers are eligible to be designated as Federally-Qualified Health Centers (FQHCs), but must enroll as a provider in the Medicare and/or Medicaid programs to receive the higher reimbursement rates for services provided to patients enrolled in these programs. This higher reimbursement rate is an important source of health center revenue because more than one-third of the patients seen at health centers are enrolled in Medicaid. Specific FQHC Medicare and Medicaid reimbursement methodology, including recent payment changes, are described in Appendix B .",
"Federal health centers are eligible to participate in the 340B Drug Pricing program, which requires drug manufacturers to provide drug discounts or rebates to 340B eligible facilities. The program is free for health centers and provides drugs at discount prices—ranging from 13% to 17% below average manufacturer price depending on the type of drug. HRSA reports that 340B eligible facilities, between FY2013 and FY2014, will receive an estimated $3 billion in drug discounts through the program.",
"Health centers are eligible to participate in the Vaccines for Children Program (VFC), which provides vaccines for low income children who may not be vaccinated because of costs. The program is administered by the Centers for Disease Control and Prevention (CDC) and partially funded by Medicaid. The CDC buys the vaccines and distributes them to health departments that, in turn, distribute them to VFC providers including health centers. VFC provides free vaccines to Medicaid enrolled children and VFC eligible children (those who are uninsured, underinsured, or those who are American Indian or Alaska Native). Health centers are a VFC eligible provider, and provide vaccinations as part of their mission to provide primary and preventive services. The VFC program enables health centers to provide these vaccines at a lower cost to the patients and to the health center.",
"Health center employees and board members do not need to carry medical malpractice coverage because they are covered under the Federal Tort Claims Act (FTCA). Under the FTCA, health center employees and contractors cannot be sued for medical malpractice for care they provided that was within the scope of their health center employment. According to HRSA, in FY2012, 107 claims were paid through the FTCA program totaling $68.1 million. This program provides financial support to health centers because the center would otherwise have to pay for this coverage and would be responsible for payment and rate increases that may accompany claims made against health center providers.",
"Health centers are eligible to receive grants authorized under parts A and C of the Ryan White AIDS program. Part A authorizes grants for primary care, access to antiretroviral therapies, and other health and supportive services. These grants are awarded to certain metropolitan areas and are used to provide care for low-income, underserved, uninsured, or underinsured individuals living with HIV/AIDS. Part C grant funds are awarded to entities to provide medical services such as testing, referrals, and clinical and diagnostic services to underserved and uninsured people living with HIV/AIDS in rural and frontier communities.",
"Health centers are eligible to apply for a number of federally funded grant programs including programs that seek to improve rural health and health care, increase mental health and substance abuse services availability, provide services to high-risk pregnant women and their infants, increase health professional training at health centers, and increase access to family planning services for low income families. The majority of these programs are funded by discretionary appropriations and are competitive grant programs authorized in the PHSA. Programs specific to rural areas may also be administered by the U.S. Department of Agriculture (USDA) and are authorized in other acts. For example, health centers in rural areas may be eligible for USDA programs that may assist facilities with acquiring equipment or space through loan guarantees and with acquiring broadband access. Health centers may also use General Services Administration resources to acquire real estate and dispose of property and may use the Department of Housing and Urban Development's insurance program to finance facility repair and improvement.",
"Health centers face a number of issues that may be of concern to Congress. These include (1) the role of health centers in health insurance expansions under the ACA, (2) the adequacy of the health center workforce, and (3) financial challenges that health centers may face. These challenges may also be interrelated. For example, health centers may be affected by the mandatory budget reductions that may be required as part of the Budget Control Act ( P.L. 112-25 ), and such budget reductions may impact the ability of health centers to provide access to care for the newly insured when the ACA is fully implemented. This section briefly summarizes these issues and discusses how some ACA changes may alleviate or exacerbate health center concerns.\nHealth care access has traditionally been an issue of congressional concern. For example, GAO, at congressional request, has examined Medicare and Medicaid beneficiary access to health care providers. In addition, one of the purposes of ACA Title V was to improve access to and the delivery of health care services for all individuals, particularly low income, underserved, uninsured, minority, health disparity, and rural populations. The health workforce and its role in providing access to traditionally underserved populations has also been an area of congressional interest. For example, one of the four mechanisms that Title V of the ACA included to improve health care access was to \"increase the supply of a qualified health care workforce.\" The title also reauthorized a number of programs in Titles VII and VIII of the PHSA, both of which focus on the workforce.\nCongress, through the appropriations process for the health center program and for programs that support health centers, has an interest in the financial circumstances that health centers face. Congress may also be interested in how deficit reduction efforts and other policy changes (for example, changes in Medicare and Medicaid payments or eligibility) may affect the health center program and the financial circumstances of individual health centers. Finally, Congress may consider program changes—such as making changes to granting preference or program requirements—as a way of addressing some of the challenges that health centers face.",
"The ACA aims to expand insurance coverage to the uninsured, which may have a number of effects on health centers. Specifically, the law aims to reduce the number of uninsured by expanding the Medicaid program and by providing subsidies for certain low-income individuals to purchase health insurance coverage. These health insurance expansions may increase the number of health center patients and may increase reimbursements received for providing this care. Although health centers are available to the uninsured and to Medicaid patients prior to the full implementation of the ACA, patients are required to pay for services based on their income (see \" Fee Schedule Requirements \"). Individuals who obtain private health insurance or Medicaid coverage under the ACA may have lower out of pocket costs for services received at health centers. These lower costs could increase the number of health center patients. There is also evidence that individuals use more health services after obtaining insurance coverage. If this occurs after the ACA is implemented, it would also increase health center use. Evidence from Massachusetts, which implemented health insurance expansions similar to those included in the ACA, suggests that health center use will increase after implementation. Massachusetts health centers reported that their patient case load increased by 7% after the state's health insurance expansions were implemented. The ACA health insurance and Medicaid expansion, by potentially increasing the health center patient base, may also strain health centers' capacity to provide services. These changes may affect health care access in general and health care access for Medicaid beneficiaries in particular. This section discusses the potential impacts of Medicaid and private insurance expansion on health centers.",
"As noted, Medicaid beneficiaries may seek care at health centers because they are required to accept Medicaid patients. In contrast, some private providers may not accept Medicaid because of low reimbursement rates or administrative requirements. The ACA aims to increase health insurance coverage, in part, by expanding Medicaid enrollment. However, under the United States Supreme Court's decision in National Federation of Independent Business v. Sebelius , states have the option to implement the Medicaid expansion, and some state governors have indicated that they will not to do so. This state variation in Medicaid eligibility will affect health center patients and the finances of the health centers where they seek care. Health centers may benefit if their currently uninsured patients enroll in Medicaid eligible because they would be able to bill Medicaid for the services they provide to these patients. In general, health centers use sliding scale fees to serve uninsured patients and may supplement these patient payments with grant or other funds. An increased patient share enrolled in Medicaid would mean higher collections from Medicaid, which is currently the largest source of health center reimbursements.\nOne study attempted to quantify the effect of Medicaid expansion on health centers. This study estimated that under a full Medicaid expansion, an estimated 5 million health center patients would have been eligible for Medicaid; however, given that some states have opted out of the Medicaid expansion, they expect that only 4 million of the estimated 5 million health center patients will become Medicaid eligible. This would leave 1 million health center patients not eligible for Medicaid. The authors estimate that health centers in states where the state intends to expand its Medicaid program will see more than $2 billion in additional reimbursements. These increased reimbursements are expected to allow these centers to expand or improve services. It is also possible that the increased revenue base may improve the quality of care that health centers provide. Conversely, health centers in states where Medicaid is not expanded will not realize this additional revenue and will continue to use grant funds or other sources to provide care to the uninsured. Given that current grant funding does not equal the cost of providing services to uninsured patients, health centers located in states that do not expand their Medicaid program may be strained to provide services to the population that remains uninsured. The extent to which this will occur and its effect on individual health centers is not yet known and will vary by state and by health center.",
"Health centers are also a source of care for the uninsured, some of whom may obtain private insurance coverage under the ACA. Some suggest that once health center patients who were previously uninsured gain insurance coverage, they may seek private providers, which may in turn reduce the health center service population. However, evidence from Massachusetts, which has already expanded insurance coverage, does not suggest that this may occur. Researchers found that Massachusetts health centers retained their patients after Massachusetts's insurance expansion was implemented. Should this occur after the ACA insurance expansions, it would likely benefit health centers because more health center patients would likely have services reimbursed by private insurance, which should increase health center revenue. Experts project that 9.2% of health center patients will be covered by a private insurance plan offered through the new health insurance exchanges and that this percentage should grow over time.\nThe ACA also requires that private insurance policies offered through the newly created exchanges include access to \"essential community providers\"—providers that serve predominately low-income and medically underserved individuals—including health centers. This means that health insurance plans offered through the exchanges must have providers in their plan's networks that serve the population that health centers typically serve. It does not require that these insurance plans offer health center contracts. This distinction concerns some health centers; they fear that their current patients will enroll in exchange plans where health centers are not part of the provider network. If this were to occur, health centers would not be able to receive reimbursements for these patients, which might create financial strain for the health centers or require health center patients to choose different providers. In addition to concerns about being included in exchange plans, health centers are also concerned that they may not receive reimbursement rates high enough to cover the cost of care for patients enrolled in these plans because they believe that they may have little leverage to negotiate rates.\nThe impact of the ACA on the health center patient base and revenue is not yet known. Furthermore, as will be discussed below, health centers face other challenges that may make it difficult to provide care to an expanded population. For example, an expanded patient base could strain health centers' capacity to provide care because some health centers have provider shortages. It is also possible that an expanded patient base may exacerbate some of the financial challenges that health centers face as reimbursements may not cover the cost of providing care and some patients will remain uninsured.",
"One of the major challenges that health centers face is employing and retaining health care providers. The National Association of Community Health Centers (NACHC)—the advocacy group for health centers—estimates that, in 2008, health centers had 1,800 too few primary care providers (physicians, nurse practitioners, and certified nurse midwives) and 1,400 too few nurses. The organization further estimates that staffing needs will increase with health center expansion resulting in a shortage of between 15,000 and 19,000 primary care providers and between 11,000 and 14,000 nurses in 2015. Health centers may have challenges recruiting and retaining staff because they are located in rural and remote areas, because there are generally declining numbers of primary care providers, and because private practice options are generally more lucrative for providers. Health centers have traditionally relied on the National Health Service Corps (NHSC) to recruit providers; this section discusses some of the advantages and disadvantages of that strategy. The section also discusses the advantages and disadvantages of a new ACA-authorized program—teaching health centers—to increase provider training at health centers.",
"To lessen the health center provider shortages, the federal government makes NHSC providers available to health centers. The ACA includes mandatory funding for the NHSC from FY2011 through FY2015. This money was used to expand the program in FY2011 but has since been used in lieu of the program's discretionary appropriation. That mandatory funding has made up the entirety of the NHSC's appropriation since FY2012 has some program advocates concerned about the program's funding after these mandatory appropriations end in FY2015. The President's Budget for FY2015 requests both new discretionary funding for the NHSC and a new $8.1 billion mandatory funding source that would begin in FY2015 and continue to FY2020. As more than half of all NHSC providers fulfill their service commitment in health centers, this program is viewed as many as a central component of the health center workforce, and the future funding of the program may be a concern for health centers. In addition to future funding uncertainty, there may be concerns that reliance on the NHSC may create instability in the health center workforce because the NHSC offers scholarships and loan repayments in return for a service commitment for a defined period of time. Some NHSC providers will likely stay beyond their service commitment; however, not all will, which could mean high turnover among health center providers. This can lead to discontinuity in care, and additional costs for health centers because of the need to continuously recruit and train providers.",
"The ACA authorizes a new program to increase medical residency training at health centers, which may help health centers recruit physicians, but may also challenge the health centers that operate these programs. The ACA authorizes teaching health centers: medical residency training programs that are located at outpatient facilities including health centers. Prior research has found that medical residents who train at health centers are more likely to be employed at health centers after they complete their training. Teaching health centers may help health centers recruit physicians; however, health centers may face a number of challenges when operating residency programs. Case studies of pre-ACA teaching health centers found that operating a training program requires provider time and may reduce the number of patients a health center can see, thereby reducing health center reimbursements. These case studies also found that health centers do not receive graduate medical education payments in amounts that are high enough to support the full costs of the resident training and supervision. These case studies did show some benefits from operating training programs. For example, teaching health centers were, as the researchers expected, an important recruitment tool for health centers. These programs also connected non-primary care providers (i.e., medical specialists) with health centers because some specialists may supervise health center residents in other settings. The involvement of medical specialists in the health center may expand available health center services.\nThe ACA appropriates funding for teaching health center graduate medical education payments through FY2015. This funding may assist health centers in operating residency training programs, because programs have stated that graduate medical education payments are generally not high enough to support the cost of residency training. However, these payments are time-limited (through FY2015). In addition, although the ACA authorizes funding for grants to develop teaching health centers, no funds have been appropriated. Given that funding for teaching health center graduate medical education payments is limited and uncertain, the ACA's teaching health center program may have limited effects on health center provider recruitment and retention.",
"Individual health centers may have a number of financial considerations including current and future program appropriations which, in turn, affect the size of the individual health center's grant and the individual center's ability to receive continued grant funding, the impact of federal deficit reduction efforts on health centers, changes in state funding available for health centers, the costs of implementing electronic health records, and the potential effects of ACA care coordination efforts on health centers. Between 2000 and 2014, the health center program's appropriation increased; however, given recent focus on deficit reduction, it is unclear whether these expansions will continue. Whether the health center program should be expanded or contracted is difficult to assess. Further, assessments about the appropriate size of the health center program may also change depending on ACA implementation, economic conditions in general, and a number of other factors. Given these challenges, it is beyond the scope of this report to assess whether the size of the health center program is appropriate. Instead, this section discusses changes in federal funding for health center program and state funding for individual health centers and how the ACA may affect individual health center finances. Specifically, state and local funding is a large source of support for health centers (see Table 4 ), although the amount of funding an individual health center receives varies. A number of states face fiscal challenges and have reduced their financial support of health centers, but the ACA may provide additional support to health centers in the form of increased reimbursements for health services provided and reimbursements for care coordination, which many health centers currently provide, but without reimbursement.",
"The ACA established the CHCF, but it is unclear whether this will increase health center appropriation levels. As shown in Table 3 , the health center program has grown in the past decade. This growth included funding increases for individual centers and funding for more centers. ARRA continued these expansions, as did the CHCF. As discussed, the ACA appropriated CHCF may be used in place of the amounts that had been appropriated for the health center program through the annual appropriations process. To a certain extent this has occurred since FY2011 when, as part of deficit reduction efforts, funds from the CHCF monies were used as part of the health center appropriation. Advocates note that this phenomenon resulted in fewer New Access Point grants (i.e., grants to establish new health centers) being awarded as HRSA used appropriated funds to support health centers already in existence including those created using ARRA funds. This may indicate that the federal government's focus has shifted to maintaining the program—rather than continuing program expansions—as congressional concern has increasingly focused on deficit reduction. However, the FY2014 appropriations law indicates that Congress may be attempting to balance the competing priorities of maintenance and expansion. Specifically, the FY2014 appropriations law required that funds be used to increase grant amounts (called base grant adjustments) and that funds also be used to award new access point and expanded medical services grants.\nAnother concern that some advocates have raised is that the time-limited CHCF makes up a large fraction of the overall health center program budget (60.5% in FY2014). Consequently, some are concerned that after the CHCF ends in FY2016 overall funding for the program could decrease significantly unless the CHCF is extended or its funds are replaced from another source. Such concerns may be mitigated by the President's Budget Request for FY2015, which requests a new mandatory funding source for health centers that would begin in FY2016, continue through FY2018, and would provide $2.7 billion annually (or $8.1 billion total).",
"Health center appropriations were also affected by annual spending reductions triggered by the Budget Control Act (BCA, P.L. 112-25 ), beginning in FY2013. Although the reduction of the CHCF allocated to community health centers and migrant health centers was limited to 2%, the discretionary health center appropriation was subject to the full percentage—5.0% —of the sequester. As a result more than $60 million was reduced from the program. In addition, the sequester reduced the budgets of some of the programs that provide financial or in-kind support to health centers, such as the NHSC and the Ryan White HIV/AIDS Program. In FY2014 and FY2015, the CHCF will be reduced by 2% for the amount allocated to community health centers and migrant health centers and by 7.2% in 2014 and 7.3% in 2015 for the CHCF funds allocated to health centers for the homeless and health centers for residents of public housing.",
"The ACA may provide additional reimbursements to support care coordination. Health centers may coordinate care in ways that reduce health care costs to the system overall, but may have little or no monetary benefit to the health center doing the care coordination. For example, GAO found that health centers employ a number of strategies to reduce emergency department use, which, as noted above, is more expensive than care provided in a health center. Reduced emergency department use may yield savings to third party payers or hospitals, but would not yield savings to health centers. It is also possible that health centers may employ strategies such as care coordination and case management, which may not be reimbursed by third party payers. Some health centers are concerned about sustaining these efforts, and funding constraints may make it more difficult for health centers to provide these services. However, the ACA may make it more feasible for health centers to sustain these efforts because the law includes programs that may provide additional reimbursements for care coordination activities. Specifically, health centers are eligible for increased reimbursements under Medicare to increase primary care and care coordination and may participate in accountable care organizations that aim to increase care coordination across health providers.",
"As discussed above, future federal funding for health centers is in flux; in addition, a number of states are reducing their funding for health centers because of state-level fiscal constraints. As shown in Table 4 , state funding is an important source of revenue for health centers; however, state funding available for health center varies by state and is declining. Specifically, in November of 2010, the NACHC, in a letter to the Secretary of HHS, noted that state funding for health centers had declined 42% since 2008. The organization also noted that some state policymakers have argued that less state funding is needed for health centers because of the federal government's investment in the program through ARRA and ACA appropriations. In contrast, advocates argue that such state funding is still needed and that these state funding reductions coupled with the uncertainty of the CHCF may mean reductions in the services that health centers can provide. A November 2011 report indicates that states continue to reduce their funding for health centers. The report surveyed state funding levels for state FY2012 and found a 15% decline from state FY2011. In addition, some states that have historically supported health centers have, because of state budget concerns, withdrawn this support. Advocates argue that these recent declines in state funding for health centers may continue and, when coupled with decreasing federal appropriations for health centers, may strain health center finances.\nAs Medicaid is a joint federal and state program, states are providing support to health centers through reimbursements that health centers receive for providing services to Medicaid patients. Health center program advocates argue that much of the reduced health care costs attributed to health center usage are realized as Medicaid (such as through reduced emergency department use), which would justify states providing separate—non-Medicaid—funding to health centers because states will realize these investments as Medicaid cost savings. Despite this, states may choose to limit their separate funding for health centers or may choose to augment their support of health centers using Medicaid funds, which will be partially matched by the federal government.",
"HRSA awarded grants to networks of health centers to acquire and implement electronic health record systems (EHR). These five-year grants began in 2007 and were intended to enable health centers to be able to meet the requirements for CMS's meaningful use program. Meeting such requirements entitles health centers to incentive payments from the Medicare or Medicaid programs. The HHS Office of the Inspector General examined EHR adoption by health centers that had received grants. They found that some health center EHR grantees had difficulty meeting the meaningful use requirements, but most of the grantees (72%) were able to do so. They also found that approximately 76% of grantees reported that they were concerned about the costs of maintaining EHR systems (particularly after the time-limited grant had ended). Some grantee centers, like other health providers who have implemented EHRS, were also concerned that the EHR system had decreased provider productivity and thereby reduced the heath center's revenue. Given the financial constraints under which some health centers operate, the need to acquire and maintain EHR, and the potential loss of CMS incentive payments for failing to meet these requirements may be another source of financial strain these facilities.",
"Health centers serve a predominantly low-income medically underserved population with limited or no access to health care. Research has shown that health centers improve health care access and improve health for the underserved populations they target. In doing so, health centers may reduce the use of more costly emergency department services thereby reducing health care costs. The federal government supports health centers through the health center program that awards grants to plan, operate, and expand health centers and through programs that provide recruitment and financial incentives including increased reimbursements through the Federally Qualified Health Center (FQHC) designation. Health center appropriations have increased over the past decade, but it is unclear whether these increases will continue. A number of issues facing both the health center program and individual health centers may be of concern to Congress. On the program side, Congress may be concerned about the program's appropriation level and the impact of federal deficit reduction efforts on the health center program. For individual health centers, Congress may be concerned about provider vacancies and the role that individual health centers may play in providing health access when the ACA is fully implemented.\nAppendix A. Other Federal Programs that May Provide Primary Care to the Underserved\nThe federal government supports facilities that provide primary care to low-income or otherwise medically underserved populations through a number of facilities that are similar to health centers, but are not authorized in PHSA Section 330. For example, the ACA authorized funding for school-based health centers and nurse-managed health clinics. Both of these facilities serve underserved populations, but have different requirements than facilities authorized in PHSA Section 330. The federal government also provides support for facilities that provide care to targeted populations such as American Indians, Alaska Natives, and Native Hawaiians, facilities located in rural areas, facilities that provide mental health services, and facilities that provide free care. This appendix describes these types of facilities, their authorization, and program requirements.\nSchool-Based Health Centers\nSchool-based health centers (SBHCs) are facilities located on or near school grounds that provide age-appropriate comprehensive primary health care services to students regardless of their ability to pay. SBHCs may be located at public, private, charter, or parochial schools and must open, at a minimum, during school hours. Prior to the ACA, HRSA funded SBHCs through its Section 330 appropriation. The ACA authorized separate SBHC grants in Section 339Z-1 of the PHSA and appropriated $200 million ($50 million annually) from FY2010 to FY2013 to support grants for SBHC construction and renovation. Although the ACA authorized grants for SBHC operation, funding has not yet been appropriated for these grants. Despite the lack of an explicit SBHC operating grant program, some Section 330 grantees may operate SBHCs. HRSA estimates that there are 1,152 SBHCs.\nNurse-Managed Health Clinics\nNurse-Managed Health Centers (NMHCs) are centers that provide comprehensive primary care and wellness services to underserved populations where nurses provide the majority of health services. NMHCs are required to serve the entire population in the area in which they are located and must have an advisory committee similar to those required for Section 330 health centers. NHMCs provide wellness services, prenatal care, disease prevention, management of chronic conditions like asthma, hypertension and diabetes, and health education. Some also provide dental and mental health services. ACA authorized grants to support NMHCs in PHSA Section 330A-1. In FY2010, HHS awarded $15 million to provide three years of support for 10 NHMCs. Grantees were required to submit a sustainability plan for operation after the federal grant period is complete in 2013. No funding has been awarded since FY2010.\nCommunity Mental Health Centers\nCommunity mental health centers (CMHC) are licensed facilities that provide mental health services. These facilities are required to provide mental health services that are tailored to the needs of children and adults (including the elderly) who have a serious mental illness. These facilities are also required to provide services to individuals that have been discharged from inpatient treatment at a mental health facility. Among the required services, CMHCs must provide emergency services; day treatment or other partial hospitalization services; psychosocial rehabilitation services; and screening for admission into state mental health facilities. The ACA required that CMHCs provide less than 40% of its services to Medicare beneficiaries.\nCHMCs received funding from Substance Abuse and Mental Health Services Administration (SAMHSA) block grants. These include SAMHSA substance abuse prevention and treatment block grants and community mental health services block grants. They are also eligible for HHS grants awarded through the Social Service Block Grant. CMHCs also receive reimbursements from Medicare and Medicaid for covered services provided to beneficiaries enrolled in these programs.\nNative Hawaiian Health Care\nThe federal government supports the Native Hawaiian Health Care System (NHHCS), which is composed of five grantees and the Papa Ola Lokahi, a consortium of health care organizations that provide primary care, health promotion, and disease prevention services to Native Hawaiians. This population often faces cultural, financial, and geographic barriers to accessing health care services. The NHHCS was originally authorized under the Native Hawaiian Health Care Act of 1988 ( P.L. 100-579 ), which was reauthorized through FY2019 in the ACA. The NHHCS is not a grant program under Section 330 of the Public Health Service Act, but the system receives funding through the health center appropriation. In FY2011, NHHCS provided medical and enabling services, such as transportation and translation services, to more than 8,400 people.\nTribal Health Centers\nIndian Tribes (ITs), Tribal Organization (TOs), and Urban Indian Organizations (UIOs) may receive funds from the Indian Health Service (IHS) to operate health centers for American Indians or Alaska Natives. Although tribal health centers may be similar to health centers funded under Section 330 grants they are not subject to Section 330 requirements. For example, they are not required to provide services to all individuals in their service area. They are also not required to seek payments or reimbursements on behalf of the clients they see because IHS provides services to all eligible American Indians and Alaska Natives free of charge. Tribal health centers—those operated by an IT, a TO, or a UIO—may be designated as Federally Qualified Health Centers (FQHCs) and receive the Medicare and Medicaid FQHC payment rate (See Appendix B ).\nITs, TOs, and UIOs may also apply for and receive funds under Section 330 of the PHSA; however, should an entity receive Section 330 funds it would be subject to all Section 330 requirements (i.e., would be require to provide services to non-American Indians and Alaska Natives). Tribal health centers that receive Section 330 grants are also required to ensure that funds received from IHS are only used to provide services to IHS-eligible individuals.\nRural Health Clinics\nRural health clinics (RHCs) are outpatient primary care facilities located in rural and medically underserved areas. These facilities receive higher Medicare and Medicaid payments—similar to the FQHC payment rate—for services provided to beneficiaries enrolled in the Medicare and Medicaid programs. RHCs are similar to health centers except that they (1) do not receive federal grants, (2) may be operated by for-profit entities, (3) are not required to provide services to individuals regardless of ability to pay, and (4) are not required to offer a sliding scale fee schedule.\nFree Clinics\nFree clinics are outpatient facilities that provide medical, dental, and behavioral health services to underserved populations that are primarily uninsured. Free clinics are tax-exempt organizations that provide health care to individuals regardless of their ability to pay and are not permitted to charge for services. In general, free clinic funding comes from donations (both monetary and in-kind), religious groups, foundations and corporations. There are more than 1,200 free clinics that provide services to a population that is similar to that served by health centers. Free clinics do not receive funding from HRSA, but may participate in the Free Clinics Medical Malpractice Program administered by HRSA that provides liability coverage to health care providers at free clinics.\nFederally Qualified Health Center (FQHC) Look-Alikes\nFQHC look-alikes are facilities that meet the criteria to receive a health center grant, but do not receive a grant because Section 330 funding is not available. The FQHC look-alike program was authorized in 1990 to support the demand for new health centers. HRSA and CMS can designate certain facilities as \"FQHC look-alikes,\" making these facilities eligible for certain federal programs (e.g., the NHSC and the 340B drug discount program) available to health centers and for the FQHC payment rate. To be designated as an FQHC look-alike, a facility submits an application to HRSA, the agency reviews the application and then recommends to CMS which facilities should be designated as FQHC look-alikes. As of November 2013, HRSA reported that there were 316 FQHC look-alikes.\nAppendix B. Medicare and Medicaid Payments and Beneficiary Cost Sharing for Health Center Services\nAll health centers can be designated as federally qualified health centers (FQHCs) upon enrolling as a provider in the Medicare and Medicaid programs. The FQHC designation makes Section 330 grantees (among others, see text box) eligible for Medicare and Medicaid reimbursements rates that are generally higher than the reimbursement rates for comparable services provided in a physician's office. The FQHC designation was created to ensure that Medicare and Medicaid reimbursements cover the costs of providing services so that Section 330 grant funds are not used to subsidize these costs. This appendix describes Medicare and Medicaid payments to FQHCs and ACA-required changes to Medicare FQHC payments.\nMedicare Payments to Health Centers\nHealth centers are paid an all-inclusive payment rate for most services provided to Medicare beneficiaries. It is intended to reflect the cost of all services provided to a beneficiary during a \"covered visit\" regardless of the specific services provided (see text box). The all-inclusive payment rate is calculated by dividing the total estimated allowable costs (with certain limits that take into account the reasonable costs for providing a service, productivity, and payment limits) by the number of total number of visits for services (see text box for definition of visits). The rate includes services provided by physicians and other providers and the supplies used to provide these services. The all-inclusive rate does not apply for certain preventive services including pneumococcal and influenza vaccines and their administration; instead these services are billed separately and reimbursed at 100% of the reasonable cost of providing the service. The all-inclusive payment rate also does not include certain diagnostic tests such as x-rays and laboratory tests, which are billed separately. FQHCs are reimbursed based on estimated costs; this payment is then adjusted at the end of the year to account for the actual costs of providing services. These reconciled amounts are subject to payment limits, which are updated each year by a measure of price inflation. The all-inclusive payment rate is also updated annually and is adjusted to take into account urban and rural differences in the costs of providing care.\nMedicare beneficiaries are subject to different deductible and cost sharing requirements for services provided at FQHCs. Specifically, the Medicare Part B deductible does not apply for FQHC services. Beneficiaries—with some exceptions —must pay the 20% copayment for Medicare services.\nACA Payment Changes\nRecent studies have indicated that Medicare reimbursements may not be sufficient to cover the costs of providing services; therefore, the ACA requires changes to how FQHCs are paid for services provided to Medicare beneficiaries. Specifically, the ACA required that Medicare develop a prospective payment system (PPS) for FQHCs that would eliminate the all-inclusive payment rate and may better align Medicare payments with the cost of providing services. To implement the new PPS system, CMS issued a proposed rule that proposes to establish a national encounter-based rate for all FQHCs. This encounter rate would be calculated using Medicare cost report and claims data to assure that the rate reflects the cost of providing services. The rate would also be adjusted for several factors including geographic differences costs, more intensive services that may be provided during the annual wellness visit, and more time or services that may be provided during a Medicare beneficiary's first visit to an FQHC. The new rule would also eliminate payments for multiple visits on one day, which CMS determined are rare among Medicare beneficiaries who receive services at FQHCs.\nThe ACA also required that Medicare preventive services and the initial exam for new Medicare beneficiaries be provided without copayments. This differs from the general Medicare beneficiary copayment of 20% of the fee charged by the health center.\nMental Health Service Payment Changes\nThe Medicare Improvements for Patients and Providers Act of 2008 (MIPPA, P.L. 110-275 ) also changed Medicare reimbursement for mental health services at FQHCs. Previously, Medicare reimbursements were limited at 62.5% of the reasonable costs for outpatient mental health services; however, this limit will be phased out by January 1, 2014.\nMedicaid Payments\nMedicaid uses a PPS to reimburse FQHCs for services provided to Medicaid beneficiaries. The PPS establishes a predetermined per-visit payment rate for each FQHC based on costs of services. The PPS was established based on cost report data in FY1999 and FY2000 and is updated annually for medical inflation. The state, in turn, receives the appropriate federal matching amount. States are also required to adjust PPS payment rates based on any changes in the scope of services provided at the FQHC. States are not required to use the PPS to reimburse FQHCs, but they may not reimburse an FQHC less than it would have received under the PPS. In 2011, approximately 20 states and Puerto Rico used the PPS, 12 states used an alternative payment methodology (APM) to reimburse FQHCs under Medicaid, and the remaining states used a combination of both methods. States are also required to supplement FQHCs that subcontract (directly or indirectly) with Medicaid Managed Care Entities (MCEs). These supplemental payments are supposed to make up the difference, if any, between the payment received by the FQHC from the MCE and the Medicaid payment that the FQHC would be entitled to under the PPS or the APM. The ACA did not include changes in Medicaid FQHC reimbursement policy."
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"question": [
"How is the federal health center program administered?",
"How does the HRSA administer grants?",
"As a result, how are federal health centers required to aid the community?",
"To what extent are the federal health centers effective at providing a safety net?",
"How does the program generally improve quality-of-life for vulnerable populations?",
"How are federal health centers funded?",
"To what extent are operating costs covered by these grants?",
"How do these federal programs aid federal health centers?",
"How has funding for the health center program changed in the last decade?",
"How was the funding expanded?",
"How will funding change in the near future?",
"How have funding sources changed over time?"
],
"summary": [
"The federal health center program is authorized in Section 330 of the Public Health Service Act (42 U.S.C. §§201 et. seq.) and administered by the Health Resources and Services Administration (HRSA) within the Department of Health and Human Services.",
"It awards grants to support outpatient primary care facilities that provide care to primarily low-income individuals or individuals located in areas with few health care providers.",
"Federal health centers are required to provide health care to all individuals regardless of their ability to pay and are required to be located in geographic areas with few health care providers. These requirements make health centers part of the health safety net—providers that serve the uninsured, the underserved, or those enrolled in Medicaid.",
"Data compiled by HRSA demonstrate that health centers serve the intended safety net population, as the majority of patients are uninsured or enrolled in Medicaid. Some research also suggests that health centers are a cost-effective way of meeting this population's health needs because researchers have found that patients seen at health centers have lower health care costs than those served in other settings.",
"In general, research has found that health centers, among other outcomes, improve health, reduce costs, and provide access to health care for populations that may otherwise not obtain health care.",
"Section 330 grants—funded by the health center program's appropriation—are only one funding source for federal health centers.",
"They are estimated to only cover one-fifth of an individual health center's operating costs; however, individual health centers are eligible for grants or payments from a number of federal programs to supplement their facilities' budgets.",
"These federal programs provide (1) incentives to recruit and retain providers; (2) access to the federally qualified health center (FQHC) designation that entitles facilities to higher reimbursement rates from Medicare and Medicaid; (3) access to additional funding through federal programs that target populations generally served by health centers; and (4) in-kind support such as access to discounted or free drug discounts or medical malpractice insurance.",
"Appropriations for the health center program have increased over the past decade, resulting in more centers and more patients served.",
"The program expansion occurred partially through the Patient Protection and Affordable Care Act of 2010 (P.L. 111-148, ACA), which created the Community Health Center Fund (CHCF) that included a total of $9.5 billion for health center operations to be appropriated in FY2011 through FY2015.",
"Despite recent program increases, it is not clear that the program's budget will continue to increase.",
"In recent years, funds from the CHCF were used to augment discretionary appropriation reductions to the health center program and have made up nearly half of the health center's appropriation. As the CHCF ends in FY2015, continued program funding may be of congressional concern."
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GAO_GAO-17-35
|
{
"title": [
"Background",
"The 2014 Ebola Outbreak in West Africa",
"U.S. Role in Response to the Outbreak",
"Funding the U.S. Government’s Response to the Outbreak",
"USAID and State Have Obligated 58 Percent and Disbursed More than One-Third of $2.5 Billion in Ebola Funding",
"USAID and State Have Obligated 58 Percent and Disbursed More than One- Third of Their Appropriated Funding for Ebola Response and Preparedness Activities",
"In Response to the Ebola Outbreak, USAID Obligated IDA Funds, and State Obligated D&CP Funds",
"IDA Account",
"D&CP Account",
"To Mitigate Second-Order Impacts and Strengthen Global Health Security, USAID Obligated ESF and GHP Funds, While State Obligated NADR Funds for Biosecurity Activities",
"ESF Account",
"GHP Account",
"NADR Account",
"USAID Made Reimbursements That Were Not in Accordance with the Provisions of the Act, and USAID Has Not Developed Reimbursement Policies",
"Twenty-One of USAID’s 271 Reimbursements Were Not Made In Accordance with the Provisions of the Act",
"USAID Has Not Developed Written Policies for the Reimbursement Process",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: USAID and Department of State Total Obligations and Disbursements, by U.S. Ebola Strategy Pillar",
"Appendix III: USAID Funding for Ebola Activities, by Country",
"Appendix IV: Total Obligations and Disbursements for Ebola Activities, by Account",
"Appendix V: USAID’s Reimbursements for Funds Obligated Prior to Enactment of the Fiscal Year 2015 Appropriations Act",
"Appendix VI: Comments from the U.S. Agency for International Development",
"Appendix VII: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"The Ebola outbreak was first identified in the remote Guinean village of Meliandou in December 2013 and subsequently spread to neighboring Sierra Leone and Liberia and later to other African countries, including Mali, Nigeria, and Senegal (see fig. 1). Guinea, Liberia, and Sierra Leone experienced the largest number of confirmed, probable, or suspected cases and deaths. As of June 2016, WHO reported 28,616 confirmed, probable, or suspected Ebola cases and 11,310 deaths in these three countries since the onset of the outbreak (see fig. 2). WHO reported the majority of these cases and deaths between August 2014 and December 2014. After 2014, the number of new cases began to decline, and on March 29, 2016, the WHO Director-General terminated the Public Health Emergency of International Concern designation related to Ebola in West Africa and recommended lifting the temporary restrictions to travel and trade with Guinea, Liberia, and Sierra Leone. However, seven confirmed and three probable cases were reported in Guinea, and three confirmed cases of Ebola were reported in Liberia in March 2016 and April 2016, respectively. Figure 3 shows the numbers of confirmed, probable, and suspected Ebola cases and deaths in Guinea, Liberia, and Sierra Leone by month from August 2014 to December 2015.\nUSAID noted that the Ebola outbreak caused disruptions to health systems and adverse economic impacts in Guinea, Liberia, and Sierra Leone. Health-care resources in these countries were diverted from other programs to Ebola response efforts, and some patients and health-care workers avoided health facilities for fear of contracting the disease. USAID also noted that these countries experienced job loss, disruptions to trade, reduced agricultural production, decreased household purchasing power, and increased food insecurity as a consequence of the outbreak. The closure of international borders in response to the outbreak hampered economic activity by limiting trade and restricting the movement of people, goods, and services. In addition, the Ebola outbreak occurred at the beginning of the planting season, which affected agricultural markets and food supplies.",
"U.S. efforts to respond to the Ebola outbreak in West Africa began in March 2014 when the Centers for Disease Control and Prevention (CDC) deployed personnel to help with initial response efforts. In August 2014, the U.S. ambassador to Liberia and the U.S. chiefs of mission in Guinea and Sierra Leone declared disasters in each country. Following the declarations, USAID and CDC deployed medical experts to West Africa to augment existing staff in each of the affected countries. In August 2014, a USAID-led Disaster Assistance Response Team (DART) deployed to West Africa. USAID-funded organizations began to procure and distribute relief commodities and establish Ebola treatment units, and CDC began laboratory testing in West Africa. In September 2014, the Department of Defense (DOD) began direct support to civilian-led response efforts under Operation United Assistance.\nIn September 2014, the President announced the U.S. government’s strategy to address the Ebola outbreak in the three primarily affected West African countries. The National Security Council, the Office of Management and Budget, USAID, and State developed an interagency strategy that has been revised over time to reflect new information about the outbreak and changes in international response efforts. The strategy is organized around four pillars and their associated activities (see table 1).\nMultiple U.S. agencies have played a role in the U.S. government’s response to the Ebola outbreak in West Africa. USAID managed and coordinated the overall U.S. effort to respond to the Ebola outbreak overseas, and State led diplomatic efforts related to the outbreak. CDC led the medical and public health component of the U.S. government’s response efforts. For example, CDC provided technical assistance and disease control activities with other U.S. agencies and international organizations. In addition, CDC assisted in disease surveillance and contact tracing to identify and monitor individuals who had come into contact with an Ebola patient. DOD coordinated U.S. military efforts with other agencies, international organizations, and nongovernmental organizations. DOD also constructed Ebola treatment facilities, transported medical supplies and medical personnel, trained health-care workers, and deployed mobile laboratories to enhance diagnostic capabilities in the field. Other federal agencies, including the Department of Agriculture, also contributed to the overall U.S. response.\nAlthough U.S. response efforts have focused primarily on Liberia, the United States has been engaged in all three primarily affected West African countries. The U.S. government also undertook response efforts in Mali following an Ebola outbreak in that country in October 2014. Currently, U.S. response efforts include regional activities that encompass multiple countries, including activities to build the capacity of West African countries to prepare for and respond to infectious disease outbreaks.",
"Prior to the fiscal year 2015 appropriation, USAID and State funded activities in response to the Ebola outbreak using funds already appropriated. On December 16, 2014, Congress appropriated approximately $5.4 billion in emergency funding for Ebola preparedness and response to multiple U.S. agencies as part of the Consolidated and Further Continuing Appropriations Act, 2015 (the fiscal year 2015 consolidated appropriations act). Within the fiscal year 2015 consolidated appropriations act, Congress provided approximately $2.5 billion to USAID and State for necessary expenses to assist countries affected by, or at the risk of being affected by, the Ebola outbreak and for efforts to mitigate the risk of illicit acquisition of the Ebola virus and to promote biosecurity practices associated with Ebola outbreak response efforts. These funds were made available from different accounts and are subject to different periods of availability (see table 2).\nThe Act requires State, in consultation with USAID, to submit reports to the Senate and House Committees on Appropriations on the proposed uses of the funds on a country and project basis, for which the obligation of funds is anticipated, no later than 30 days after enactment. These reports are to be updated and submitted every 30 days until September 30, 2016, and every 180 days thereafter until all funds have been fully expended. The reports are to include (1) information detailing how the estimates and assumptions contained in the previous reports have changed and (2) obligations and expenditures on a country and project basis.\nIn addition, Section 9002 of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015, authorized USAID and State to use funds appropriated for the Global Health Programs (GHP), International Disaster Assistance (IDA), and Economic Support Fund (ESF) accounts to reimburse appropriation accounts administered by USAID and State for obligations incurred to prevent, prepare for, and respond to the Ebola outbreak prior to enactment of the Act. USAID reports that it has made reimbursements totaling $401 million for obligations made prior to the Act, using $371 million from the IDA account and $30 million from the ESF account of the fiscal year 2015 appropriation. USAID reports that these obligations were incurred by the Office of U.S. Foreign Disaster Assistance (OFDA); the Office of Food for Peace (FFP); the Bureau for Global Health; and missions in Liberia, Guinea, and Senegal. Figure 4 shows USAID’s reported obligations by office and bureau. State reported that it did not reimburse funding for obligations made prior to the act.",
"As of July 1, 2016, USAID and State had obligated 58 percent and disbursed more than one-third of the $2.5 billion appropriated by the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 for Ebola response and preparedness activities. USAID and State obligated funds from various appropriation accounts for Ebola activities during different stages of the response, with the largest shares of funding going to Pillar 1 activities to control the outbreak and to support regional Ebola activities in multiple countries. In response to the Ebola outbreak, USAID obligated funds from the IDA account, and State obligated funds from the Diplomatic & Consular Programs (D&CP) account. As the U.S. government shifted its focus to mitigating second-order impacts and strengthening global health security, USAID obligated funds from the ESF and GHP accounts, and State obligated Nonproliferation, Antiterrorism, Demining, and Related Programs (NADR) account funds for biosecurity activities.",
"As of July 1, 2016, USAID and State had obligated a total of almost $1.5 billion (58 percent) and disbursed $875 million (35 percent) of the $2.5 billion appropriated for Ebola response and preparedness activities (see fig. 5).\nUSAID and State used different appropriation accounts to fund Ebola activities. As shown in table 3 below, USAID allocated the greatest amount of funding for Ebola activities from the IDA account, followed by the ESF and GHP accounts. State allocated funding from the NADR account and D&CP account for Ebola activities.\nUSAID notified the relevant congressional committees on April 8, 2016, that it intended to obligate $295 million in ESF Ebola funds, of which USAID and State would reprogram $215 million for international response activities related to Zika, including $78 million to the CDC for Zika response activities, and $80 million for the CDC’s international coordination of response efforts related to Ebola. As USAID obligates funding for Zika activities, the unobligated balances in the ESF account will continue to decrease. ESF funds appropriated in the Act must have been obligated by September 30, 2016. See figure 6 below for obligations and disbursements by appropriation account, as of July 1, 2016.\nUSAID and State used different appropriation accounts to fund Ebola activities across the four pillars of the U.S. government’s Ebola strategy. For example, USAID primarily used IDA account funds to control the outbreak (Pillar 1), ESF account funds to mitigate second-order impacts of Ebola (Pillar 2), and GHP account funds to strengthen global health security (Pillar 4). USAID allocated all of the funding from the Operating Expenses account to building coherent leadership and operations (Pillar 3). As of July 1, 2016, USAID had obligated more than 60 percent of funds allocated for Pillars 1, 2, and 4 and obligated just under 50 percent of the funds allocated for Pillar 3; USAID and State had disbursed 85 percent of Pillar 1 obligations. See table 4 for the status of allocated funding by Ebola strategy pillar.\nUSAID allocated the greatest amount of funding to activities to control the Ebola outbreak (Pillar 1) and allocated approximately similar amounts of funding to mitigate the second-order impacts of Ebola (Pillar 2) and to strengthen global health security (Pillar 4). Figure 7 shows allocations, obligations, and disbursements by Ebola strategy pillar, as of July 1, 2016. See appendix II for trends in obligations and disbursements by Ebola strategy pillar, as of July 1, 2016.\nUSAID allocated the largest share of its funding to support regional Ebola activities. Ebola funding for regional activities includes all five appropriation accounts administered by USAID from the fiscal year 2015 appropriation (IDA, ESF, GHP, USAID Operating Expenses, and USAID’s Office of Inspector General) and State’s NADR account. The GHP account represents 42 percent of obligated funding for regional activities, while ESF and IDA represent approximately 29 percent and 21 percent of such funding, respectively. See table 5 below for the status of allocated Ebola funding by geographic area.\nOf the three countries most affected by the Ebola virus, USAID obligated and disbursed the most funding for Liberia, as the U.S. government took a lead role in Ebola response efforts in this country. Figure 8 shows allocations, obligations, and disbursements for Liberia, compared with Sierra Leone and Guinea. See appendix III for trends in obligations and disbursements for each country, as of July 1, 2016.",
"Prior to the enactment of the Act in December 2014, USAID had obligated $401 million to respond to the Ebola outbreak. USAID obligated the majority of this funding from the IDA account for Pillar 1 activities to control the outbreak in Liberia. State did not obligate any funding prior to the Act but began obligating D&CP funding to respond to the Ebola outbreak in April 2015.",
"During the early stages of the response to the Ebola outbreak, USAID obligated IDA funds for the majority of its Ebola activities, both before and after it received funding for Ebola activities from the Act. By February 2015, USAID had obligated more than $550 million in IDA funding. USAID obligated IDA account funding at a lower rate after July 1, 2015, as USAID began to shift its focus to recovery activities. As of July 1, 2016, USAID had obligated more than 60 percent of IDA account funding and disbursed more than 80 percent of obligations.\nUSAID used the majority of IDA funds to control the outbreak in Liberia (Pillar 1). Activities to control the outbreak included providing care to Ebola patients; supporting safe burials; promoting infection prevention and control at health facilities; distributing Ebola protection and treatment kits; and conducting Ebola awareness, communication, and training programs. USAID obligated approximately 60 percent of IDA funds for Liberia as of July 1, 2016, which reflects the U.S. government’s lead role in responding to the Ebola outbreak in that country.\nUSAID plans to use the remaining approximately 40 percent of unobligated IDA funds for future Ebola response activities as needed. According to USAID officials, since April 2016, OFDA has programmed IDA funding to provide support for maintaining a residual response capacity and for transitioning to long-term development efforts. According to OFDA officials, these activities will require a modest amount of funding in fiscal year 2017. OFDA officials also noted that the unobligated IDA balance would remain available to address any new cases or outbreaks of Ebola that spread beyond the ability of the host governments to contain them.",
"State obligated most of its D&CP account funding to respond to the Ebola outbreak in early 2015. In February 2015, State notified the relevant congressional committees of its intention to allocate $33 million of $36 million in D&CP account funding to the Office of Medical Services. By the end of May 2015, the Office of Medical Services had obligated 97 percent of its allocated funding and disbursed all of its obligated funding for medical evacuations; overseas hospitalization expenses; and personal protective equipment, among other things. State’s Bureau of Administration, which provided grants to international schools affected by the Ebola outbreak, obligated 95 percent of its allocated D&CP funding by the end of April 2015. State’s Africa Bureau also obligated funding in the early stages of the Ebola response, as it provided support for State’s Ebola Coordination Unit and U.S. embassies affected by Ebola. The Africa Bureau obligated more than half of its D&CP funding for Ebola activities by the end of July 2015. As of June 30, 2016, State had obligated 94 percent of the D&CP account funding and disbursed 99 percent of its obligated funding.",
"USAID started to focus its efforts on mitigating second-order impacts of the outbreak and strengthening global health security between June 1, 2015, and October 1, 2015, using funding from the ESF and GHP accounts. As of May 1, 2015, State began obligating NADR funds for biosecurity activities.",
"USAID increased obligations of ESF by approximately $68 million between June 1, 2015, and October 1, 2015, as USAID offices such as the Bureau for Global Health and the U.S. Global Development Lab obligated ESF funds for activities to mitigate the second-order impacts of the outbreak (Pillar 2). USAID disbursements of ESF funding were less than $5 million until September 1, 2015. As of July 1, 2016, USAID had obligated $251 million from the ESF account for Ebola activities, which represented 35 percent of its total allocated funding from the ESF account.\nOf the ESF funding that USAID obligated to mitigate the second-order impacts of Ebola, USAID obligated the majority of such funding for activities in Liberia, Sierra Leone, and Guinea. Such activities included the development of facilities to decontaminate health-care workers and equipment, restoring routine health services, and strengthening health information systems to better respond to future disease outbreaks. Approximately 45 percent of obligated ESF funds supported such activities in Liberia, while 22 percent and 17 percent funded activities in Sierra Leone and Guinea, respectively.",
"As the numbers of new Ebola cases declined, USAID also began to focus on longer-term efforts to strengthen global health security, using funding from the GHP account. Accordingly, USAID reported no obligations of GHP funding before June 1, 2015 and no disbursements until August 1, 2015. As of July 1, 2016, USAID had obligated 59 percent and disbursed 10 percent of its GHP account funds for Ebola response activities. The Bureau for Global Health, which programs the majority of GHP funding, added all of its GHP funding for Ebola activities to existing awards. Because of the method of payment used for these awards, funding from older appropriations is used first. As a result, the percentage of GHP funding that USAID has disbursed from the fiscal year 2015 appropriation for Ebola activities is the lowest (10 percent) of any account. GHP funding appropriated in the Act does not expire, so USAID can obligate and disburse these funds in future fiscal years.\nUSAID has obligated all of the funding in the GHP account to strengthen global health security (Pillar 4). Such activities included building laboratory capacity, strengthening community surveillance systems to detect and monitor Ebola and other diseases, and building the capacity of West African governments to prepare for and respond to infectious disease outbreaks. Nearly all GHP funding is regional funding rather than funding for a specific Ebola-affected country. For trends in obligations and disbursements of IDA, ESF, and GHP funds for Ebola from February 3, 2015 to July 1, 2016, see appendix IV.",
"State’s Bureau of International Security and Nonproliferation did not begin obligating funding from the NADR account until May 1, 2015, and did not disburse any NADR funds until September 1, 2015, for biosecurity activities. Such activities included training on biosecurity best practices and strategies for Ebola sample management as well as conducting biosecurity risk assessments. All NADR funding supports regional activities in West Africa rather than activities in a single country. As of July 1, 2016, State had obligated all of its NADR funding and disbursed 40 percent of obligated funding from this account.",
"Twenty-one of USAID’s 271 reimbursements for obligations incurred prior to the enactment of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015, were not in accordance with the reimbursement provisions of the Act. These 21 transactions account for over $60 million, or roughly 15 percent, of the approximately $401 million reimbursed. Because USAID did not have the legal authority to make the reimbursements that were not in accordance with the reimbursement provisions in the Act, these reimbursements represent unauthorized transfers. As of October 2016, USAID had not determined whether it had budget authority to support the obligations against the accounts that were improperly reimbursed, possibly resulting in a violation of the Antideficiency Act. In addition, USAID has not developed written policies or procedures to guide staff on appropriate steps to take for the reimbursement process. Such policies or procedures could provide USAID with reasonable assurance that it will comply with reimbursement provisions and mitigate the risk of noncompliance.",
"Of 271 reimbursements that USAID made for obligations incurred prior to the enactment of the Act, USAID made 21 reimbursements (totaling over $60 million) that were not in accordance with the Act. These 21 reimbursements represent roughly 15 percent of the approximately $401 million that USAID obligated for reimbursements, of the almost $1.5 billion that had been obligated as of July 1, 2016. USAID made the other 250 reimbursements (totaling about $341 million) in accordance with the reimbursement provisions of the Act for funds that OFDA and FFP obligated prior to enactment of the Act. To assess whether USAID’s reimbursements were in accordance with the Act, we reviewed USAID documentation to determine whether each reimbursement met the four provisions described in the text box below.\nReimbursement Provisions of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015\nThe reimbursement was made to the same appropriation account as the account from which the U.S. Agency for International Development originally obligated the funds.\nThe obligation was incurred prior to the December 16, 2014, enactment of the Act.\nThe obligation was incurred to prevent, prepare for, and respond to the Ebola outbreak.\nThe reimbursement was made from the International Disaster Assistance, Economic Support Fund, and Global Health Programs accounts of the fiscal year 2015 appropriation.\nFor the 21 reimbursements (totaling over $60 million), USAID did not reimburse the same appropriation accounts as the accounts from which USAID originally obligated the funds. Moreover, for 4 of the 21 reimbursements, USAID reimbursed obligations for which it did not document that it incurred the obligation to prevent, prepare for, or respond to the Ebola outbreak. Specifically,\nUSAID did not reimburse the same appropriation account as the account from which USAID originally obligated the funds. The Bureau for Global Health; FFP; and the missions in Guinea, Liberia, and Senegal incurred over $60 million in obligations from the GHP, Title II of the Food for Peace Act (Title II), and Development Assistance accounts. Although USAID used funding from the ESF and IDA accounts of the fiscal year 2015 appropriation to make 21 reimbursements for these obligations, the agency did not reimburse the GHP, Title II, and Development Assistance accounts from which USAID originally obligated the funds, in accordance with the Act (see table 6). Instead, USAID reimbursed the office, bureau or mission that originally obligated the funds. These reimbursements were made to different accounts, with different spending authorities, than those from which the original obligation was made. For example, FFP obligated approximately $30 million in Title II account funds for the World Food Program’s regional program to address the urgent food needs of populations affected by the Ebola outbreak, but USAID used approximately $30 million in IDA account funds from the fiscal year 2015 appropriation to reimburse FFP and credited the funds to FFP’s IDA account.\nUSAID reimbursed obligations for which it did not document that it incurred the obligation to prevent, prepare for, and respond to the Ebola outbreak. USAID made four reimbursements, totaling about $3.3 million, for which USAID was unable to provide documentation showing that the original obligations funded activities to prevent, prepare for, and respond to the Ebola outbreak. For example, USAID reimbursed approximately $1.3 million for an obligation incurred by the Bureau for Global Health in September 2014. However, USAID officials noted that they did not document the amount or purpose of the obligation at the time the funds were obligated. In July 2016, in response to our inquiry, USAID prepared a memorandum to attest that the original obligation was approximately $1.3 million and funded technical assistance for Ebola preparedness to 13 African countries. In another instance, USAID reimbursed $500,000 for an obligation incurred for the preparation of laboratories to detect Middle East Respiratory Syndrome (MERS) and other acute respiratory infections in the Africa region. However, USAID was unable to provide us documentation showing how the obligation funded activities related to the Ebola outbreak.\nBecause USAID did not have the legal authority to make the reimbursements that were not in accordance with the reimbursement provisions in the Act, these 21 reimbursements represent unauthorized transfers. Further, the Antideficiency Act prohibits an agency from obligating or expending more than has been appropriated to it. As of October 2016, USAID had not determined whether it had the budget authority to support the obligations against the accounts that were improperly reimbursed.\nSee appendix V for a complete list of USAID’s reimbursements for obligations incurred prior to the fiscal year 2015 appropriation.",
"The concerns we identified with the 21 reimbursements could partly be attributed to the fact that USAID has not developed written policies or procedures to guide staff on appropriate steps to take to make reimbursements and document them. Internal control standards require that management design control activities—actions established through policies and procedures—to achieve objectives and respond to risks and implement such activities through policies. By developing written policies and procedures, offices and bureaus would know what steps they should take to ensure that reimbursements are made in accordance with an appropriation act and other applicable appropriations laws and are recorded in a manner that allows documentation to be readily available for examination. Such written policies and procedures could provide USAID with reasonable assurance that it is complying with reimbursement provisions and help mitigate the risk of noncompliance.\nWithout written policies and procedures, USAID does not have a process in place for making reimbursements and maintaining documentation to show that it complied with the reimbursement provisions of the Act. Our review found that USAID made 21 reimbursements that it did not have the legal authority to make, possibly resulting in the obligation or expenditure of funds in excess of appropriations, which would violate the Antideficiency Act. In addition, because USAID did not have written policies and procedures for maintaining documentation of the reimbursements, USAID officials spent several months locating records to demonstrate to us that USAID had reimbursed 250 obligations in a manner consistent with the provisions of the Act. USAID officials also noted that because they did not document the purpose of some obligations at the time the funds were obligated, USAID officials had to create a memorandum to explain how two reimbursed obligations funded USAID activities to prevent, prepare for, and respond to the Ebola outbreak.",
"West Africa has experienced the largest and most complex Ebola outbreak since the virus was first discovered, resulting in more than 11,000 deaths. The outbreak not only disrupted the already weak health- care systems in Guinea, Liberia, and Sierra Leone but also contributed to reduced economic activity, job loss, and food insecurity in these countries. USAID and State have funded a range of activities to control the outbreak and will continue to fund longer-term efforts to mitigate the second-order effects and strengthen global health security.\nThe Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015, authorized the reimbursement of obligations incurred prior to enactment to prevent, prepare for, and respond to the Ebola outbreak. While most of USAID’s reimbursements were made in accordance with the reimbursement provisions of the Act, roughly 15 percent of the funds that USAID reimbursed were not. In particular, USAID did not in all cases reimburse the same appropriation accounts from which it obligated funds as required by the Act, and in several instances it made reimbursements for obligations for which it did not document that it incurred the obligation to prevent, prepare for, and respond to the Ebola outbreak. As a result, USAID may not have the budget authority to support the obligations against the accounts that were erroneously reimbursed, which may result in a violation of the Antideficiency Act. Furthermore, without written policies and procedures, USAID risks the possibility of noncompliance recurring should USAID be granted reimbursement authority in the future.",
"To ensure that USAID reimburses funds in accordance with section 9002 of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015, we recommend that the Administrator of USAID take the following three actions: 1. Reverse reimbursements that were not made to the same appropriation account as the account from which USAID obligated the funds. 2. Reverse reimbursements for which there is no documentary evidence that the obligation was incurred to prevent, prepare for, and respond to the Ebola outbreak. 3. Determine whether reversing any of these reimbursements results in the obligation of funds in excess of appropriations in violation of the Antideficiency Act and, if so, report any violations in accordance with law.\nTo help ensure that USAID complies with reimbursement provisions that may arise in future appropriations laws, we recommend that the Administrator of USAID develop written policies and procedures for the agency’s reimbursement process.",
"We provided a draft of this report to USAID and State for comment. In its written comments, reproduced in appendix VI, USAID agreed with our findings and recommendations. USAID noted that it would reverse reimbursements that were not made to the same appropriation account as the account from which USAID originally obligated funds, and that it is reviewing whether it has violated the Antideficiency Act. State did not provide formal comments. USAID and State also provided technical comments, which we incorporated throughout the report, as appropriate.\nWe are sending copies of this report to the appropriate congressional committees, the U.S. Agency for International Development, the Department of State, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov If you or your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@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 VII.",
"The Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 (the Act), included a provision for us to conduct oversight of the U.S. Agency for International Development’s (USAID) and the Department of State’s (State) activities to prevent, prepare for, and respond to the 2014 Ebola outbreak and reimbursements made. We examined (1) USAID’s and State’s obligations and disbursements for Ebola activities and (2) the extent to which USAID made reimbursements in accordance with the requirements of the fiscal year 2015 appropriations act.\nTo examine USAID’s and State’s obligations and disbursements for Ebola activities, we analyzed each agency’s allocation, obligation, and disbursement data for Ebola response and preparedness activities reported in USAID’s and State’s reports to the Senate and House Committees on Appropriations mandated by the Act. We analyzed USAID’s and State’s reported data on allocations, obligations, and disbursements that USAID and State reported from February 3, 2015, to July 1, 2016. We obtained and analyzed the data from USAID for the International Disaster Assistance; Global Health Programs; Economic Support Fund; USAID Operating Expenses; Nonproliferation, Antiterrorism, Demining, and Related Programs; and USAID Office of Inspector General appropriation accounts. We obtained and analyzed the data for the Diplomatic & Consular Programs account from State, which State reported separately. We reviewed each agency’s reports to congressional committees to determine the activities funded and reasons for any changes in the agencies’ cost estimates and use of the funds. We interviewed USAID and State officials in Washington, D.C., from each bureau and office that administers funding from accounts of the fiscal year 2015 appropriation to discuss the status of the agencies’ obligations and disbursements for activities to prevent, prepare for, and respond to the Ebola outbreak in West Africa, methods for reporting the funding data, and plans for obligating and disbursing the funds. We also interviewed officials from each of USAID’s and State’s offices that report on the funds to obtain information about their budgeting process and terms to determine the best method for analyzing the data across accounts. We then reviewed the data and information reported and consulted with USAID and State officials on the accuracy and completeness of the data and information. When we found data discrepancies, we contacted relevant agency officials and obtained information from them necessary to resolve the discrepancies. To assess the reliability of the data provided, we requested and reviewed information from agency officials regarding the underlying financial data systems and the checks and reviews used to generate the data and ensure its accuracy and reliability. To further ensure the reliability of the data, we obtained from USAID officials data from the financial data system that USAID used to report obligation and disbursement data and compared them to a sample of the data that we analyzed. We determined that the data we used were sufficiently reliable for our purposes of examining USAID’s and State’s obligations and disbursements of the funds.\nTo examine the extent to which USAID made reimbursements in accordance with the Act, we reviewed USAID’s reports to the Senate and House Committees on Appropriations mandated by the Act to determine the obligations that the agency incurred prior to enactment and the reimbursements that USAID made for the obligations. We obtained data and documentation from each USAID bureau and office that administered the appropriation accounts for the obligations incurred prior to the fiscal year 2015 appropriation. To assess the reliability of the data provided, we requested and reviewed information from USAID officials regarding the underlying financial data systems and the checks and reviews used to generate the data and ensure its accuracy and reliability. We determined that the data we used were sufficiently reliable for our purposes of examining USAID’s reimbursements. We analyzed these data and reviewed documents to determine the dates and amounts of the obligations, the activities that the obligations funded, and the appropriation accounts used for the obligations. We also analyzed the data and reviewed documents to determine the amounts of the reimbursements, the appropriation accounts from the fiscal year 2015 appropriation that USAID used for the reimbursements, and the appropriation accounts to which USAID reimbursed the funds. We reviewed USAID’s congressional notifications and award documentation to determine the amounts, purposes, and appropriation accounts for the obligations that USAID incurred prior to the enactment of the Act as well as the amounts and appropriation accounts from which USAID reimbursed the funds. We interviewed USAID and State officials about the extent to which the agencies incurred obligations prior to the appropriation and reimbursed the funds. We also interviewed USAID officials and reviewed USAID’s policies for the management of funds to determine the extent to which the agency had developed and implemented written policies or procedures for the reimbursement process. We assessed the extent to which the obligations and reimbursements were consistent with the provisions of the Act as well as the extent to which the procedures USAID used met relevant internal control standards.\nWe conducted this performance audit from June 2015 to November 2016 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.",
"As of July 1, 2016, the U.S. Agency for International Development (USAID) and the Department of State (State) had obligated the largest share of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 (the Act) Ebola funding for activities to control the outbreak (Pillar 1). USAID had obligated lesser amounts of funding for activities to mitigate second-order impacts of Ebola (Pillar 2) and activities to strengthen global health security (Pillar 4). USAID obligated a minimal amount of funding for building coherent leadership and operations (Pillar 3). For all strategy pillars, the largest percentage increase in obligations occurred between April 1, 2015, and July 1, 2015 (see fig. 9).",
"The U.S. Agency for International Development (USAID) obligated funding from the International Disaster Assistance (IDA) and Economic Support Fund (ESF) accounts for almost all of its country-specific Ebola funding. More than 80 percent of the funding that USAID has obligated for Ebola activities in Guinea, Liberia, and Sierra Leone is from the IDA account. Since USAID began its reporting to Congress on Ebola funding in February 2015, IDA obligations for Liberia show the greatest increase between February 3, 2015, and July 1, 2015, and ESF obligations for Liberia show the greatest increase between April 1, 2015, and October 1, 2015 (see fig. 10). ESF disbursements do not begin before July 1, 2015. USAID deobligated and reprogrammed IDA funding for Liberia between January 1, 2016, and July 1, 2016, as it needed fewer funds to control the outbreak.\nConsistent with Liberia, since USAID began reporting to Congress on its Ebola funding in February 2015, USAID obligations of IDA funding for Sierra Leone show the greatest increases between February 3, 2015, and July 1, 2015. However, USAID made no obligations of ESF funding before April 1, 2015, and no disbursements of ESF funding until after July 1, 2015 (see fig. 11).\nSince USAID began reporting to Congress on its Ebola funding in February 2015, the greatest increase in obligations from the IDA account for Guinea occurred between February 3, 2015, and July 1, 2015 (see fig. 12).",
"The International Disaster Assistance (IDA) account represents the majority of funding obligated and disbursed for Ebola activities to control the outbreak. After the enactment of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015, obligations and disbursements from the IDA account increased the most between April 1, 2015, and July 1, 2015 (see fig. 13). The U.S. Agency for International Development (USAID) deobligated and reprogrammed IDA funding between January 1, 2016, and July 1, 2016, as it needed fewer funds to control the outbreak (see fig. 13). The Office of U.S. Foreign Disaster Assistance (OFDA) programmed the majority of IDA funding.\nThe Economic Support Fund (ESF) account represents the majority of funding obligated and disbursed for activities to mitigate the second-order impacts of Ebola. USAID increased obligations of ESF significantly between April 1, 2015, and October 1, 2015, as new cases of Ebola decreased. Disbursements of ESF funding did not increase significantly until after July 1, 2015 (see fig. 14). USAID’s Bureau for Global Health and Global Development Lab programmed the majority of ESF funding.\nThe Global Health Programs (GHP) account represents the majority of funding obligated and disbursed for activities to strengthen global health security. USAID did not obligate any GHP funding between February 3, 2015, and April 1, 2015, and did not report disbursements until August 1, 2015, as USAID intends GHP to fund longer-term activities to respond to future outbreaks (see fig. 15). The Bureau for Global Health programs almost all GHP funding.",
"The U.S. Agency for International Development (USAID) made 271 reimbursements for the approximately $401 million total obligations that USAID’s Bureau for Global Health; Office of Food for Peace (FFP); Office of U.S. Foreign Disaster Assistance (OFDA); and the missions in Guinea, Liberia, and Senegal incurred prior to the enactment of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 (the Act). Of the 271 reimbursements, USAID made 250 reimbursements (totaling about $341 million) in accordance with the reimbursement provisions of the Act. USAID made these 250 reimbursements for funds that OFDA and FFP obligated prior to enactment of the Act. However, USAID made 21 reimbursements (totaling over $60 million) that did not accord with the reimbursement provisions of the Act. USAID made these 21 reimbursements for funds that the Bureau for Global Health, FFP, and the missions obligated prior to enactment of the Act. Tables 7 through 9 provide information about these 21 reimbursements and the requirements of the Act that each of the reimbursements did not meet.",
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"In addition to the contact named above, Valérie L. Nowak (Assistant Director), Bradley Hunt (Analyst-in-Charge), Ashley Alley, Bryan Bourgault, Debbie Chung, Neil Doherty, Rachel Dunsmoor, Jill Lacey, Amanda Postiglione, and Matthew Valenta made key contributions to this report."
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"question": [
"To what extent were USAID's reimbursements in accordance with the Act?",
"How large were these reimbursements compared to the overall flow of reimbursements?",
"Why might these reimbursements be cause for concern?",
"To what extent were these reimbursements a failure of policy?",
"How does this lack of policy lead to confusion in the reimbursement process?",
"How widespread was the Ebola outbreak in West Africa?",
"How did USAID fund Ebola activities?",
"How was USAID's funding increased?",
"How were these funds involved in reimbursements?",
"How did the Act ensure the process had oversight and was reviewed?",
"How did GAO examine the reimbursement process?",
"How did GAO obtain specific data about funding?"
],
"summary": [
"Of 271 reimbursements that USAID made for obligations incurred prior to the enactment of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015 (the Act), USAID made 21 reimbursements, totaling over $60 million, that were not in accordance with the Act.",
"These 21 reimbursements represent roughly 15 percent of the $401 million that USAID obligated for reimbursements, of the almost $1.5 billion that had been obligated as of July 1, 2016 (see fig.).",
"For these 21 reimbursements, USAID did not reimburse the same appropriation accounts as the accounts from which it originally obligated the funds, and therefore it did not have legal authority to make these reimbursements.",
"In reviewing the reimbursements, GAO found that USAID does not have written policies or procedures for staff to follow in making and documenting reimbursements.",
"As a result, USAID does not have a process that could provide reasonable assurance that it complies with reimbursement provisions of applicable appropriations laws, such as the reimbursement provisions in the Act.",
"In March 2014, the World Health Organization reported an Ebola outbreak in West Africa and, as of June 2016, reported that the outbreak had resulted in more than 11,000 deaths in Guinea, Liberia, and Sierra Leone.",
"USAID and State initially funded Ebola activities using funds already appropriated.",
"In December 2014, Congress appropriated approximately $2.5 billion to USAID and State, in part, for international efforts to prevent, prepare for, and respond to an Ebola outbreak and mandated that the agencies report periodically on their use of the funds.",
"Congress also allowed the agencies to reimburse accounts for obligations incurred for Ebola activities prior to the fiscal year 2015 appropriation.",
"The Act also included a provision for GAO to conduct oversight of USAID and State activities to prevent, prepare for, and respond to the Ebola outbreak.",
"This report examines (1) USAID's and State's obligations and disbursements for Ebola activities and (2) the extent to which USAID made reimbursements in accordance with the fiscal year 2015 appropriations act.",
"GAO analyzed USAID and State funding, reviewed documents on Ebola activities, and interviewed agency officials."
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GAO_GAO-17-182
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{
"title": [
"Background",
"Selected Federal Access Control Efforts have Similar Processes, but Three Key Factors Had an Impact on Stakeholders",
"Access Control Efforts Follow Similar Processes, but Specific Characteristics of the Efforts Vary",
"Access Control Efforts Have Different Impacts on Stakeholders Due to Varying Interests",
"Facility Operators May Consider Additional Requirements in Making Final Access Decisions",
"Credentials Generally Cannot be Used Within or Across Critical Infrastructure Sectors",
"Biographic Information is Collected Multiple Times across Selected Efforts",
"DHS’s Critical Infrastructure Partnership Structures Provide Opportunities to Harmonize Access Control Efforts",
"DHS Uses Partnership Structures for Critical Infrastructure Protection",
"Partnership Structures Provide Opportunities for Harmonization of Access Control Efforts across Critical Infrastructure Sectors",
"SCO Has Taken Actions to Harmonize DHS Access Control Efforts, but Has Not Updated Its Goals and Objectives to Support Its Strategic Framework",
"SCO Goals and Actions to Harmonize DHS Access Control Efforts",
"SCO Has Not Updated Its Goals and Objectives to Support its Strategic Framework for Department-wide Access Control Harmonization",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Life Cycle Characteristics for Selected Access Control Efforts",
"Appendix II: Comments from the Department of Homeland Security",
"Appendix III: Comments from the Nuclear Regulatory Commission",
"Appendix IV: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"DHS and other federal agencies help administer access control efforts across a wide range of physical facilities and assets in critical infrastructure sectors for which they are responsible. These federal administrators help operators of critical infrastructure assets safeguard the assets against attacks, sabotage, theft, or misuse while facilitating legitimate access to help ensure the flow of business and operations. In efforts to serve operator needs, administrators must also ensure compliance with federal laws and regulations. Federal agencies play a variety of roles in helping to strike this balance, including but not limited to (1) owning and operating certain types of infrastructure, (2) wholesale operation and management of credentialing programs for specific kinds of infrastructure, (3) partial operation and management of credentialing programs, and (4) providing regulations and guidance to help owners and operators implement effective access control. For example, DHS’s Transportation Security Administration (TSA) manages the entire Transportation Worker Identification Credential (TWIC) qualification process including enrollment, background checks, and credential issuance. However, for the Secure Identification Display Area (SIDA) badge, which facilitates access at airports, and is managed in part by TSA, airport operators use TSA’s background check information to ultimately make final decisions about airport access and badge issuance. Similarly, NRC issues regulations related to access control requirements, which are to be implemented by commercial nuclear power plants, and DOD owns and operates U.S. military installations and facilities and uses the Common Access Card (CAC) as one method to facilitate access to semi-restricted areas within the installations.\nWorkers who need access to multiple types of critical infrastructure to realize their livelihoods—such as truck drivers and carpenters—often encounter different access control efforts. For example, carpenters and contractors working at seaports and airports may require both a TWIC credential for the seaports and SIDA badges for each specific airport. Similarly, industries that work across different critical infrastructure sectors may encounter multiple federal access control efforts. For example, a company producing or storing regulated chemicals on both land and at seaports may encounter different access control efforts depending on the location of the facility.\nSee Table 1 for a list of selected federally-administered critical infrastructure access control efforts and a brief description of each effort.",
"",
"While the six selected federally administered access control efforts we reviewed had varying purposes, standards, or agency responsibilities, they generally included the following process components or phases of DHS’s credentialing lifecycle as depicted in Figure 1.\nAlthough the six efforts we reviewed generally follow similar processes, certain characteristics within these efforts can vary. For instance, we found that roles and responsibilities of the federal administrators and the operator stakeholders in credentialing varied. As an example, TSA is responsible for implementing the entire TWIC credentialing process including enrollment and background checks, while maritime port facility operators—public port authority or privately operated facilities—are responsible for physically verifying the credentials that TSA has issued at ports. In contrast, under the SIDA program, TSA and airport operators each have certain responsibilities for several elements of the credentialing process, including the criminal history record check.\nTable 2 summarizes the credentialing processes along with the roles and responsibilities of government and private entities for the six selected efforts we reviewed. Appendix I provides more detailed and specific information about each of the six selected efforts we reviewed.",
"As previously mentioned, federally-administered access control efforts generally involve two groups of stakeholders: users and operators. Users are individuals who require access to critical infrastructure as an essential function of their job. Users we interviewed that require access to multiple types of critical infrastructure said they recognize the need for security, but are interested in streamlined access control efforts to facilitate legitimate access in a manner that minimizes the related time and costs they incur. They also told us they desire the maximum possible uniformity across standards for background investigation and disqualifying offenses to enhance predictability. Operators are individuals or groups who own or are responsible for managing facilities, such as airports, seaports, and chemical facilities, which may be privately owned, but can also include other government-owned facilities such as military installations. Operators, we spoke with, who are responsible for providing security for critical infrastructure, said they need to maintain control over who enters their facilities so they can manage their accepted level of risk along with the associated costs. Operators said they prefer to retain maximum decision-making authority for granting access as well as the type of credential they use to verify proper vetting.\nBased on our interviews with stakeholder groups and associations, the issues mentioned that had an impact on users and operators included (1) operators may add access requirements to vetting and background checks already conducted for federally administered programs; (2) credentials that cannot be used within and across critical infrastructure sectors; and (3) enrollment information that has to be entered multiple times for the same user for similar purposes. It is important to note that although these issues can present challenges for various users and operators, they do not necessarily reflect a deficiency on the part of any specific access control effort or stakeholder group. For the most part, these six selected efforts were created separately in response to different needs, are largely governed by different laws and regulations, and were not necessarily designed to work together.",
"User groups we interviewed expressed a desire to be able to predict denial of access based on clear and standardized requirements; while operator groups described the need for some variability in requirements across sites, so they can manage their context-specific risks. Part of the eligibility vetting process for all the six selected access control efforts we reviewed includes determining if an applicant is on the known or suspected terrorist list or has a criminal history with certain disqualifying offenses that warrant denial of the access. Specific disqualifying offenses can vary across these federal efforts because of differences in the statutes that established the federal efforts. This variability can create some level of complexity for the users of multiple federally-administered efforts, which is compounded when individual on-site critical infrastructure operators impose additional requirements. For example, according to association members representing carpenters, the lack of consistency around whether individuals can qualify for access has led to difficulties aligning staff with critical project tasks. As a result, the time associated with identifying disqualifying offenses can lead to challenges with meeting scheduled project timelines and budgets.\nFor all six selected federal access control efforts we reviewed, regardless of the way the access effort was structured (whether the infrastructure is government or privately owned and whether an effort is wholly managed by a federal agency or guided by regulation), we found that on-site operators can make the final decision about who can enter their facilities. During our interviews with users and operators we found that on-site operators across multiple infrastructure types have considered additional disqualifying offenses beyond federal baseline requirements. For example with SIDA, CFATS, and commercial nuclear power plants that are regulated under NRC the individual operator examines the individual’s criminal background information and makes his or her own determination regarding access based on their perception of acceptable risk.\nIn addition, we found that site-specific decision making was taking place under federal efforts for which the government was the sole vetting authority, such as TWIC. For example, port authority representatives told us that ports often perform site-specific background checks even for those individuals with an issued TWIC. Port authority representatives provided two key reasons for conducting their own site-specific background checks on top of the federal government’s process: (1) the ability to view an individual’s comprehensive and recent criminal history and (2) the ability to consider factors that may not be covered in TWIC’s list of disqualifying offenses. Some operator groups that we spoke with noted that the disqualifying offenses covered by programs like TWIC, which is designed to limit terrorism risk, do not cover the full range of safety and security concerns that are ultimately their responsibility to control. For example, a representative from the American Association of Airport Executives told us that airports have the discretion to consider requirements beyond federal regulations, which can be used to disqualify applicants for a SIDA. These additional requirements may reside in state or local ordinance, and can vary from airport to airport. Consequently, some operators perform additional vetting on site, which allows them to align vetting policies and procedures with their accepted types and level of risk.\nEven when the federal government has sole vetting authority, facility operators and military installation commanders can choose to add additional vetting procedures to ensure they are managing their facilities based on their own accepted level of risk. For example, in 2009, DOD issued a policy directive to accept, among others, the TWIC and the CAC as identification documents authorized to facilitate physical access to installations. However, according to DOD headquarters officials, the military services maintained that the TWIC was not intended to be used for access to military installations, and consequently this policy has not been implemented uniformly across DOD. For example, truck drivers holding TWIC cards and serving military installations have been at times required to undergo additional background and security checks. According to trucking industry representatives, inconsistency across DOD installations is a source of concern as they do not know what might be required of drivers who are trying to gain access. In addition, delays in gaining access to installations can result in increased costs for the truck drivers, and potentially create cascading delays for their subsequent deliveries. Installation commanders have been given the authority to supplement the DOD procedures and process for accessing their installation to help ensure appropriate response to risk with real-time information and decision making. Consequently, the requirements for access can vary by installation. A TSA official also noted that certain sex offenders may be able to get a TWIC, depending on the offense and when the individual was convicted or released from incarceration. The TSA official stated that this is because sexual offenses are not permanently disqualifying under the TWIC statute and may not point to a terrorism or security risk of a regulated maritime facility; however, a military commander may not want to allow that individual onto his or her installation where families with young children are housed and so may consider such offenses disqualifying.",
"User groups we interviewed generally expressed a desire for reciprocity across federally-administered access control efforts, in particular when such efforts have or appear to have the same or similar underlying vetting processes and associated risks. Operators, on the other hand, had mixed perspectives on this issue. While some operators emphasized finding solutions to enhance access control reciprocity, others cited barriers to or challenges with a more uniform approach.\nAmong the six selected access control efforts we reviewed, we found limited mechanisms to use one credential for access to similar facilities within and across sectors (i.e., reciprocity). Two examples of reciprocity are DOD’s CAC, which generally allows access into the semi-restricted areas of most military installations, and the CFATS Personnel Surety Program, which allows regulated high-risk chemical facilities to accept previously-issued TWICs to grant access if they are electronically verified, or other credentials issued through a federally administered screening program, if they are visually verified, and if the screening program periodically vets enrolled individuals against the Terrorist Screening Database. Across the chemical sector, chemical facility access is facilitated by two different access control efforts depending on where the chemical facility is located—land-based facilities are governed by CFATS and maritime-based facilities are governed by TWIC. Officials from NPPD, the DHS component that administers CFATS, stated that NPPD explored allowing land-based chemical facility users to enroll in the TWIC program, but DHS has interpreted the Maritime Transportation Security Act of 2002 to provide limited authority to do so. However, individuals in the field of transportation who are eligible for a TWIC may apply for and receive that credential to satisfy the CFATS requirement. NPPD officials stated that facilities may also use screening results from other agencies, such as the Bureau of Alcohol, Tobacco, Firearms, and Explosives, as long as the vetting process includes checking against the Terrorist Screening Database.",
"The user stakeholders we interviewed expressed a desire to be able to enter their biographic information once during the registration and enrollment phase, and have that information reused for other access control efforts, and where possible, for background check processing. Some operator groups we interviewed indicated that it was costly and inefficient for operators and users to enter biographic data multiple times. However, federal administrators are limited in their ability to share biographic information across screening efforts because of information technology, and privacy considerations. Among the six access control efforts we reviewed, there are some mechanisms to reuse biographic information; however, there are no set requirements to do so. For example, operators may collect complete biographic information each time a user applies for a SIDA badge for an airport facility. A user group said that it would like to be able to reuse their biographic information for airports, but TSA officials we interviewed stated that any proposed solution to reuse biographic information would be affected by privacy considerations. Under federal law, personal information collected and maintained by an agency for a particular effort may not be disclosed to another agency, with certain exceptions.\nIn contrast, within NRC’s regulated commercial nuclear power plants, operators use the Personnel Access Database System (PADS) in cooperation with NRC that allows users to provide biographic information once to access multiple facilities because potential employees sign a release of information form to use the system. Users and operators agreed that they benefited from the ease of PADS because they do not have to submit biographic information for each facility. They told us that PADS allows for employee data to be shared across NRC nuclear power plant facilities in part because it is an industry-operated system that is not constrained by federal privacy requirements that would apply to federal systems.",
"",
"DHS has established roles and responsibilities for supporting collaboration efforts among key stakeholders across critical infrastructure sectors. The department also uses partnership structures to enhance information sharing efforts aimed at strengthening critical infrastructure security. According to Presidential Policy Directive/PPD-21 (PPD-21), DHS is responsible for coordinating the overall federal effort to promote the security and resilience of the nation’s critical infrastructure, provide strategic guidance, and promote a national unity of effort, among other responsibilities. Within DHS, NPPD’s Office of Infrastructure Protection (IP) leads the coordinated national effort to mitigate risk to the nation’s critical infrastructure and is responsible for working with public and private sector critical infrastructure partners to enhance security efforts. Using a partnership approach, NPPD IP’s Sector Outreach and Programs Division works with owners and operators of the nation’s critical infrastructure to develop, facilitate, and sustain strategic relationships and information sharing efforts, including the sharing of best practices. NPPD IP also oversees and supports various partnership councils intended to protect and provide essential functions to enhance response efforts.\nAs reported in the National Infrastructure Protection Plan (NIPP), DHS has created partnership structures to collaborate and engage federal and nonfederal stakeholders in critical infrastructure discussions and to enhance critical infrastructure resilience efforts. These voluntary partnership structures provide forums for critical infrastructure stakeholders—federal, state, local, tribal, territorial, and private sector officials—to come together, exchange ideas, and leverage resources. The Critical Infrastructure Partnership Advisory Council (CIPAC) serves as a forum among critical infrastructure stakeholders to facilitate interaction and coordination of critical infrastructure activities, including planning, coordinating, and exchanging information on cross-sector issues and implementing security and resilience program initiatives. CIPAC membership consists of representatives from the Government Coordinating Councils (GCC) and Sector Coordinating Councils (SCC)— federal, state, and local agency officials and private owners and operators, respectively—who work together to coordinate strategies, activities, and policies across governmental entities within each of the 16 critical infrastructure sectors.\nThe NIPP also establishes voluntary cross-sector councils to develop national priorities related to strengthening critical infrastructure security. Specifically, the Critical Infrastructure Cross-Sector Council provides a forum for SCCs to address cross-sector issues and interdependencies. This council’s activities primarily focus on identifying and disseminating critical infrastructure security and resilience best practices across sectors, and identifying areas where cross-sector collaboration could advance national priorities. Additional cross-sector councils representing state, local, tribal, and territorial partners serve as forums for members to (1) facilitate enhanced communication and coordination across sectors, (2) evaluate and promote implementation of risk-informed critical security and resilience programs, and (3) promote resilience activities in the public and private sectors, mainly through awareness, education, and mentorship on a wide variety of subjects, among other activities. Within NPPD, the Interagency Security Committee (ISC) serves as a forum for chief security officers and other federal agency officials to develop federal security standards and policies to enhance physical security of non-DOD federal facilities and engage with industry stakeholders to advance best practices. Collectively, these voluntary DHS partnership structures are designed to provide federal agencies a better understanding of the risks associated with critical infrastructure security and an enhanced awareness to make informed decisions about critical infrastructure priorities.",
"According to NPPD senior officials, DHS voluntary partnership structures exist to discuss a variety of issues that have an impact on critical infrastructure security, but DHS has not used these structures to identify opportunities to harmonize regulated screening and credentialing efforts. The issues discussed earlier in this report about users’ and operators’ experiences across different access control efforts illustrate that there are administrative burden and costs both within and outside of government when the efforts are inconsistent or their administration appears to be less efficient. However, those findings also highlight that there are few, if any, obvious solutions, as many of the issues involve tradeoffs across competing needs of different stakeholder groups and ongoing consideration of the appropriate balance to manage risk without unnecessarily impeding business and operations. In that regard, NPPD officials stated there are challenges, and developing a one-size fits all approach to harmonizing credentialing procedures is not a feasible solution because of the complexities within and across critical infrastructure sectors. Nonetheless, they acknowledged that finding opportunities to harmonize efforts is a worthwhile goal to pursue.\nGuidance from DHS partnership structures and our best practices call for entities to identify and share best practices and to collaborate by seeking means to address needs by leveraging resources and establishing compatible policies, procedures, and practices. Specifically, the CIPAC charter document, calls for CIPAC to facilitate interaction among federal government, private sector, and state, local, territorial, and tribal entities to conduct deliberations and form consensus positions to assist the federal government in engaging in implementing security and resilience program initiatives, including conducting operational activities related to critical infrastructure security, sharing threat, vulnerability and risk information, and best practices with one another. Similarly, our work on enhancing collaboration across organizational boundaries calls for entities to, among other things, (1) identify and address needs by leveraging resources and (2) establish compatible policies, procedures, and other means to operate across agency boundaries.\nGiven NPPD IP’s role as the DHS component responsible for leading the national effort to strengthen the security and resilience of the nation’s critical infrastructure, DHS is well positioned to facilitate collaboration across stakeholder groups—users, operators, and federal administrators—to identify opportunities to harmonize access control efforts across critical infrastructure sectors. According to NPPD officials, the CIPAC partnership structure would serve as an appropriate forum for critical infrastructure stakeholders to discuss potential harmonization efforts moving forward. However, NPPD IP officials responsible for overseeing CIPAC and ISC stated that their cross-sector partnership structures have engaged in limited efforts to explore harmonization of access control efforts, because harmonization has not been raised as a key issue or urgent concern by its members.\nHowever, NPPD IP officials stated that issues raised when considering the user perspectives alongside the operator perspectives would not necessarily have emerged in these groups, because as of October 2016, none of the existing CIPAC partnership forums would be appropriate for users or user groups—such as contractors, workers, and others seeking access to multiple critical infrastructure facilities—to share their experiences or concerns. As of October 2016, DHS does not have a dedicated partnership structure that allows for users to share their experiences in navigating through federal access control efforts. Additionally, DHS officials stated that users are not specifically included in the NIPP’s Sector Partnership Model.\nMoreover, NPPD IP officials from the Sector Outreach and Programs Division, who are responsible for coordinating DHS’s partnership structures, stated that government and industry stakeholders have begun initial discussions to enhance information sharing efforts, which could include leveraging information across access control efforts. Specifically, NPPD IP officials reported that during a biannual meeting in July 2016, CIPAC members discussed ways to improve information sharing efforts between government and industry stakeholders related to harmonizing access control efforts. Further, they reported that government and industry stakeholders agreed to create a CIPAC standing committee designed to identify key concerns and engage with members to propose recommendations aimed at enhancing information sharing efforts. Although this effort represents a step towards beginning the discussion of harmonizing access controls efforts, DHS has not fully engaged all relevant stakeholders, specifically users, to explore whether additional opportunities exist to harmonize access control efforts across critical infrastructure sectors. Using existing partnership structures or creating new forums could help DHS more effectively fulfill its role as the facilitator of shared best practices and enhanced collaboration across critical infrastructure partners. In doing so, DHS may be better positioned to identify and implement opportunities to enhance efficiencies within and across related access control efforts.",
"",
"A role of SCO, according to DHS Office of Policy officials, is to serve as a department-wide policy advocate for coordination and harmonization of credentialing and screening efforts within DHS. SCO, which is located in the DHS Office of Policy, maintains roughly 30 full-time equivalent staff across different portfolio teams, such as Identity and Credentialing and Watchlisting and Vetting. SCO officials stated that while it is not the sole entity responsible for assessing and harmonizing screening processes across the department, the office provides subject matter expertise and guidance on screening and credentialing policies and practices with the aim of reducing duplicative, stand-alone DHS programs and processes. SCO works with DHS components that are responsible for overseeing screening and credentialing efforts, such as TSA and NPPD, to achieve DHS’s screening and credentialing harmonization objectives. These objectives include identifying and resolving policy issues and program challenges associated with screening and credentialing, supporting department-wide resources that service screening and credentialing efforts, integrating interdependent resources and processes across DHS programs, and representing DHS to external stakeholders.\nSCO officials reported that their primary activities fall into three general categories: consultant activities, investment-related decision activities, and working group participatory activities. Specifically, SCO officials stated that they assist DHS components in developing and improving credentialing and screening programs by participating in department-wide budget decisions, and through departmental or component-specific working groups that help guide the development of new programs or the restructuring of existing programs.\nAccording to officials, SCO relies on two foundational policy documents as the overarching strategic framework for promoting harmonization and instructing components on methods for improving access control programs and processes—the 2006 Credentialing Initiative Report (CIR) and the 2008 Credentialing Framework Initiative (CFI). The CIR identified common problems, challenges, and areas where DHS could improve screening and credentialing programs and processes. Examples of identified problem areas include inconsistent vetting processes for similar programs and the issuance of multiple credentials in cases where one would be sufficient. The report also identified four recommendations for addressing the aforementioned problems. As part of its efforts to address the recommendations outlined in the CIR, SCO published the CFI, an implementation strategy document designed to guide investments and improve the department’s ability to meet its mission by improving screening and credentialing processes.\nSCO officials stated that they have engaged with DHS components to advance screening and credentialing efficiencies over the past ten years of operation. Through internal annual accomplishment reports and in interviews, SCO provided several examples of activities they have undertaken to advance each of the recommendations outlined in the CIR to advance screening and credentialing efficiencies.\nRecommendation 1: Design credentials to support multiple licenses, privileges or status. SCO led a Common Enrollment Coordinating Council (CECC) sub-team, which was tasked to identify opportunities to develop best practices in DHS’ screening and credentialing enrollment environment. Of the 18 recommendations produced by the CECC sub-team, three were approved by the Joint Requirements Council, which plans to escalate recommendations to DHS leadership for study and possible implementation.\nRecommendation 2: Vetting processes, associated with like uses and like risks, should not be duplicative. SCO partnered with NPPD and TSA to implement the CFATS Personnel Surety Program, which requires that individuals seeking access to restricted areas or critical assets within high-risk chemical facilities are vetted for ties to terrorism. According to SCO and NPPD officials, SCO worked with NPPD to ensure that CFATS vetting standards were aligned with existing DHS vetting efforts to allow the use of screening resources from TSA.\nRecommendation 3: Entitlement to a license, privilege, or status should be verified using electronic scanning technology. SCO officials stated they consulted with the U.S. Coast Guard to develop draft regulations pertaining to the implementation of electronic card readers at maritime facilities to more effectively validate the authenticity of TWIC cards. SCO officials stated that many maritime facilities are currently validating TWICs using visual inspection, and these regulations are designed to help reduce that practice. As we have previously reported, the reliance on the visual inspection of TWICs is vulnerable to the use of counterfeit credentials to gain access.\nRecommendation 4: Establish a preference for ‘enroll once, use many’ environments. SCO officials stated that they consulted with TSA and the U.S. Coast Guard to ensure that certain biographic data elements collected by TSA from maritime workers, as well as the results of TSA’s terrorist screening check for the TWIC program, were available for individuals also applying for a U.S. Coast Guard-sponsored Merchant Mariner Credential (MMC). According to SCO officials, the result of such efforts was partial reciprocity between the TWIC and MMC programs.",
"In its early years, SCO operated under the direction of the strategic policy vision and implementation plans laid out in the 2006 CIR and the 2008 CFI; however, since then, SCO has not updated the goals and objectives outlined in the implantation plans. The 2008 CFI lists a number of structured tasks necessary to implement its recommendations, including the development of a communications timeline for stakeholder engagement and the development and periodic update of CFI implementation goals and objectives. SCO officials stated that the implementation plans are no longer relevant to SCO’s current role in the department. Moreover, in our discussions with SCO officials they described several opportunities to harmonize screening and credentialing efforts that DHS had yet to achieve, such as the integration of information technology systems. Officials from the DHS Office of Policy, which oversees SCO operations, stated that Office of Policy goals and objectives for SCO come directly from the DHS Office of the Secretary. However, our review of office goals from fiscal years 2015 and 2016 showed that none of the Office of Policy’s goals specifically tasked SCO with actionable goals or objectives in support of the strategic policy vision outlined in the CIR and CFI. Additionally, no guidance from the Secretary’s office was issued to SCO from 2009 to 2014.\nSCO officials stated that their internal planning processes are largely informal rather than a systematic approach to identifying and documenting strategic goals and objectives that could help SCO management pursue the most promising opportunities to support DHS’s harmonization efforts and monitor how well its routine activities align with those goals and objectives. Standards for Internal Control in the Federal Government calls for agencies to define objectives clearly to meet its mission, strategic plan, goals, and requirements of applicable laws and regulations. Further, the standards call for management to define objectives in specific and measurable terms so they are understood at all levels of the entity. This involves clearly defining what is to be achieved, who is to achieve it, how it will be achieved, and the timeframes for achievement. Without updated goals and objectives, SCO is missing an important management control to help it ensure that it supports the best opportunities for DHS-wide screening and credentialing harmonization.",
"Balancing the need to secure critical infrastructure while promoting a harmonized screening and credentialing process to access critical infrastructure continues to pose challenges for stakeholders—users and operators—because their interests vary and are not necessarily aligned with each other. DHS is responsible for leading the federal government’s effort to protect the nation’s critical infrastructure, and has created partnership structures to support stakeholder collaboration. Therefore it is well-positioned to explore whether opportunities exist among all stakeholders, including users, to harmonize screening and credentialing processes to provide access in a timely manner. Although DHS does not have a specific partnership structure dedicated for users to share their experiences, DHS’s existing partnership structures or new forums could serve as platforms for all critical infrastructure stakeholders to learn from one another and discuss available options to leverage resources. Using new or existing partnership structures to explore whether opportunities exist to harmonize screening and credentialing processes across critical infrastructure sectors could better position DHS to more effectively balance the need to secure critical infrastructure while promoting harmonized screening and credentialing process.\nWithin DHS’s Office of Policy, the Screening Coordination Office (SCO) is responsible for the coordination and harmonization of screening and credentialing efforts department wide. Although SCO issued foundational policy documents in 2006 and 2008 outlining a strategic framework and implementation plans to harmonize DHS access control efforts, since that time SCO has not updated its goals and objectives to identify improvements needed. Goals and objectives in support of SCO’s strategic framework would better position it to pursue the highest priorities and best opportunities for DHS-wide screening and credentialing harmonization.",
"To enhance its ability to fulfill its role as the facilitator of cross-sector collaboration and best-practices sharing, we recommend that the Secretary of Homeland Security direct the Assistant Secretary of Infrastructure Protection, Office of Infrastructure Protection, take the following action: Explore with key critical infrastructure partners, whether and what opportunities exist to harmonize federally-administered screening and credentialing access control efforts across critical infrastructure sectors.\nTo help ensure that SCO uses its time and resources to pursue the most efficient and effective screening and credentialing harmonization goals on behalf of the department, we recommend that the Secretary of Homeland Security direct the Deputy Assistant Secretary for Screening Coordination, Office of Policy, take the following action: Establish goals and objectives to support its broader strategic framework for harmonization.",
"We provided a draft of this report for review and comment to DHS, NRC, and DOD for their review and comment. DHS and NRC provided written comments, which are reproduced in Appendix II and III. In their comments, DHS concurred with each recommendation and described actions underway or planned to address them including estimated timeframes for completion. If fully implemented, these actions should address the intent of the recommendations and better position DHS to balance the need to secure critical infrastructure while promoting a harmonized screening and credentialing process to access critical infrastructure. For example, in regards to exploring whether and what opportunities exist to harmonize federally-administered screening and credentialing access control efforts across critical infrastructure sectors, DHS noted that they are working to harmonize access control efforts across critical infrastructure as much as practical and remain committed to working towards that end with interagency partners. Specific actions identified to be completed around April 2017 include considering drafting a plan that will include an analysis of how to further explore opportunities to harmonize federally-administered screening and credentialing access control efforts across critical infrastructure sectors. More specifically, the Interagency Security Committee will request that its Steering Subcommittee discuss potential avenues for addressing any gaps and areas of further collaboration related to screening and credentialing access control efforts of federal facilities.\nIn regards to establishing goals and objectives to support the Screening Coordination Office’s (SCO) broader strategic framework for harmonization, DHS identified actions to direct SCO to establish updated goals and objectives to support the broader strategic framework for more efficient and effective vetting. SCO will provide their goals and objectives to DHS components once finalized to be completed by June 2017.\nDHS and DOD also provided technical comments, which were incorporated as appropriate.\nWe are sending copies of this report to the appropriate congressional committees; the Secretaries of Homeland Security and Defense, and the Chairman of the Nuclear Regulatory Commission. 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 concerning this report, please contact me 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 significant contributions to this report are listed in Appendix IV.",
"To address the research question related to describing key characteristics of selected federal access control efforts, we distributed a standard set of questions to three federal agencies—Department of Homeland Security (DHS), Nuclear Regulatory Commission (NRC) and the Department of Defense (DOD). Our questions reflected the screening and credentialing life cycle stages reported by DHS’s Screening Coordination Office, including Registration and Enrollment, Vetting, Issuance, Expiration and Revocation, Redress, and Waiver. Tables 3 through 8 below summarize the aggregated responses received from the 3 agencies to our questions.",
"",
"",
"",
"",
"In addition to the contact named above, Kathryn Godfrey (Assistant Director), Amber Edwards (Analyst-in-Charge), Josh Diosomito, Adrian Pavia, Vijay Barnabas, Tracey King, Richard Hung, Lorraine Ettaro, Dominick Dale, Marc Schwartz, and Joseph Kirschbaum made key contributions to this report."
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"question": [
"To what extent did the access control efforts have similar screening and credentialing processes?",
"What types of infrastructure do these access control efforts focus on?",
"What differences can be found between these access control efforts?",
"What factors may pose challenges in the use of these access controls?",
"Why are partnership models important for the DHS?",
"Why hasn't the DHS taken actions to harmonize access control efforts across sectors?",
"How could the DHS's partnership models be used in the harmonization of access control efforts?",
"To what extent has the SCO taken actions to support harmonization?",
"What is the SCO's strategic framework based on?",
"To what extent are these documents still suitable for the SCO strategic framework?",
"Why is the lack of updated goals an issue for the SCO?",
"What does this report examine?",
"What access control efforts did GAO examine?",
"How were these efforts selected?",
"How did GAO source its data for this report?"
],
"summary": [
"The six selected federally-administered critical infrastructure access control efforts GAO reviewed generally followed similar screening and credentialing processes.",
"For example, the Transportation Security Administration's Transportation Worker Identification Credential controls access to ports, the Department of Defense (DOD) Common Access Card controls access to military installations, and the Nuclear Regulatory Commission (NRC) regulates access to commercial nuclear power plants.",
"GAO found that selected characteristics, such as whether a federal agency or another party has responsibility for vetting or what types of prior criminal offenses might disqualify applicants, varied across these access control efforts. In addition, these access control efforts generally affect two groups of stakeholders—users and operators—differently depending on their specific roles and interests.",
"For example, both users and operators reported that applicants requiring access to similar types of infrastructure or facilities may be required to submit the same background information multiple times, which can be costly and inefficient.",
"The Department of Homeland Security (DHS) relies on partnership models to support collaboration efforts among federal and nonfederal critical infrastructure stakeholders, but has not taken actions to harmonize federally-administered access control efforts across critical infrastructure sectors.",
"According to DHS officials, these partnerships have not explored harmonization of access control efforts across sectors, because this has not been raised as a key issue by the members and because DHS does not have a dedicated forum that would engage user groups in exploring these issues and identifying potential solutions.",
"DHS's partnership models offer a mechanism by which DHS and its partners can explore the challenges users and operators may encounter and determine opportunities for harmonizing the screening and credentialing processes to address these challenges.",
"DHS's Screening Coordination Office (SCO) has taken actions to support harmonization across DHS access control efforts, but it has not updated its goals and objectives to help guide progress toward the department's broader strategic framework for harmonization.",
"SCO's strategic framework is based on two screening and credentialing policy documents—the 2006 Credentialing Initiative Report and 2008 Credentialing Framework Initiative.",
"According to SCO officials, they continue to rely on these documents to provide their office with a high-level strategic approach, but GAO found that the goals and objectives outlined in the two documents are no longer current or relevant.",
"However, without updated goals and objectives, SCO cannot ensure that it is best supporting DHS-wide screening and credentialing harmonization efforts.",
"This report examines (1) key characteristics of selected federally-administered critical infrastructure access control efforts and factors that have an impact on stakeholders' use of them; (2) the extent to which DHS has taken actions to harmonize efforts across critical infrastructure sectors; and (3) the extent to which DHS's SCO has taken actions to harmonize access control efforts across DHS.",
"GAO examined six federally-administered access control efforts across three federal departments.",
"Efforts were selected, among other things, to represent a range of efforts that groups of users—such as truck drivers—may encounter while accessing multiple facilities.",
"GAO interviewed DHS, NRC, and DOD officials and users and operators affected by the efforts and reviewed relevant documents."
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GAO_GAO-18-480
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{
"title": [
"Background",
"340B Program Eligibility",
"Program Structure, Operation, and Key Requirements",
"Contract Pharmacies",
"HRSA’s Oversight of Covered Entities",
"About One-Third of Covered Entities Had One or More Contract Pharmacies, and Pharmacy Characteristics Varied",
"Selected Covered Entities Used Various Methods to Pay Contract Pharmacies and TPAs",
"Contracts Reviewed Showed Covered Entities Agreed to Pay Contract Pharmacies a Fee per 340B Prescription; Some Also Agreed to Additional Fees",
"Selected Covered Entities Use Two Main Methods to Pay TPAs",
"About Half of the Covered Entities Reviewed Provided Low-Income, Uninsured Patients Discounts on 340B Drugs at Some or All of Their Contract Pharmacies",
"Oversight Weaknesses Impede HRSA’s Ability to Ensure Compliance at 340B Contract Pharmacies",
"HRSA Does Not Have Complete Data on Contract Pharmacy Arrangements to Use for Its Oversight",
"Weaknesses in HRSA’s Audit Process Impede Its Oversight of 340B Program Compliance at Contract Pharmacies",
"HRSA’s Guidance for Covered Entities’ Oversight of Contract Pharmacies Lacks Specificity",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Summary of Fees Included in 340B Pharmacy Contracts Reviewed",
"Appendix II: Comments from the Department of Health and Human Services",
"Appendix III: GAO Contacts and Staff Acknowledgments",
"GAO Contact",
"Acknowledgments"
],
"paragraphs": [
"The 340B Program was created in 1992 following the enactment of the Medicaid Drug Rebate Program and gives 340B covered entities discounts on outpatient drugs comparable to those made available to state Medicaid agencies. HRSA is responsible for administering and overseeing the 340B Program.",
"Eligibility for the 340B Program, which is defined in the Public Health Service Act, has expanded over time. Covered entities generally become eligible for the 340B Program by qualifying as certain federal grantees or as one of six specified types of hospitals. Eligible federal grantees include federally qualified health centers (FQHCs), which provide comprehensive community-based primary and preventive care services to medically underserved populations, as well as certain other federal grantees, such as family planning clinics and Ryan White HIV/AIDS program grantees. Eligible hospitals include critical access hospitals—small, rural hospitals with no more than 25 inpatient beds; disproportionate share hospitals— general acute care hospitals that serve a disproportionate number of low- income patients; and four other types of hospitals (see fig. 1).\nSome covered entities, typically hospitals and FQHCs, have multiple sites: the main site, which HRSA refers to as the parent site, and one or more other associated sites referred to as child sites. Child sites can include satellite clinics, off-site outpatient facilities, hospital departments, and other facilities. According to HRSA officials, to participate in the 340B Program and be considered part of the covered entity, the associated sites must meet program requirements and be registered with HRSA as a child site.",
"The 340B price for a drug—often referred to as the 340B ceiling price—is based on a statutory formula and represents the highest price a participating drug manufacturer may charge covered entities. Covered entities must follow certain requirements as a condition of participating in the 340B Program. For example, covered entities are prohibited from subjecting manufacturers to “duplicate discounts” in which drugs prescribed to Medicaid beneficiaries are subject to both the 340B price and a rebate through the Medicaid Drug Rebate Program. diverting any drug purchased at the 340B price to an individual who is not a patient of the covered entity. Under HRSA guidance defining this term, diversion generally occurs when 340B drugs are given to individuals who are not receiving health care services from covered entities or are receiving services that are not consistent with the type of services for which the covered entity qualified for 340B status. (See table 1 for more information on HRSA’s definition of an eligible patient.) Covered entities are permitted to use drugs purchased at the 340B price for all individuals who meet the 340B Program definition of a patient regardless of their financial or insurance status.",
"Covered entities may choose to dispense 340B drugs they purchase through contract pharmacies. The adoption and use of contract pharmacies in the 340B Program is governed by HRSA guidance. HRSA’s original guidance permitting the use of contract pharmacies limited their use to entities that did not have in-house pharmacies and allowed each entity to contract with only one outside pharmacy. However, March 2010 guidance lifted the restriction on the number of pharmacies with which a covered entity could contract. Since that time, the number of contract pharmacies has increased more than fifteen-fold, from about 1,300 to approximately 20,000. According to HRSA guidance, a covered entity is required to have a written contract in place with each pharmacy through which it intends to dispense 340B drugs, but is not generally required to submit its pharmacy contracts to HRSA. A covered entity that has more than one site at which it provides health care may enter into separate pharmacy contracts for the parent site and each child site, or one comprehensive pharmacy contract including all sites intending to use the pharmacy. It is up to the covered entity to determine which of its sites will be included in a contract with a pharmacy, and thus have what is referred to as a contract pharmacy arrangement with that pharmacy. Figure 2 provides an illustration of a covered entity that has four contract pharmacies but a total of six contract pharmacy arrangements, as not all of the entity’s sites have contracts with each of the pharmacies.\nCovered entities that choose to have contract pharmacies are required to register with HRSA the names of each of the pharmacies with which they contract. Covered entities may register their contract pharmacies in one of two ways: 1) only in relation to the parent site (use by child sites would be allowed as long as the sites were included in a comprehensive contract between the entity and the contracted pharmacies); or 2) separately for each site (parent and child) involved in a contractual arrangement with the pharmacy. As part of this registration, HRSA guidance specifies that covered entities must certify that they have signed and have in effect an agreement with each contract pharmacy and have a plan to ensure compliance with the statutory prohibitions on 340B drug diversion and duplicate discounts at their contract pharmacies.\nLike other pharmacies, when contract pharmacies fill prescriptions, they collect payments from the patient; if the patient has health insurance, the pharmacy will bill the insurer for the drug. In addition, each covered entity must determine which prescriptions are for eligible patients of the entity, and thus, can be filled with 340B drugs. One way that a covered entity could choose to do this is to employ a TPA to review all the prescriptions filled by a contract pharmacy to determine which, if any, prescriptions were issued by the covered entity to an eligible patient, and thus are eligible for the 340B discount. The covered entity then pays both the contract pharmacy and the TPA fees that they have negotiated for their roles in managing and distributing 340B drugs. These fees are typically deducted from the reimbursed amounts received from patients and their health insurers by the pharmacy and TPA, and then the balance is forwarded to the covered entity. (See fig. 3 for an example of how covered entities work with contract pharmacies and TPAs to dispense 340B drugs.)",
"In fiscal year 2012, HRSA implemented a systematic approach to conducting audits of covered entities that is outlined on its website. HRSA has increased the number of covered entities audited since it began audits in fiscal year 2012, and now audits 200 entities per year. (See table 2.) HRSA’s audits include covered entities that are randomly selected based on risk-based criteria (approximately 90 percent of all audits conducted each year), and covered entities that are targeted based on information from stakeholders such as drug manufacturers (10 percent of the audits conducted). The criteria for risk-based audits include a covered entity’s volume of 340B drug purchases, number of contract pharmacies, time in the 340B Program, complexity of its program, and history of violations or allegations of noncompliance associated with diversion and duplicate discounts.\nAmong other things, HRSA’s audits include reviews of each covered entity’s policies and procedures, including those for overseeing contract pharmacies; an assessment of the entity’s compliance with respect to 340B eligibility status, the prevention of duplicate discounts and diversion, and other program requirements; and reviews of a sample of prescriptions filled during a 6-month period, including prescriptions dispensed by contract pharmacies, to identify instances of non- compliance. As a result of the audits conducted, HRSA has identified instances of non-compliance with program requirements, including violations related to drug diversion and the potential for duplicate discounts. Based on the audits for which results were posted on HRSA’s website as of February 8, 2018, 72 percent of the covered entities audited in fiscal years 2012 through 2017 had one or more findings of noncompliance. When an audit of a covered entity has a finding of noncompliance, covered entities are required to submit a corrective action plan within 60 days of the audit being finalized for HRSA approval. HRSA closes out the audit once the entity attests that the corrective action plan has been fully implemented and any necessary repayments have been made to affected manufacturers.",
"As of July 1, 2017, about one-third of the more than 12,000 covered entities in the 340B Program had contract pharmacies, but the extent to which covered entities had contract pharmacies varied by type of entity. Overall, a higher percentage of hospitals (69.3 percent) had at least one contract pharmacy compared to federal grantees (22.8 percent). Among the six types of hospitals, the percentage that had at least one contract pharmacy ranged from 39.2 percent of children’s hospitals to 74.1 percent of critical access hospitals. Among the 10 types of federal grantees, the percentage with at least one contract pharmacy ranged from 3.9 percent of family planning clinics to 75.2 percent of FQHCs (see fig.4).\nAmong covered entities that had at least 1 contract pharmacy, the number of contract pharmacies ranged from 1 to 439, with an average of 12 contract pharmacies per entity. However, the number of contract pharmacies varied by covered entity type, with disproportionate share hospitals having the most on average (25 contract pharmacies), and critical access hospitals having the least (4 contract pharmacies). (See fig. 5 for the distribution of contract pharmacies by covered entity type.) However, we found that a covered entity that contracts with a pharmacy may not actually use the pharmacy to dispense 340B drugs. For example, three covered entities that received our questionnaire told us that although they had one or more contract pharmacies registered with HRSA, they did not use those pharmacies to dispense 340B drugs. Moreover, officials from a covered entity we interviewed reported that while the entity maintained a contract with a specialty pharmacy, it had not dispensed 340B drugs through that pharmacy in several years. Officials explained that the covered entity maintained its contract and continued to register this pharmacy with HRSA because it would be financially beneficial should it have a patient fill a 340B-eligible specialty drug at this pharmacy in the future.\nThe actual number of 340B contract pharmacy arrangements—the number of contractual arrangements between contract pharmacies and the sites of a covered entity—is unknown because HRSA does not require a covered entity to register pharmacies with each of its child sites. Rather, HRSA gives covered entities the option to register contract pharmacies only in relation to the parent site: child sites may use that pharmacy if included in the written contract between the entity and the pharmacy. Based on our analysis of HRSA data, 1,645 covered entities that had at least one child site registered their contract pharmacies only with their parent sites. These 1,645 covered entities had a total of 25,481 registered contract pharmacy arrangements. However, if the pharmacies were contracted to work with all of the covered entities’ sites—the parents and all the child sites—then these 1,645 entities could have as many as 866,388 contract pharmacy arrangements. Therefore, the number of contract pharmacy arrangements is likely higher than what is reported in HRSA’s database.\nNearly 93 percent of the approximately 20,000 pharmacies that 340B covered entities contracted with as of July 1, 2017, were classified as community/retail pharmacies, less than 1 percent were classified as specialty pharmacies, and about 7 percent were other types of pharmacies including institutional and mail order pharmacies. Furthermore, the majority (75 percent) of 340B contract pharmacies were chain pharmacies, while 20 percent were independent pharmacies and 5 percent were other pharmacies. In contrast, slightly over half of all pharmacies nationwide are chain pharmacies and about one-third are independent. The five biggest pharmacy chains—CVS, Walgreens, Walmart, Rite-Aid, and Kroger—represented a combined 60 percent of 340B contract pharmacies, but only 35 percent of all pharmacies nationwide. Figure 6 shows how the types of pharmacies varied by type of covered entity. Critical access hospitals had a higher proportion of independent contract pharmacies (40 percent of their pharmacies) compared to other covered entity types (which ranged from 11 percent for disproportionate share hospitals to 21 percent for other federal grantees). Our analysis suggests that this is likely due, in part, to a larger proportion of critical access hospitals compared to other types of covered entities being located in rural areas; independent contract pharmacies are also more likely than other contract pharmacies to be located in rural areas.\nAcross all covered entities, the distance between the entities and their contract pharmacies ranged from 0 miles (meaning that the contract pharmacy and entity were co-located) to more than 5,000 miles; the median distance was 4.2 miles. Table 3 shows the distribution of distances between covered entities and their pharmacies overall and by entity type.\nWhile there was a range in distances between covered entities and each of their pharmacies, about half of the entities had all their contract pharmacies located within 30 miles, but this varied by entity type. Specifically, more than 60 percent of critical access hospitals and FQHCs had all of their contract pharmacies within 30 miles. In contrast, 45 percent of disproportionate share hospitals had at least one pharmacy that was more than 1,000 miles away compared to 11 percent or less for grantees and critical access hospitals. (See fig. 7.)",
"Contracts we reviewed between selected covered entities and contract pharmacies showed that entities generally agreed to pay their contract pharmacies a flat fee per 340B prescription, with some entities also paying additional fees based on a percentage of revenue. Selected covered entities and TPAs included in our review indicated two main methods entities use to pay for TPA services: 1) per prescription processed, or 2) per contract pharmacy.",
"Twenty-nine of the 30 contracts we reviewed between covered entities and contract pharmacies included provisions for the entities to pay flat fees for each eligible 340B prescription. For the remaining contract, the covered entity and the contract pharmacy were part of the same hospital system, and the contract provided that the entity would not pay fees for 340B prescriptions. In addition to payment of flat fees, 13 of the 29 contracts required the covered entity to pay the contract pharmacy a fee based on a percentage of revenue generated for each 340B prescription. Among the contracts we reviewed, more federal grantees than hospitals had contracts that included both flat fees and fees based on the percentage of revenue (see fig. 8).\nWe found a wide range in the amount of flat fees covered entities agreed to pay pharmacies in the contracts we reviewed, though they generally ranged from $6 to $15 per 340B prescription. (See Appendix I for a description of fees listed in each of the contracts we reviewed.) The amount of the flat fees per 340B prescription varied by several factors according to our review, including covered entity type, type of drug, and patient insurance status:\nFlat fees were generally higher for hospitals than federal grantees. In general, hospitals’ flat fees were higher than those for grantees, with most flat fees ranging from $15 to $25 per 340B prescription for hospitals, compared to from $6 to $13 for grantees.\nFlat fees were sometimes higher for brand drugs. Three of the 29 contracts we reviewed specified different flat fees for brand and generic drugs. In 2 of these contracts flat fees were $5 or $7 higher for brand drugs. In the remaining contract, the fees for some brand drugs were substantially higher, ranging from $75 to $1,750 for brand drugs, compared to $0 for generic drugs. Additionally, some contracts we reviewed only specified a fee for brand drugs, and 4 of the contracts either excluded generic drugs from being purchased at the 340B price or limited the use of the 340B Program to brand drugs.\nFlat fees were different or substantially higher for certain specialty drugs. For 2 of the 29 contracts we reviewed, flat fees were for drugs to treat hemophilia. Given the different nature of hemophilia treatment drugs, fees for these drugs were different than those in the other contracts for other types of drugs, and provided for payments of $.06 and $.09 per unit of blood clotting factor. Additionally, 2 contracts contained substantially higher flat fees for specialty medications. In 1 contract, the flat fees were $125 per prescription for brand and generic human immunodeficiency virus drugs, and $1,750 for brand hepatitis C drugs. In another contract the flat fees were $65 for all specialty drugs, compared to $13 for other drugs.\nFlat fees were sometimes higher for 340B prescriptions dispensed to patients with insurance. Seven of the 29 contracts we reviewed specified different flat fees for prescriptions provided to patients with health insurance than for patients paying with cash or through a drug discount card provided by the covered entity. The flat fees entities would pay under these contracts ranged from $1 to $16 higher per 340B prescription dispensed to insured patients compared to patients not using insurance.\nAs previously noted, in addition to requiring flat fees for dispensing prescriptions, 13 of the 29 contracts we reviewed included provisions for the covered entity to pay the pharmacy a fee based on the percentage of revenue generated by each prescription. These percentage fees only applied to prescriptions provided to patients with insurance, and ranged from 12 to 20 percent of the revenue generated by the prescriptions. Generally there were two methods for determining the amount of revenue generated. The first method used the reimbursement the pharmacy received for the prescription, while the second method used the net revenue after subtracting the 340B cost of the drug from the reimbursement received by the pharmacy.",
"Officials from the two TPAs we interviewed and questionnaire respondents from the 39 covered entities that use TPAs described two main methods entities use to reimburse TPAs for 340B services: 1) a fee for each prescription processed by the TPA, and 2) a fee for each contract pharmacy for which the TPA processes 340B claims on behalf of the entity.\nExample of Fees between a Covered Entity and Third-Party Administrator (TPA) In the hypothetical example below, the TPA receives $85 from the contract pharmacy. This amount represents the total reimbursement for the 340B drug, less fees deducted by the contract pharmacy. Pursuant to an agreement with the covered entity, the TPA deducts a fee of $5, and forwards the remaining balance of $80 to the covered entity. This represents the total revenue the covered entity generated from the 340B drug.\nOfficials with the two TPAs we interviewed told us that their agreements with covered entities most frequently involve covered entities compensating them based on a fee for each prescription they process on behalf of the entity. Officials from one of these TPAs described three different fee-per-prescription options they offer to covered entities, with the amount of the fees varying based on the option selected:\nA small fee, for example, 20 cents, for every prescription filled by the covered entity’s contract pharmacy, and reviewed and processed by the TPA. This includes prescriptions that may not have originated from the covered entity, and may not be 340B eligible, as contract pharmacies can also fill prescriptions for individuals who are not patients of the entity.\nA mid-sized fee, for example, $1.90, for each prescription filled by the covered entity’s contract pharmacy that the TPA reviewed and determined originated from the covered entity. These prescriptions may or may not be 340B eligible.\nA larger fee, for example, $5 to $7, for each prescription filled by the covered entity’s contract pharmacy that the TPA determined originated from the entity and is 340B eligible.\nThe 39 covered entities that responded to our questionnaire and reported using a TPA most frequently reported paying their TPAs a fee per each prescription processed, but the exact method varied. For example, some covered entities said they paid their TPAs for each prescription regardless of whether it was determined to be 340B eligible, others limited the fees to prescriptions that were 340B eligible, and some reported paying TPAs for 340B-eligible prescriptions dispensed to an insured patient. (See table 4.)\nAmong the 10 covered entities we interviewed, officials from 8 of these entities said they used TPAs; 5 said they pay their TPAs a fee per prescription, 1 reported paying a fee per contract pharmacy, and 2 reported using both options. Among the covered entities that used fees per prescription and told us the amounts of the fees they pay, the fees ranged from $3.50 to $10.00 per 340B eligible prescription or $3.95 per prescription regardless of whether the prescription was 340B eligible.\nFor those that pay their TPA a fee per contract pharmacy, the fee was $25,000 a year per pharmacy.",
"Of the 55 covered entities responding to our questionnaire, 30 reported providing low-income, uninsured patients discounts on 340B drugs dispensed at some or all of their contract pharmacies, and 25 said they did not offer discounts at their contract pharmacies. All 30 covered entities providing patients with discounts reported providing discounts on the drug price for some or all 340B drugs dispensed at contract pharmacies. Federal grantees were more likely than hospitals to provide such discounts and to provide them at all contract pharmacies (see fig. 9).\nOf the 30 covered entities that responded to our questionnaire that they provided discounts on the drug price, 23 reported providing patients the full 340B discount—the patients obtained drugs from contract pharmacies at the 340B price or less. In many cases, these covered entities indicated that patients received drugs at no cost. Some covered entities reported that patients would pay more than the 340B price, but less than the wholesale price of the drug or what a self-paying patient would pay, and others indicated they determined discounts for patients on a case-by-case basis. A larger number of federal grantees than hospitals (15 compared to 8) indicated their patients would pay the 340B price or less for their drugs at contract pharmacies where discounts were available. (See fig. 10.)\nIn addition to providing discounts on the 340B drug price, some of the 30 covered entities also reported providing discounts on fees patients may pay to contract pharmacies for 340B drugs. Contract pharmacies may charge fees to dispense 340B drugs or cover administrative costs of participating in a covered entity’s 340B program, including costs associated with tracking drug inventories and ordering new drugs. In general, about two-thirds of the covered entities with patients who would be subject to dispensing or administrative fees at contract pharmacies reported providing discounts on the fees at some or all of their contract pharmacies. Hospitals were more likely than grantees to provide discounts on these fees when applicable. (See fig.11.)\nThe 30 covered entities providing 340B discounts to low-income, uninsured patients reported using a variety of methods to determine whether patients were eligible for these discounts. Fourteen of the covered entities said they determined eligibility for discounts based on whether a patient’s income was below certain thresholds as a percentage of the federal poverty level, 11 reported providing discounts to all patients, and 5 said they determined eligibility for discounts on a case-by-case basis. For those 14 covered entities determining eligibility based on income as a percentage of the federal poverty level, the threshold used to determine who was eligible for discounts varied but most reported that patients with incomes at or below 250 percent of the federal poverty level would be eligible for discounts. (See table 5.)\nCovered entities reported making patients aware of the availability of discounts at contract pharmacies primarily through oral communication by staff located at either the entity or the pharmacy. In addition, the covered entities reported using a variety of methods to inform contract pharmacies about which patients were eligible for discounts, including through notes in patient medical records sent to the pharmacy or by placing codes on the patient’s prescriptions sent to or presented at the pharmacy. (See table 6.) Officials from one covered entity we interviewed said that it provides patients eligible for discounts with an identification card (which they referred to as a drug discount card) that patients present at the contract pharmacy; this card informs pharmacy staff of the specific discount amount. Officials from another covered entity said they place codes on electronic prescriptions which informs the pharmacy about discounts.\nSome covered entities that did not provide discounts on 340B drugs at their contract pharmacies reported assisting patients with drug costs through other mechanisms. For example, 6 of the 10 covered entities we interviewed said that while they did not provide discounts on 340B drugs dispensed at their contract pharmacies, they provide charity care to low- income patients, including free or discounted prescriptions. Additionally, 4 of the 25 covered entities that reported on our questionnaire that they did not provide discounts at their contract pharmacies said they provided patients with discounts on 340B drugs at their in-house pharmacies.",
"HRSA does not have complete data on the total number of contract pharmacy arrangements in the 340B Program to inform its oversight efforts, including information that could be used to better target its audits. Additionally, weaknesses in HRSA’s audit process compromise its oversight of covered entities. Finally, the lack of specificity in HRSA’s guidance to covered entities potentially impedes covered entities’ oversight of contract pharmacies.",
"HRSA does not have complete data on all contract pharmacy arrangements in the 340B Program to inform its oversight efforts. HRSA requires covered entities to register their contract pharmacies with the agency and recertify that registration annually. Contract pharmacies registered to each covered entity are recorded in a publicly available database, which according to HRSA, is used by various stakeholders to validate the eligibility of entities and confirm shipping addresses for each contract pharmacy eligible to receive 340B drugs on an entity’s behalf. However, because covered entities differ in the way they register their contract pharmacies, HRSA, and its publicly available database, does not have information on all of an entity’s contract pharmacy arrangements. Specifically, because HRSA does not require covered entities to separately register contract pharmacies to each child site for which a contractual relationship exists, HRSA does not have complete information on which sites of an entity have contracted with a pharmacy to dispense 340B drugs. Our analysis of HRSA data showed that the registration of contract pharmacies for 57 percent of covered entities with child sites only specified relationships between contract pharmacies and the parent site; thus HRSA may only have information on a portion of the actual number of 340B contract pharmacy arrangements. Additionally, manufacturers do not have complete information on which covered entity sites have contracts with a pharmacy to dispense 340B drugs, according to HRSA officials. Manufacturers could use such information to help ensure that 340B discounted drugs are only provided to pharmacies on behalf of a covered entity site with a valid 340B contract with that site.\nHRSA officials told us that the number of contract pharmacy arrangements recorded in HRSA’s database increases a covered entity’s chance of being randomly selected for a risk-based audit. However, since HRSA gives covered entities multiple contract pharmacy registration options, the likelihood of an entity being selected for an audit is dependent, at least in part, on how an entity registers its pharmacies as opposed to the entity’s actual number of pharmacy arrangements. Without more complete information on covered entities’ contract pharmacy arrangements, HRSA cannot ensure that it is optimally targeting the limited number of risk-based audits done each year to entities with more contract pharmacy arrangements. Federal internal control standards related to information and communication state that management should use quality information to achieve the entity’s objectives, such as by obtaining relevant data that are reasonably free from error and bias and represent what they purport to represent so that they can be used for effective monitoring. Without complete information on covered entities’ use of contract pharmacies, HRSA does not have the information needed to effectively oversee the 340B Program, including information that could be used to better target its audits of covered entities.",
"HRSA primarily relies on audits to assess covered entities’ compliance with 340B Program requirements, including compliance at contract pharmacies, according to HRSA officials; however weaknesses in its audit process impede the effectiveness of its oversight. As a result of its audits, HRSA has identified instances of diversion and the potential for duplicate discounts at contract pharmacies, among other findings of noncompliance. Specifically, through the audits conducted since fiscal year 2012, HRSA identified at least 249 instances of diversion at contract pharmacies and 15 instances of the potential for duplicate discounts for drugs dispensed at contract pharmacies, as of February 2018. HRSA had also identified 33 covered entities with insufficient contract pharmacy oversight. (See Table 7.)\nHowever, we identified two areas of weaknesses in HRSA’s audit process that impede its oversight of covered entities’ compliance with 340B Program requirements at contract pharmacies: 1) the process does not include an assessment of all potential duplicate discounts, and 2) the process for closing audits does not ensure all covered entities have fully addressed any noncompliance identified.\nMedicaid Delivery Systems States provide Medicaid services through either fee-for-service or managed care. Under fee-for-service, states reimburse providers directly for each service delivered. For example, a pharmacy would be paid by the state for each drug dispensed to a Medicaid beneficiary. Under a capitated managed care model, states typically contract with managed care organizations to provide a specific set of services to Medicaid beneficiaries (which could include drugs) and prospectively pays each organization a set amount per beneficiary per month to provide or arrange those services.\nNot all potential duplicate discounts are assessed. HRSA’s audits only assess the potential for duplicate discounts in Medicaid fee-for- service. They do not include a review of covered entities’ processes to prevent duplicate discounts for drugs dispensed through Medicaid managed care. The potential for duplicate discounts related to Medicaid managed care has existed since 2010 when manufacturers were required to pay Medicaid rebates under managed care, and currently, there are more Medicaid enrollees, prescriptions, and spending for drugs under managed care than fee-for-service.\nHRSA officials told us that they do not assess the potential for duplicate discounts in Medicaid managed care as part of their audits because they have yet to issue guidance as to how covered entities should prevent duplicate discounts in Medicaid managed care. They agreed that the lack of Medicaid managed care guidance for covered entities was problematic, and HRSA’s December 2014 policy release stated, “HRSA recognizes the need to address covered entities’ role in preventing duplicate discounts under Medicaid managed care, and is working with the Centers for Medicare & Medicaid Services (CMS) to develop policy in this regard.” According to HRSA, in the absence of formal guidance, covered entities should work with their states to develop strategies to prevent duplicate discounts in Medicaid managed care. However, 8 of the 10 covered entities we spoke with described challenges working with their states and local Medicaid managed care organizations to ensure that duplicate discounts were not occurring or expressed the need for more guidance from HRSA on how to comply with 340B requirements related to duplicate discount prevention. As a result of these challenges, some covered entities acknowledged that they did not have assurance that duplicate discounts were not occurring with their Medicaid managed care claims, while other entities told us that they did not seek discounts for the drugs of managed care patients due to compliance challenges.\nFederal internal control standards related to control activities and monitoring state that agencies should 1) implement control activities through policies, such as by determining the necessary policies based on the objectives and related risks for the operational process; and 2) establish and operate monitoring activities to monitor the internal control system and evaluate results, such as by establishing and operating monitoring activities that are built into each entity’s operations, performed continually, and responsive to change. In addition, federal law directs the agency to develop detailed guidance describing methodologies and options for avoiding duplicate discounts. Until HRSA develops guidance and includes an assessment of the potential for duplicate discounts in Medicaid managed care as part of its audits, the agency does not have assurance that covered entities’ efforts are effectively preventing noncompliance. As a result, manufacturers are at risk of being required to erroneously provide duplicate discounts for Medicaid prescriptions.\nAudit closure process does not ensure all identified issues of noncompliance are addressed. Under HRSA’s audit procedures, covered entities with audit findings are required to 1) submit corrective action plans to HRSA that indicate that the entities will determine the full scope of any noncompliance (beyond the sample of prescriptions reviewed during an audit); 2) outline the steps they plan to take to correct findings of noncompliance, including any necessary repayments to manufacturers; and 3) specify the timelines for implementing the corrective action plans. HRSA closes the audit when a covered entity submits a letter attesting that its corrective action plan, including its assessment of the full scope of noncompliance, has been implemented and any necessary repayments to manufacturers have been completed.\nHowever, we identified two specific deficiencies in HRSA’s approach. First, although HRSA requires that covered entities determine the full scope of noncompliance found in audits, it does not provide guidance as to how entities should make this assessment. Specifically, HRSA does not specify how far back in time covered entities must look to see if any related noncompliance occurred and instead, relies on each entity to make this determination. For example, a document from a fiscal year 2017 audit revealed that a covered entity that had participated in the 340B Program for 3 years only reviewed 5 months of claims to determine whether any other instances of diversion had occurred, diminishing the likelihood that its efforts identified the full scope of noncompliance. Additionally, until April 2018, HRSA did not require covered entities that were audited to communicate the methodology used to assess the full scope of noncompliance, or the findings of their assessments, including how many or which manufacturers were due repayment. Beginning April 1, 2018, HRSA requires covered entities subject to targeted audits to document their methodology for assessing the full scope of noncompliance. However, as previously noted, only 10 percent of the 200 audits HRSA currently conducts each year are targeted audits. Consequently, the vast majority of covered entities audited are not required to provide HRSA with information on their methodology for assessing the full scope of noncompliance. Furthermore, HRSA officials told us that they believe determining the scope of noncompliance is a matter between the covered entities and manufacturers. Thus, HRSA relies on manufacturers to determine the adequacy of a covered entity’s effort to assess the full scope of noncompliance. However, covered entities only contact the manufacturers that they determine were affected by the noncompliance based on the methodology they choose to apply; thus, it is unclear how manufacturers not contacted would be in a position to negotiate an acceptable assessment of the scope of noncompliance and any applicable repayment.\nFederal internal control standards related to control activities state that agencies should implement control activities through policies, such as by documenting policies in the appropriate level of detail to allow management to effectively monitor the control activity. As HRSA does not provide guidance on how covered entities are to assess the full scope of noncompliance and does not review most entities’ methodology for making such assessments, the agency does not have reasonable assurances that entities have adequately identified all instances of noncompliance.\nSecond, HRSA generally relies on each covered entity to self-attest that all audit findings have been addressed and that the entity is now in compliance with 340B Program requirements. Beginning April 1, 2018, HRSA requires the 10 percent of covered entities that are subject to targeted audits to provide documentation that they implemented their corrective action plans prior to HRSA closing the audits. However, it still relies on the remaining 90 percent of audited covered entities to self- attest to their compliance with program requirements.\nHRSA officials told us they believe that a covered entity providing a description of the corrective actions is sufficient, and that the self- attestation of corrective action plan implementation provides HRSA with the information necessary to close the audit. However, aside from the self-attestation, HRSA’s only mechanism to ensure that the majority of audited covered entities have implemented their corrective action plans is to re-audit the entities—in other words, subject the entity to a targeted audit. To date, the agency told us that it has re-audited 21 covered entities, and based on those re-audits, determined that 1 entity did not fully implement its corrective action plan from the original audit. However, we found that of the 19 re-audited covered entities for which results were available, 12 had similar findings of noncompliance in their second audits, as were identified in their original audits (e.g., diversion findings in both audits), 3 of which were caused by the same issue, according to information provided to us by HRSA.\nFederal internal control standards for monitoring specify that agencies should establish and operate monitoring activities to monitor the internal control system and evaluate the results, for example by using ongoing monitoring to obtain reasonable assurance of the operating effectiveness of the service organization’s internal controls over the assigned process.\nBy only reviewing evidence of corrective action plan implementation for the limited number of covered entities subject to targeted audits, HRSA does not have reasonable assurance that the majority of covered entities audited have corrected the issues identified in the audit, and are not continuing practices that could lead to noncompliance, thus increasing the risk of diversions, duplicate discounts, and other violations of 340B Program requirements.",
"HRSA guidance for covered entities on their oversight of contract pharmacies lacks specificity and thus provides entities with considerable discretion on the scope and frequency of their oversight practices. Specifically, HRSA’s 2010 guidance on contract pharmacy services specifies that covered entities are responsible for overseeing their contract pharmacies to ensure that drugs the entity distributes through them comply with 340B Program requirements, but states that, “the exact method of ensuring compliance is left up to the covered entity.” The guidance also states that, “annual audits performed by an independent, outside auditor with experience auditing pharmacies are expected,” but HRSA officials told us that covered entities are not required to conduct independent audits and instead are expected to do some form of periodic oversight of their contract pharmacies. Thus, according to HRSA officials, if a covered entity indicates that it has performed oversight in the 12 months prior to a HRSA audit, then HRSA considers the entity to have met HRSA’s standards for conducting contract pharmacy oversight regardless of what the oversight encompassed.\nDue, at least in part, to a lack of specific guidance, we found that some covered entities performed minimal contract pharmacy oversight.\nOfficials from a grantee reported auditing claims of 5 randomly selected patients quarterly, despite treating approximately 900 patients each month.\nOfficials from a critical access hospital that serves about 21,000 patients a year at its outpatient clinics reported that the annual independent audit of their hospital system reviewed five claims.\nOfficials from two entities reported that they did not contract for an independent audit of their 340B Program, despite HRSA’s expectation to do so.\nAdditionally, of the 20 covered entities whose audits we reviewed, 6 had no documented processes for conducting contract pharmacy oversight.\nThe identified noncompliance at contract pharmacies raises questions about the effectiveness of covered entities’ current oversight practices. Specifically, 66 percent of the 380 diversion findings in HRSA audits involved drugs distributed at contract pharmacies, and 33 of the 813 audits for which results were available had findings for lack of contract pharmacy oversight. However, the number of contract pharmacy oversight findings may be limited by the fact that officials from HRSA’s contractor said that its auditors rely on verbal responses from entity officials about any internal review or self-audits conducted by the entity. This is despite the fact that HRSA officials told us that the agency requires auditors to review documentation of covered entities’ oversight activities.\nFederal internal control standards related to control activities state that agencies should implement control activities through policies, such as by documenting the responsibility for an operational process’s objectives and related risks, and control activity design, implementation, and operating effectiveness. The standards also specify that management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving its objectives or addressing related risks. As a result of the lack of specific guidance and its numerous audit findings of noncompliance, HRSA does not have assurance that covered entities’ contract pharmacy oversight practices are sufficiently detecting 340B noncompliance.",
"The 340B Program provides covered entities with discounts on outpatient drugs and the ability to generate revenue on drugs purchased under the program. Use of contract pharmacies enables covered entities to increase the use of 340B drugs by expanding their distribution networks, thereby increasing the volume of 340B drugs dispensed and generating associated savings and revenue. The expansion of contract pharmacies presents an opportunity for entities to fill more prescriptions with discounted 340B drugs, but it also increases potential risks to the 340B Program, such as risks related to diversion and duplicate discounts. Although covered entities and HRSA have taken steps to ensure that 340B Program requirements are being met at contract pharmacies, HRSA’s audits continue to identify instances of noncompliance.\nAs currently structured, weaknesses in HRSA’s oversight impede its ability to ensure compliance with 340B Program requirements at contract pharmacies. HRSA cannot ensure that its limited number of audits target covered entities with the most complex 340B programs, and thus the greatest risk of noncompliance, because the agency does not have complete data on entities’ contract pharmacy arrangements. Additionally, HRSA’s audit process does not adequately identify compliance issues, nor does it ensure that identified issues are corrected. HRSA’s audits do not assess compliance with a key 340B Program requirement (the prohibition regarding duplicate discounts) as it relates to Medicaid managed care, and HRSA does not provide audited entities with guidance for determining the full scope of noncompliance, which reduces the effectiveness of HRSA’s audits in identifying drug diversion and duplicate discounts. Moreover, where audits identify instances of noncompliance, HRSA’s process does not confirm that all covered entities successfully correct the deficiencies and take steps to prevent future noncompliance. Although HRSA made improvements to its process for targeted audits during the course of our review, the agency does not require most covered entities subject to an audit to provide evidence of corrective actions taken.\nMoreover, the lack of specificity in HRSA’s guidance to covered entities on the methods through which they should ensure compliance may impede the effectiveness of entities’ oversight. For example, without guidance instructing covered entities how to prevent duplicate discounts in Medicaid managed care, entities are left to individually navigate the policies and practices of states and private insurers. Furthermore, by not clearly communicating expectations for covered entities’ oversight of their contract pharmacies, HRSA faces the risk that instances of noncompliance, such as diversion, at contract pharmacies will not be identified and addressed. As the 340B Program continues to grow, it is essential that HRSA address these shortcomings.",
"We are making the following seven recommendations to HRSA: The Administrator of HRSA should require covered entities to register contract pharmacies for each site of the entity for which a contract exists. (Recommendation 1)\nThe Administrator of HRSA should issue guidance to covered entities on the prevention of duplicate discounts under Medicaid managed care, working with CMS as HRSA deems necessary to coordinate with guidance provided to state Medicaid programs. (Recommendation 2)\nThe Administrator of HRSA should incorporate an assessment of covered entities’ compliance with the prohibition on duplicate discounts, as it relates to Medicaid managed care claims, into its audit process after guidance has been issued and ensure that identified violations are rectified by the entities. (Recommendation 3)\nThe Administrator of HRSA should issue guidance on the length of time covered entities must look back following an audit to identify the full scope of noncompliance identified during the audit. (Recommendation 4)\nThe Administrator of HRSA should require all covered entities to specify their methodology for identifying the full scope of noncompliance identified during the audit as part of their corrective action plans, and incorporate reviews of the methodology into their audit process to ensure that entities are adequately assessing the full scope of noncompliance. (Recommendation 5)\nThe Administrator of HRSA should require all covered entities to provide evidence that their corrective action plans have been successfully implemented prior to closing audits, including documentation of the results of the entities’ assessments of the full scope of noncompliance identified during each audit. (Recommendation 6)\nThe Administrator of HRSA should provide more specific guidance to covered entities regarding contract pharmacy oversight, including the scope and frequency of such oversight. (Recommendation 7)",
"HHS provided written comments on a draft of this report, which are reproduced in app. II, and technical comments, which we have incorporated as appropriate. In its written comments, HHS concurred with four of our seven recommendations, did not concur with three of our recommendations, and stated that it had concerns with some of the other information in our report.\nIn concurring with four of our recommendations, HHS stated that HRSA is making changes to its audit process to strengthen oversight of the 340B Program. Regarding our recommendation related to guidance on duplicate discounts, HHS concurred, but commented that the recommendation did not account for the critical role that CMS would play in its successful implementation. We agree that CMS would play an important role in ensuring compliance with the prohibition on duplicate discounts in Medicaid managed care, which is why we recommended that HRSA coordinate with CMS on the guidance. HHS indicated that HRSA and CMS are strategizing on effective ways to address this issue. HHS also concurred with our recommendations to issue guidance related to identifying the full scope of noncompliance and covered entities’ oversight of their contract pharmacies, although it noted that HRSA would face challenges in issuing guidance related to areas where it does not have explicit regulatory authority. While we recognize that HRSA’s authority to issue regulations governing the 340B Program may be limited, our recommendations were focused on HRSA clarifying certain program requirements through whatever format the agency deems appropriate. Since the establishment of the 340B Program, HRSA has used interpretative guidance and statements of policy to provide guidance to covered entities regarding compliance with program requirements. HRSA has also used certain of its audit procedures, such as the template provided to covered entities for the development of corrective action plans, to provide such clarifications. Our recommendations are intended to expand the availability of information HRSA provides to covered entities to help them improve compliance with existing program requirements. As such, we continue to believe that further clarification, whether provided as interpretive guidance, audit procedures, or another format, is necessary to help ensure compliance with program requirements.\nAmong the recommendations with which HHS did not concur was our recommendation to require covered entities to register contract pharmacies for each site of the entity for which a contract exists. HHS stated that its current registration process is responsive to our concerns for all covered entity types other than hospitals and health centers. However, as we note in the report, hospitals and FQHCs are typically the covered entity types that have multiple sites, and are generally more likely to have contract pharmacies. HHS cited administrative burden for both covered entities and HRSA as a reason not to require covered entities to provide more complete information about contract pharmacy arrangements. However, given that HRSA requires covered entities to register both their sites and their contract pharmacies with the agency, it is unclear why there would be significant additional burden for covered entities to indicate which of the previously registered sites had contracts with which contract pharmacies. It is also important to note that contract pharmacy use by covered entities is voluntary, and covered entities that choose to have contract pharmacies are required to oversee those pharmacies to ensure compliance with 340B Program requirements. Therefore, the use of contract pharmacies inherently comes with additional administrative responsibilities for the covered entity, and we believe that the requirement to register each contract pharmacy arrangement with HRSA should present limited additional burden on covered entities.\nRather than implementing our recommendation, HHS stated that HRSA will make changes to its audit selection process; HRSA will assume that all contract pharmacies registered with the parent site would also be used by all sites of the covered entity prior to selecting entities for risk-based audits. Although this may be a good step forward, it does not provide information on the actual number of contract pharmacy arrangements for each covered entity. As such, we continue to believe that HRSA needs more complete information on contract pharmacy arrangements to best target its limited number of audits to covered entities with the most complex 340B programs. This is also important information to provide manufactures to help ensure that 340B discounted drugs are only provided to pharmacies on behalf of a covered entity site with a valid 340B contract with that site.\nHHS also did not concur with our two recommendations to require covered entities to specify their methodologies for identifying the full scope of noncompliance identified during their audits as part of their corrective action plans, and to provide evidence that these plans have been successfully implemented prior to HRSA closing audits. In its response, HHS noted that on April 1, 2018, HRSA implemented these requirements for entities subject to targeted audits (including re-audits), which represent 10 percent of all entities audited. However, HRSA indicated that implementing these requirements for all covered entities that are audited would create a significant burden for these entities. As we previously noted, HRSA already requires covered entities with audit findings to determine the full scope of noncompliance and to submit corrective action plans. Thus, it is unclear how requiring covered entities to include written descriptions of their methodologies for identifying the full scope of noncompliance, which should already be formulated, and to provide evidence that the corrective actions that entities developed have been implemented, would create significant additional burden for these entities.\nHHS also expressed concern that these additional steps would significantly delay the audit process and repayments to manufacturers. We recognize that reviewing these documents may create some additional work for HRSA and possibly require additional time to close audits. However, we believe this additional work and time is necessary for the audits to be effective at adequately identifying compliance issues and ensuring that those issues are corrected. Furthermore, these additional actions could reduce the need for re-audits which are burdensome in terms of cost and time, for both the covered entity and HRSA.\nFinally, HHS also expressed concerns about some of the other information included in the draft report.\nHHS stated that disclosing actual fees paid by covered entities to pharmacies and TPAs could cause disruptions in the drug pricing market and fluctuations in fees entities pay. Our report provides fees for a small and nongeneralizable sample of contracts, covered entities, and TPAs. For example, we provide contract pharmacy fees for 30 of the thousands of contracts that exist between covered entities and pharmacies. It is unclear how this information could cause disruptions in the drug pricing market or lead to fluctuations in fees covered entities may pay, and HHS did not provide any evidence to support its assertion. Additionally, HHS has raised questions about the effect of the 340B Program on drug pricing. As such, we believe that our discussion of fees brings enhanced transparency to the 340B Program, and provides Congress with important information it requested to gain a better understanding of the program and enhance its oversight.\nRegarding the distance between contract pharmacies and covered entities, HHS noted that the longest distance was for a specialty pharmacy that was registered for 17 days. As noted in our scope and methodology, our analysis was of covered entities and contract pharmacies participating as of July 1, 2017. Additionally, there were other contract pharmacy arrangements of similarly long distances. HHS also expressed concern that the draft report did not note that such specialty pharmacies may be needed due to restricted distribution by a manufacturer, which would be outside a covered entity’s control. In our report, we noted that the 340B database does not provide information on why a covered entity may choose to contract with a pharmacy that is located a long distance away. However, the report does include some potential reasons HRSA provided us as to why this may occur.\nHHS also commented that our table on the number and percent of covered entities audited does not fully reflect HRSA’s auditing efforts because it does not include the number of entity sites and contract pharmacies included within each audit. However, HRSA’s audits of covered entities generally do not include visits to multiple covered entity sites, or all contract pharmacies that distribute 340B drugs on a covered entity’s behalf. Additionally, while the audits include a review of a sample of 340B drugs distributed, that sample may not include prescriptions written at, or dispensed from, all of the covered entity’s sites or contract pharmacies. As a result, information in our report highlights the number of entities that were audited.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of HRSA, and other interested parties. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7114 or at DraperD@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix III.",
"Table 8 provides a brief description of the fees that covered entities pay pharmacies with which they contracted to dispense 340B drugs based on our review of 30 contracts.",
"",
"",
"",
"In addition to the contact named above, Michelle Rosenberg (Assistant Director), N. Rotimi Adebonojo (Analyst in Charge), Jennie Apter, George Bogart, Amanda Cherrin, David Lichtenfeld and Dan Ries made key contributions to this report. Also contributing were Julianne Flowers and Vikki Porter."
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"question": [
"What does the 340B Program do?",
"What are covered entities?",
"How do covered entities dispense drugs?",
"What fees do these contracts include?",
"To what extent do the reviewed covered entities provide some patients with discounts on 340B drugs?",
"How large are the discounts for these patients?",
"How is patient eligibility determined for these discounts?",
"To what extent do HRSA audits assess compliance with the 340B Program?",
"How does the 340B program restrict duplication of discounts?",
"What potential duplication does the HRSA assess?",
"How does the lack of HRSA assessment affect enforcement of the 340B Program?",
"How can covered entities generate revenue with 340B drugs?",
"How has the number of pharmacies contracted with covered entities changed since 2010?",
"What does this report review?",
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"summary": [
"The 340B Drug Pricing Program (340B Program), which is administered by the U.S. Department of Health and Human Services' (HHS) Health Resources and Services Administration (HRSA), requires drug manufacturers to sell outpatient drugs at a discount to covered entities so that their drugs can be covered by Medicaid.",
"Covered entities include certain hospitals and federal grantees (such as federally qualified health centers).",
"About one-third of the more than 12,000 covered entities contract with outside pharmacies—contract pharmacies—to dispense drugs on their behalf.",
"GAO's review of 30 contracts found that all but one contract included provisions for the covered entity to pay the contract pharmacy a flat fee for each eligible prescription. The flat fees generally ranged from $6 to $15 per prescription, but varied by several factors, including the type of drug or patient's insurance status. Some covered entities also agreed to pay pharmacies a percentage of revenue generated by each prescription.",
"Thirty of the 55 covered entities GAO reviewed reported providing low-income, uninsured patients discounts on 340B drugs at some or all of their contract pharmacies.",
"Of the 30 covered entities that provided discounts, 23 indicated that they pass on the full 340B discount to patients, resulting in patients paying the 340B price or less for drugs.",
"Additionally, 14 of the 30 covered entities said they determined patients' eligibility for discounts based on whether their income was below a specified level, 11 reported providing discounts to all patients, and 5 determined eligibility for discounts on a case-by-case basis.",
"HRSA audits do not fully assess compliance with the 340B Program prohibition on duplicate discounts for drugs prescribed to Medicaid beneficiaries.",
"Specifically, manufacturers cannot be required to provide both the 340B discount and a rebate through the Medicaid Drug Rebate Program.",
"However, HRSA only assesses the potential for duplicate discounts in Medicaid fee-for-service and not Medicaid managed care.",
"As a result, it cannot ensure compliance with this requirement for the majority of Medicaid prescriptions, which occur under managed care.",
"Covered entities can provide 340B drugs to eligible patients and generate revenue by receiving reimbursement from patients' insurance.",
"The number of pharmacies covered entities have contracted with has increased from about 1,300 in 2010 to nearly 20,000 in 2017.",
"Among other things, this report: 1) describes financial arrangements selected covered entities have with contract pharmacies; 2) describes the extent that selected covered entities provide discounts on 340B drugs dispensed by contract pharmacies to low-income, uninsured patients; and 3) examines HRSA's efforts to ensure compliance with 340B Program requirements at contract pharmacies.",
"GAO selected and reviewed a nongeneralizable sample of 30 contracts between covered entities and pharmacies, 20 HRSA audit files, and 55 covered entities to obtain variation in the types of entities and other factors. GAO also interviewed officials from HRSA and 10 covered entities."
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GAO_GAO-12-600T
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{
"title": [
"Background",
"MDA Experienced Mixed Progress in Development and Delivery Efforts",
"Highly Concurrent Acquisition Strategies Often Lead to Performance, Cost, and Schedule Consequences",
"Parts Quality Issues Have Also Had a Significant Effect on Performance, Cost, and Schedule",
"Concluding Observations",
"GAO Contact and Staff Acknowledgments"
],
"paragraphs": [
"MDA’s BMDS is being designed to counter ballistic missiles of all ranges—short, medium, intermediate, and intercontinental.ballistic missiles have different ranges, speeds, sizes, and performance characteristics, MDA is developing multiple systems that when integrated provide multiple opportunities to destroy ballistic missiles before they can reach their targets. The BMDS architecture includes space-based and airborne sensors as well as ground- and sea-based radars; ground- and sea-based interceptor missiles; and a command and control, battle management, and communications system to provide the warfighter with the necessary communication links to the sensors and interceptor missiles.\nTable 1 provides a brief description of 10 BMDS elements and supporting efforts currently under development by MDA.",
"MDA experienced mixed results in executing its fiscal year 2011 development goals and BMDS tests. For the first time in 5 years, we are able to report that all of the targets used in fiscal year 2011 test events were delivered as planned and performed as expected. In addition, the Aegis BMD program’s SM-3 Block IA missile was able to intercept an intermediate-range target for the first time. Also, the THAAD program successfully conducted its first operational flight test in October 2011. However, none of the programs we assessed were able to fully accomplish their asset delivery and capability goals for the year.\nSee table 2 for how each of these programs met some of its goals during the fiscal year. Our report provides further detail on these selected accomplishments.\nAlthough some programs completed significant accomplishments during the fiscal year, there were also several critical test failures. These as well as a test anomaly and delays disrupted MDA’s flight test plan and the acquisition strategies of several components. Overall, flight test failures and an anomaly forced MDA to suspend or slow production of three out of four interceptors currently being manufactured.\nThe Aegis BMD SM-3 Block IA program conducted a successful intercept in April 2011, but there was an anomaly in a critical component of the interceptor during the test. This component is common with the Block IB missile. Program management officials stated that the SM-3 Block IA deliveries have been suspended while the failure reviews are being conducted.\nThe Aegis BMD SM-3 Block IB program failed in its first intercept attempt in September 2011. The Aegis program has had to add an additional flight test and delay multiple other flight tests. Program management officials stated that the SM-3 Block IB production has been slowed while the failure reviews are being conducted.\nThe GMD program has been disrupted by two recent test failures. As a result of a failed flight test in January 2010, MDA added a retest designated as Flight Test GMD-06a (FTG-06a). However, this retest also failed in December 2010 because of a failure in a key component of the kill vehicle. As a result of these failures, MDA has decided to halt flight testing and restructure its multiyear flight test program, halt production of the interceptors, and redirect resources to return-to-flight activities.\nProduction issues forced MDA to slow production of the THAAD interceptors, the fourth missile being manufactured.",
"To meet the 2002 presidential direction to initially rapidly field and update missile defense capabilities as well as a 2009 presidential announcement to deploy missile defenses in Europe, MDA has undertaken and continues to undertake highly concurrent acquisitions. While this approach enabled MDA to rapidly deploy an initial capability in 2005 by concurrently developing, manufacturing, and fielding BMDS assets, it also led to the initiation of large-scale acquisition efforts before critical technologies were fully understood and allowed programs to move forward into production without having tests completed to verify performance. After delivering its initial capability in 2005, MDA continued these high-risk practices that have resulted in problems requiring extensive retrofits, redesigns, delays, and cost increases. While MDA has incorporated some acquisition best practices in its newer programs, its acquisition strategies still include high or elevated levels of concurrency that result in increased acquisition risk—including performance shortfalls, cost growth, and schedule delays—for these newer programs.\nConcurrency is broadly defined as overlap between technology development and product development or between product development and production of a system. This overlap is intended to introduce systems rapidly, to fulfill an urgent need, to avoid technology obsolescence, and to maintain an efficient industrial development and production workforce. However, while some concurrency is understandable, committing to product development before requirements are understood and technologies mature as well as committing to production and fielding before development is complete is a high-risk strategy that often results in performance shortfalls, unexpected cost increases, schedule delays, and test problems. At the very least, a highly concurrent strategy forces decision makers to make key decisions without adequate information about the weapon’s demonstrated operational effectiveness, reliability, logistic supportability, and readiness for production. Also, starting production before critical tests have been successfully completed has resulted in the purchase of systems that do not perform as intended. These premature commitments mean that a substantial commitment to production has been made before the results of testing are available to decision makers. Accordingly, they create pressure to avoid production breaks even when problems are discovered in testing. These premature purchases have affected the operational readiness of our forces and quite often have led to expensive modifications.\nIn contrast, our work has found that successful programs that deliver promised capabilities for the estimated cost and schedule follow a systematic and disciplined knowledge-based approach, in which high levels of product knowledge are demonstrated at critical points in development.require an appropriate balance between schedule and risk and, in practice, programs can be executed successfully with some level of This approach recognizes that development programs concurrency. For example, it is appropriate to order long-lead production material in advance of the production decision, with the pre-requisite that developmental testing is substantially accomplished and the design confirmed to work as intended. This knowledge-based approach is not unduly concurrent. Rather, programs gather knowledge that demonstrates that their technologies are mature, designs are stable, and production processes are in control before transitioning between acquisition phases, which helps programs identify and resolve risks early. It is a process in which technology development and product development are treated differently and managed separately. Technology development must allow room for unexpected results and delays. Developing a product culminates in delivery and therefore gives great weight to design and production. If a program falls short in technology maturity, it is harder to achieve design stability and almost impossible to achieve production maturity. It is therefore key to separate technology from product development and product development from production— and thus avoid concurrency. A knowledge-based approach delivers a product on time, within budget, and with the promised capabilities.\nSee figure 1 for depictions of a concurrent schedule and a schedule that uses a knowledge-based approach.\nTo meet the 2002 presidential direction to initially rapidly field and update missile defense capabilities as well as the 2009 presidential announcement to deploy missile defenses in Europe, MDA has undertaken and continues to undertake highly concurrent acquisitions. Such practices enabled MDA to quickly ramp up efforts in order to meet tight presidential deadlines, but they were high risk and resulted in problems that required extensive retrofits, redesigns, delays, and cost increases.\nTable 3 illustrates concurrency in past efforts and its associated effects. Among earlier MDA programs, concurrency was most pronounced in the GMD program, where the agency was pressed to deliver initial capabilities within a few years to meet the 2002 presidential directive. The consequences here have been significant, in terms of production delays and performance shortfalls, and are still affecting the agency.\nIn recent years, MDA has taken positive steps to incorporate some acquisition best practices, such as increasing competition and partnering with laboratories to build prototypes. For example, MDA took actions in fiscal year 2011 to reduce acquisition risks and prevent future cost growth in its Aegis BMD SM-3 Block IIA program. The agency recognized that the program’s schedule included elevated acquisition risks, so it appropriately added more time to the program by revising the schedule to relieve schedule compression between its subsystem and system-level design reviews. In addition, it incorporated lessons learned from other SM-3 variants into its development to further mitigate production unit costs. Moreover, for its PTSS program, MDA has simplified the design and requirements.\nHowever, table 4 shows that the agency’s current acquisition strategies still include high or elevated levels of concurrency that set many of its newer programs up for increased acquisition risk, including performance shortfalls, cost growth, and schedule delays.\nIn our April 2012 report, we made two recommendations to strengthen MDA’s longer-term acquisition prospects. We recommended that the Secretary of Defense direct the Office of Acquisition Technology and Logistics to (1) review all of MDA’s acquisitions for concurrency and determine whether the proper balance has been struck between the planned deployment dates and the concurrency risks taken to achieve those dates and (2) review and report to the Secretary of Defense the extent to which the directed capability delivery dates announced by the President in 2009 are contributing to concurrency in missile defense acquisitions and recommend schedule adjustments where significant benefits can be obtained by reducing concurrency. DOD concurred with both of these recommendations.\nIn addition, we recommended specific steps to reduce concurrency in several of MDA’s programs. DOD agreed with four of the five missile defense element-specific recommendations and partially agreed with our recommendation to report to the Office of the Secretary of Defense and to Congress the root cause of the SM-3 Block IB developmental flight test failure, path forward for future development, and the plans to bridge production from the SM-3 Block IA to the SM-3 Block IB before committing to additional purchases of the SM-3 Block IB. DOD commented that MDA will report this information to the Office of the Secretary of Defense and to Congress upon completion of the failure review in the third quarter of fiscal year 2012. However, DOD makes no reference to delaying additional purchases until the recommended actions are completed. We maintain our position that MDA should take the recommended actions before committing to additional purchases of the SM-3 Block IB.",
"MDA parts quality issues have seriously impeded the development of the BMDS in recent years. For example, during a THAAD flight test in fiscal year 2010, the air-launched target failed to initiate after it was dropped from the aircraft and fell into the ocean. The test was aborted and a subsequent failure review board investigation identified as the immediate cause of the failure the rigging of cables to the missile in the aircraft and shortcomings in internal processes at the contractor as the underlying cause. This failure led to a delay of the planned test, restructuring of other planned tests, and hundreds of millions of dollars being spent to develop and acquire new medium-range air-launched targets. In another widely- reported example, the GMD element’s first intercept test of its CE-II Ground-Based Interceptor failed and the ensuing investigation determined the root cause of the failure to be a quality control event. This failure also caused multiple flight tests to be rescheduled, delayed program milestones, and cost hundreds of millions of dollars for a retest.\nIn view of the cost and importance of space and missile defense acquisitions, we were asked to examine parts quality problems affecting satellites and missile defense systems across DOD and the National Aeronautical and Space Administration. In June 2011, we reported that parts problems discovered after assembly or integration of the instrument or spacecraft had more significant consequences as they required lengthy failure analysis, disassembly, rework, and reassembly—sometimes resulting in a launch delay. For example, the Space Tracking and Surveillance System program, a space-based infrared sensor program with two demonstration satellites that launched in September 2009, discovered problems with defective electronic parts in the Space-Ground Link Subsystem during system-level testing and integration of the satellite. By the time the problem was discovered, the manufacturer no longer produced the part and an alternate contractor had to be found to manufacture and test replacement parts. According to officials, the problem cost about $7 million and was one of the factors that contributed to a 17-month launch delay of two demonstration satellites and delayed participation in the BMDS testing we reported on in March 2009.\nOur work highlighted a number of causal factors behind the parts quality problems being experienced at MDA and space agencies. present examples of the parts quality issues we found at MDA below, the June 2011 report also describes the parts quality issues we found with other space agencies.\nPoor workmanship. For example, poor soldering workmanship caused a power distribution unit to experience problems during vehicle-level testing on MDA’s Targets and Countermeasures program. According to MDA officials, all units of the same design by the same manufacturer had to be X-ray inspected and reworked, involving extensive hardware disassembly. As a corrective action, soldering technicians were provided with training to improve their soldering operations and ability to perform better visual inspections after soldering.\nThe use of undocumented and untested manufacturing processes.\nGAO-11-404. manufacturing materials, a portion of the material was not returned and was inadvertently used to fabricate manifolds for two complete CE-II Ground-Based Interceptors. The vehicles had already been processed and delivered to the prime contractor for integration when the problem was discovered.\nPrime contractor’s failure to ensure that its subcontractors and suppliers met program requirements. The GMD program experienced a failure with an electronics part purchased from an unauthorized supplier. According to program officials, the prime contractor required subcontractors to only purchase parts from authorized suppliers; however, the subcontractor failed to execute the requirement and the prime contractor did not verify compliance.\nAt the time of our June 2011 report, MDA had instituted policies to prevent and detect parts quality problems. The programs reviewed in the report—GMD, Aegis BMD, Space Tracking and Surveillance System, and Targets and Countermeasures—were initiated before these recent policies aimed at preventing and detecting parts quality problems took full effect. In addition to new policies focused on quality, MDA has developed a supplier road map database in an effort to gain greater visibility into the supply chain to more effectively manage supply chain risks. In addition, according to MDA officials, MDA has recently been auditing parts distributors in order to rank them for risk in terms of counterfeit parts.\nMDA also participates in a variety of collaborative initiatives to address quality, in particular, parts quality. These range from informal groups focused on identifying and sharing news about emerging problems as quickly as possible, to partnerships that conduct supplier assessments, to formal groups focused on identifying ways industry and the government can work together to prevent and mitigate problems.\nMoreover, since our report, MDA has added a new clause in one of its GMD contracts to provide contractor accountability for quality. We have not yet fully assessed the clause but it may allow the contracting officer to make an equitable reduction of performance incentive fee on two contract line items for certain types of quality problems. This new clause shows some leadership by MDA to hold contractors accountable for parts quality. But, we do not yet know what the impact of this clause will be on improving MDA’s problems with parts quality.\nOur June 2011 report recommended greater coordination between government organizations responsible for major space and missile defense programs on parts quality issues and periodic reporting to Congress. DOD partially concurred with our recommendation for greater coordination but responded that it would work with the National Aeronautics and Space Administration to determine the optimal government-wide assessment and reporting implementation to include all quality issues, of which parts, materials, and processes would be one of the major focus areas. In addition, DOD proposed an annual reporting period to ensure planned, deliberate, and consistent assessments. We support DOD’s willingness to address all quality issues and to include parts, materials, and processes as an important focus area in an annual report. DOD further stated that it had no objection to providing a report to Congress, if Congress wanted one. We believe that DOD should proactively provide its proposed annual reports to Congress on a routine basis, rather than waiting for any requests from Congress, which could be inconsistent from year to year.\nThe parts quality issues will require sustained attention from both the executive and legislative branches to improve the quality of the systems in development, particularly because there are significant barriers to addressing quality problems, such as an increase in counterfeit electronic parts, a declining government share of the overall electronic parts market, and workforce gaps within the aerospace sector.",
"In conclusion, as the MDA completes a decade of its work, it continues to make progress in delivering assets, completing intercept tests, and addressing some of the quality issues that have plagued it in the past. This year, there were significant accomplishments, such as the successful operational test for THAAD, but also setbacks, including failed tests and their aftermath. Such setbacks reflect inherent risks associated with the challenging nature of missile defense development, but they are also exacerbated by strategies that adopt high levels of concurrency that leave decision makers with less knowledge than needed to move programs forward. Given that initial capabilities are now in place and broader fiscal pressures require sound and more efficient management approaches, it is now time for DOD to reassess MDA's strategy of accelerating development and production to determine whether this approach needs to be rethought for current and future BMDS programs.\nChairman Nelson, Ranking Member Sessions, and Members of the Subcommittee, this concludes my statement. I am happy to answer any questions you have.",
"For future questions about this statement, please contact me at (202) 512-4841 or chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include David B. Best, Assistant Director; Meredith Allen Kimmett; Ivy Hubler; Steven Stern; Ann Rivlin; Kenneth E. Patton; Robert S. Swierczek; and Alyssa B. Weir.\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."
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{
"question": [
"What results came from the execution of MDA's FY2011 goals?",
"What goals did the Aegis Ballistic Missile Defense program and the Terminal High Altitude Area Defense programs accomplish?",
"To what extent did the assessed programs accomplish their goals?",
"How did flight test failures affect the assessed programs?",
"What is concurrency?",
"To what extent is concurrency present in MDA's efforts?",
"What is an example of MDA's concurrency?",
"How much risk is there of future performance shortfalls?",
"How is MDA addressing parts quality issues?",
"How have quality issues affected the development of missile defenses?",
"What was the cause of the failure?",
"What was the effect of this failure?",
"Why is solving the quality problems challenging?",
"What is MDA doing to meet its mission?",
"What flexibility has MDA been given in executing its mission?",
"What does this statement address?",
"What information is this statement based on?",
"How has GAO updated its recommendations?",
"What recommendations did GAO previously make?",
"How does this report address concurrency?",
"How did DOD respond to these recommendations?"
],
"summary": [
"In fiscal year 2011, the Missile Defense Agency (MDA) experienced mixed results in executing its fiscal year 2011 development goals and tests. For the first time in 5 years, GAO was able to report that the agency delivered all of the targets used in fiscal year 2011 test events with the targets performing as expected.",
"In addition, the Aegis Ballistic Missile Defense program’s Standard Missile-3 Block IA missile was able to intercept an intermediate-range target for the first time and the Terminal High Altitude Area Defense program successfully conducted its first operational flight test.",
"However, none of the programs GAO assessed were able to fully accomplish their asset delivery and capability goals for the year.",
"Flight test failures forced MDA to suspend or slow production of three out of four interceptors currently being manufactured. Some of the difficulties in MDA’s testing and production of assets can be attributed to its highly concurrent acquisition approach.",
"Concurrency is broadly defined as the overlap between technology development and product development or between product development and production.",
"High levels of concurrency were present in MDA’s initial efforts and are present in current efforts.",
"For example, MDA’s flight test failures of a new variant of the Ground-based Midcourse Defense program’s interceptors while production was underway delayed delivery to the warfighter, increased costs, and will require retrofit of fielded equipment.",
"Nevertheless, as long as newer programs adopt acquisition approaches with elevated levels of concurrency, there is still considerable risk of future performance shortfalls that will require retrofits, cost overruns, and schedule delays.",
"MDA is also taking the initiative to address parts quality issues through various means, including internal policies, collaborative initiatives with other agencies, and contracting strategies to hold its contractors more accountable.",
"Quality issues have seriously impeded to the development of the missile defenses in recent years. For example, during a fiscal year 2010 Terminal High Altitude Area Defense flight test, the air-launched target failed to initiate after it was dropped from the aircraft and fell into the ocean.",
"A failure review board identified shortcomings in internal processes at the contractor to be the cause of the failure.",
"This failure led to a delay of the planned test, restructuring of other planned tests, and hundreds of millions of dollars being spent to develop and acquire new medium-range air-launched targets.",
"MDA is exhibiting some leadership, but there are significant barriers to addressing quality problems, such as the increase in counterfeit electronic parts, a declining government share of the overall electronic parts market, and workforce gaps within the aerospace sector.",
"In order to meet its mission, MDA is developing a highly complex system of systems—ground-, sea-, and space-based sensors, interceptors, and battle management.",
"Since its initiation in 2002, MDA has been given a significant amount of flexibility in executing the development and fielding of the ballistic missile defense system.",
"This statement addresses progress MDA made in the past year, the challenges it still faces with concurrent acquisitions and how it is addressing parts quality issues.",
"It is based on GAO’s April 2012 report on missile defense and its June 2011 report on space and missile defense parts quality problems.",
"GAO makes no new recommendations in this statement.",
"In the April 2012 report, GAO made recommendations to strengthen MDA’s longer-term acquisition prospects including a review of MDA’s acquisitions for concurrency to determine whether the proper balance has been struck between planned deployment dates and concurrency risks to achieve those dates.",
"The report includes additional recommendations on how individual program elements can reduce concurrency.",
"DOD agreed with six of the seven recommendations and partially agreed with one."
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GAO_GAO-13-760
|
{
"title": [
"Background",
"Components of Direct and Indirect Costs",
"Calculation of the Indirect Cost Rate",
"Proposed Changes to OMB Circular No. A-21",
"From 2002 to 2012, NIH Indirect Cost Reimbursements to Universities Increased Faster than for Direct Costs, with Most Going to a Small Number of Universities",
"From 2002 to 2012, Reimbursements for Indirect Costs Increased Slightly Faster than Those for Direct Costs, but Increased Notably Faster During Some Periods",
"In 2012 the 50 Universities with the Largest Research Programs Received Most of the Indirect Cost Reimbursements",
"Stakeholders Identified Factors Related to Facilities and Administrative Costs That May Increase Reimbursements for Indirect Costs, but NIH Has Not Assessed Their Potential Impact",
"Uncapped Facilities Component of the Indirect Cost Rate Provides Few, If Any, Incentives to Control Costs",
"Administrative Cap Controls Potential Increases in Cost Reimbursement due to Growth in Administrative Costs Incurred by Universities",
"NIH Has Not Assessed the Potential Impact of Increases in Indirect Costs on Its Mission",
"Conclusions",
"Recommendation",
"Agency Comments and Our Evaluation",
"Appendix I: Indirect Costs and Rates for the Top 50 National Institutes of Health—Funded Universities, Fiscal Year 2012",
"Appendix II: Comments from the Department of Health and Human Services",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Acknowledgments"
],
"paragraphs": [
"NIH conducts and sponsors biomedical research through its institutes and centers (IC), each of which is charged with a specific mission. ICs’ missions generally focus on a given disease; a particular organ; or a stage in development, such as childhood or old age. ICs accomplish their missions chiefly through intramural and extramural research. Intramural research entails government scientists working in the ICs’ own laboratories and clinics, whereas extramural research is conducted at outside research institutions, primarily universities, by scientists who have been awarded extramural research grants from an IC through NIH’s competitive process.$30 billion in fiscal year 2012 was used to support extramural research. Of this $25.2 billion in extramural research grant funding, NIH provided about $16.1 billion to universities.",
"Extramural research grants reimburse universities for the direct costs of each research project covered by the grants and a portion of the indirect costs of maintaining their facilities for research use and covering the administrative expenses of the university. Direct costs can be specifically identified with or directly assigned to individual research projects and are relatively easy to define and measure. They include, for example, the researcher’s salary, subawards, equipment, and travel. Indirect costs represent a university’s general support expenses and cannot be specifically identified with individual research projects or institutional activities. They include, for example, building utilities, administrative staff salaries, and library operations. OMB Circular No. A-21 establishes the principles for determining the types of direct and indirect costs that are allowed to be claimed and the methods for allocating such costs to federally funded research at educational institutions, including the establishment and use of indirect cost rates.\nIndirect costs are divided into two main components, facilities costs and administrative costs. Facilities costs include operations and maintenance expenses, such as for utilities; allowances for depreciation and use of buildings and equipment; interest on debt associated with building and equipment; and library expenses, such as for the use of the library and library materials purchased for research use. general administration expenses, such as the costs associated with executive functions like financial management; departmental administration expenses, including clerical staff and supplies for academic departments; sponsored projects’ administration expenses, which are the costs associated with the office responsible for administering projects and awards funded by external sources; and student administration and services expenses, such as the administration of the student health clinic.",
"Because indirect costs cannot be specifically attributed to a particular research grant, they are charged via an indirect cost rate that serves as the mechanism for determining the proportion of indirect costs that may be charged to federally funded research awards. OMB Circular No. A-21 outlines the process for establishing an indirect cost rate for universities performing federally funded research. Each university develops a proposed indirect cost rate that is based on university cost data from prior years, which is subsequently negotiated with the federal government to arrive at a final indirect cost rate, in compliance with the principles of OMB Circular A-21.\nTo calculate a university’s indirect cost rate, a percentage of each indirect cost component is allocated to the university’s research function on the basis of benefits received from that component by the research function. For example, a university can measure the square footage of floor space used for research and use this measure to allocate the amount of costs it claims for operating and using the space as a component in its indirect cost rate proposal. Each indirect cost component allocated to research is applied to a modified set of direct costs referred to as “modified total direct costs” (MTDC) to obtain an individual rate for each component. MTDC includes the salaries and wages of those conducting the research, fringe benefits (e.g., pensions), materials and supplies, travel, and the first $25,000 of each subaward. MTDC excludes costs such as equipment costs, capital expenditures, tuition remission, equipment or space rental costs, and the portion of each subaward in excess of $25,000. (See fig. 1.)\nUniversities use a standard format, also known as the long form, for submitting their indirect cost rate proposals to their cognizant rate-setting agency. However, universities whose total direct costs on federal awards do not exceed $10 million in a fiscal year may use a simplified method for determining the indirect cost rate applicable to all federal awards. Whereas universities above the $10 million threshold must use an MTDC base, universities using the simplified method may use either salaries and wages as their base, or MTDC. As already noted, this report focuses on those universities that used the standard format for proposal submission.",
"In February 2013, OMB issued proposed guidance that includes revisions to cost principles of OMB Circular No. A-21. The proposed guidance reflects input from the federal and nonfederal financial community, including the Interagency Council on Financial Assistance Reform. The proposed guidance would, among other things, allow more items to be directly charged rather than included as a component of the indirect cost rate. As of September 2013, OMB had not issued final guidance.",
"From fiscal year 2002 to fiscal year 2012, NIH reimbursements to universities for indirect costs associated with NIH-funded extramural research increased at a slightly faster rate than those for direct costs, and during some portions of this period indirect cost growth increased notably faster than direct cost growth. In fiscal year 2012, the 50 universities with the largest research programs received over two thirds of total indirect cost reimbursement. Higher indirect cost rates tended to be associated with universities located in high-cost-of-living areas and privately owned universities.",
"Reimbursements for indirect costs from fiscal year 2002 through fiscal year 2012 increased slightly faster than reimbursements for direct costs, but increased notably faster during some periods. Over this period, NIH reimbursements for indirect costs grew by about 28.1 percent, from $3.6 billion to $4.6 billion. Over the same period, NIH reimbursement for direct costs grew by about 27.0 percent, from $9 billion to $11.5 billion. However, because there were large differences between indirect and direct growth in some years, indirect cost reimbursements increased notably faster than direct cost reimbursements during some periods. For example, from fiscal year 2002 to 2003, the first year of this period, there was a large increase in direct costs that compensated for greater growth in indirect costs during other years. As a result, from fiscal year 2003 to 2012 indirect costs increased 16.9 percent, from about $3.9 billion to $4.6 billion, while direct costs increased 11.7 percent, from about $10.3 billion to $11.5 billion. Furthermore, in 6 of the 10 years, reimbursements for indirect costs increased relative to those for direct costs, by either increasing at a faster rate or declining at a slower rate. After fiscal year 2005, annual changes in reimbursements were generally small but consistent, with reimbursements for indirect costs increasing relative to direct costs in 5 of 7 years. (See fig. 2 for more details on the annual change in costs.)\nNIH officials noted that, historically, NIH’s reimbursements for indirect costs have remained a stable percentage of NIH’s total funding for all NIH awards overall. Our analysis specifically for university research, which accounted for almost two-thirds of NIH’s funding for extramural research in fiscal year 2012, indicates that in 2003 about 27.7 percent of NIH reimbursement for university research was for indirect costs, and in 2012 this percentage increased slightly to 28.6 percent. This occurred while NIH’s budget for extramural research conducted at universities—which needs to cover both the direct and the indirect costs of research—slowed in the last few years. For example, during the most recent 5 years (fiscal year 2008 to fiscal year 2012), NIH’s total funding for extramural research conducted at universities increased about 5 percent, whereas it had increased about 21 percent in the 5 previous years (fiscal year 2002 to fiscal year 2007).",
"In fiscal year 2012, almost 70 percent of NIH indirect cost reimbursement to universities was provided to about 10 percent of the universities (50 of a total of about 500) receiving NIH funding for extramural research.(See app. I for the indirect cost reimbursements for these top 50 universities.) These top 50 universities had the largest research programs, as defined by the largest amount of reimbursement for direct costs and a relatively large number of research grants.\nIndirect cost rates for 5 universities out of the top 50 were not available from DCA. adjustment.the highest indirect cost rates among the 50 universities receiving the highest amounts of indirect cost reimbursement in fiscal year 2012. Among the 10 universities in the table, those with the highest indirect cost rates were Mount Sinai Medical School and New York University School of Medicine; Johns Hopkins University and Yale University had the largest research programs as measured by the number of NIH grants awarded.",
"Stakeholders—university officials, DCA officials, and others—whom we interviewed identified several key factors that may lead to increases in reimbursements for indirect costs provided to universities. Some factors are related to the facilities costs, and others are related to administrative costs. NIH has not assessed the potential impact of future increases in indirect costs on its research mission, including planning for how to deal with these potential increases.",
"Some stakeholders underscored the importance to the research effort of providing funding for the costs of facilities. They explained that reimbursements for the facilities component of indirect costs—such as the amount of reimbursable square footage, operations and maintenance, building depreciation, and interest costs—help to support research innovation by providing funding for the development and maintenance of state-of-the-art research facilities. Some university officials we interviewed noted that these research facilities are necessary for conducting innovative biomedical research, such as research devoted to the role of genetic mutation for breast cancer that uses advanced lab space and equipment. They also noted that costs for these facilities have increased over time as biomedical research has become increasingly sophisticated. For example, a university’s officials stated that from fiscal year 2002 to fiscal year 2009, the cost of its facilities to support research—including those used to support advancement in data and computing—has grown from about $88 million to about $145 million.\nDCA officials stated that the uncapped facilities component of the indirect cost rate provides universities few, if any, incentives for controlling these potentially increasing costs. For example, DCA officials noted that there is no limit on reimbursement for interest costs under the facilities component. DCA officials stated that while reimbursements for interest costs may allow universities to support needed renovations or construction of new facilities, the fact that these reimbursements are not capped may also encourage universities to borrow money to build new facilities, which could lead to the building of more new space than is necessary for research needs. Officials also noted that these interest costs are out of DCA’s control and may vary. For example, at the time of our work, interest rates—which are used to determine interest costs— were very low, but they could increase over time, which could increase costs for ongoing building projects or buildings that have already been completed, regardless of future building decisions by universities. Because of this factor, the indirect cost rate could be expected to increase, resulting in a potential increase in the amount of indirect cost reimbursements provided by NIH.\nIn addition, some stakeholders noted that, at the time of our work, 65 of about 500 universities receiving reimbursement for indirect costs in fiscal year 2012 were eligible for a rate increase of 1.3 percent to account for the higher cost of utilities. DCA officials added that OMB’s proposed revisions to Circular No. A-21 would allow all universities to receive some reimbursement for utility costs based on a revised formula. As a result, NIH reimbursements for indirect costs could be expected to increase as more universities would be eligible to include this cost in their indirect cost rates.",
"Some stakeholders noted that while the cap on the reimbursement rate for administrative costs—26 percent—helps to control reimbursements for indirect costs, it does not account for the recent increases in administrative costs reportedly incurred by universities. For example, university officials explained that their administrative costs have increased in order to comply with recent changes in regulatory reporting requirements, such as those related to reporting conflicts of interest. Some university officials explained that they have hired additional full-time staff to review and manage various reporting requirements as well as invested in additional information technology (IT) to support new software related to regulatory requirements. Additionally, some stakeholders noted that administrative costs also have increased due to trends in the way biomedical research is conducted, such as an increase in collaboration between universities in research studies and an increased use of IT for biomedical research. For example, some university officials explained that many biomedical research projects now use advanced technology—such as high-sequencing technology or imaging—that requires greater investment in computing resources by the university. Additionally, one university’s officials noted that the advancements in IT provide support for interconnectivity, complex data security and data privacy requirements, and requirements for long-term storage and maintenance of electronic data. According to university officials at another university, in some instances they may charge some advanced computing equipment as a direct cost because it is specifically related to research; however, in most instances these computing resources are included in the administrative component of the indirect cost rate.\nAccording to DCA officials, if costs that are part of the capped administrative component increase significantly, indirect cost reimbursements overall could increase if universities begin to categorize some of the costs as part of the uncapped facilities component. Specifically, DCA officials explained that currently there is a provision in Circular No. A-21 that advises certain limits on changing the categorization of certain costs—such as those costs incurred by a university that are associated with increased use of information technology—from the administrative to the facilities component. However, they noted that the proposed revisions to Circular No. A-21 did not include such a provision. DCA officials stated that they may be limited in their ability to control increases in reimbursements associated with these categorization changes if this provision is removed and if university administrative costs continue to increase.",
"NIH has not assessed the potential impact of future increases in indirect costs on its research mission, including planning for how to deal with potential future increases of these costs. As we previously reported, NIH has a program to periodically identify, analyze, and manage significant risks to its objectives, strategy and mission. NIH officials noted that they assess risks related to all extramural research funding as part of this program, and that this assessment does not specifically focus on indirect costs for universities. According to NIH officials, NIH has not conducted such planning because overall indirect costs have remained around 27 percent of NIH’s total budget for all extramural research, and, in their opinion, future cost increases are unlikely to change this figure significantly in spite of factors that may contribute to increased indirect costs.\nTherefore, NIH officials stated that they do not anticipate the need to consider adjusting reimbursements for indirect costs for most grants below the amount determined by a university’s negotiated indirect cost rate, which would require a change in law or regulation. However, NIH officials told us that should indirect costs rise significantly, they may need to reduce the number of research projects, which have already been reduced in part because of budget limitations and increases in the direct costs of research. NIH noted that the reduced budget in fiscal year 2013 resulted in 700 fewer individual research grants. Even at current levels, indirect costs constitute a significant portion of NIH’s budget at about 20 percent. Therefore, over time, increases in indirect costs could cause further reductions in the number of research projects that NIH could support.",
"NIH has indicated that NIH funding for both the indirect and the direct costs of university research provides critical support for biomedical research, covering the indirect costs of operating a research institution and the direct costs of specific research projects. NIH faces uncertainty related to the potential impact of increasing indirect costs on its funding of future research. Among research grants to universities specifically, NIH’s indirect costs are increasing at a faster rate than direct costs. While changes in recent years have generally been small, annual changes in reimbursement for indirect costs have consistently increased relative to those for direct costs, by either increasing at a faster rate or declining at a slower rate. Further, this has occurred while the growth in NIH’s budget for extramural research has slowed in recent years, putting pressure on NIH to find ways to continue to maximize its support of innovative biomedical research. Several factors are expected to contribute to future growth in indirect costs for NIH. These factors include that NIH’s current system of reimbursing indirect costs—through indirect cost rates for each university calculated according to OMB guidance—provides few, if any, incentives for universities to control facilities costs. At the same time, the cost of university facilities to support biomedical research is increasing over time, as cutting-edge research requires more advanced labs and equipment.\nNIH has not made plans for options that might address these trends—in part because it views increases in indirect costs as having been modest. However, indirect costs already represent one-fifth of NIH’s overall budget and about one-quarter of NIH’s budget for extramural research. NIH has experienced small but consistent increases in indirect costs, and factors suggest that indirect costs could increase more quickly over time in the future. If so, such increases could have an effect over the long term on the number and size of research grants that could be funded, thus posing a risk to scientific discoveries and knowledge.",
"To help address the uncertainty NIH faces related to the potential impact of increasing indirect costs on its funding of future research, we recommend that the Director of NIH assess the impact of growth in indirect costs on its research mission, including, as necessary, planning for how to deal with potential future increases in indirect costs that could limit the amount of funding available for total research, including the direct costs of research projects.",
"We provided a draft of this report to HHS, and HHS provided written comments (reprinted in app. II). HHS also provided technical comments, which we incorporated as appropriate.\nHHS indicated that it agreed with our recommendation and that NIH had already taken steps to implement it, but HHS disagreed with a number of our conclusions. Specifically, HHS stated that NIH assesses the impact of indirect costs through its annual budget projections, through planning and congressional justifications, and as part of its risk management program. The draft report acknowledged NIH’s efforts in assessing risk facing its extramural research program. However, NIH has not indicated how these actions would address our recommendation by assessing the potential ongoing impact of indirect costs for universities on its funding of future research. Moreover, NIH has not developed a plan for how to deal with potential continuing increases in indirect costs for universities. Instead, HHS indicated that, in past years, increases in indirect costs have been proportionally consistent with increases in direct costs, and therefore, there is not an immediate risk to NIH’s research portfolio. While the draft report acknowledged that indirect costs have remained a stable percentage of NIH’s overall research costs, it also noted that, for universities—which received almost two-thirds of NIH’s funding for extramural research—indirect costs increased notably faster than direct costs during some recent periods. Further, as indicated in the draft report, there are multiple indications that, for universities, indirect costs are likely to increase at a faster rate in the future, so past stability may not be sustained in future years. We remain convinced that increases in indirect costs could have an effect over the long term on the number and size of research grants that could be funded, thus posing a risk to scientific discoveries and knowledge.\nIn addition, in its comments, HHS included an analysis of indirect costs over the past decade for its overall extramural research portfolio. This analysis was different from our analysis because it focused generally on extramural research rather than specifically on university research. As noted in the draft report, our research questions were focused specifically on universities. Moreover, as institutions of higher education, universities generally have a broader focus on education than research institutions. Further, as noted in the draft report, universities are subject to OMB Circular No. A-21 and their administrative costs are capped, unlike other research institutions. Because of the unique issues that universities face, our analysis of indirect costs excluded nonuniversity research institutions to avoid the possibility of data from these other NIH grantees masking trends for universities, which are the recipients of the largest portion of NIH’s grant funding.\nFinally, HHS stated that we did not provide an opportunity for the department to provide input on our review of NIH’s assessment of the potential impact of indirect costs on NIH’s research mission. We disagree with this characterization. NIH provided input on this issue to us during three separate meetings. For all three meetings, we provided discussion questions in advance. During one of the meetings, we and NIH officials discussed the key facts that were to be included in the draft report, including this issue. In addition, we offered NIH officials the opportunity to provide additional information in writing, as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of the Department of Health and Human Services, the Director of the National Institutes of Health, and other interested parties. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7114 or at kohnl@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix III.",
"Weill Medical College of Cornell University Indiana University—Purdue University at Indianapolis n/a = not available: this institution does not negotiate its indirect cost rate with DCA.",
"",
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"In addition to the contact named above, Will Simerl, Assistant Director; N. Rotimi Adebonojo; George Bogart; Amy Leone; and Roseanne Price made key contributions to this report."
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"question": [
"How have reimbursements from the NIH changed from FY2002 to FY2012?",
"How does this compare to the FY2003 - FY2012 period?",
"How did this increase occur?",
"How uniformly were indirect cost reimbursement divided between universities?",
"What trends are seen among universities with higher indirect costs?",
"How did GAO determine key factors which may increase indirect cost reimbursements?",
"How do reimbursements help support research innovation?",
"What incentive do universities have to control their facilities costs?",
"How may this lead to wasteful spending?",
"How might reimbursement costs be controlled?",
"What is the result of these trends and factors?",
"What actions have NIH officials taken to assess future indirect cost growth?",
"How are indirect costs likely to change in the future?",
"How could the increase in indirect costs affect scientific research?",
"How does NIH reimburse universities?",
"What was GAO asked to examine?",
"What does this report examine?",
"How did GAO source data for this report?",
"How were these universities chosen?",
"What did GAO recommend regarding indirect costs?",
"To what extent did HHS agree with GAO's recommendations?",
"How important does GAO consider the assessment of future growth to be?"
],
"summary": [
"From fiscal year 2002 to fiscal year 2012, indirect cost reimbursements from the National Institutes of Health (NIH) to universities increased slightly faster than those for direct costs, but increased notably faster during some periods. Specifically, from fiscal years 2002 to 2012, indirect costs increased 28.1 percent while direct costs increased 27.0 percent.",
"However, for the fiscal years 2003 to 2012, indirect costs increased notably faster than direct costs, at 16.9 percent and 11.7 percent, respectively.",
"This increase occurred during a time when growth in NIH's budget for extramural research slowed to 5 percent from fiscal years 2008 to 2012, compared to about 21 percent from fiscal years 2002 to 2007.",
"In fiscal year 2012, about 10 percent of the universities (50 out of about 500) receiving NIH extramural research funding received almost 70 percent of all indirect cost reimbursement provided to universities.",
"Higher indirect cost rates tended to be associated with universities located in high-cost-of-living areas and privately owned universities.",
"Stakeholders--university officials, Department of Health and Human Services (HHS) officials, and others--whom GAO interviewed identified several key factors that may lead to increases in reimbursements for indirect costs provided to universities.",
"Some stakeholders reported that reimbursements for one part of indirect costs--the facilities component--help to support research innovation by providing funding for the development and maintenance of state-of-the-art research facilities.",
"However, officials in HHS's Division of Cost Allocation, which is responsible for determining indirect cost rates, stated that the uncapped facilities component of the indirect cost rate provides universities with few, if any, incentives for controlling these costs. For example, these officials noted that there is no limit on reimbursement for interest costs under the facilities component.",
"This may encourage universities to borrow money to build new facilities, which could lead to building more new space than is necessary for research.",
"Some stakeholders also noted that a 26 percent cap on the reimbursement rate for administrative costs--a second component of indirect costs--helps to control reimbursements for those costs; however, they reported it does not account for the recent increases in costs, such as those for regulatory reporting requirements and changing research needs that require advanced medical and information technologies that are considered administrative.",
"The combination of these trends and factors results in indirect costs growing at a faster rate than direct costs.",
"Indirect costs are one-fifth of NIH's total budget--or $6.2 billion in fiscal year 2012--but NIH officials reported that they have not taken steps to assess the significance of future indirect cost growth for universities, or planned for options that might address these trends or factors--in part because they view increases in indirect costs as having been modest.",
"However, factors suggest that indirect costs could increase more quickly in the future.",
"Over the long term, they could lead to a reduction in the number of research grants that could be funded, thus potentially affecting scientific discoveries and knowledge.",
"NIH reimburses universities for both the direct and indirect costs of conducting research. Indirect costs cover general facility and administrative expenses, and are paid as a percentage, or rate, of certain direct costs of awarded grants.",
"GAO was asked to look at the indirect costs of NIH-funded research.",
"This report (1) identifies changes in reimbursements by NIH to universities for indirect costs of NIH-funded research; and (2) examines key factors affecting NIH reimbursement to universities for indirect costs and what assessment NIH has done to address any impact of these costs on NIH's research mission.",
"GAO analyzed NIH data and interviewed officials at NIH, six universities, and other stakeholders.",
"Universities were selected based on the number of grants and amount of funding received from NIH and their negotiated indirect cost rates.",
"GAO recommends that NIH assess the impact of growth in indirect costs on its mission, including, as necessary, planning for how to deal with potential future increases in indirect costs that could limit the amount of funding available for total research.",
"HHS agreed with GAO's recommendation but disagreed with a number of GAO's conclusions, stating that risk to NIH's mission is low because indirect costs remain a stable percentage of NIH's budget.",
"Due to indications that indirect costs for universities may increase in the future, GAO believes that continually assessing and planning for the impact of growth over the long term is important."
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CRS_R41484
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{
"title": [
"",
"Purpose and Scope",
"Background",
"Defining ROL",
"Perceptions of Corruption in Afghanistan",
"Afghanistan's Justice Sector Institutions",
"Formal Justice Sector Institutions",
"Supreme Court",
"Office of the Attorney General",
"Ministry of Justice",
"Ministry of Interior",
"Anti-corruption and Oversight Bodies",
"High Office of Oversight",
"Counter Narcotics Tribunal",
"Anti-Corruption Tribunal and Anti-Corruption Unit",
"Major Crimes Task Force and Sensitive Investigative Unit",
"Traditional Justice Mechanisms",
"Genesis of ROL Strategies in Afghanistan: A Brief History",
"Transitional Justice Under the Bonn Agreement",
"The Afghan Constitution and Formal Justice Sector Challenges",
"The Afghanistan National Development Strategy and Justice Sector Donor Support",
"The U.S. Response",
"Strategic Guidance",
"U.S. Policy Coordination",
"Coordination Under the Bush Administration",
"Coordination Under the Obama Administration",
"Coordinating Director of ROL and Law Enforcement",
"Combined Joint Interagency Task Force 435 and the ROL Field Force",
"Interagency Planning and Implementation Team",
"Coordination Outlook",
"Civilian Outreach at the Provincial and District Levels",
"Funding for U.S. ROL Programs in Afghanistan",
"Scope of U.S. ROL Programs in Afghanistan",
"Major Justice Sector Programs",
"Judicial Sector Support Program (JSSP)",
"Corrections System Support Program (CSSP)",
"ROL Stabilization (RLS) Program",
"Senior Federal Prosecutors Program",
"Defense Department Initiatives",
"Selected Other Justice Sector Programs",
"Selected Crosscutting ROL Programs",
"Anti-corruption",
"Civil Service Capacity Building",
"Local Governance Support",
"Anti-money Laundering",
"Land Reform",
"Parliamentary Support",
"Women's Issues",
"Trafficking in Persons",
"Counternarcotics",
"Police Assistance",
"Conclusion: Outlook on Issues in the 112th Congress",
"Corruption Allegations and Implications for Congressional Funding",
"Criticisms of ROL Support Efforts by Program Evaluators",
"U.S. Support to the Informal Justice Sector",
"The Future of U.S. Support to Afghan ROL"
],
"paragraphs": [
"",
"The purpose of this report is to provide background and analysis for Congress on U.S. rule of law (ROL) and justice sector assistance programs to Afghanistan. This report provides context for ROL issues in Afghanistan by defining ROL and the justice sector, describing the scope of the ROL problem in Afghanistan, including the role of corruption, and surveying the range of Afghan justice sector institutions. This report also describes U.S., Afghan, and multilateral policy approaches to the Afghan justice sector since the U.S. military invasion of Afghanistan in 2001, U.S. policy coordination and funding, and current U.S. justice sector assistance programs in Afghanistan.\nAdditionally, this report examines several issues for the 112 th Congress, which is likely to remain concerned with all aspects of U.S. policy toward Afghanistan, including authorizing and appropriating ROL-related programs and assistance, as well as oversight on policy implementation and effectiveness. Issues for Congress include the implications of Afghan corruption on future U.S. foreign assistance to Afghanistan, limitations of U.S. ROL support efforts in Afghanistan, debates regarding U.S. support to the Afghan informal justice sector, and long-term effectiveness of U.S. ROL support efforts in Afghanistan. U.S. efforts to train and support Afghan police forces as well as counternarcotics and anti-corruption efforts are discussed due to their cross-cutting relationship to ROL, but they are not the primary focus of this report.",
"After several decades of conflict, warlordism, and government misrule, the U.S. government and international community began to rebuild the Afghan government's capacity, including ROL institutions, following the 2001 fall of the Taliban. Helping Afghanistan build its justice sector, however, suffers from the same difficulties that have complicated all efforts to expand and reform governance in that country: lack of trained human capital; traditional affiliation patterns that undermine the professionalism, neutrality, and impartiality of official institutions; and complications from the broader lack of security and stability in Afghanistan.\nAt stake in U.S. government and multilateral efforts to support ROL development in Afghanistan is the goal of a stable, capable, and legitimate Afghan government. In a report evaluating ROL programs in Afghanistan, the State Department's Inspector General's Office (OIG) states:\nIn Afghanistan, there is a direct connect between the lack of a workable system of governance and the national security of the United States. The absence of a modern, functional government sustains the Taliban and Al Qaeda and encourages the rapid growth of the opium trade. Confidence that the government can provide a fair and effective justice system is an important element in convincing war-battered Afghans to build their future in a democratic system rather than reverting to one dominated by terrorists, warlords, and narcotics traffickers. Without ROL the country cannot progress no matter what contributions are made by outsiders.\nBy all accounts, the challenges in Afghanistan confronting ROL development and justice sector reform remain substantial. Limits to ROL reflect deficiencies in or the absence of effective national laws, police forces, and judicial systems. Afghanistan suffers from significant resource limitations in implementing a formal ROL system and from high levels of corruption. By most accounts, official corruption, which involves the misuse of public office for private gain, permeates all sectors of governance and is particularly prevalent in the law enforcement and judicial sectors. The legitimacy of Afghan national law continues to be challenged by alternate power structures, including tribal and militia leaders, and the Taliban, as well as major faction or ethnic leaders. U.S. and Afghan officials have raised concerns that, in the absence of effective ROL and a functioning formal justice system, Afghans may turn to or be forced to use the Taliban justice system to resolve disputes.\nGiven the challenges facing ROL efforts and the perceived security imperative to address current ROL shortcomings in Afghanistan, ROL efforts have become the subject of increasing attention within the Obama Administration's strategy for achieving U.S. goals in Afghanistan. Several U.S. policy and guidance documents provide a framework for U.S. participation in ROL operations in Afghanistan, including the 2009 Integrated Civilian-Military Campaign Plan and the 2010 Afghanistan and Pakistan Regional Stabilization Strategy , both of which identify as top priorities the strengthening of Afghan ROL and access to justice. While not formally approved, the U.S. government has also maintained draft strategies that specifically address ROL efforts and, separately, anti-corruption efforts in Afghanistan.",
"In 2004, the United Nations (UN) Secretary-General described ROL as a \"principle of governance\" characterized by adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness, and procedural and legal transparency. Under this concept, \"all persons, institutions and entities, public and private... are accountable to laws\" publicly promulgated, equally enforced, independently adjudicated, and consistent with international human rights law. This definition is widely applied, including in official U.S. government documents by the Departments of State and Defense.\nROL is often understood to be a foundational element for the establishment and maintenance of democracy and economic growth, and the vehicle through which fundamental political, social, and economic rights are protected and enforced. The concept assumes the existence of effective and legitimate institutions, primarily a country's national government, to administer the law as well as to guarantee personal security and public order. ROL also requires citizen confidence in the fairness and effectiveness of its application, including procedural fairness, protection of human rights and civil liberties, and access to justice. The absence of significant government corruption is considered a prerequisite for effective ROL to be established, because only in corruption's absence is the supremacy of law upheld.\nWhile ROL is dependent on all aspects of governance to function properly, it is the \"justice sector\" that is responsible for ensuring that the ROL is implemented. The justice sector thus encompasses the entire legal apparatus of a country and its society, including the criminal as well as the civil and commercial justice sectors. Administration of justice can take place through formal, state-run judicial mechanisms as well as through traditional, or informal, dispute resolution mechanisms. In additional to the formal judiciary, additional elements of the justice sector are drawn from the executive and legislative branches, as well as other public and private institutions. They include the ministries of justice, legislatures, law enforcement agencies, prisons, financial and commercial regulatory bodies, prosecutors' offices, public defenders, ombudsmen's offices, law schools, bar associations, legal assistance, non-governmental organizations (NGOs), legal advocacy organizations, and customary and religious non-state dispute resolution institutions.\nROL plays a prominent role in counterinsurgency (COIN) operations and can take place in post-conflict situations as well. As part of such efforts, a common objective of ROL efforts is to help establish or strengthen a legitimate governing authority and framework to which the local populace gives consent. According to the revised 2006 U.S. Army COIN field manual, establishing the ROL is a \"key goal and end state.\" Civilian planning efforts for post-conflict situations similarly include ROL as a component of their missions. The U.S. Department of State's Office of the Coordinator for Reconstruction and Stabilization (S/CRS) lists \"justice and reconciliation\" as one of five key components to post-conflict reconstruction \"essential tasks\"; under this heading, justice and reconciliation includes capacity building elements associated with the criminal justice system, indigenous police, judicial personnel and infrastructure, legal system reform, corrections, and human rights, among others.\nIn post-conflict situations, a prerequisite for the establishment of permanent, democratic ROL may be the implementation first of \"transitional justice.\" According to the United Nations, transitional justice comprises the \"full range of processes and mechanisms associated with a society's attempt to come to terms with a legacy of large-scale past abuses, in order to ensure accountability, serve justice, and achieve reconciliation.\" Transitional justice may include both judicial and non-judicial activities that may variously include individual prosecutions, reparations, truth-seeking, institutional reform, and vetting and dismissals. Transitional justice may also include efforts to rebuild justice sector institutions that were destroyed or lack the capacity to fulfill its basic functions and responsibilities.\nTransitional justice mechanisms and efforts to rebuild or strengthen justice sector institutions in post-conflict situations can be undermined by spoilers and opposition forces. Particularly in post-conflict situations, powerful leaders and political figures that had previously benefitted from the absence of ROL may attempt to resist efforts that could result in the reduction of their political influence, social status, and financial interests. They can include formal opposition groups, such as political parties, NGOs, and religious groups. They can also include informal or illicit opposition groups, such as insurgents, local militias, warlords, \"for-hire\" armed groups, and organized crime and corruption networks.\nFor Afghanistan, the term ROL has been used in the contexts described above. Justice sector assistance programs in Afghanistan have historically centered on efforts to build the capacity of the formal justice institutions (e.g., Supreme Court, Ministry of Justice, and Attorney General's Office). While current police and counternarcotics efforts in Afghanistan have ROL components, these programs have historically been implemented and evaluated separately from other ROL programs. Support to the Afghan National Police (ANP), for example, is mainly funded and categorized as a component of support to the security forces and security sector. Since the early 2000s, when the first formal U.S. government ROL programs were developed in Afghanistan, ROL programs have evolved to include greater emphasis on dispute resolution mechanisms that comprise the informal justice sector. This development is both considered central to the counterinsurgency (COIN) strategy in Afghanistan and controversial among human rights advocates.",
"Corruption, involving the abuse of power, trust, or position for private or personal gain, can have widespread negative effects on the establishment of ROL, democratic governance, and economic development. It can undermine efforts to establish democracy by threatening the viability of publicly accountable and transparent government institutions. It can also exacerbate inequality in a society when there is a perception that government services and foreign donor aid funds are only available through bribery or extortion to those who can pay the highest price. Political interference in the justice sector in particular can compromise the impartiality and integrity of judicial processes by fostering a culture of impunity.\nThe presence of such widespread and entrenched corruption in Afghanistan is widely assessed to be undermining Afghan public and international donor confidence in the ability to establish ROL in Afghanistan. Despite differences in methodology and scope, studies agree that corruption in Afghanistan is a significant and growing problem. According to a 2009 U.S. Agency for International Development (USAID) assessment, the country is challenged by \"pervasive, entrenched, and systemic corruption\" that has reached unprecedented levels (see Figure 1 ). Such corruption is reportedly undermining security, development, and state-building objectives. According to the NGO Transparency International, Afghanistan in 2009 was ranked the second-most corrupt country in the world (179 out of 180 countries ranked).\nAt the upper levels of government, several press accounts and observers have asserted that Afghan President Hamid Karzai deliberately tolerates officials who are allegedly involved in the narcotics trade and other illicit activity. Press accounts further assert that President Karzai supports such officials' receipt of lucrative contracts from donor countries, in exchange for their political support. Examples of cronyism and favoritism were evident in early September 2010, when President Karzai ousted the management of the large Kabul Bank, which processes payments for public sector employees, because of revelations of excessively large loans to major shareholders. Among them are Mahmoud Karzai, the President's elder brother, who is a major shareholder of Kabul Bank, and the brother of First Vice President Muhammad Fahim.\nAside from the issue of high level nepotism, observers say that most of the governmental corruption takes place in the course of performing mundane governmental functions, such as government processing of official documents (e.g., passports, drivers' licenses), in which those who process these documents routinely demand bribes in exchange for more rapid action. Other forms of corruption include Afghan security officials' selling U.S. and internationally provided vehicles, fuel, and equipment to supplement their salaries. In other cases, local police or border officials may siphon off customs revenues or demand extra payments to help guard the U.S. or other militaries' equipment shipments. Other examples include cases in which security commanders have placed \"no show\" persons on official payrolls in order to pocket their salaries. At a broader level, the U.S. Special Inspector General for Afghanistan Reconstruction (SIGAR) has assessed that the mandate of Afghanistan's Control and Audit Office (CAO) is too narrow and lacks the independence needed to serve as an effective watch over the use of Afghan government funds.\nPopulation survey-based assessments appear to support the view that it is the lower level corruption that most affects the population and colors its assessment of government. Government corruption registers as among the top problems facing Afghanistan today. The majority of respondents also identify corruption as having become a more significant problem compared to the prior year and as having consistently increased in scope and severity since 2006. According to the United Nations Office on Drugs and Crime (UNODC), as many as one out of every two Afghans experienced bribery in the past year, resulting in an estimated $2.5 billion in bribe payments in 2009 alone—an amount that almost rivals the estimated value of the Afghan drug trade. The average value of a single administrative bribe in Afghanistan in 2009, according to the cited studies, was reportedly between $156 and $160 and, among those who paid bribes, the average number of bribes paid per year was reportedly between 3.4 times and five times per year.",
"Afghan institutions engaged in the justice sector comprise a mix of formal governing institutions and offices, as mandated by the 2004 Afghan Constitution, as well as a broad range of informal dispute resolution mechanisms. A centerpiece of early U.S. government and international ROL efforts was the development and final Afghan approval of a new Constitution, which formally created a central government, a bi-cameral legislature, and an independent judiciary. Elements of Afghanistan's legal infrastructure included judges, prosecutors, courthouses, prisons, and secular and S haria faculties of law.\nDue in part to the limited reach of the formal justice system to many parts of the country, as well as ongoing general distrust and lack of familiarity with the formal justice system, many Afghans have continued to rely on traditional, local forms of dispute resolution, which are generally characterized as informal justice systems (see Figure 2 ). Such traditional bodies are believed to vary significantly among the 364 districts that comprise Afghanistan and the degree to which they provide just, fair, and humane resolutions to disputes remains a source of debate among observers.\nThe following sections describe, in turn, the various components of the formal and informal justice sectors. Included is a discussion of several of the key anti-corruption bodies within the formal Afghan justice system, which have been at the heart of recent controversy and policy discussion both in Afghanistan and the United States.",
"Under the Afghan Constitution, approved in a \"Constitutional Loya Jirga\" in January 2004, Afghanistan's central government has several major law enforcement institutions, which are discussed in the following sections.",
"Chapter seven of Afghanistan's Constitution spells out the role of the Judicial branch of its government. The judicial branch consists of one Supreme Court, Courts of Appeals, and primary courts that are regulated and organized by law. The Supreme Court is the highest judicial organ. The nine members of the Supreme Court are appointed by the President to ten year terms, subject to their confirmation by the elected lower house of parliament ( Wolesi Jirga , House of the People). The Supreme Court's primary role is to ensure that laws, decrees, treaties, and conventions comport with the provisions of the Constitution. The Supreme Court's budget also funds the work of the whole judicial branch of government, and the Court recommends appointments of judges throughout the judicial branch, subject to the concurrence of the President.\nThe head of the Supreme Court is Abdul Salam Azimi. He became Chief Justice of the Supreme Court in 2006, after the lower house of parliament refused to re-confirm his hardline Islamist predecessor Fazl Hadi Shinwari. Azimi is a U.S. educated former university professor, and considered a reformer and a progressive. Formerly a legal advisor to Afghan President Hamid Karzai, Azimi played a key role in the drafting of the 2004 Constitution. However, some well-placed Afghan observers say that Azimi is not viewed as a key official in government and his influence is highly limited.",
"According to article seven of the Constitution, the Attorney General is an independent office of the executive branch. Its duties are to investigate and prosecute crimes. It is the Attorney General's Office (AGO) that is tasked with prosecuting cases of official corruption. As part of the effort to expand ROL in Afghanistan, international donors are funding the construction of AGO provincial headquarters in each of Afghanistan's 34 provinces.\nThe Attorney General is Mohammad Ishaq Aloko. He was appointed Attorney General in August 2008, after Karzai fired his predecessor purportedly for expressing interest in running against Karzai in the August 2009 presidential election. Aloko was an intelligence officer for the government of Mohammad Daoud, who ruled Afghanistan from 1973 to 1978, and Aloko took refuge in Germany when Communist governments took power in 1978. He is a Pashtun, from Qandahar, which is the political base of Karzai.\nA controversy erupted in August 2010 when Karzai ordered Deputy Attorney General Fazel Ahmad Faqriyar, to step down ostensibly for reaching the maximum 40 years of government service. However, calling into question independence of the office, Faqriyar said he was fired for refusing to block corruption investigations of high level officials, including four ministers.",
"The Ministry of Justice (MOJ) has primary responsibilities for judicial affairs of the executive branch. Its main duty is to draft, review, or vet proposed laws for compliance with Afghanistan's Constitution. It also has responsibility for administering Afghanistan's prison system. That authority was transferred to the MOJ from the Ministry of Interior (MOI) in 2003, in part because most Afghans identify the MOI with torture and abuses during the Soviet occupation period. The Justice Minister, appointed and confirmed by the National Assembly in January 2010, is Habibullah Ghaleb. He is a Tajik who worked in the Ministry during the reign of King Zahir Shah and his successor, and then as deputy Attorney General during the 1992-1996 mujahedin -led government of Burhanuddin Rabbani. He was part of Afghanistan's delegation to the July 2007 Rome Conference on rebuilding Afghanistan's justice sector.",
"The Ministry of Interior (MOI) is responsible for overseeing domestic security organs. Today, the MOI is primarily focused on combating the insurgency rather than preventing crime. The Ministry manages the Afghan National Police (ANP), which now numbers about 110,000, and is trained by the United States and partner forces in Afghanistan. The Ministry has struggled to curb the widely alleged corruption within the police forces, which has eroded the trust of the population in the ANP. Another factor that has contributed to lack of trust is the memory some Afghans have of the Ministry's role in suppressing domestic opposition to the Soviet occupation of Afghanistan, and the alleged torture conducted against captured mujahedin and other rebels in Afghanistan's prisons.\nThe current Interior Minister, Bismillah Khan, assumed his position in July 2010, after his predecessor, Mohammad Hanif Atmar, was dismissed suddenly in June 2010 over disagreements with President Karzai. Atmar reportedly disagreed with Karzai over the terms on which to potentially reconcile with Taliban insurgent leaders and on other issues. Khan, a Tajik, was the highly regarded Chief of Staff of the Afghan National Army (ANA) and his appointment to Interior Minister was intended, partly, to restore ethnic balance in the security apparatus. Most of the top leadership of the security organs is Pashtun.",
"The following section describes major anti-corruption and oversight entities in Afghanistan and recent developments regarding their status. In 2010, heightened international concern over the level and extent of Afghan corruption, as well as ongoing challenges to Afghan governance overall, have increased scrutiny of several of these agencies. In particular, reports indicate that President Karzai has sought to prevent vigorous anti-corruption investigations of his closest allies and supporters. Following recent political fallout from U.S.-backed corruption investigations in Afghanistan, some observers have questioned whether the benefits of strengthening Afghan anti-corruption institutions are worth the cost of aggravating the U.S. government's relationship with Karzai.",
"In August 2008 Karzai, with reported Bush Administration prodding, set up the \"High Office of Oversight for the Implementation of Anti-Corruption Strategy\" that is commonly referred to as the High Office of Oversight (HOO). This entity has the power to identify and refer corruption cases to state prosecutors, and to catalogue the overseas assets of Afghan officials. In his November 19, 2009, inaugural address, Karzai announced the upgrading of the HOO by increasing its scope of authority and resources. On March 18, 2010, Karzai, as promised during the January 28, 2010, international meeting on Afghanistan in London, issued a decree giving the High Office of Oversight direct power to investigate corruption cases rather than just refer them to other offices. The U.S. government gave the HOO about $1 million in assistance during FY2009, and its performance was audited by SIGAR in December 2009. The audit found deficiencies in the capacity and independence of the HOO but noted that it was still relatively new and emerging as an institution.",
"This body was established by a July 2005 Karzai decree; it was proposed by then Supreme Court Chief Justice Fazl Ahmad Shinwari. The Tribunal remains under the Supreme Court's jurisdiction. The prosecutions of drug traffickers are tried at the Counter Narcotics Tribunal (CNT) following investigation by a Criminal Justice Task Force (CJTF). Together the two units have 65 Afghan prosecutors and investigators.",
"These investigative and prosecutory bodies have been established by decree. Eleven judges have been appointed to the Anti-Corruption Tribunal (ACT), which operates under the jurisdiction of the Supreme Court. The Tribunal tries cases referred by an Anti-Corruption Unit (ACU) of the Afghan Attorney General's Office (AGO). According to testimony before the House Appropriations Committee (State and Foreign Operations Subcommittee) by Ambassador Richard Holbrooke on July 28, 2010, the ACT has received 79 cases from the ACU and is achieving a conviction rate of 90%. This Tribunal also is under the jurisdiction of the Supreme Court. Amid heightened tensions between the U.S. government and President Karzai in mid-2010 over corruption investigations, mentors from the Department of Justice (DOJ) were required to temporarily suspend their support to the ACU.",
"Two key investigative bodies have been established since 2008. The most prominent is the Major Crimes Task Force (MCTF), tasked with investigating public corruption, organized crime, and kidnapping. A headquarters for the MCTF was inaugurated on February 25, 2010. According to the Federal Bureau of Investigation (FBI) press release that day, the MTCF is Afghan led but it is funded and mentored by the FBI, the U.S. Drug Enforcement Administration (DEA), the U.S. Marshals Service (USMS), Britain's Serious Organised Crime Agency, the Australian Federal Police, the European Union Police Mission in Afghanistan, and the U.S.-led training mission for Afghan forces. The MCTF currently has 169 investigators working on 36 cases, according to Amb. Holbrooke's July 28, 2010 testimony.\nA related body is the Sensitive Investigative Unit (SIU), run by several dozen Afghan police officers, vetted and trained by the DEA. It is this body that led the arrest in August 2010 of a Karzai National Security Council aide, Mohammad Zia Salehi on charges of soliciting a bribe from the large New Ansari money trading firm in exchange for ending a money-laundering investigation of the firm. The middle of the night arrest prompted Karzai, by his own acknowledgment on August 22, 2010, to obtain Salehi's release (although he still faces prosecution) and to establish a commission to place the MCTF and SIU under closer Afghan government control. Following U.S. criticism that Karzai is protecting his aides (Salehi reportedly has been involved in bringing Taliban figures to Afghanistan for conflict settlement talks), Karzai pledged to visiting Senate Foreign Relations Committee Chairman John Kerry on August 20, 2010, that the MCTF and SIU would be allowed to perform their work without political interference.",
"Afghans turn often to local, informal mechanisms such as local shuras or jirgas run by mullahs , mawlawis (highly qualified Islamic scholars), or other local elders or individuals with religious standing. The traditional justice sector often is used to adjudicate disputes involving local property, familial or local disputes, or personal status issues. Some estimates say that the majority of cases are decided in the informal justice system (see Figure 3 ). Recent surveys also show that the proportion of respondents who take cases to traditional mechanisms has increased while the proportion of those taking cases to state courts has fallen. This is widely attributed not only to lack of trust of the formal justice system but also to the logistical difficulty and security concerns inherent in traveling to major population centers where the formal system's infrastructure (courts) is located. The non-governmental dispute resolution bodies also are widely considered more responsive and timelier in resolving cases, particularly those types of cases that are usually brought to these local decision bodies.\nIn the informal sector, Afghans can usually expect traditional practices of dispute resolution to prevail, including those practiced by Pashtuns. Some of these customs include traditional forms of apology (\" nanawati \" and \" shamana \") and compensation for wrongs done. These and other justice and dispute resolution mechanisms are discussed at http://www.khyber.org/ articles/ 2004/ JirgaRestorativeJustice.shtml .\nAmong the main criticisms is that the informal justice system is dominated almost exclusively by males. Some informal justice shuras take place in Taliban controlled territory, and some Afghans may prefer Taliban-run shuras when doing so means they will be judged by members of their own tribe or tribal confederation.",
"Afghan and international efforts to strengthen ROL and the justice sector in Afghanistan are held together by a series of overlapping and evolving strategic frameworks. Justice sector strategy guidance is outlined in several Afghan strategic documents, including the 2008 Afghanistan National Development Strategy (ANDS), the National Justice Sector Strategy , National Justice Program , and most recently the 2010 ANDS Prioritization and Implementation Plan . Collectively, these documents lay out the key ROL objectives of the Afghan government, steps for implementation, and a framework for international donors to support Afghanistan's ROL sector. Separately, the U.S. government maintains a corresponding set of overlapping and evolving strategic frameworks for its civilian and military support to Afghanistan, which include ROL elements.",
"Strategic efforts to strengthen ROL in Afghanistan began in 2001 following the United Nations-facilitated Bonn Conference, which culminated in an agreement that established an Afghan Interim Authority, as well as an interim legal framework and judicial system, which outlined steps to re-establish a permanent governance structure in Afghanistan. Under the Bonn Agreement, a Judicial Reform Commission was assigned the responsibility to rebuild the Afghan justice sector and strengthen ROL. To support the Judicial Reform Commission's efforts, Italy was assigned the lead donor nation role for judicial administration and the detention and corrections system.\nIn the initial years following the 2001 Bonn Agreement, progress in the strengthening of the justice sector under the Judicial Reform Commission, as well as in the implementation of ROL assistance projects under the lead donor nation framework, was widely viewed as halting and under-resourced. In 2002 and 2003, the United Nations reported problems in the functioning of the Commission and in its inability to work collaboratively with other aspects of the justice sector, including the Ministry of Justice and the Supreme Court. Due to reported \"competing fiscal priorities\" and low levels of donor support in the justice sector generally, but particularly pronounced in the corrections sector, minimal progress reportedly took place in the initial years. Further, disconnects in donor coordination and commitments across sectors contributed to views that progress in the justice sector was lagging behind other sectors.",
"Between 2004 and 2006, a series of governance milestones took place, which, while not necessarily resulting in sustained progress in the justice sector, nevertheless established a baseline for the eventual future direction of Afghan justice sector support. First, the Constitutional Loya Jirga concluded in January 2004 with the signing of the new Afghan Constitution. With the establishment of a formal Afghan government following approval of the Constitution, donor nations could begin to support the development of a formal Afghan government justice sector. At the end of 2004, national elections were held and in December 2004 President Karzai was inaugurated. December 2005 marked the end of the Bonn Agreement and the opening of an elected, bicameral National Assembly. In February 2006, the London Conference on Afghanistan culminated with the Afghanistan Compact and the interim Afghanistan National Development Strategy (iANDS), which, combined, set out strategic priorities and plans for Afghan development. One of the three principal pillars of the Compact and Strategy was \"governance, ROL, and human rights.\" The concept of lead donor nations was also dropped at the 2006 London Conference. During this timeframe, the U.S. government became the largest contributor to programs in support of ROL and justice sector capacity building.\nBy the end of 2006, it had become increasingly clear to many in the donor community that serious gaps remained in the Afghan justice sector. The United Nations described the Afghan justice system in 2006 as suffering from a lack of sufficiently qualified judges, prosecutors, and lawyers, as well as limited by the absence of necessary physical infrastructure to administer justice fairly and effectively. Earlier that year, the Afghan Supreme Court issued a report on judicial education that highlighted the system-wide absence of fundamental judicial capabilities: only about one-third of the 1,415 sitting judges in Afghanistan were found to possess higher education qualifications. Judicial officials had become targets for assassination, compounding problems of recruitment and retention. Prison riots and attacks as well as incidents of escaped prisoners underlined the security vulnerabilities of the corrections system. According to observers, well-connected prisoners were often released when relatives complained about their incarceration, leading to a perception that justice in Afghanistan was selectively applied. Other observers described low levels of public confidence in the justice sector, with due process systematically undermined by lengthy pretrial detentions, and the absence of legal defense representation.\nBy December 2006, a United Nations Security Council mission to Afghanistan sought to emphasize the perceived importance of prioritizing justice sector support, stating:\nAs a matter of highest priority, the mission urges the Government of Afghanistan with the support of its international partners to establish rule of law and good governance throughout the country. To this end, the mission encourages the Government to take immediate steps to strengthen justice sector institutions and provincial government, including the replacement of corrupt officials and local power brokers. In these efforts, the Government must enjoy the united support of the international community and adequate resources. More effective mechanisms for strategic planning, funding and coordination of rule of law programmes among international donors and agencies at the national and provincial levels are required. There is also the need to address the problem of endemic corruption within the judiciary and for a comprehensive review of judicial service. The mission calls upon donors to increase the coherence and scale of assistance in the development of Afghanistan's human capital, with special priority to be given to the reform of the country's civil service.",
"Although donor contributions for justice sector assistance remained limited, compared to other sectors, 2007 was marked by previously unprecedented pledges. At the 2007 Ministerial-Level International Conference on ROL in Afghanistan, hosted in Rome, Italy, donors pledged to contribute $360 million over five years to justice sector reform.\nIn 2008, the Afghan government released its final Afghanistan National Development Strategy (ANDS), as well as supplemental details for justice sector development in the National Justice Sector Strategy (NJSS) and National Justice Program (NJP). The ANDS sets out several ROL objectives to be met by the end of 2010. Objectives included\ncompleting the basic legal framework, including civil, criminal, and commercial law; rehabilitating the physical justice sector infrastructure; establishing active and operational formal justice sector institutions in all 34 Afghan provinces; reviewing and reforming oversight procedures related to corruption, lack of due process, and other miscarriages of the law; and implementing reforms to strengthen the professionalism, credibility, and integrity of justice sector institutions.\nThe National Justice Sector Strategy (NJSS) is an element of the ANDS and sets out additional justice sector development goals to be met by 2013. The National Justice Program (NJP) set forth steps to implement the goals of the ANDS and the NJSS, using a combination of Afghan and bilateral and multilateral donor funds to develop and reform the justice system.\nFollowing the 2010 London Conference on Afghanistan in January, the international community relationship with the Afghan government has shifted into a new \"transition\" phase. In this new phase, international actors will continue to play a supporting role, but responsibility for Afghan security and development will rest with the Afghan government. In July 2010, a follow-on to the London Conference took place in Kabul, during which the Afghan government outlined its security and development goals for the next several years. Included among such goals were several related to governance and ROL. These goals were set forth in an updated supplement to the 2008 ANDS, called the ANDS Prioritization and Implementation Plan . This emerging phase is marked by two key trends in justice sector support efforts: (1) an increased concern about the extent of corruption within the Afghan government and (2) an increased interest about how to address the informal justice sector.",
"Promoting ROL and justice sector development is part of the broader effort to increase the legitimacy of Afghan governance and institutions. Emphasis on this aspect of the overall U.S. strategy for stabilizing Afghanistan appears to be increasing under the Obama Administration, particularly as the Karzai government continues to be challenged by widespread perceptions of corruption. Specifics regarding the implementation of such broad ROL goals, however, continue to evolve.\nJustice sector assistance programs in Afghanistan have historically centered on efforts to build the capacity of the courts and justice agencies (e.g., Supreme Court, Ministry of Justice, and Attorney General's Office). These efforts include support to develop the physical infrastructure of the justice system, as well as training, mentoring, and other forms of capacity building. While the police are considered a component of the justice sector, assistance to the law enforcement sector in Afghanistan has historically been implemented and evaluated separately from other ROL programs. A similar explanation applies to counternarcotics efforts in Afghanistan, which also have ROL dimensions.\nMore recent efforts have sought to expand upon existing programs to increase Afghan access to justice at the provincial and district level as well as to develop linkages between the formal and informal justice sector. Since approximately 2004, when the first formal U.S. government ROL programs were first implemented, ROL programs have evolved to include greater emphasis on the informal justice sector. This is a development that is both considered central to the counterinsurgency (COIN) strategy in Afghanistan and controversial among some for its lack of uniform adherence to international human rights standards and for other reasons. However, the traditional justice system is difficult for international donors to influence because it is practiced in areas that are not under government control or that are difficult to access.",
"In February 2010, the State Department issued the Afghanistan and Pakistan Regional Stabilization Strategy , which includes \"enhancing Afghan rule of law\" as one of its nine \"key initiatives\" for Afghanistan. The 2010 Stabilization Strategy identifies five major ROL program objectives including strengthening traditional justice; capacity building for the formal justice sector; corrections sector support; enhanced access to formal justice; and enhanced and focused outreach. Justice sector reform is also featured as a policy priority in the U.S. C ounternarcotics S trategy for Afghanistan , last updated in March 2010.\nAlthough not available publicly, the Administration also maintains other strategies and guidance related to ROL and the justice sector, including, but not limited to a U.S. Strategy for R ule of Law in Afghanistan and a U.S. Strategy for Anti-Corruption in Afghanistan . According to the State Department, the R ule of Law Strategy is composed of four pillars, or goals:\nPillar 1 : Tackle the pervasive culture of impunity and improve and expand access to the state justice sector, by increasing capacity and reducing corruption in the justice sector's institutions; Pillar 2 : Support corrections reform; Pillar 3 : Provide security and space for traditional justice systems to re-emerge organically in areas cleared of the Taliban and engage closely at the grassroots level to ensure dispute resolution needs in the local communities are being met; and Pillar 4 : Build the leadership capacity of the Afghan government's justice sector, and civil society generally.\nThe 2010 Afghanistan and Pakistan Regional Stabilization Strategy followed on several prior strategic plans under the Obama Administration, which also emphasized ROL and related justice sector support programs. These included the 2009 Integrated Civilian-Military Campaign Plan and several earlier speeches by President Obama on the future direction of U.S. efforts in Afghanistan.\nThe August 2009 Integrated Civilian-Military Campaign Plan , jointly released by the Departments of State and Defense, established a framework for the coordination of both civilian and military activities in Afghanistan. This Campaign Plan provided guidance on how to execute the U.S. mission in Afghanistan over the next three years, with particular emphasis on the immediate 12 to 18 month time frame. Among its goals, the Campaign Plan outlined 11 \"transformative effects\" or thematic missions to achieve, including improving access to justice; expansion of accountable and transparent governance; and countering the nexus of insurgency, narcotics, corruption, and criminality.\nOn March 27, 2009, President Obama announced the key findings of a 60-day high-level review of U.S. efforts in Afghanistan. Cornerstone elements of the strategic review included an increased emphasis on counterinsurgency (COIN) and on strengthening the legitimacy of the Afghan government through increased civilian assistance. Support would occur not only at the national level, but also at the provincial and local government level. This announcement followed President Obama's speech at West Point on December 1, 2009, which reinforced the goal of strengthening the justice sector and ROL in Afghanistan and highlighted the importance of combating corruption and delivery of services through an increasingly resourced and combined military and civilian effort.",
"U.S. government agencies that are involved in ROL-related programming and policymaking in Afghanistan include the following:\nState Department : particularly the Office of the Special Representative for Afghanistan and Pakistan (S/RAP), and the Bureaus of International Narcotics and Law Enforcement Affairs (INL) and South and Central Asian Affairs (SCA). Department of Justice (DOJ) : particularly Justice Department attorneys, the Federal Bureau of Investigation (FBI), the Marshals Service (USMS), the Drug Enforcement Administration (DEA), and the Criminal Division's International Criminal Investigative Training Assistance Program (ICITAP). U.S. Agency for International Development (USAID) : particularly the Bureau for Democracy, Conflict, and Humanitarian Assistance (DCHA) and the Asia Bureau. Department of Defense (DOD) : particularly through the U.S. Forces-Afghanistan/International Security Assistance Force (USF-A/ISAF), North Atlantic Treaty Organization (NATO)-ISAF Training Mission-Afghanistan (NTM-A), U.S. Central Command (CENTCOM), Judge Advocate General's Corps (JAG), Combined Joint Task Force 101 (CJTF-101), and Combined Joint Interagency Task Force 435 (CJIATF-435). Department of the Treasury: particularly the Office of Technical Assistance (OTA). Department of Homeland Security (DHS): particularly Immigration and Customs Enforcement (ICE).\nGiven the multiplicity of U.S. entities involved, program and policy coordination has been an important aspect of ROL activities in Afghanistan. However, the history of ROL coordination in Afghanistan highlights the difficulties that policymakers encountered. In many ways, ROL policy coordination continues to be a work in progress.",
"Following the establishment of the Afghan Constitution in 2004, formal U.S. assistance projects in the justice sector expanded significantly and soon were so numerous and lacking in coordination that they risked \"wasteful duplication and contradictory legal reform efforts.\" According to a June 2008 report by the State Department's Office of the Inspector General (OIG), \"So many different international partners and U.S. government agencies were working with so many different grantees and contractors that by 2004 serious questions were raised regarding how well the U.S. government and its allies were communicating with one another, coordinating their efforts, and monitoring their expenditures.\"\nSteps to address ROL coordination began roughly in 2005 with the establishment of a ROL coordinator position in Kabul. In November 2005, the U.S. Ambassador to Afghanistan requested a special ROL coordination office to be located within Embassy Kabul. In early 2006, a Special ROL Counselor, with the rank of Ambassador, was appointed, but held the position temporarily for approximately three months. In October 2006, the U.S. ROL coordinator position was filled on a permanent basis, with a deputy coordinator position filled in 2007.\nThe ROL coordinator became the lead voice and source of ROL information, communication, and guidance of the U.S. government in Afghanistan—both in international donor meetings dealing with ROL matters and with Afghan government officials on matters with judicial sector implications. The ROL coordinator also chaired a weekly meeting at the U.S. Embassy in Kabul, initially called the Special Committee for ROL and later, under the Obama Administration, renamed the ROL Working Group, to plan and coordinate U.S. government ROL activities. The primary purpose of the ROL Working Group was to share information and update U.S. government agency representatives on their ROL activities and programming.",
"Several changes to ROL coordination have taken place since the beginning of the Obama Administration. In June 2009, a new Ambassador-rank position was created at the U.S. Embassy in Kabul, the Coordinating Director for Development and Economic Affairs (CDDEA). This position was intended to oversee all U.S. government non-military assistance to Afghanistan. The ROL coordinator thus became subsumed under the CDDEA. In July 2010, the CDDEA's portfolio was split to establish a separate Ambassador-rank position specifically for justice sector issues entitled the Coordinating Director of ROL and Law Enforcement (CDROLLE).",
"The CDROLLE position is currently held by Ambassador Hans Klemm, the former U.S. Ambassador to East Timor. Ambassador Klemm is the lead U.S. government representative for ROL policy in Afghanistan. The creation of the CDROLLE position represents the first time in which ROL issues are the core element of a portfolio handled by a permanent, Ambassador-rank official at the U.S. Embassy in Kabul. Under the CDROLLE directorate are representatives from the State Department's International Narcotics and Law Enforcement Affairs Bureau (INL), DOD, DOJ, FBI, DEA, Department of Homeland Security's Immigration and Customs Enforcement, and the U.S. Marshals Service.",
"In parallel to the establishment of the CDROLLE position in July, the military established the Combined Joint Interagency Task Force 435 (CJIATF-435) at Camp Phoenix. CJIATF-435 is a follow-on to the Joint Task Force 435 (JTF-435), which began operations in January 2010 and was mainly focused on transitioning control of U.S. military detention operations in Afghanistan to the government of Afghanistan. CJIATF-435 expands upon existing detention and corrections-related activities, to focus also on the development of Afghan investigative, prosecutorial, and judicial capabilities. Subsumed under CJATIF-435 is a new entity called the ROL Field Force (ROLFF), commanded by Gen. Mark Martins. According to a press release, ROLFF's mission is \"to provide essential field capabilities and security to Afghan, coalition, and civil-military ROL project teams in non-permissive areas of Afghanistan, in order to build Afghan criminal justice capacity and promote the legitimacy of the Afghan government.\"",
"Also newly established is the ROL Interagency Planning and Implementation Team (IPIT). This coordinating entity, co-located with CJIATF-435, is intended to facilitate the implementation of jointly-run civilian and military ROL programs.",
"While bureaucratic coordination on ROL issues has reportedly greatly improved, observers indicate that coordination across a sector as broad and multi-faceted as ROL will require ongoing upkeep and face ongoing challenges, according to some observers. Factors impeding ROL coordination include the continuous turnover of staff stationed in Afghanistan, as well as conflicting priorities, and differing operating time horizons and capabilities among the various entities involved in ROL efforts. These factors are a challenge not only among and between U.S. government entities, but also among the other international donors involved in ROL assistance in Afghanistan. Changes to the current coordination mechanisms in place or the relative participation of various U.S. agencies involved in ROL efforts may occur under the new CDROLLE and CJIATF-435, as both entities evolve.",
"ROL programs have been mainly implemented at the national level in Kabul. More recently, U.S. efforts have focused on extending the reach of the U.S. civilian justice sector support efforts at the provincial and district levels. The recent increased emphasis on expanding ROL at the provincial and district levels is in part a response to a perceived oversaturation of ROL advisors in Kabul and an absence of civilian ROL advisors elsewhere in Afghanistan, where approximately 90% of the populace resides. In 2008, for example, U.S. government officials characterized the number of justice advisors in Kabul as having reached a \"point of saturation\" and that the baseline knowledge of the Afghan justice sector outside Kabul remained \"fairly rudimentary.\" Additionally, due largely to the security situation and lack of comparable civilian presence at the provincial and district levels of Afghanistan, the U.S. military was often the primary interface with Afghan officials on ROL issues outside Kabul.\nTo address such concerns, there has been a gradual expansion in the amount of ROL resources and, particularly since the 2009 announcement of a \"civilian uplift,\" in the number of civilian ROL advisors in Afghanistan. Civilian funding for ROL efforts in Afghanistan has also increased in recent years. As part of the 2008 proposal for a \"civilian uplift\" to support provincial- and local-level capacity-building in Afghanistan, the number of U.S. government ROL advisors at U.S.-led provincial reconstruction teams (PRTs) and military task forces has increased to more than a dozen in 2010. Additionally, State Department advisors from the INL Bureau are located at seven Regional Training Centers (RTCs) in Bamyan, Gardez, Herat, Jalalabad, Kandahar, Konduz, and Mazar-e-Sharif. Most recently, the U.S. military has established a ROL field force (ROLFF), whose mission is to support jointly implemented civilian and military ROL projects in the field, including in otherwise non-permissive areas of Afghanistan.\nAlthough the U.S. government does not have a permanent presence throughout all 34 Afghan provinces and 364 Afghan districts, there are several mechanisms in place to spread and expand ROL programming beyond Kabul and into the provinces and districts. They are variously led or funded by the U.S. government, the Afghan government, or the United Nations.",
"U.S. assistance to Afghanistan's justice sector is provided in the form of justice sector training, mentoring, equipping, and infrastructure building. Justice sector assistance is funded through both civilian and military appropriations vehicles and implemented by a combination of U.S. government agencies, NGOs and private contractors. Civilian expenditures on ROL support in Afghanistan have increased from an estimated $7 million in FY2002 to an estimated $411 million in FY2010, totaling $904 million from FY2002 to FY2010. In 2008, the State Department stated in testimony to Congress that Afghanistan's justice sector would require more than $600 million worth of additional assistance over the next five years. Other U.S. government reports indicate that $600 million might underestimate the likely costs, given degradations in the Afghan security environment since the estimate was made.\nU.S. ROL funding for programs in Afghanistan, including both civilian and military components, is difficult to identify and quantify. As a 2008 inspection review of ROL programs in Afghanistan by the State Department's Office of the Inspector General (OIG) explains:\nFunding for the ROL program in Afghanistan is split among several U.S. government agencies. There is no one place where all funds spent specifically on ROL can be identified. ROL program funding is often multiyear and is combined with other programs such as police training and corrections facilities, which often make identification of specific costs difficult. ROL programs are also funded by the UN, other bilateral donors, and a variety of NGOs. The result is that there is currently no way to readily identify ROL funding and subsequently identify duplicate programs, overlapping programs, or programs conflicting with each other. Afghans, while seemingly eager to embrace ROL, are confused by the variety of programs implemented specifically by INL, USAID, and the U.S. military units in Afghanistan. Funding figures from one source may not match other Department or agency funding matrices identifying funds that are ROL specific.\nMost non-Defense Department foreign assistance for ROL activities in Afghanistan is funded by from two foreign aid accounts: Economic Support Fund (ESF) and International Narcotics Control and Law Enforcement (INCLE). DOD ROL efforts are funded through the Commander's Emergency Response Program (CERP) and the Afghanistan Security Forces Fund (ASFF), among other sources.\nAt least a few estimates for total U.S. government spending on ROL assistance are available. These estimates, however, suffer from several various limitations, which include\ndiffering or unclear criteria for what constitutes ROL programming, such as whether police, corrections, or justice-related counternarcotics assistance are included, and whether general governance capacity building assistance and support for human rights are included; incomplete or non-comparable estimates of ROL programming across agencies, due to the varying inclusion or omission of staffing and administrative program management costs, differing appropriations vehicles, as well as changes in foreign aid tracking methodologies since the beginning of ROL assistance in Afghanistan; and the unclear inclusion or omission of potential sources of ROL assistance funding and ROL assistance-related costs, particularly for U.S. military and law enforcement funding sources.\nAs the 2008 OIG report explains, \"the U.S. government, through several agencies, is funding many programs related to ROL.... However, no one source seems to have a clear picture of the scope of U.S. expenditure in this field.\"\nOverall, these estimates indicate that U.S. assistance to the Afghan justice sector has grown gradually since FY2002, accelerating in recent years to become the largest foreign donor in this sector (see Figure 4 ). In FY2002, the U.S. Government Accountability Office (GAO) estimates that the U.S. government provided $7 million for ROL programming. From FY2002 through FY2007, U.S. assistance totaled a combined $160 million for ROL programming. In the next two fiscal years, U.S. assistance for ROL in Afghanistan more than doubled prior expenditures.\nInternational donors also provided financial contributions to ROL efforts in Afghanistan. At the 2007 Rome Conference on ROL in Afghanistan, for example, international donors, other than the United States, pledged to contribute $83 million in new ROL assistance to be administered by the World Bank, which exceeded prior international commitments to contribute $82 million for ROL assistance in Afghanistan. The U.S. government pledged $15 million at the 2007 Rome Conference. It remains unclear, however, whether U.S. and other donor contributions will cover the estimated Afghan need for ROL assistance.",
"The scope of U.S. ROL programs in Afghanistan is broad and inherently multi-disciplinary. The following sections break down such programs into three categories: major justice sector programs, selected other justice sector programs, and cross cutting ROL programs. Major programs include the primary projects implemented by the Departments of State, Justice, and Defense, as well as USAID. The State Department, USAID, and DOD also fund several smaller projects to support Afghanistan's justice sector. These are described in the section on selected other justice sector projects. Additionally, multiple other U.S. efforts in Afghanistan have implications for the ROL. While these projects tend not to be described or defined as ROL programs, many observers would agree that the success of these projects is likely to impact the success of the major U.S.-funded justice sector programs.",
"The four major U.S. funded programs are the Judicial Sector Support Program (JSSP), the Corrections System Support Program (CSSP), the ROL Stabilization (RLS) Program, and the Senior Federal Prosecutors Program. JSSP, CSSP, and the Senior Federal Prosecutors Program are all managed and funded through the State Department's INL Bureau. The RLS program is a USAID-funded program that began in mid-2010 as a follow-on to USAID original ROL program, called the Afghanistan ROL Project (ARoLP). ARoLP ran from approximately October 2004 to June 2009. After roughly a year's hiatus, the expanded RLS program began. Unlike its predecessor, the RLS program has two sub-program elements, including one focused on the formal justice sector (mainly the Supreme Court) and a new, second component focused on the informal justice sector. DOD also funds multiple ROL projects. However, such efforts are not necessarily organized under a central program or project name.",
"The State Department's INL Bureau funds the majority of U.S. government justice sector support to Afghanistan through several programs. INL's primary assistance program for such support is the Justice Sector Support Program (JSSP), which first began in mid-2005. The main focus of JSSP is to build the capacity of Afghanistan's criminal justice system through training and mentoring of justice sector personnel, including prosecution and defense services, the Attorney General's Office (AGO) and the Ministry of Justice (MOJ). Other areas of support include access to justice, gender justice issues, anti-corruption, legislative drafting, legal education and training, and public legal services.\nJSSP funds 32 U.S. justice sector advisors and 45 Afghan legal consultants who have experience and expertise as prosecutors, judges, defense attorneys, and other criminal justice system professionals, as well as additional support personnel. Through JSSP programming, more than 2,000 justice professionals, including judges, prosecutors, criminal investigative police, defense attorneys, victim and gender justice advocates, and others from 30 of 34 provinces have been trained since 2005. JSSP advisor teams are located in Kabul as well as in Herat, Balkh, Kunduz, Nangarhar, and Paktiya. INL plans on placing additional JSSP advisor teams in Kandahar and Bamyan as well potentially doubling the number of U.S. justice sector advisors and Afghan legal consultants involved in JSSP programs.\nIn Kabul, the primary target Afghan agencies of JSSP programs include the AGO and MOJ. The JSSP program provides support to the AGO through training and mentoring, as well as advising the Afghan Attorney General on various issues, including anti-corruption enforcement, police-prosecutor coordination, gender issues, administrative reform, and legal reform. JSSP provides support to the MOJ and its key directorates, including the Policy and Strategy Unit, which provides policy and organizational reform advice to the Justice Minister.\nOther JSSP-funded support includes the development of a curriculum for the training of future Afghan prosecutors in the Stage course, which is a 12-month professional legal training program that follows undergraduate courses in law. The curriculum in development addresses issues such as gender justice and anti-corruption. Other projects to support access to justice include mentoring and capacity building for defense attorneys and private legal defense organizations. Advisors outside of Kabul focus on police-prosecutor training and promote access to justice by holding provincial justice conferences and training defense attorneys. Additionally, JSSP provides support to the Anti-Corruption Unit (ACU).",
"The Corrections System Support Program (CSSP), managed by the State Department's INL Bureau, is the primary civilian-led corrections assistance program provided by the U.S. government to Afghanistan. U.S. corrections assistance began in 2005 as part of JSSP, and was subsequently split off in 2006 as a stand-alone program. CSSP was created in response to lagging international attention to the Afghan corrections system as the prisoner population grew from approximately 400 to 600 prisoners in the early 2000s to roughly 16,000 today. From 2007 to 2008 alone Afghanistan's prison population reportedly grew 21%. As with other aspects of the Afghan justice system, a State Department Inspector General (OIG) report on ROL efforts in Afghanistan describes Afghan corrections as suffering from poorly trained staff, inadequate pay, crumbling buildings, and poor connections to the other components of the justice sector.\nCSSP's goal is to train, mentor, and advise the Ministry of Justice's Central Prison Directorate (CPD) in developing a safe and humane prison system that will not radicalize prisoners. Space for the growing number of prisoners and the quality of existing facilities are priorities for support to the Afghan corrections system. Among its major projects, CSSP provides capacity building and infrastructure support to the corrections system. One example of a capacity building project is the development of a prisoner tracking system that will track both pretrial and sentenced prisoners. The system is intended to allow defendants to be tracked as they enter and move through various stages of the justice system process. It also helps to prevent prisoners from being held for longer periods than is legally permitted or required.\nInfrastructure support to the Afghan corrections system through CSSP includes the construction of new facilities and rehabilitation of existing ones. For example, CSSP is supporting the renovation and reconstruction of the Pol-i-Charkhi Prison, which includes related training, staffing and equipping. In addition, CSSP funding also supports operations and maintenance costs for the Counternarcotics Justice Center (CNJC) in Kabul, a secure facility built by the Army Corps of Engineers that houses the Counternarcotics Criminal Justice Task Force (CJTF), the Central Narcotics Tribunal (CNT), and a detention center.\nOther CSSP assistance projects also include support for pay and rank reform for corrections officers; programs to address the special needs of vulnerable prisoner populations, including women and juveniles; and the development of prisoner vocational industries, such as carpet weaving, to support prisoner reintegration and reeducation. In collaboration with the Combined Joint Interagency Task Force 435 (CJIATF-435), CSSP is establishing a new mobile team to assess prisons. CSSP projects are implemented through approximately 60 corrections advisors.\nAs part of CSSP's training mission, more than 3,800 Afghan corrections staff have received training. Courses have included basic training and several advance and specialized courses, such as emergency response team training, English language programs, and special training for dealing with female inmates. Trainings are mainly conducted at training centers located in Kabul (at the Central Training Center) and at the Regional Training Centers (RTCs). Completion of the basic training curriculum is a prerequisite for a corrections officer to be included in any pay reform or salary supplement support program.",
"The ROL Stabilization (RLS) program is USAID's follow-on to the Afghanistan ROL Project (ARoLP), which began in October 2004 and ended in June 2009. After roughly a year's hiatus due in part to contracting issues, the RLS program began in mid-2010. There are two parts to USAID's program, implemented in Afghanistan through two separate private contractors. One component focuses on the formal justice sector, primarily the courts system. A second component focuses on the informal justice sector.\nThe formal component of the RLS program expands upon prior efforts under ARoLP to work with the Ministry of Justice, the Supreme Court, and the faculties of law and Sharia at private and public universities. Such efforts are intended to improve the capacity of the formal court system and raise citizens' awareness of their legal rights and how the judicial system operates. Originally introduced under ARoLP, the current RLS program will continue the release and implementation of an Afghanistan Case Assignment System (ACAS) in all Afghan courts. ACAS is designed to track and assign cases to judges across the judicial system. It is intended to strengthen the capacity of the Supreme Court to monitor and discipline judges, collect statistics on case flow, and make them publically available.\nThe formal component of the RLS program also expands upon prior efforts to emphasize training and vetting of judges for corruption cases, particularly those involved in the recently established Anti-Corruption Tribunal (ACT). Planned efforts to support court capacity building under the formal component program include judicial administrative reform for pay and grade levels, infrastructure and financial management assistance, as well as judicial training at the national, provincial, and district levels. Under the formal component, the academic faculties of law and Sharia also receive support for legal study tours for Afghan law professors and curriculum development for the Supreme Court's judicial candidate training program (the judicial stage ).\nThe informal component of the RLS program is a new element to USAID's ROL programming in Afghanistan. It is intended to be a one-year pilot program, beginning mid-2010, to provide immediate access to justice through shuras in cleared and held districts. The four pilot districts or villages include two in Kandahar Province (Arghandab and Dand) and two in Nangarhar Province (Besood and Sikh Rod). Planned activities include establishing links between the informal and formal justice sectors, including providing transportation to justice sector facilities and facilitating case referrals between the two systems; mapping the operation and function of the informal justice system; funding quick-impact projects, such as refurbishing justice facilities; and training and mentoring tribal elders and religious leaders.",
"With funds from the State Department's INL Bureau, DOJ maintains a program to send DOJ prosecutors to Afghanistan to provide legal mentoring and training to build investigatory and prosecutorial capacity to combat corruption, drug trafficking, and other serious crimes. DOJ's focus has been to provide legal training and assistance to the Afghan Criminal Justice Task Force (CJTF), a specialized law enforcement entity for narcotics cases, and the Afghan Major Crimes Task Force (MCTF), a specialized crime investigation unit designed to address the most serious cases of corruption, kidnapping, and organized crime. Additionally DOJ supports the Attorney General Office's anti-corruption unit (ACU), and also provides other training initiatives for provincial judges, prosecutors, and investigators at Provincial Reconstruction Team (PRT) and Regional Training Center (RTC) locations outside of Kabul. Participating DOJ attorneys have also assisted Afghan officials with drafting several key legal documents, including a comprehensive counternarcotics law, military courts legislation and military courts penal and procedural law, as well as counterterrorism and extradition laws. The Senior Federal Prosecutors Program also provides criminal law advice to the U.S. Embassy in Afghanistan, Afghan government leadership, and U.S. law enforcement, as needed.\nAs of October 2010, there are eight DOJ attorneys based in Kabul participating in the Senior Federal Prosecutors Program. They were recruited from the 93 U.S. Attorney's Offices in the United States for a tour in Afghanistan that lasts between one year and one-and-a-half years. Current DOJ plans are to expand the program from seven U.S. federal prosecutors to 15 by the end of 2010 and 21 by the end of 2011. In collaboration with the DOJ attorneys, the FBI also provides criminal investigatory training and mentoring initiatives to the same Afghan entities.",
"As part of its counterinsurgency (COIN) and stability operations, and in conjunction with its civilian counterparts, the U.S. military provides various support to the justice sector in Afghanistan, particularly at the provincial and district levels. DOD support is provided through its PRTs, District Support Teams (DSTs), a division-level ROL team, and brigade-level Judge Advocate Generals. Since 2008, the U.S. military has held Key Leader Engagement meetings (KLEs) with provincial-level chief justices and other justice sector officials to facilitate cooperation with local officials on the development of justice sector infrastructure, training, and security of judges and courts. With funds from the Commander's Emergency Response Program (CERP), the U.S. military provides infrastructure support to improve provincial and district level judicial systems, including building or rehabilitating and furnishing prisons, detention facilities, and courthouses.\nDOD's CJTF-101, which operates within ISAF Regional Command-E (RC-E), supports judicial and prosecutor training. Training efforts have included the Continuing Legal Education program. Through its Provincial Reconstruction Teams (PRTs), the U.S. military has offered quarterly Continuing Legal Education programs on varying legal topics, including commercial law, criminal law, land disputes, civil rights, and gender justice to local judges, attorneys, prosecutors, corrections officers, and police officials. Under another justice sector initiative, called the \"mobile courts/circuit rider initiative,\" DOD utilizes assets to enable secure transport of judges and prosecutors into non-permissive areas. At the national level, the U.S. military is also involved in police-justice sector integration through support to the Afghan Ministry of Interior's Legal Advisor's Office. Through its Provincial Reconstruction Teams (PRTs), the military also helps to produce and distribute legal texts and legal awareness materials for the radio and in print.\nThe Defense Department is also increasingly supporting the training and mentoring of Afghan corrections and other aspects of the Afghan justice sector through Combined Joint Interagency Task Force 435 (CJIATF-435) and ongoing efforts to transition detention operations in Afghanistan to the Afghan government. CJIATF-435 is a July 2010 follow-on to Joint Task Force 435 (JTF-435), which was established in September 2009 and became operational in January 2010. JTF-435 assumed responsibility for U.S. detention operations in Parwan, including oversight of the detainee review processes, programs to facilitate the reintegration of detainees into society, and support for the promotion of the ROL in Afghanistan through corrections-related training and mentoring. As JTF-435 evolved into CJIATF-435, it has become engaged in a broader range of ROL support activities, including developing Afghan investigative, prosecutorial, and judicial capabilities.",
"Several additional ROL assistance programs implemented by other agencies also are funded mainly by the State Department, though they are smaller in funding and scope of purpose. They include support for the following:\nMajor Crimes Task Force (MCTF) . With funding mainly from the Defense Department, the FBI provides support to the Major Crimes Task Force (MCTF), an Afghan interagency entity designed to investigate high-level crimes related to public corruption and organized crime. Sensitive Investigations Unit (SIU) . With funding from the Defense Department and the State Department, DEA supports the Afghan Sensitive Investigations Unit (SIU). While the Sensitive Investigations Unit's primary purpose is the investigation of high-level drug-related criminal cases, investigations may also involve high-level corruption cases. Judicial Security . The U.S. Marshals Service (USMS) provides judicial security assistance to the Ministry of Interior's security personnel assigned to the Counternarcotics Judicial Center (CNJC). Several members of the Marshals' Tactical Operations Division Special Operations Group are in Kabul. High Office of Oversight (HOO). Between FY2011 and FY2013, USAID plans to provide the High Office of Oversight (HOO) $30 million to build capacity at the central and provincial level, according to USAID officials. By the end of the first quarter of 2010, USAID will have reportedly provided $1.4 million in start-up assistance to the HOO. USAID would pay for salaries of six High Office of Oversight senior staff and provides some information technology systems as well. Plans also include support for HOO to decentralize in conjunction with the establishment of regional Anti Corruption Tribunals. Legal Education . With grant funding from the State Department's INL Bureau, the University of Washington brings Afghan law professors to the United States, where they can enroll in law school courses and obtain certificates or Master of Law (LLM) degrees. Also with grant funding from the State Department's INL Bureau, the International Association of Women Judges (IAWJ) provides support to Afghan women in the legal profession. Research on the Informal Justice Sector . With funding from the State Department's INL Bureau, the U.S. Institute of Peace (USIP) has conducted, since mid-2007, studies on linkages between the formal and informal justice systems in Afghanistan. As part of the project, USIP conducted studies on the informal justice sector in four pilot districts that span both rural and urban environments—two districts in Herat, one district in Nangahar, and one district in Paktya. Multilateral Trust Funds . With funding from the State Department's INL Bureau, the U.S. government contributes to multilateral funds that address salary reform for judges, prosecutors, and corrections personnel.",
"In addition to assistance programs specifically to the justice sector, discussed above, other crosscutting efforts have an impact on ROL goals. These include programs to strengthen the capacity of general Afghan governance, anti-corruption, women's issues, counternarcotics, and the Afghan security forces, particularly the Afghan National Police.",
"As discussed above, widespread practices of corruption are generally attributed as undermining international efforts to establish ROL in Afghanistan. U.S. efforts to combat Afghan corruption overlap with U.S. efforts to strengthen the justice sector, particularly regarding support to investigate, prosecute, and incarcerate corrupt actors. In addition to such programs, the U.S. government is involved in other anti-corruption efforts, beyond the scope of Afghan justice sector assistance, but with theoretically positive consequences for strengthening ROL in Afghanistan. For example, NATO commander Gen. Petraeus established in mid-2010 an anti-corruption task force to address and prevent future allegations of defense contractor funds from being siphoned off by corrupt businesses, warlords, or insurgents. A U.S. interagency effort established last year to track and disrupt Taliban finances is reportedly increasingly focused on tracking corruption-related finances. Other U.S.-issued anti-corruption directives delineate procedures regarding how U.S. officials in Afghanistan should proceed when they identify incidents of corruption occurring.\nOther examples include USAID's commercial law and trade facilitation support programs. USAID's Economic Growth and Governance Initiative (EGGI) is designed to advance the anticorruption agenda by streamlining business registration and licensing procedures; improving mining, telecommunications, insurance, and energy regulation; strengthening supervision of the banking sector and improved financial intermediation; and enhanced reporting and collection of tax and non-tax revenues into the Central Treasury. USAID's Trade Access and Facilitation in Afghanistan (TAFA) project supports efforts to streamline and simplify the customs clearance process. The goal of such efforts is to reducing time and payments for trading across borders, which otherwise provide opportunities for corruption.",
"A central limiting factor to efforts to strengthen ROL and the capacity of the justice sector is the overall weakness of Afghanistan's civil service capacity to manage the day-to-day operations of a modern bureaucracy. According to several DOD reports to Congress, the Afghan government is fundamentally limited by a lack of civil service capacity, human capacity, resources, and interagency planning and coordination. The absence of sufficient amounts of educated human capital to draw from particularly hampers Afghan ministry efforts to implement programs and deliver public services at all levels. To address this, USAID administers the Afghanistan Civil Service Support (ACSS) program, previously the Capacity Development Program, which supports efforts to train civil servants throughout Afghanistan in public administration. In 2010, more than 15,000 training sessions have been planned to support civil service development at the national and sub-national levels in five common administrative functions: financial management, project management, human resources management, procurement, and policy and strategic planning.",
"Analysts widely agree that Afghan government capacity and performance has generally been more effective at the national level in Kabul than out at the provincial and district levels. To address this general tendency for Afghan government policy planning and functions to be less effective at local levels, USAID administers the Local Governance and Community Development program (LGCD) and the Afghan Municipal Strengthening Program to provide provincial and district governance capacity building, as well as an expanded focus on major urban municipalities. Though the scope of the Local Governance and Community Development program is broader than support specifically to the Afghan justice sector, it indirectly seeks to facilitate the expansion of ROL governance principles to the provincial and district levels.",
"Vulnerabilities in Afghanistan's financial regulatory system have raised concerns about the likelihood that potentially significant sums of money may be laundered or otherwise illegally moved through the Afghan financial channels. Such vulnerabilities may include not only the formal banking system, but also bulk cash smuggling and informal value transfer mechanisms, such as hawala . The Department of the Treasury administers technical assistance to the Financial Intelligence Unit (FIU) at Afghanistan's central bank, which has covered financial sector oversight, supervision and enforcement as well as guidance in the registration of money service businesses. Other U.S. government agencies are also involved in various other efforts to track and investigate potential Afghan financial crimes.",
"Land and property disputes represent the largest proportion of civil law cases in Afghanistan. To address this, USAID administers the Land Reform in Afghanistan project, valued at up to $140 million over five years beginning in FY2010. This project is intended to support efforts to reduce corruption in land transactions by raising awareness among citizens about land processes and procedures, by reducing the number of steps and preventing delays in land transactions, and by establishing a legal and regulatory framework to standardize land administration and property disputes.",
"To improve institutional checks and balances through the legislative branch, USAID supports various programs to assist the Afghan National Assembly. Under one program, the Afghanistan Parliamentary Assistance Program (APAP), USAID supports the Budget Committee's capacity to understand, analyze, and oversee the budgeting process. Another program assists the Afghan Parliament's National Economic Commission to understand and support adoption of modern economic, commercial and financial legislation, and efforts to conduct cost-benefit analysis as a tool for economic decision-making.",
"In addition to the gender justice component of the JSSP, the State Department provides additional support to women's issues through the Increasing Women's Rights and Access to Justice in Afghanistan Program and the Advancing Human Rights and Women's Rights within an Islamic Framework Program. Such programs are intended to train and educate male and female police officers, prosecutors, defense attorneys, corrections officers, and others in civil society on gender-sensitive interpretations and applications of the penal code sections that affect women.",
"The State Department funds efforts to build the capacity of the Afghan government to investigate and prosecute human trafficking cases, as well as to provide training to improve victim identification, referral mechanisms, and the management and reporting of trafficking cases. Target government officials include police officers, judges, and prosecutors.",
"Law enforcement and justice sector reform represents one of the five key pillars in the U.S. government's counternarcotics strategy for Afghanistan. To support this goal, the State Department, DOJ, particularly DEA, and DOD maintain several programs that are intended to enhance the Afghan judicial system as it relates to counternarcotics, train prosecutors, and build the infrastructure necessary to indict, arrest, try, convict, and incarcerate drug traffickers.\nThe State Department, for example, provides funding to DOJ for the mentoring of Afghan investigators and prosecutors on the Criminal Justice Task Force and Afghan judges on the Central Narcotics Tribunal, both of which are co-located at the Counternarcotics Justice Center (CNJC), as well as the Provincial Counternarcotics Training Program. With State Department and DOD funding, DEA supports, trains, and equips specialized counternarcotics law enforcement units within the Afghan Counternarcotics Police (CNP), including the National Interdiction Unit (NIU), the Sensitive Investigative Unit (SIU), and the Technical Investigative Unit. These Afghan officers work with the DEA Kabul Country Office and the DEA Foreign-deployed Advisory Support Teams (FAST) on investigations. DOD also provides military support to Afghan counternarcotics forces through the Combined Joint Interagency Task Force–Nexus (CJIATF-N) and through the DOD-supported Afghan Counternarcotics Training Academy.",
"Building and reforming the ANP is primarily a security mission in Afghanistan, but with significant implications for ROL. With DOD funding and State Department program support, Afghan National Police are trained, equipped, and mentored through the Focused District Development (FDD) program and other targeted efforts for the Criminal Investigations Division, Counternarcotics Police, Counterterrorism Police, Afghan National Civil Order Police, Kabul City Police, Afghan Provincial Police, and Afghan Border Police.",
"Current Administration policy emphasizes expanding and improving Afghan governance as a long-term means of stabilizing Afghanistan, in recognition of the essential role effective ROL plays in securing Afghanistan. Yet, the weak performance of and lack of transparency within the Afghan government are growing factors in debate over the effectiveness of U.S. strategy in Afghanistan. Congress has been active in all aspects of U.S. policy toward Afghanistan, including authorizing and appropriating ROL-related programs and assistance, as well as conducting oversight on policy implementation and effectiveness.\nIn the context of broader congressional interest in the evaluation, oversight, and funding of the overall U.S. effort in Afghanistan, the following sections identify several issues for Congress related to U.S. efforts to strengthen ROL and the justice sector in Afghanistan. These include recent Afghan corruption allegations and implications for congressional funding, criticism of ROL support efforts by program evaluators, U.S. support to the informal justice sector, and the future of U.S. support to Afghan ROL.",
"Heightened alarm over the extent and scale of corruption in Afghanistan has spurred policymakers to question the direction of U.S. policy in Afghanistan under the Obama Administration. U.S. assistance to Afghanistan for FY2011 is under particular congressional scrutiny due to press allegations in June 2010 that corrupt Afghan officials may be pocketing billions of U.S. aid and logistics funding and siphoning it out of Afghanistan's Kabul Airport to financial safe havens elsewhere. Major concerns for Congress are whether U.S. assistance to Afghanistan is susceptible to waste, fraud, and diversion; whether such aid funds may be in part fueling Afghan corruption; and what can the U.S. government do to address potential vulnerabilities.\nIn June 2010, Representative Nita Lowey, Chair of the House Appropriations Subcommittee responsible for the State Department's Foreign Operations budget, announced that she would place a hold on certain U.S. aid to Afghanistan until she has \"confidence that U.S. taxpayer money is not being abused to line the pockets of corrupt Afghan government officials, drug lords, and terrorists.\" Following such allegations and congressional concern, several congressional hearings in July 2010 on the issue of civilian assistance to Afghanistan ensued. While the specific allegations of corruption were not confirmed, witnesses generally acknowledged corruption in Afghanistan to be a major impediment to establishing effective ROL efforts and overall reconstruction goals. Earlier in 2009, Representative Dave Obey, Chair of the House Appropriations Committee, also emphasized concerns regarding corruption and the need for specific and measurable benchmarks for anti-corruption improvement to justify future U.S. commitments Afghanistan.\nRecent concerns over corruption have also prompted a broader policy debate over the relative importance of fighting corruption among other U.S. strategic priorities in Afghanistan. Central questions in current debates include the following:\nHow far should the U.S. government go in combating corruption in Afghanistan? Are there limits in the extent to which anti-corruption should be a priority in U.S. strategy to Afghanistan? How should anti-corruption investigations in Afghanistan be conducted and resolved? Through due process of Afghan law? Through diplomatic negotiation? Or with or without overt endorsement from President Karzai and other top-level Afghan officials?\nOn the one hand, Obama Administration policy, as articulated in two major Afghanistan policy addresses on March 27, 2009, and December 1, 2009, emphasizes the need for more to be done to combat corruption within the Afghan government. The latter Obama statement, for example, specified that \"the days of providing a blank check are over\" for the Afghan government if it does not reduce corruption and deliver services. Supporters of such a policy approach have emphasized the importance of anti-corruption efforts in an overall counterinsurgency (COIN) strategy in Afghanistan, focused on improving Afghan perceptions of the Afghan government's legitimacy and transparency. Supporters would also emphasize the importance of anti-corruption efforts in plugging some of the most serious corruption-related leaks, including, potentially, the recently reported bulk cash movements out of the Kabul Airport. Recent Afghan investigations involving several U.S.-supported anti-corruption and oversight agencies may also be indicative of improvements in Afghan government capacity to combat corruption.\nOthers, however, have questioned whether the benefits of anti-corruption efforts in Afghanistan outweigh several drawbacks. For example, recent high-profile corruption investigations targeting prominent Karzai supports have had the unintended consequence of aggravating U.S.-Karzai relations and also potentially undermining recent U.S. successes in strengthening Afghan anti-corruption capabilities. Some observers have discussed the possible need to avoid investigating and prosecuting particular high-level Afghan officials to avoid future complications in the U.S. government's relationship with President Karzai. Observers suggest that such an approach, while potentially beneficial from a diplomatic perspective, may risk facilitating the existing perceptions among many Afghans that high-level corrupt officials are exempt from the full force of Afghan law. Other observers have also argued that meaningful improvements in combating corruption in Afghanistan require a long-term U.S. commitment to stay in Afghanistan for potentially decades. Short of that, such observers predict that prioritizing anti-corruption will yield limited success.",
"As Congress conducts oversight and appropriates funding for U.S. assistance programs to support ROL in Afghanistan, an issue to consider is the extent to which the Afghan government can absorb and effectively use such assistance. Such sentiments have been variously confirmed by the Special Inspector General for Afghanistan Reconstruction (SIGAR), U.S. Government Accountability Office (GAO), the State Department's Office of the Inspector General (OIG), and others in legislatively mandated reports to Congress on the status of U.S. ROL efforts in Afghanistan. Collectively, these reports indicate that although significant progress in establishing ROL in Afghanistan have been achieved, there appear to be several fundamental limitations on the ability of the U.S. government and other donors to strengthen the Afghan justice sector in the short term.\nFor example, a 2009 GAO report identified low literacy rates and the related lack of basic computer skills as fundamental limiting factors for the recruitment of Afghan justice sector personnel, including police, prosecutors, investigators, and administrative staff, as well as for the ability to implement a modern management system for the justice sector. Retention of trained staff is also challenging as many reportedly leave Afghan ministries for better paying jobs with donor countries and NGOs. Separately, a 2010 State Department OIG report warned that there is \"tension\" between, on the one hand, the U.S. government's stated goals for ROL in Afghanistan, and on the other hand, the capacity and commitment of the Afghan government to implement such ambitions.\nAlso missing are components of an effective ROL and anti-corruption program, according to program evaluators. Additional reported concerns included the following:\nThe lack of both a formally approved ROL strategy and an anti-corruption strategy for Afghanistan limits the U.S. Embassy in Kabul from setting ROL and anti-corruption priorities and timelines, as well as identifying the appropriate number of personnel and needed skill sets, according to the State Department's OIG and SIGAR. The need for improved ROL coordination and guidance between the U.S. Embassy in Kabul and Provincial Reconstruction Teams (PRTs) in the field, as well as improved reporting on ROL-related activities from the field to the U.S. Embassy in Kabul, according to the State Department's OIG. The inability of Afghan anti-corruption and oversight institutions, such as the Afghan High Office of Oversight (HOO) and the Afghan Control and Audit Office (CAO), to function effectively due to the lack of independence, a weak legal framework, and lack of commitment from donors, including from the U.S. government, according to SIGAR.",
"Observers have described current U.S. efforts to support Afghan ROL development, including increased emphasis on the informal justice sector and other civilian and military efforts to improve access to justice at the provincial and district level, to be in many ways unique and untested, due the sheer scale of the programs involved, the low level of existing justice sector capacity, gaps in U.S. government understanding of existing dispute resolution mechanisms throughout the country, the absence of security in many parts of Afghanistan, and the existence of entrenched corruption at all levels of the Afghan bureaucracy. This means that, while many U.S. projects may be assessed as helping to improve the Afghan justice system, other U.S. projects, at times, may be perceived as ineffective or even counterproductive.\nIn this vein, human rights and development advocates have questioned the value of funding U.S. programs to support the informal justice sector in Afghanistan. One concern is how deeply the international community, including the United States, should be involved in trying to ensure that the informal justice sector provides equitable justice. Some see supporting the traditional justice sector as an expedient means of building ties to local community leaders—a process that can improve the prospects for the U.S. counterinsurgency (COIN) strategy. Others believe that supporting use of the traditional justice system could harm the longer term objective of building a democratic and progressive Afghanistan by preserving some of its undemocratic traditional elements. Still others believe that policies to address the sector might be viewed by Afghans as intrusive. There are also some international officials who feel that reforming or overseeing these mechanisms is beyond the scope of the international stabilization mission in Afghanistan.\nThis debate is an issue of concern for U.S. lawmakers, given the recent strategic focus on improving Afghan access to justice and increased attention and funding to strengthen and support the informal justice sector in Afghanistan. Various analysts continue to disagree regarding the value and efficacy of U.S. support to the informal justice sector, with some, on the one hand, arguing that such support is vital, particularly in the short term, to ensure that increasing numbers of Afghans have access to fair and timely dispute resolution mechanisms. Others, on the other hand, argue that, given finite amounts of resources available to strengthen the justice sector, all of such resources should be devoted to strengthening the quality and reach of the formal justice sector.",
"U.S. efforts to support ROL and anti-corruption in Afghanistan have evolved and grown since 2001, beginning with support to the Afghan Interim Authority, ratification in 2004 of the Afghan Constitution, and continuing through 2010 as the Obama Administration has sought to strengthen and expand the reach of Afghan justice institutions throughout the country. Proponents of the current U.S. approach to ROL institutions in Afghanistan would argue that it is informed by prior challenges and policy criticism and reflects a strategic evolution in the level of U.S. commitment, resources, and policy approach to ROL-related efforts in Afghanistan.\nObservers continue to debate, however, whether or to what extent these shifts in the level of U.S. commitment and resources for ROL efforts in Afghanistan will help the U.S. government reach its ultimate goal of developing a stable, capable, and legitimate Afghan government. At stake in such a debate is the long-term effectiveness and value of continued congressional funding and policy support for the Obama Administration's efforts to strengthen ROL in Afghanistan. Already, some U.S. government assessments raise concerns about the long-term effectiveness of current efforts.\nIn 2008, the State Department's Office of the Inspector General (OIG) concluded that \"the many U.S. efforts to support ROL in Afghanistan are laudable for their professionalism and tenacity, but it is often not clear how, even if, ROL efforts are being measured for success, and when the intense international attention wanes, whether these projects can be sustained.\" Separately, a Defense Department report in 2010 warned that there has been \"little enduring progress despite significant investment toward reform, infrastructure and training\" in the justice sector and that while Afghanistan has \"achieved some progress on anti-corruption, in particular with regard to legal and institutional reforms, real change remains elusive and political will, in particular, remains doubtful.\" Afghan officials have also raised similar concerns, arguing that despite increasing resources devoted to justice sector support, efforts have not yet translated into a functional formal justice system in Afghanistan. The 112 th Congress may choose to address these long term issues in the context of the Obama Administration's review of U.S. strategy to Afghanistan, expected to take place in mid-2011. Other potential decision points for Congress may center on FY2011 appropriations and congressional review of the Administration's FY2012 budget request."
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{
"question": [
"How important is developing effective Afghan justice sector institutions?",
"What role does the rule of law play in the U.S. strategy for Afghanistan?",
"To what extent has the U.S. implemented ROL?",
"What programs are involved in ROL in Afghanistan?",
"How are most U.S. efforts at ROL directed?",
"How are U.S. efforts aligning with COIN objectives?",
"How static is policy coordination among U.S. civilian and military entities?",
"How might policy change in the future?",
"To what extent will the ROL efforts help the U.S. reach its ultimate goal in Afghanistan?",
"What are challenges that undermine U.S. efforts in Afghanistan?",
"How will Congress continue discussing these issues?"
],
"summary": [
"Developing effective Afghan justice sector institutions is considered by many observers to be essential in winning the support of the Afghan population, improving the Afghan government's credibility and legitimacy, and reducing support for insurgent factions.",
"To this end, establishing the rule of law (ROL) in Afghanistan has become a priority in U.S. strategy for Afghanistan and an issue of interest to Congress.",
"Numerous U.S. programs to promote ROL are in various stages of implementation and receive ongoing funding and oversight from Congress.",
"It is difficult to identify all the programs, activities, and actors involved in ROL in Afghanistan, in part because of the continued evolution of U.S. strategy and interagency coordination for supporting the Afghan justice sector.",
"Among the most recent shifts in strategy, U.S. efforts are increasingly resourced by a surge in civilian personnel at the provincial and district levels.",
"To align with counterinsurgency (COIN) objectives, the U.S. government is emphasizing not only ministerial-level institution-building, but also projects to improve local-level access to justice, including projects to support informal dispute resolution mechanisms.",
"Policy coordination among U.S. civilian and military entities involved in ROL efforts in Afghanistan also continues to change—including, most recently, the establishment of an Ambassador-led Coordinating Director for Rule of Law and Law Enforcement (CDROLLE) directorate at the U.S. Embassy, a General-led Rule of Law Field Force (ROLFF) under the CJIATF-435, as well as an Interagency Planning and Implementation Team (IPIT) to coordinate all civilian and military ROL activities in Afghanistan.",
"Future shifts in policy approaches may also occur as policymakers seek to address growing concerns regarding Afghan corruption.",
"Observers debate whether or to what extent the increased U.S. commitment to and resources for ROL efforts in Afghanistan will help the U.S. government reach its ultimate goal of developing a stable, capable, and legitimate Afghan government. Many would argue that the challenges in Afghanistan to ROL development and justice sector reform remain substantial and many factors undermine prospects for success.",
"Chief among these are ongoing allegations of severe corruption at all levels of the Afghan government, lack of overall security and stability, limited Afghan government capacity, the existence of competing justice mechanisms, and the persistence of traditional attitudes that perpetuate the perception that well-connected Afghans can avoid facing prosecution and conviction.",
"These debates will likely continue in the 112th Congress, as Members remain concerned with all aspects of U.S. policy toward Afghanistan, including authorizing and appropriating ROL-related programs and assistance, as well as conducting oversight on policy implementation and effectiveness."
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CRS_R44857
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{
"title": [
"",
"Historical Background on the Use of Independent Investigations of Alleged Wrongdoing",
"Special Prosecutors and Independent Counsels, as Authorized Under the Ethics in Government Act",
"Appointment Process",
"Role of the Attorney General",
"Role of the Court",
"Scope of Authority",
"Removal",
"Termination of Independent Counsel Inquiries",
"Statutory Reauthorizations and Eventual Lapse of the Independent Counsel Statute",
"Legal Authority of Special Counsels Under Current Law",
"DOJ Special Counsel Regulations",
"Appointment and Selection by the Attorney General or the Acting Attorney General",
"Scope of Jurisdiction and Authority",
"Oversight and Removal",
"Review and Conclusion of Special Counsel Inquiries",
"Appointing and Removing a Special Counsel: Legal Considerations",
"Appointment of a Special Counsel",
"Removing a Special Counsel",
"Removing a Special Counsel Pursuant to the Regulations",
"Legal Effect of the Regulations",
"Proposed Legislation to Restrict the Ability to Remove a Special Counsel",
"Presidential Authority to Oversee Executive Branch Officers",
"Morrison v. Olson",
"Post-Morrison Case Law on Appointments and Removal",
"Legislation to Establish For-Cause Removal Protection for a Special Counsel",
"Legislation to Establish Judicial Review of a Removal Decision",
"Retroactive Application of Legislation to Insulate a Special Counsel",
"Conclusion"
],
"paragraphs": [
"T he Constitution gives no direct role to Congress in conducting federal law enforcement. While Congress enjoys the legislative power under Article I of the Constitution, which includes substantial authority to investigate the executive branch pursuant to its oversight function, criminal investigations and prosecutions are generally considered core executive functions entrusted with the executive branch un der Article II. Because of the potential conflicts of interest that may arise when the executive branch investigates itself, however, there have often been calls for prosecutors with independence from the executive branch. In response, Congress and the U.S. Department of Justice (DOJ) have used both statutory and regulatory mechanisms to establish a process for such inquiries. These responses have attempted, in different ways, to balance the competing goals of independence and accountability with respect to inquiries of executive branch officials. This report first analyzes the use of special prosecutors and independent counsels that were authorized under now-expired provisions of the Ethics in Government Act of 1978, as well as the use of special counsels that are currently authorized by DOJ regulations. A glossary of terms at the beginning of the report briefly defines these italicized terms (see Table 1 ).\nThe report continues with an examination of various legal questions relevant to these efforts. As a threshold matter, some have challenged the appointment of a special counsel under the current regulations as unconstitutional under the Appointments Clause. More broadly, designing a statutory framework for criminal investigations and prosecutions with independence from the executive branch raises questions about how this can be achieved consistent with the requirements of the Constitution. For instance, the Supreme Court upheld the constitutionality of the since-expired independent counsel statute in the 1988 case of Morrison v. Olson , but has not applied the reasoning of Morrison in subsequent cases raising related issues. The constitutional status of a statutory framework analogous to the independent counsel statute is thus subject to debate. Several bills introduced in the 116 th Congress (including S. 71 and H.R. 197 , which merge aspects of two preceding bills introduced in the 115 th Congress, S. 1735 and S. 1741 ) statutorily insulate a special counsel from removal, echoing aspects of the independent counsel statute's provisions. Whether such proposals would withstand constitutional challenge today might ultimately turn on the continued vitality of the analysis applied in Morrison .",
"In part to counter perceptions that executive officials suspected of criminal wrongdoing may be subject to different standards than individuals outside the government, independent investigations have sometimes been used to determine whether officials have violated the law. The government has used a range of options to conduct these types of inquiries: special prosecutors, independent counsels, and special counsels. Executive branch officials have noted, however, that \"there is no perfect solution\" to achieving the goal of avoiding potential conflicts or the appearance thereof that may arise as a result of the executive branch investigating its own officials.\nWhile special prosecutors investigated executive officials prior to the 1970s, the events commonly known as Watergate led to perhaps the most famous use of an independent investigation in U.S. history. Specifically, the break-in and burglary of the Democratic National Committee Headquarters at the Watergate Hotel in 1972 led to widespread allegations of wrongdoing by senior officials in the executive branch and calls for the appointment of a prosecutor who could conduct an investigation independent of political interference. In the midst of the Watergate controversy, Elliot Richardson, whose nomination to be Attorney General was being considered by the Senate Committee on the Judiciary, agreed to name an independent special prosecutor to pursue the Watergate allegations. Once confirmed by the Senate, the Attorney General, under his own authority, appointed Archibald Cox as special prosecutor for the Watergate investigation in 1973. The President subsequently ordered DOJ officials to fire the special prosecutor later that year, leading to public outcry, the appointment of another special prosecutor, and, ultimately, the initiation of impeachment proceedings by Congress. Following these events, Congress enacted a new mechanism—discussed in the following section—for the use of special prosecutors who would be appointed by a three-judge panel upon the request of the Attorney General.",
"Congress enacted the Ethics in Government Act of 1978 out of a broad intent \"to preserve and promote the integrity of public officials and institutions.\" The statute addressed a number of concerns about the ethical behavior of some public officials in the wake of the Watergate scandal. Title VI of the statute (hereinafter \"the independent counsel statute\") established a mechanism for the appointment of individuals to lead independent investigations and prosecutions in certain circumstances. The statute originally designated these individuals as \"special prosecutors\" and later renamed them as \"independent counsels.\"\nTwo of the most commonly known examples of appointments of independent counsels under the statute involved incidents known generally as Iran-Contra and Whitewater. In 1986, Lawrence E. Walsh was appointed as independent counsel to investigate potential criminal misconduct of government officials related to the sale of arms to Iran and alleged diversion of profits from the sale to support the \"the military activities of the Nicaraguan contra rebels\" in violation of federal law. That investigation resulted in criminal charges for 14 individuals, most of whom were convicted, though some convictions were overturned on various grounds. In 1994, Kenneth Starr was appointed as independent counsel to investigate potential violations of federal criminal or civil law related to President Clinton or First Lady Hillary Rodham Clinton's relationship with Madison Guaranty Savings and Loan Association, Whitewater Development Corporation, or Capital Management Services, as well as any allegations arising out of that investigation. That investigation led to a myriad of charges for a number of individuals, but did not include indictments of the President or First Lady.",
"Appointment of independent counsels under the statute occurred in two steps, requiring the involvement of both the Attorney General and a panel of federal judges.",
"The independent counsel statute generally directed the Attorney General to conduct a preliminary investigation upon receiving information about potential wrongdoing by certain officials in the executive branch or from presidential campaign committees. If, within 30 days of receiving such information, the Attorney General determined that the information was specific and from a credible source, the Attorney General was required to conduct a preliminary investigation for a period of up to 90 days. The statute did not require the Attorney General to acknowledge or notify any other parties that such information had come to his attention, but did require that the Attorney General inform the court that he had commenced a preliminary investigation.\nThe conclusions reached in that initial investigation determined whether an independent counsel would be appointed to investigate the underlying allegations further. The statute required that the Attorney General request appointment of a special prosecutor by the special division of a federal court (discussed below) under three sets of circumstances. First, if the 90-day window for the preliminary investigation passed without a determination that further investigation or prosecution was not warranted, the Attorney General was required to request the appointment by the court. Second, if the Attorney General's initial investigation determined that further investigation or prosecution was warranted, the Attorney General was also required to request the appointment by the court. Finally, if the preliminary investigation indicated that further action was not warranted, but additional information was subsequently revealed which led the Attorney General to determine that further investigation or prosecution was indeed warranted, the Attorney General was mandated to conduct a preliminary investigation based on that information.\nFollowing that investigation, the statute required the Attorney General to seek appointment of an independent counsel under the same circumstances— i.e. , if no determination had been made within 90 days or if the Attorney General determined further investigation was warranted. The Attorney General's decision to request an appointment under the statute was not subject to judicial review. While the Attorney General was not authorized under the statute to appoint the independent counsel, he was required to provide the court with \"sufficient information to assist\" the court in the selection of the appointed individual and to define the jurisdiction of the inquiry.",
"While the Attorney General conducted the initial investigation to determine whether an independent investigation was warranted, the independent counsel statute required that a special division of the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit), composed of three federal judges or Justices, appoint the independent counsel.\nThe Chief Justice of the U.S. Supreme Court assigned three federal judges or Justices to that division for two-year assignments. The statute's provisions regarding assignment of the three-judge panel required that the panel include a judge from the D.C. Circuit and that not more than one judge or Justice be from any single court. Any judge or Justice serving in the special division of the court that appointed the independent counsel was barred from participating in any judicial proceeding involving the independent counsel while he or she was still serving in that position or any proceeding involving the exercise of the independent counsel's official duties.\nBased on recommendations from the Attorney General regarding the selection and jurisdiction of the independent counsel, the three-judge panel had the final authority to make the appointment and define the prosecutorial jurisdiction. The court was expressly barred from appointing \"any person who holds or recently held any office of profit or trust under the United States.\"",
"\"[W]ith respect to all matters in [the] independent counsel's prosecutorial jurisdiction,\" Congress granted the independent counsel \"full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice, the Attorney General, and any other officer or employee of the Department of Justice . . . .\" Examples of the independent counsel's enumerated authorities included\nconducting investigations and grand jury proceedings; engaging in judicial proceedings, including litigation and appeals of court decisions; reviewing documentary evidence; determining whether to challenge the use of testimonial privileges; receiving national security clearances, if appropriate; seeking immunity for witnesses, warrants, subpoenas, and other court orders; obtaining and reviewing any tax return; and carrying out prosecutions in court, including filing indictments.\nThe independent counsel could request DOJ assistance in the course of his or her investigation, including access to materials relevant to the jurisdiction of the inquiry and the necessary resources and personnel to perform his or her assigned duties.",
"Other than impeachment, the independent counsel could be subject to removal \"only by the personal action of the Attorney General and only for good cause, physical or mental disability . . ., or any other condition that substantially impairs the performance of such independent counsel's duties.\" In other words, the independent counsel was generally not subject to the control and oversight of any other official within the executive branch. If the Attorney General exercised his removal authority, he or she was required to notify the special division of the court responsible for the initial appointment and the Committees on the Judiciary of both the House of Representatives and the Senate, identifying the reasons for removal.",
"The inquiry led by the independent counsel under the statute could be terminated under two methods. First, the statute directed that the office of the independent counsel would terminate upon notification by the independent counsel to the Attorney General that the investigation and any subsequent prosecutions had been completed. Second, the statute permitted the special division of the court—by its own choice or by the recommendation of the Attorney General—to terminate the office at any time if the investigation had been completed or sufficiently completed, allowing DOJ to formally complete the inquiry under its own processes. In either case, the independent counsel was required to submit a report to the special division of the court detailing the work completed. The report was required to include \"a description of the work of the independent counsel, including the disposition of all cases brought.\"",
"When the independent counsel statute was originally enacted in 1978, Congress provided that its authority would lapse five years after enactment. Investigations that had already started pursuant to the provisions were permitted to continue, but no new investigations could be initiated at that time. Rather than allow the statute to lapse, Congress reauthorized the law, with some amendments, several times. It was reauthorized in 1983 and 1987, and remained in effect until 1992, when Congress allowed the law to expire. The statute was again reauthorized in 1994, following concerns related to the investigation of the Whitewater controversy during the interim years. However, concerns over whether the independent counsel possessed too much power, which arose after the extensive independent counsel investigations of the Iran-Contra affair and the Whitewater controversy, resulted in the law's ultimate expiration and nonrenewal in 1999.",
"Following the expiration of the independent counsel statute, DOJ promulgated regulations in 1999, which are currently still in effect, to establish procedures for the appointment of special counsels pursuant to the Attorney General's general administrative hiring authority. DOJ described these regulations as \"strik[ing] a balance between independence and accountability in certain sensitive investigations.\" DOJ acknowledged at the time the regulations were promulgated, however, that \"there is no perfect solution\" to achieving that goal.\nThus far, it appears the special counsel regulations have been invoked infrequently. In 1999, shortly after the regulations were promulgated, the Attorney General appointed former U.S. Senator John Danforth as special counsel to investigate events related to the government actions that occurred six years earlier at the Branch Davidian compound in Waco, Texas. The special counsel's investigation found no wrongdoing on the part of federal law enforcement officials.\nIn May 2017, Deputy Attorney General Rod Rosenstein—acting in place of Attorney General Jeff Sessions, who had recused himself from the investigation—issued a publicly-available order (public order) appointing former Federal Bureau of Investigation Director Robert S. Mueller III as special counsel. Rosenstein indicated in the public order that the appointment had been made pursuant to general statutory authority to manage DOJ investigations, but directed that the investigation would be subject to the agency's regulations governing the scope and administration of special counsel investigations. Specifically, the public order directed the special counsel to investigate efforts of the Russian government \"to influence the 2016 election and related matters.\" DOJ later issued a non-public memorandum that set forth in more detail the scope of the investigation and definition of the special counsel's authority. That memorandum explained that the public order \"was worded categorically in order to permit its public release without confirming specific investigations involving specific individuals.\"\nIt should be noted that the Attorney General also possesses general statutory authority to appoint DOJ staff to conduct or coordinate particular investigations. DOJ has used this authority previously to appoint individuals who were referred to as \"special counsels\" to investigate particular matters. This authority differs from the special counsel regulations because it involves assignment of an internal agency official rather than an individual from outside the government. For example, in 2003, then-Deputy Attorney General James Comey (acting in place of then-Attorney General John Ashcroft, who had recused himself from the investigation) used this statutory authority to appoint Patrick Fitzgerald to lead an investigation of whether White House or other federal officials unlawfully leaked the identity of a Central Intelligence Agency officer to a reporter. While referred to as a special counsel, Fitzgerald was serving as a U.S. Attorney when named to lead the investigation, precluding an appointment under the special counsel regulations. While an individual referred to as a \"special counsel\" thus may be appointed under either the general statutory authority or under the specific special counsel regulations, those named under the regulations might be viewed as possessing more independence, as they are appointed from outside the agency and are insulated by the regulations from removal except for cause.\nDOJ may also task other arms of the Justice Department—such as the Office of the Inspector General—to investigate high-profile, sensitive, and resource-intensive matters regarding \"the Department's compliance with certain legal requirements and [internal] policies and procedures.\" For example, recently, in response to concerns raised by some Members of Congress with respect to \"certain prosecutorial and investigative determinations made by the [Department of Justice] in 2016 and 2017,\" Attorney General Sessions considered, but declined to pursue, a separate special counsel inquiry related to allegations of potential misconduct within the Department, noting that special counsel appointments are \"by design, . . . reserved for use in only the most 'extraordinary circumstances.'\" Such circumstances, according to Sessions, require the Attorney General to determine that \"'the public interest would be served by removing a large degree of responsibility for the matter from the Department of Justice.'\" Instead, the Attorney General indicated that DOJ's Inspector General has been tasked with reviewing the actions that the Members had suggested be the subject of the second special counsel inquiry, including allegations about DOJ's compliance with legal requirements and internal policies. Instead, the Attorney General announced that he had tasked John W. Huber, U.S. Attorney for the District of Utah, to lead the investigation into those allegations, emphasizing that Huber would be working \"from outside the Washington, D.C. area and in cooperation with the Inspector General.\"",
"",
"Under the DOJ regulations that supplanted the independent counsel provisions, the authority to appoint and select a special counsel resides solely with the Attorney General (or his surrogate, if the Attorney General has recused himself from the matter), rather than with the judicial branch. The regulations generally state that the Attorney General \"will appoint a Special Counsel\" to conduct certain investigations or prosecutions. To make such an appointment, the Attorney General must determine that (1) a criminal investigation is warranted; (2) the normal processes of investigation or prosecution would present a conflict of interest for DOJ, or other extraordinary circumstances exist; and (3) public interest requires a special counsel to assume those responsibilities. When DOJ promulgated the special counsel regulations, it explained the type of conflicts that might lead to the appointment of a special counsel: \"[t]here are occasions when the facts create a conflict so substantial or the exigencies of the situation are such that any initial investigation might taint the subsequent investigation, so that it is appropriate for the Attorney General to immediately appoint a Special Counsel.\"\nAfter receiving information that could warrant consideration of an independent investigation, the Attorney General generally has discretion under the regulations to determine whether and when the appointment of a special counsel would be appropriate. The Attorney General may appoint a special counsel immediately; may require an initial investigation to inform his decision about whether to appoint a special counsel; or \"may direct that appropriate steps be taken to mitigate any conflicts of interest, such as recusal of particular officials,\" to permit the investigation to be concluded within \"the normal processes.\"\nIn the event that the Attorney General has recused himself from a particular matter upon which a special counsel appointment might be appropriate, the regulations contemplate that the Acting Attorney General will take responsibility for the appointment process. Federal law provides that the Deputy Attorney General would serve as the Acting Attorney General.\nIndividuals appointed as special counsels under these regulations must be chosen from outside the federal government. Such individuals must be \"a lawyer with a reputation for integrity and impartial decisionmaking, and with appropriate experience to ensure both that the investigation will be conducted ably, expeditiously and thoroughly, and that investigative and prosecutorial decisions will be supported by an informed understanding of the criminal law and Department of Justice policies.\" The special counsel may hold other professional roles during his or her service, but is required to agree that the duties of the appointment will take \"first precedence.\"",
"Like the appointment and selection process, the sole authority to determine the scope of the special counsel's inquiry rests with the Attorney General. The jurisdiction of the inquiry is determined by \"a specific factual statement\" about the matter to be investigated, which is provided by the Attorney General to the special counsel at the outset of the appointment. Beyond that general jurisdiction, the special counsel is also authorized \"to investigate and prosecute federal crimes committed in the course of, and with intent to interfere with, the Special Counsel's investigation, such as perjury, obstruction of justice, destruction of evidence, and intimidation of witnesses.\" While these are the original parameters of a special counsel's jurisdiction, additional matters may be assigned to the special counsel as the inquiry proceeds. To expand the jurisdiction, the special counsel must find such an expansion is necessary to complete the original assignment or necessary \"to investigate new matters that come to light in the course of his or her investigation.\" Upon such finding, the special counsel's jurisdiction may be expanded only after consultation with the Attorney General, who then has the authority to determine whether to assign the additional matters to the special counsel or \"elsewhere.\" Within the jurisdiction identified by the Attorney General, the special counsel has relatively broad authority to carry out his or her inquiry. According to the regulations, \"the Special Counsel shall exercise, within the scope of his or her jurisdiction, the full power and independent authority to exercise all investigative and prosecutorial functions of any United States Attorney.\"\nThe scope of the special counsel's authority under DOJ regulations has been the subject of legal challenge in the course of Special Counsel Robert Mueller III's investigation that began in 2017. That inquiry resulted in several indictments, including against Paul Manafort, the former chairman of President Trump's 2016 campaign, for crimes such as conspiracy to launder money; tax fraud; obstruction of justice and witness tampering; failure to register as an agent of a foreign principal; false statements; and failure to file reports of foreign bank and financial accounts. Manafort filed a motion to dismiss the criminal indictment lodged against him, challenging the indictment as an unlawful exercise of the special counsel's authority. Specifically Manafort argued that the factual matter named as the special counsel's original jurisdiction in the May 2017 public appointment order (i.e., \"any links and/or coordination between the Russian government and individuals associated with the campaign of President Donald Trump,\" as well as \"any matters that arose or may arise directly from the investigation, and any other matters within the scope of 28 C.F.R. § 600.4(a)\" ) would preclude the charges made against him. According to Manafort, because the charges made against him do not relate to links with the Russian government or actions taken during his time as a campaign manager in 2016 and because the public order's general authority does not grant authority on sufficiently specific matters as required by DOJ regulations, the special counsel cannot pursue the charges filed against him without seeking additional authority under the regulations.\nThe government's response to these claims disclosed and explained additional documents outlining the scope of the investigation. DOJ acknowledged that the applicable regulations require the special counsel to be provided a \"'specific factual statement of the matter to be investigated,'\" but emphasized that \"the regulations do not provide that the factual statement must be in an appointment order or otherwise made public.\" According to a subsequent memorandum from Acting Attorney General Rosenstein that was partially released with the government's filing, while the initial order \"was worded categorically in order to permit its public release without confirming specific investigations involving specific individuals,\" a subsequent memorandum provided \"a more specific description\" of allegations deemed to be authorized as part of the special counsel investigation. Such development of the parameters of jurisdiction during the course of an investigation, according to DOJ, are necessary for \"an effective investigation [which] must have some latitude to extend beyond the known facts at the time of [the appointment].\"\nUltimately, the courts that considered Manafort's motion to dismiss his indictments rejected his challenge to the special counsel's authority. For example, a federal district court in Virginia considering Manafort's motion concluded that while many of the charges pursued against Manafort \"on their face, appear unrelated to the 2016 Presidential election,\" the investigation and issues charged in the particular case fell \"squarely within the jurisdiction outlined\" under the appointment order. The court emphasized that the appointment order's broad grant of authority to investigate \"any links\" between campaign officials and the Russian government permitted investigation into relationships with individuals supported by, even if not members of, the Russian government, such as members of a pro-Russia Ukrainian political party. Moreover, with respect to charges filed by the special counsel that did not pertain directly to the campaign and Russia, a D.C. federal court held such charges, such as tax evasion with regard to proceeds resulting from Manafort's relationship with pro-Russian entities, fell within the special counsel's jurisdiction as \"'matters that arose or may arise directly from the investigation.'\" A federal district court in Virginia further relied upon the later DOJ memorandum that clarified the scope of the special counsel's original appointment as a source of the special counsel's authority, explaining that the original appointment order was worded categorically so that it could be publicly released and noting that the clarifying memorandum specifically authorized the special counsel to investigate crimes related to these other charges. Accordingly, the D.C. federal court rejected Manafort's argument that the special counsel's authority amounted to a \"'blank check'\" for limitless investigation, reading the appointment order's language as \"tightly drafted\" to give \"the Special Counsel flexibility from the start to manage the investigation and pursue matters that arose 'directly' from the issues within his purview.\"",
"The DOJ special counsel regulations limit the special counsel's relatively broad authority to conduct an inquiry by first subjecting his or her conduct to DOJ rules, regulations, procedures, practices, and policies. Special counsels are directed to consult with the appropriate offices within DOJ or the Attorney General directly if necessary. Additionally, special counsels are subject to discipline for misconduct and breach of ethical duties that are generally applicable to DOJ employees.\nSecond, the DOJ regulations contemplate some oversight of the special counsel by the Attorney General. Specifically, they direct the special counsel to \"determine whether and to what extent to inform or consult with the Attorney General or others within the Department about the conduct of his or her duties and responsibilities.\" The regulations expressly require the special counsel to \"notify the Attorney General of events in the course of his or her investigation in conformity with the Departmental guidelines with respect to Urgent Reports.\" Under DOJ internal guidance, attorneys must inform DOJ leadership of certain events, including \"major developments in significant investigations and litigation\" such as the filing of criminal charges. DOJ has explained that conformance with this notification requirement \"guarantees a 'resulting opportunity for consultation' between the Attorney General and the Special Counsel about the anticipated action, which 'is a critical part of the mechanism through which the Attorney General can discharge his or her responsibilities with respect to the investigation.'\"\nWhile the regulations indicate that special counsels \"shall not be subject to the day-to-day supervision of any official,\" the rules authorize the Attorney General to \"request that the Special Counsel provide an explanation for any investigative or prosecutorial step.\" If, after giving the views of the special counsel \"great weight,\" the Attorney General's review of such actions leads him to \"conclude that the action is so inappropriate or unwarranted under established Departmental practices that it should not be pursued,\" the Attorney General must notify the Chairman and Ranking Members of the Judiciary Committees in Congress of that decision with an explanation.\nAside from review of particular actions, the regulations also grant the Attorney General authority to discipline or remove the special counsel. This authority may be exercised \"only by the personal action of the Attorney General.\" In other words, to comply with the regulations, the Attorney General himself must remove the special counsel, not the President or a surrogate (unless, as noted previously in this report, the Attorney General has recused himself in the matter under investigation). A decision to remove the special counsel must be made with \"good cause,\" such as misconduct, a dereliction of duty, incapacity, the existence of conflicts of interest, or violation of departmental policies. The Attorney General must report his decision to remove the special counsel, with an explanation of that decision, to both the Chairman and Ranking Members of the Judiciary Committees of Congress.",
"Although the special counsel regulations do not provide an explicit timeline for inquiries or a special counsel's tenure, they do require the special counsel to report to DOJ periodically about the budget of operations for the inquiry as well as with status updates in some circumstances. Specifically, the special counsel must provide a proposed budget within 60 days of the appointment. The special counsel must also provide annual reports regarding the status of the investigation and budget requests 90 days prior to the beginning of the fiscal year. The Attorney General is required to review the special counsel's annual report and determine whether the investigation should continue and with what budget.\nWhen the special counsel's inquiry concludes, the special counsel must provide a confidential report to the Attorney General with explanations of the decisions made in the course of the inquiry in favor of or declining to prosecute any charges. The regulations do not expressly provide for disclosure of this report to any other parties, nor do they further identify the parameters of the content of that report. The regulations do, however, require the Attorney General to make certain reports to the Chairs and Ranking Members of the Judiciary Committees of each house of Congress, including upon the conclusion of the investigation. The regulations' only guidance regarding the Attorney General's concluding report's content is that the report must include \"an explanation for [the] action,\" \"including, to the extent consistent with applicable law, a description and explanation of instances (if any) in which the Attorney General concluded that a proposed action by a Special Counsel was so inappropriate or unwarranted under established Departmental practices that it should not be pursued.\" The regulation's use of the word \"including,\" which generally denotes that the terms that follow are illustrative and not definitional, may suggest that the Attorney General's report to Congress is not necessarily limited to explanations of the Special Counsel's prosecutorial decisions. None of the reporting requirements mandate public release of any information shared either between DOJ officials or between DOJ and congressional committees. Instead, the regulations provide the Attorney General with the discretion to \"determine that public release of [his reports to Congress] would be in the public interest.\" Moreover, the report's contents need to be \"consistent with applicable law,\" which may suggest that legal doctrines such as executive privilege and the rules governing the release of grand jury information could restrict what can be included in the report.",
"Designing a mechanism to provide for criminal inquiries of executive branch officials by officers independent from the executive branch has raised questions about whether this goal can be accomplished in harmony with the requirements of the Constitution. Under the doctrine of separation of powers, the Constitution assigns each branch of government particular functions that generally may not be delegated to, nor usurped by, another branch. In this vein, Congress is entrusted with the legislative power, and may establish executive branch agencies and conduct oversight of those entities. Congress may not, however, engage in criminal prosecutions on behalf of the United States—a function generally reserved for the executive branch. A crucial bulwark in preserving this separation of powers is the Appointments Clause of Article II. That provision requires \"Officers of the United States\" to be appointed by the President \"with the Advice and Consent of the Senate,\" although Congress may vest the appointment of \"inferior\" officers \"in the President alone, in the Courts of Law, or in the Heads of Departments.\" Crucially, Article II also empowers the President to hold executive branch officers accountable, through removal if necessary, which the Supreme Court in Myers v. United States explained was essential in order to \"maintain administrative control of those executing the laws.\" The Court has, however, recognized that Congress may in certain situations restrict the President's power of removal over certain discrete offices. The powers of appointment and removal are key to understanding Congress's authority to create independent investigative offices and define their contours.",
"While introduced legislation aimed to insulate a special counsel from executive control raises questions (addressed below) about the President's ability to oversee the executive branch, some have questioned whether the appointment of a special counsel under the current regulations violates the Constitution. Such challenges have been unsuccessful, however, as exemplified by the D.C. Circuit's recent ruling in In re: Grand Jury Investigation . In that case, the recipient of multiple grand jury subpoenas issued by Special Counsel Robert Mueller moved to quash those subpoenas on the grounds that the appointment of the special counsel was unlawful under the Appointments Clause.\nThe D.C. Circuit's panel decision held that the Appointments Clause did not require Special Counsel to be nominated by the President and confirmed by the Senate because the special counsel is not a principal officer. Applying the Supreme Court's test in Edmond v. United States , the D.C. Circuit ruled that, because he is subject to the control of a superior who was nominated by the President and confirmed by the Senate (i.e., a principal officer), the special counsel is an inferior officer who may be appointed by a department head. While acknowledging that the special counsel regulations bestowed a measure of independence on the special counsel, the court reasoned that because the Attorney General could rescind these regulations at any time, the special counsel is an inferior officer who \"effectively serves at the pleasure\" of a principal officer.\nAdditionally, the court rejected the argument that Congress had not \"by law\" granted the Attorney General the authority to appoint a special counsel as required by the Appointments Clause. In so doing, the panel relied on the Supreme Court's opinion in United States v. Nixon , in which the Court concluded that, because Congress had by statute vested general authority in the Attorney General to appoint subordinate officers, the Attorney General's delegation of power to a special prosecutor was valid.\nFinally, the D.C. Circuit panel concluded that a department head properly appointed Special Counsel Mueller in accordance with the Appointments Clause, notwithstanding his appointment by Rod Rosenstein, the Deputy and Acting Attorney General. The panel observed that the relevant statutory scheme provided that, in the case of a \"disability\" of the Attorney General, the Deputy Attorney General \"may exercise all the duties of that office.\" The D.C. Circuit reasoned that when Attorney General Sessions recused himself from matters concerning presidential campaigns, he had a \"disability\" under the statute on that issue. Accordingly, Deputy Attorney General Rosenstein became the acting Attorney General—and was therefore the head of the Department of Justice—on such matters. Acting Attorney General Rosenstein's appointment of Special Counsel Mueller, therefore, was an appointment by the head of a department.",
"While the legal questions surrounding the appointment of a special counsel under the regulations have largely been resolved, the circumstances in which a special counsel may be removed by a superior have not been settled by the courts. Consideration of the authority to remove a special counsel under current regulations poses several legal questions. As discussed above, Department of Justice regulations provide that a special counsel may be removed only (1) by the Attorney General; (2) \"for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies\"; and (3) in writing provided to the special counsel specifying the reason(s) for removal. As a preliminary matter, the specific type of behavior that would constitute grounds for removal under the regulations is largely undetermined. For instance, terms such as \"misconduct\" and \"good cause\" are not defined in the regulations or by reference to an accompanying statute, and case law addressing the definition of similar statutory removal restrictions is sparse. More broadly, the manner in which a special counsel might be removed without new legislation itself poses difficult legal issues, including the ultimate efficacy of the regulations in constraining the discretion of the executive branch.",
"The Attorney General (or his surrogate if recused) may, consistent with the governing regulations, remove a special counsel \"for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies.\" Conceivably, the Attorney General's decision could be the result of an order from the President, as the Attorney General serves at the pleasure of the President and, as the Court has recognized, the President's power to appoint executive branch officials is tied to the power of removal. A decision to remove a special counsel under current regulations could be difficult to challenge in court. Importantly, the current regulations explicitly disclaim the creation of any legal rights. Even without that disclaimer, internal agency rules and guidelines, including those of the Justice Department, have generally not been recognized as creating judicially enforceable rights. Instead, an individual seeking judicial relief against the United States in federal court must usually rely on a cause of action that asserts violation of a recognized legal right or requirement. Consequently, at least under current DOJ regulations, obtaining judicial review of a special counsel's removal by a federal court may be difficult.",
"More broadly, it is uncertain to what extent the regulations ultimately constrain the executive branch. Because no statute appears to require the Department to promulgate regulations concerning a special counsel, the Department likely enjoys discretion to rescind them. The special counsel regulations also were not promulgated according to the notice and comment procedures that are typically required by the Administrative Procedure Act (APA) when agencies issue legislative rules. Instead, the Department considered the regulations to be exempt from these requirements, as they concerned agency management or personnel. The Department could thus likely rescind the special counsel regulations without going through notice and comment procedures, meaning that the regulations could likely be repealed immediately. Once repealed, a special counsel would no longer be protected by a for-cause removal provision.\nWhile DOJ has noted its adherence to the current special counsel regulations, assuming for the sake of argument a situation where the regulations were left in place, a decision by the Attorney General or President to simply ignore the regulations raises unresolved legal questions. Generally, regulations in force typically bind the executive branch with the force of law. In fact, in Nixon v. United States , which concerned a claim of executive privilege by President Nixon against a subpoena issued by a special prosecutor, the Court opined on the regulation in force that insulated the special prosecutor from removal. The Court remarked in dicta that\nSo long as this regulation is extant it has the force of law. . . . [I]t is theoretically possible for the Attorney General to amend or revoke the regulation defining the Special Prosecutor's authority. But he has not done so. So long as this regulation remains in force the Executive Branch is bound by it, and indeed the United States as the sovereign composed of the three branches is bound to respect and to enforce it.\nIn other words, insofar as this reading continues to characterize the Court's approach to the matter, both the President and Attorney General must comply with the special counsel regulations until they are repealed. However, the concrete result of an order removing a special counsel in violation of applicable regulations is difficult to predict. For instance, there might not be a private right of action authorizing judicial review in this situation, leaving the legal remedy available for violation of the regulations in question.\nOn the other hand, the matter raises open legal issues regarding the scope of the President's authority to supervise the executive branch. It is unclear to what extent agency regulations restricting the grounds for removal of a constitutional officer engaged in core executive functions can bind the President. One might argue that the special counsel regulations, while binding on the Department of Justice, do not ultimately restrict the President's powers. Article II vests the executive power of the United States in the President; and criminal investigations and prosecutions lie at the very core of this constitutional authority. An argument in favor of a more robust view of the President's authority might be that regulations issued by an executive branch agency nearly 20 years ago that restrict the President's power to remove a high-level officer of the United States who is charged with enforcing the law intrude on the President's authority under Article II. DOJ has in the past asserted authority to decline to follow statutes it deems unconstitutional intrusions on the executive branch's power, and this argument might be extended to the context of similarly viewed regulations, particularly those issued by a prior Administration.",
"Given the questions regarding the scope and effect of the current DOJ special counsel regulations, a number of legislative proposals aim to impose statutory restrictions on the executive branch's ability to remove a special counsel. Consideration of these proposals requires examination of the Supreme Court's decisions regarding statutory restriction on the removal of certain officers. However, because Congress has not enacted any such bill, analysis of these efforts is necessarily preliminary. As discussed above, current Department of Justice regulations authorize the Attorney General to appoint a special counsel and determine the ultimate scope of his jurisdiction, but limit the Attorney General's discretion to remove a special counsel to certain specified reasons. A number of bills proposed during the 116 th and 115 th Congresses aim to codify aspects of these regulations. Notably, some would statutorily insulate a special counsel from removal and authorize a federal court to review the removal of a special counsel.\nFor instance, S. 1735 , introduced in the 115 th Congress, would have provided that in order to remove a special counsel, the Attorney General must first file an action with a three-judge court; if that panel issues a finding of \"misconduct, dereliction of duty, incapacity, conflict of interest, or other good cause, including violation of policies of the Department of Justice,\" then a special counsel may be removed. Similarly, S. 1741 , the Special Counsel Integrity Act, would have provided that any special counsel appointed on or after May 17, 2017, may only be removed by the Attorney General, or the highest ranking Justice Department official if the Attorney General is recused, for good cause. S. 1741 further provided that a special counsel who has been removed may challenge this action before a three-judge panel, which is authorized to immediately reinstate the individual if the court finds that the removal violated the legislation's terms. Both bills were introduced in the 115 th Congress.\nFinally, S. 71 and H.R. 197 , introduced in the 116 th Congress, merge aspects of both of these proposals. They would similarly require good cause in order for the Attorney General to remove a special counsel, but provide a 10-day window in which the special counsel can challenge a removal decision in federal court. If the court determines that the removal violates that good cause standard, then the removal shall not take effect. Understanding these proposals requires an examination of the significant—and oft-debated—constitutional questions concerning Congress's power to establish executive functions outside the direct control of the President.",
"Article II of the Constitution vests the executive power of the United States in the President. As mentioned above, the Supreme Court has made clear that this power includes authority to hold executive branch officers accountable, through removal if necessary. However, the Court has upheld statutory restrictions on the President's removal power for certain offices. In one such case, Morrison v. Olson , the Court upheld restrictions on the removal of an independent counsel, although, as discussed below, the Court has not always followed aspects of that decision in subsequent years. The constitutionality of legislative efforts to statutorily insulate a special counsel from removal will thus likely turn on the continuing vitality of the Court's opinion in Morrison and, more generally, whether a court would apply a more formalist or functionalist methodology in considering such legislation. Definitive conclusions about such efforts are thus difficult absent further guidance from the Court.",
"In the 1988 case of Morrison v. Olson , the Supreme Court addressed the issue of whether a federal prosecutor can be insulated from executive control in the context of the now-expired Independent Counsel Act. Morrison upheld the independent counsel statute, which, as discussed above, vested the appointment of an independent counsel outside of the executive branch and limited the removal authority of the President. Writing for the Court, Chief Justice Rehnquist concluded that the independent counsel was an inferior, rather than a principal, officer, whose appointment was not required to be made by the President subject to Senate confirmation. The appointment of such officers was permissible because they (1) were removable by the Attorney General for cause; (2) had a limited scope of duties; and (3) possessed limited jurisdiction.\nThe Court also held that the Independent Counsel Act's provision limiting the authority of the Attorney General to remove the independent counsel for good cause did not impermissibly intrude on the President's power under Article II. The Court rejected a formalistic rule that would bar statutory for-cause removal protections for an individual tasked with \"purely executive\" functions; instead, it applied a functional test and asked whether Congress has \"interfere[d] with the President's\" executive power and his \"duty to 'take care that the laws be faithfully executed.'\" The Court recognized that the independent counsel operated with a measure of independence from the President, but concluded that the statute gave \"the Executive Branch sufficient control over the independent counsel to ensure that the President is able to perform his constitutionally assigned duties.\"\nMorrison was decided 7-1, with Justice Scalia dissenting from the Court's opinion and Justice Kennedy not participating in the case. In dissent, Justice Scalia argued that the independent counsel statute violated the separation of powers because the Constitution vested authority for criminal investigations and prosecutions exclusively in the executive branch and the statute deprived the President of exclusive control of that power. Under this rationale, he warned that the Court must be very careful to guard against the \"'gradual concentration of the several powers in the same department'\" that can be likely to occur as one branch seeks to infringe upon another's distinct constitutional authorities. Justice Scalia emphasized the power and discretion typically vested in prosecutors and noted that the key check on prosecutorial abuse is political—prosecutors are accountable to, and can be removed by, the President, who is likewise accountable to the people. But operation of the independent counsel statute, for Justice Scalia, eliminated that constitutional feature by creating an unaccountable prosecutor outside of presidential control.\nIn the years since Morrison , especially in the wake of the Whitewater investigation into President Clinton by an independent counsel that culminated in the President's impeachment on grounds that were tangential to the impetus for the investigation, a number of legal scholars criticized the independent counsel statute on both policy and constitutional grounds. Additionally, members of both political parties have since noted opposition to the law, resulting in relatively widespread agreement to let the Independent Counsel Act expire in 1999.",
"The Supreme Court in the 1997 case of Edmond v. United States applied a different standard than that enunciated in Morrison in the context of a challenge to the appointment of certain \"inferior\" officers. The opinion, authored by Justice Scalia, adopted the reasoning he applied in dissent in Morrison for determining whether an individual is an inferior officer. In that case, the Court did not apply the functional test used in Morrison for determining whether an individual was an inferior officer. Instead, it adopted a formal rule—an inferior officer is one who is \"directed and supervised\" by a principal officer (officers appointed by the President and confirmed by the Senate). Applying this rule, the Court concluded that the appointment of members of the Coast Guard Court of Criminal Appeals by the Secretary of Transportation was consistent with Article II. Specifically, the Court reasoned that because Members of the Coast Guard Court of Criminal Appeals are removable at will and lack power to render a final decision of the United States unless permitted to do so by a superior in the executive branch they are directed and supervised by principal officers. The appointment of the members of the Coast Guard Court of Criminal Appeals by the Secretary of Transportation was thus constitutional because the members constituted inferior officers and the Secretary was a principal officer.\nMore recently, in the 2010 case of Free Enterprise Fund v. P ublic Company Accounting Oversight Board , the Court invalidated statutory structural provisions providing that members of the Public Company Accounting Oversight Board could be removed only \"for cause\" by the Securities and Exchange Commission, whose members, in turn, appeared to also be protected from removal by for-cause removal protections. The Court again applied a rather formalist rule in analyzing Congress's attempt to shield executive branch officers from removal, rather than the functional approach followed in Morrison . The Court concluded that, while the early 20 th century case of Humphrey ' s Executor v. United States had approved such protections for the heads of independent agencies and Morrison did the same for certain inferior officers, the combination of dual \"for cause\" removal protections flatly contradicted the vestment of executive power in the President under Article II. Further, the Court then applied the test it used in Edmund , rather than the functional analysis of Morrison , in concluding that members of the regulatory board were now—after invalidation of statutory removal protections by the Court—inferior officers because the Securities and Exchange Commission, composed of principal officers, possessed oversight authority over the board and the power to remove its members at will.\nHowever, the Court has not gone so far as to overrule or even explicitly question Morrison . As a result, that opinion's holding regarding the constitutionality of for-cause restrictions for an independent counsel binds the lower courts. Moreover, while the Court's decisions in Edmund and Free Enterprise Fund have not applied the reasoning in Morrison concerning the test for who qualifies as an inferior officer, it is not necessarily clear what removal restrictions are appropriate for principal officers or how the determinations about the appointment power concern determinations about the scope of the removal power. Nonetheless, it appears that the Edmond test, rather than the Morrison analysis, for determining whether an individual is an inferior officer is what will guide the Court going forward. Furthermore, Free Enterprise Fund represents a movement toward a more formalist, and possibly more expansive, view of the Presidential power of removal than was expressed in Morrison . More fundamentally, no member of the Morrison Court sits on the Supreme Court today. Because of this apparent shift in the Court's general approach to separation-of-powers matters related to appointment and removal, and the current Court's relative silence on Morrison's import, whether today's Court would necessarily view a reauthorization of the independent counsel statute or a similar statute in the same manner as it did in Morrison is subject to debate .",
"Assuming that the Supreme Court were to follow the functional approach reflected in its Morrison decision, efforts to statutorily require good cause to remove a special counsel would likely pass constitutional muster. As noted above, in Morrison , the Court examined whether Congress had impermissibly interfered with the President's constitutional duties; it approved of the independent counsel statute's provisions that, among other things, (1) required good cause to remove the independent counsel; (2) largely restricted the Attorney General's discretion in deciding to request the appointment of an independent counsel; and (3) placed the actual power of appointment with a panel of Article III judges. Legislation that would statutorily insulate a future special counsel from removal except for good cause appears roughly analogous to the for-cause removal provisions upheld in Morrison . In fact, some proposals appear to be less restrictive of the President's power relative to the independent counsel statute. For instance, S. 1741 (115 th Congress) and S. 71 (116 th Congress) appear to contemplate the appointment of a special counsel at the discretion of the AG, and they provide that only the Attorney General—or the most senior Justice official who has been confirmed by the Senate if the Attorney General is recused—may remove a special counsel. Under both bills, an executive branch official would retain discretion to appoint and remove a special counsel for cause. Under Morrison ' s functional balancing approach, which examines whether Congress has unduly interfered with the President's executive power and duty to take care that the law is executed faithfully, this framework is less intrusive of executive branch power than was the independent counsel statute because the executive branch would retain control over a special counsel's appointment.\nLikewise, insulating a special counsel from removal by the Attorney General except for those reasons outlined in current Justice regulations—\"for misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies\" —would likely permit removal of a special counsel for a broader range of reasons than did the now-expired independent counsel statute, which limited the basis for removal to \"good cause, physical disability, mental incapacity, or any other condition that substantially impairs the performance of such independent counsel's duties.\" Specifically, several bills would add misconduct, dereliction of duty, and conflict of interest as grounds for removal, and specifically define good cause to include violation of departmental policies. At least considered in isolation, such a provision would be less intrusive into the executive branch's authority under Article II than the statute at issue in Morrison , as the proposal would grant the Attorney General—a principal officer directly accountable to the President—greater control of the special counsel than he had under the independent counsel statute. Accordingly, if the Court were to embrace a functionalist balancing approach in a challenge to such a provision, it would likely affirm its constitutionality as the executive branch could remove a special counsel for a broader range of reasons than was permitted in the independent counsel statute.\nNevertheless, bills that aim to insulate a special counsel from removal might be constitutionally suspect if the Court chose to overrule Morrison or limit the reach of that case to its facts. In particular, were the Court to face a challenge to a special counsel entrusted with wide-ranging investigative authority who statutorily could not be removed except for cause, application of the approach in Edm o nd , rather than Morrison , might result in the Court concluding that a special counsel is a principal officer. As noted above, Edmond 's test for inferior officer status is that the individual be directed and supervised by a principal officer. And that test was satisfied because Coast Guard Court of Appeals judges were removable at will and lacked power to render final decisions of the executive branch. A special counsel with statutory removal protection would obviously not be removable at will. As to whether a special counsel renders final decisions, any analysis would likely depend on the scope of authority granted to a special counsel. Were the Court to conclude that a special counsel does constitute a principal officer, his or her appointment must be made by the President with Senate confirmation, rather than by the Attorney General. Further, any removal restrictions might be questioned as well, as the Court has never approved such restrictions for a principal officer charged with core executive functions. Nonetheless, the Court has not reconciled its holding on the appointments question in Morrison with its holding in Edmond, meaning that the limits on Congress's power to insulate executive branch officials from removal are subject to debate.\nMore broadly, a departure from Morrison and an application of the Court's more recent formalist approach to separation of powers disputes, as evidenced in Free Enterprise Fund , might cast for-cause removal protections for a special counsel in an unfavorable light. The Court's emphasis in that case on the importance of presidential control over executive branch officers and the ability to hold them accountable in order to preserve the constitutional structure envisioned by the Framers could be read to conflict with statutory removal restrictions for government officers carrying out core executive functions.\nThat said, a middle road is possible. Were Congress to pass legislation insulating a special counsel from removal except for cause, one option might be for the Court to narrowly construe the scope of for-cause removal protections, interpreting them to permit removal for a broad range of reasons. This would avoid overruling Morrison , but arguably preserve substantial executive branch authority over the special counsel. Nonetheless, such a reading might authorize more significant control of a special counsel's decisions, ultimately restricting the independence of the office, at least compared to that envisioned by the independent counsel statute.",
"Certain bills authorizing a judicial role in the removal of a special counsel may raise distinct constitutional questions. As an initial matter, proposals to authorize judicial review of a decision by the Attorney General to remove a special counsel, such as S. 1741 (115 th Congress), as well as S. 71 and H.R. 197 (116 th Congress), appear somewhat similar to provisions considered by the Court in Morrison . And the Supreme Court has otherwise adjudicated suits from government officers who have been removed from their position. It bears mention, however, that the traditional remedy in such situations has been for back pay, rather than reinstatement. Bills that limit available remedies to reinstatement, or require this result, depart from the independent counsel statute's provisions, which provided a reviewing court with the option to order reinstatement or issue \"other appropriate relief.\" One might distinguish between, on the one hand, a court's undisputed power to determine compliance with the law and award damages for violations, and, on the other, a potential judicial order directing an executive branch official to reappoint an individual to an office. In this vein, injunctive relief of this type could be viewed as inserting the judiciary into a role assigned by Article II to the executive branch.\nIn addition, at least one proposal, S. 1735 , might authorize the judiciary to play a more substantial role in the removal of a special counsel. That bill would bar the removal of a special counsel unless the Attorney General first files a petition with a three-judge court, and that court itself finds \"misconduct, dereliction of duty, incapacity, conflict of interest, or other good cause, including violation of policies of the Department of Justice.\" Inserting the judiciary into a removal decision, by requiring a court to determine in the first instance the grounds for the dismissal of an executive branch official before he may be removed, appears to go beyond the restrictions on the President's removal power previously approved by the Supreme Court in Humphrey ' s Executor and Morrison . As the Free Enterprise Fund Court explained, even in the prior cases that \"upheld limited restrictions on the President's removal power, it was the President—or a subordinate he could remove at will—who decided whether the officer's conduct merited removal under the good-cause standard.\" The body charged with determining whether good cause exists to remove a special counsel would not be one that is subordinate to or accountable to the President; indeed, that body is not located in the executive branch at all. Moreover, Free Enterprise Fund invalidated two layers of removal protection for executive branch officers as violating Article II. Here, a special counsel could not be removed unless permitted by Article III judges—judicial officers who may not be removed except through the impeachment process. As such, with regards to this proposal, not only would two layers of removal protection shield a special counsel from dismissal, but one layer would be significantly more stringent than the for-cause protection in Free Enterprise Fund .\nFurther, while the Court in Morrison saw no issue with the independent counsel statute's provision authorizing ex post judicial review (i.e., after the fact) of a removal decision, that conclusion rested on the understanding that the executive branch retained discretion over the decision to remove an independent counsel. Judicial review in that situation was limited to ensuring compliance with the law. Indeed, the Morrison Court narrowly construed that statute to preclude any role for the judicial panel that was entrusted with appointing an independent counsel in removing him during an investigation or judicial proceeding. The Court explained that this move avoided an unconstitutional \"intrusion into matters that are more properly within the Executive's authority.\" Proposals that require an initial judicial finding of good cause in order to authorize removal arguably insert the judiciary into an executive branch function in a manner the Morrison Court appeared to consider questionable.\nOn the other hand, application of a functional approach akin to Morrison , which examined a variety of factors in adjudicating the separation of powers dispute, might nevertheless conclude that a requirement of an initial judicial finding of good cause in order to remove a special counsel does not impair the President's core Article II responsibilities. First, under S. 1735 , the Attorney General retains discretion to initiate a removal in the first place by petitioning the three-judge panel; that body would lack authority to remove a special counsel independently. Second, the previously upheld independent counsel statute authorized judicial review of a removal of the independent counsel and authorized reinstatement as a remedy. The bill's provision would shift the sequence of the judicial role from an ex post review to an ex ante (i.e., beforehand) authorization. Viewed in this light, it is unclear why that shift would necessarily make a substantive difference, because even if the executive branch ignored the provision allowing for ex ante review and removed a special counsel unilaterally, the special counsel could sue for reinstatement, which would leave the court in largely the same position. Finally, while requiring judicial authorization to remove a special counsel might intrude somewhat on the executive branch's Article II authority other aspects of the bill are less intrusive. For instance, the bill leaves discretion to appoint the special counsel with the Attorney General, and appears to permit removal for a wider range of conduct than did the independent counsel statute. Because the Morrison Court balanced a variety of factors and concluded that the independent counsel statute did not impermissibly interfere with the President's duty to execute the law, an application of Morrison might mean that these features ameliorate concerns about a judicial body first approving of a removal.\nLeaving aside issues arising under Article II of the Constitution, legislation requiring the Attorney General to first petition a federal court for a good cause finding before removing a special counsel might raise questions under Article III. The Constitution defines the proper scope of the federal courts' jurisdiction as limited to adjudicating \"cases\" and \"controversies.\" The Supreme Court has articulated several legal doctrines emanating from Article III that limit the circumstances under which the federal courts will adjudicate disputes. The Court has interpreted Article III to require adversity between the parties, or a live dispute that is \"definite and concrete, touching the legal relations of parties having adverse legal interests.\" Further, the Court has made clear that duties of an administrative or executive nature generally may not be vested in Article III judges. Article III courts are permitted to exercise certain non-adjudicatory functions, but these exceptions are generally limited to duties incident to the judicial function, such as supervising grand juries and participating in the issuance of search warrants. With respect to a suit by the Attorney General seeking ex ante judicial authorization to remove a special counsel, these requirements might not necessarily be met. For instance, given this procedural posture, it is not obvious who the adverse party would be as the legislation does not explicitly authorize the special counsel to participate in the proceedings. Likewise, the supervision of executive branch officers, including discretion to remove them, is traditionally an executive or administrative function, rather than a judicial one.",
"Finally, certain bills that aim to insulate a special counsel from removal might raise unresolved questions concerning their retroactivity. For instance, S. 1741 (115 th Congress) would have provided that a special counsel may not be removed except for cause and that this provision retroactively applies to any special counsel appointed on or after May 17, 2017. Likewise, S. 71 and H.R. 197 (116 th Congress) contain a similar provision, although it applies to any special counsel appointed on or after January 1, 2017. One might argue that statutorily insulating a currently serving special counsel from removal improperly inserts Congress into the appointments process. The Supreme Court has invalidated legislation that explicitly authorized Members of Congress to appoint executive branch officers and has done the same to legislation authorizing Congress to remove an executive branch officer through a joint resolution. Insulating a currently serving executive branch officer from removal via statute might be seen as an attempt by Congress to subvert the purposes of the Appointments Clause, effectively transforming a particular prosecutor's office from one that is subject to executive branch control into one that is statutorily independent without allowing for a new appointment consistent with the Constitution. In particular, if such a bill were passed immediately, it might be seen to apply exclusively to a single individual in the executive branch, effectively appointing a particular executive branch officer for an indefinite time period. To the extent that this provision is viewed as a legislative aggrandizement of the executive's appointment power, it might raise separation-of-powers concerns.\nThat said, it does not appear that a Supreme Court case has directly addressed such a statutory provision. In Myers v. United States , the Court invalidated a statutory restriction on the removal of an executive branch officer. The pertinent statute in that case bestowed removal protection retroactively on executive branch officers, but the Court's opinion did not hinge on this feature of the statute. Further, such a provision would only codify requirements that already exist in regulations, which might be seen as a relatively minor adjustment to a special counsel's office that does not require a new appointment. Given the lack of preexisting case law relevant to such a provision, firm conclusions about its merit are likely premature.",
"Both Congress and the executive branch have employed a variety of means to establish independence for certain criminal investigations and prosecutions. The use of special prosecutors, independent counsels, and special counsels all have allowed for the investigation of executive branch misconduct. Nonetheless, efforts to provide independence for prosecutors from executive branch control often raise constitutional questions. In turn, proposals to statutorily protect a special counsel from removal thus raise important, but unresolved, constitutional questions about the separation of powers. As a general matter, simply insulating a future special counsel from removal except for specified reasons appears consistent with the Court's opinion in Morrison . To the extent the current Court might depart from the functional reasoning of that case and apply a more formal approach to the question, however, such proposals might raise constitutional objections. Likewise, constitutional objections might arise against proposals aimed to insulate a special counsel in a manner beyond the framework approved in Morrison ."
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"question": [
"What authorities does the Constitution grant Congress?",
"Where are criminal investigations and prosecutions generally assigned to?",
"Why have there been calls for the executive branch to not process criminal investigations and prosecutions?",
"What has Congress and the U.S. Department of Justice (DOJ) done to resolve possible conflicts of interest?",
"What allowed for the appointment of special prosecutors?",
"How could special prosecutors be appointed?",
"What could special prosecutors do?",
"Why was the law that allowed for the appointment of special prosecutors not renewed?",
"Why was there questioning on the appointment and removal of officials who lead inquiries?",
"How were these concerns addressed?",
"Why has the reasoning been challenged?",
"Why is the constitutional status of a statutory framework subject to debate?",
"Why is it questionable whether such proposal would withstand constitutional challenge today?"
],
"summary": [
"The Constitution vests Congress with the legislative power, which includes authority to establish federal agencies and conduct oversight of those entities.",
"Criminal investigations and prosecutions, however, are generally regarded as core executive functions assigned to the executive branch.",
"Because of the potential conflicts of interest that may arise when the executive branch investigates itself, there have often been calls for criminal investigations by prosecutors with independence from the executive branch.",
"In response, Congress and the U.S. Department of Justice (DOJ) have used both statutory and regulatory mechanisms to establish a process for such inquiries. These frameworks have aimed to balance the competing goals of independence and accountability with respect to inquiries of executive branch officials.",
"Under the Ethics in Government Act of 1978, for example, Congress authorized the appointment of \"special prosecutors,\" who later were known as \"independent counsels.\"",
"Under this statutory scheme, the Attorney General could request that a specially appointed three-judge panel appoint an outside individual to investigate and prosecute alleged violations of criminal law.",
"These individuals were vested with \"full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice\" with respect to matters within their jurisdiction.",
"Ultimately, debate over the scope, cost, and effect of the investigations (perhaps most notably the Iran-Contra and the Whitewater investigations) resulted in the law's expiration and nonrenewal in 1999.",
"The independent nature of these investigations has raised constitutional questions about the propriety of the appointment and removal mechanisms provided for the officials leading the inquiries.",
"These concerns were addressed by the Supreme Court in the 1988 case of Morrison v. Olson, which upheld the constitutionality of the independent counsel statute.",
"The reasoning of that opinion has been challenged, however, and the Court's subsequent analysis of related issues in the 1997 case of Edmond v. United States and the 2010 case Free Enterprise Fund v. Public Accounting Oversight Board did not apply the standard enunciated in Morrison.",
"The constitutional status of a statutory framework similar to the independent counsel statute is thus subject to debate. Several bills introduced in the 116th Congress (including S. 71 and H.R. 197, which merge aspects of two preceding bills introduced in the 115th Congress, S. 1735 and S. 1741) would statutorily insulate a special counsel from removal, echoing aspects of the independent counsel statute's provisions.",
"Whether such proposals would withstand constitutional challenge today might ultimately turn on the continued vitality of the analysis applied in Morrison."
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GAO_GAO-14-246
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{
"title": [
"Background",
"NIH’s Organization",
"Extramural and Intramural Research Supported by NIH",
"NIH’s Research, Condition, and Disease Categorization System",
"Individual Institutes and Centers Set Their Own Research Priorities Using a Variety of Approaches, Including Strategic Planning, Annual Planning, and Review of Research Portfolios",
"NIH Funding Levels Varied Widely For Selected Categories of Research, Conditions, and Diseases Corresponding to the Leading Causes of Death and Chronic Conditions",
"Agency Comments",
"Appendix I: Studies about the Relationship between Research Funding and Burden of Disease",
"Appendix II: Leading Causes of Death and Chronic Conditions and their Corresponding National Institutes of Health Categories",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"As the central office for NIH, OD establishes NIH policy and broad themes for the agency to pursue, such as ensuring a sustainable scientific workforce, based on national needs and scientific opportunities. In addition, the OD is responsible for coordinating the programs and activities that span NIH components, particularly research initiatives and issues involving more than 1 of the 27 ICs. OD is also responsible for ensuring that scientifically-based strategic planning is implemented in support of research priorities, and that NIH’s resources are sufficiently allocated for research projects identified in strategic plans. NIH conducts and sponsors biomedical research through its ICs, each of which is charged with a specific mission. ICs’ missions generally focus on a specific disease, a particular organ, or a stage in life, such as childhood or old age. The ICs support, plan, and manage their own research programs in keeping with OD policy and priorities. Within an IC, there can be a number of offices, centers, and divisions that focus on specific aspects of the IC’s mission. For example, NCI has a Division of Cancer Epidemiology and Genetics, as well as a Division of Cancer Treatment and Diagnosis.",
"ICs accomplish their missions chiefly through extramural and intramural research. Extramural research accounted for more than 80 percent of NIH’s budget in fiscal year 2012. This research is conducted at 2,500 universities, medical schools, research organizations, and companies who are awarded extramural research grants or extramural research and development contracts through NIH’s competitive process. Twenty-four of the 27 ICs fund extramural research projects, and these ICs make final decisions on which extramural research projects to fund following a standard peer review process.what NIH considers “unsolicited” research and research training projects for which applications are submitted in response to broad funding opportunity announcements that span the breadth of the NIH mission. In addition, to encourage and stimulate research and the submission of research applications in specific areas, many ICs will issue solicitations that are more narrow in scope in the form of , requests for applications, and requests for proposals. When reviewing applications for extramural research projects, NIH follows a process of peer review, established by law.sequential levels of peer review. According to NIH officials, the first level involves panels of experts to assess the scientific merit of the proposed science. The second level involves panels of experts and leaders of non- science fields including patient advocates that, in addition to scientific merit, also consider the IC’s mission and strategic plan goals, public health needs, scientific opportunities, and portfolio balance. After NIH’s Most IC extramural funding is provided for This peer review system has two peer review process is concluded, IC directors make extramural funding decisions.\nIntramural research, which accounts for approximately 10 percent of NIH’s budget, is conducted by NIH scientists in NIH laboratories. This includes about 5,300 scientists and technical support staff who are employees, and another 5,000 young scientists at various stages of research training who come to NIH for a few years to work as non- employee trainees, including 3,800 postdoctoral fellows. All but 3 of the 27 ICs have an intramural research program, but the size, structure, and activities of the programs vary greatly.",
"In January 2007, Congress directed NIH to establish an electronic system to categorize the research grants and activities of OD and all the ICs. In response, NIH created RCDC. Implemented in February 2008, RCDC uses a computer-based text-mining tool that recognizes words and phrases in project descriptions in order to assign NIH projects to at least one of 235 categories of diseases, conditions, and research areas that were developed for reporting to Congress and the public. NIH officials said that RCDC serves as NIH’s primary computerized reporting process to categorize its research funding. The system includes reporting tools that can be used to generate publically-available, web-based reports on total funding amounts for the research projects related to each RCDC category.",
"Individual ICs at NIH set their own research priorities, and we found that the five selected ICs we reviewed did so considering similar factors and using various priority-setting approaches. Officials at all five of the ICs stated that their mission and available appropriations inform priority setting approaches. Officials at one IC noted that their IC’s mission provides context related to why the IC was developed initially and insight into the emerging areas of research. Officials stated that an IC’s appropriations not only set funding parameters, but may also influence priority setting if the appropriations include mandated spending by Congress for a specific disease. Some IC officials noted that because the costs of potential research projects generally exceed the available appropriation, the ICs generally must prioritize among research projects. In priority setting, IC officials also reported taking into consideration scientific needs and opportunities, gaps in funded research, the burden of disease in a population, and public health need, such as an emerging public health threat that needs to be addressed, like influenza.\nWhile individual ICs used different approaches to priority setting, all five selected ICs we reviewed reported using some combination of strategic planning, annual planning, and periodic review and evaluation of their research portfolios as part of their approach to priority setting.\nStrategic planning: All five ICs we interviewed developed strategic plans—consistent with law and NIH policy—to set priorities and goals for research funding. According to officials at selected ICs, the development of these plans is guided by various processes at each IC. Although these processes vary by IC, they include an opportunity to solicit input from stakeholders, including the scientific community, as well as review by IC staff and leadership. Examples of IC strategic planning activities include the following:\nNIAID used a framework organized around various scientific areas that encompassed its research to develop the strategic plans it published in 2000, 2008, and 2013. When developing the plans, NIAID convened groups of NIAID subject matter experts for each scientific area and considered input offered by external organizations and scientists to guide the process. The experts deliberated priorities identified for each scientific area and suggested revisions to the draft plan. For example, officials stated that NIAID has seen a shift in the emphasis on research efforts related to human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS) from studying single-drug therapy to the current focus on finding improved HIV treatments and tools for preventing infection. This new focus was then incorporated as part of the strategic plan published in 2013. Draft strategic plans were reviewed by the NIAID Advisory Council. After a final review by the director of NIAID, the finalized plans were published on NIAID’s web site.\nNHLBI officials said that, as of November 2013, the IC was revising the strategic plan it published in 2007 and part of its strategic planning process under the direction of a new director appointed in 2012. As part of the revised process, NHLBI created the Strategic Investment and Management Steering Committee that will help establish strategic goals as well as advise leadership about whether proposed activities are consistent with the IC’s strategic plan. Officials stated that the strategic planning process will engage both NHLBI scientific staff as well as the larger extramural community because they are knowledgeable about research gaps within their respective fields. Further, NHLBI officials stated that input provided by stakeholders also helps to inform development of disease-specific planning documents, such as one for asthma and another on sleep disorders.\nAnnual planning activities: In addition to the development of strategic plans, some IC officials we interviewed told us that they conduct annual planning activities as a part of their process to set priorities for research funding. They told us that these annual planning activities address ongoing and emerging needs. While the processes vary across the ICs in terms of the level of structure and formality, officials stated that during the annual planning process these ICs typically consider factors such as scientific needs, research gaps, scientific opportunities, public health needs, and the need to balance the various types of research conducted to address all areas of the mission. Examples of annual planning activities include the following:\nNIAID uses an annual planning process to develop and select initiatives that address special needs, gaps, and opportunities in relevant research areas. According to NIAID officials, these initiatives are developed through a structured process centered around two primary events—the annual Summer Policy Retreat and the annual Winter Program Review. NIAID staff also review their scientific areas for the latest information on burden of illness and state of scientific progress, which is used to inform the development of future initiatives. According to agency officials, NIAID staff use this information, as well as input from the scientific community, to prepare and present a concept of an initiative to NIAID’s National Advisory Council, which reviews, comments on, and decides whether to approve the initiative. Once an initiative has been approved, NIAID solicits research applications through a request for application, a program announcement, or a request for proposal.\nNIDDK uses an annual process that requires NIDDK scientific program staff within the IC’s divisions to review the research portfolio and to identify research opportunities. According to NIDDK, this effort is informed by a number of factors, such as ongoing input from the extramural research and health advocacy communities and recent research advances. They said that each division then presents initiative concepts built on these research opportunities at NIDDK senior leadership meetings. The NIDDK director prioritizes the initiative concepts and determines which will move forward based on consideration of merit and other factors. These concepts go through a clearance process, including review from the NIDDK National Advisory Council. NIDDK develops funding opportunity announcements based on these identified research opportunities, such as requests for application that address specific scientific questions or diseases. In addition, NIDDK conducts divisional planning and prioritization activities during monthly meetings, retreats, and other activities, including consideration of opportunities for funds to support targeted emphasis areas.\nReview and evaluation of research portfolio: Officials from the five selected ICs we interviewed stated they conduct reviews of their research portfolio to help ensure existing priorities reflect and align with current scientific opportunities, research gaps, and emerging science. This includes periodic formal program assessments of their research portfolio, which the ICs used to determine if the IC is meeting its overall priorities and goals, to maintain portfolio balance, and to make any changes to priorities over time as science evolves. Examples of portfolio review and evaluation activities include the following:\nNCI officials stated that the IC conducts portfolio analyses, which involve examining research areas NCI has funded to identify opportunities for research. Officials stated that the portfolio analysis is an iterative process that occurs continually throughout the year. One example of this portfolio analysis has involved publishing broad questions related to five themes for the research community on NCI’s website and using the responses received to inform development of requests for application and program announcements published by NCI. Officials said they aim to generate about four new questions each year and that the questions are generally very broad and do not usually address specific diseases. For example, one question recently asked how the level, type, or duration of physical activity influences cancer risk and prognosis.\nNIGMS conducts formal program evaluations to determine what benefits the program has produced overall, including scientific advances, new technologies, and cutting-edge paradigm shifts, such as changes in the understanding of human biology. In addition, officials told us that NIGMS divisions conduct an annual review, which is generally prepared for NIGMS’s director, and provides information about the scientific advances that can be attributed to the work conducted in each division. This includes items such as the number of grants funded, the number of new principal investigators, the types of research conducted, and an overview of any new science performed.\nWhile the individual ICs set their own priorities, according to NIH officials, the OD provides leadership to the ICs and helps coordinate priority setting activities, especially for efforts that involve multiple ICs. For example, NIH officials reported that the director of NIH meets with all IC directors weekly to discuss research priorities, investments, and concerns that may affect an IC or NIH overall. In addition, the Advisory Committee to the Director assists the director of NIH with making major planning and policy decisions, including those related to research priorities and the allocation of funds for major, NIH-wide projects and identifies areas that have the potential for significant improvements both within NIH and within the scientific community at large. For example, the NIH Director charged the committee with examining NIH’s data needs to determine whether the agency is positioned to handle significant amounts of data and how to make these data accessible to researchers. In addition, NIH established a special division within the Office of the Director—the Division of Program Coordination, Planning, and Strategic Initiatives—to help manage large and complex research portfolios across NIH. The offices within this division organize formal discussions to obtain input from all of the IC directors as well as members of the scientific community to identify areas of significant scientific interest or need that typically span the interests of multiple ICs. NIH officials also stated that although each IC has at least one strategic plan in place, in some instances NIH has developed strategic plans for particular disease or topic areas that cross multiple ICs, such as one related to women’s health research.",
"In fiscal year 2012, NIH reported funding levels that ranged widely—from $13 million for projects in one RCDC category to more than $5.6 billion for another—for the 40 different RCDC categories we examined. (See table 1.) We determined that these RCDC categories were the best match for the most frequent causes of death in the United States, the most frequent causes of death globally, and the most prevalent chronic conditions in the United States. (See app. II for an explanation of how we identified these diseases and conditions and matched them with RCDC categories.)\nNIH officials said that RCDC is the agency’s official system for reporting research funding across the agency’s ICs and it provides a method for reporting consistent information about NIH funding. As noted by the agency, RCDC produces standard reports across all ICs using a process that is reproducible. To facilitate this, all ICs are to use the same definitions of research, diseases, and conditions for the RCDC categories. Further, the system allows for detailed reports, including the total funding for a category as well as specific information about the projects under each category, such as the title of the project, the IC supporting the research, and the project number.\nAgency officials said that the system was not designed to be able to estimate a total, non-duplicated amount of funding specific to a given disease or condition because RCDC categories are neither mutually exclusive nor exhaustive. Specifically:\nProjects may be reported in multiple categories. NIH officials said that the categories within the system are not mutually exclusive and therefore a project may be included in multiple categories. Officials told us that, on average, a single project may fall into five or six RCDC categories.\nCategories may be contained in another category. Some categories are inherently related and therefore an entire RCDC category can also be contained in another category. For example, the category of cancer includes other cancer categories, such as breast cancer, lung cancer, or prostate cancer, and the research funding reported in each of these categories will also be reported in the cancer research total.\nCategories do not exist for all diseases. RCDC also does not capture the funding for all diseases that NIH studies. As of November 2013, RCDC publicly reported on 235 different categories, but agency officials told us that there are an additional 30 to 40 categories used for congressional reporting only, and about 50 categories on a waiting list to be developed for inclusion in the system.\nNot all projects that NIH funds are included. The protocols that NIH develops for tracking funding include certain thresholds for inclusion. Therefore, a project that is only minimally related to a particular category may not be included in the funding for that category because the description of the project does not adequately match the terms defining that category. NIH officials told us that 3 to 5 percent of NIH funded research projects do not appear in any RCDC category.\nSome ICs have their own systems that track and report funding within their research portfolios. Of the five selected ICs we reviewed, two had their own systems for tracking their funding.\nNCI maintains a publicly available website that communicates funding decisions across the research supported by NCI. The system was developed in 1998 and categorizes research into more than 40 specific cancer types, as well as almost 50 research topics that are not disease-specific. Funding for individual projects may be separated and reported in the NCI system by the specific types of cancers being studied. According to NIH officials, the system is limited to those research projects funded by NCI and therefore does not include information about research studies addressing cancer that are funded solely by other ICs. NCI officials told us that they use the system to report data to stakeholders, including Congress, and that the analyses they conduct based on these data enhance NCI’s ability to plan and monitor its scientific investment.\nNIAID also has an internal coding system which, according to agency officials, was instituted in 1979 and codes each individual research project it funds by areas of study. Staff members manually assign codes. NIAID officials noted that projects may have multiple codes depending on the specific goals of the project, and these codes reflect the percentage of relevance to that specific goal, such that the total values add to 100 percent. Officials noted that the system helps NIAID respond to requests for funding information that is not included in RCDC. For example, when addressing a question about how much NIAID has invested in influenza research, officials said they examine research project funding for the various subtypes of influenza such as H1N1 and avian influenzas (including H5N1 and H7N9). These subcategories are included in the internal coding system, but are not covered by RCDC. Officials noted that NIAID uses RCDC for the official budget numbers that NIH reports to Congress.",
"We provided a draft of this report to HHS. The Department provided technical comments, which we incorporated as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of the Department of Health and Human Services, the Director of the National Institutes of Health, and other interested parties. In addition, the report will be 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) 512-7114 or kohnl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix III.",
"To provide information on studies about the relationship between research funding and burden of disease at the National Institutes of Health (NIH) and in other countries, we identified such studies relevant to NIH through on-line searches and we provide information on the two most recent of the studies. Additionally, for other countries, we identified published studies through a search of various databases, and we provide information from two of the more recent such studies. We did not identify research funding levels in other countries.\nStudies have been conducted that examine the relationship between research funding and burden of disease in the United States and other countries. Some researchers have reported that no single measure of disease burden captures the impact of various diseases and that different measures of burden may result in different conclusions about funding.\nStudies on the relationship between research funding by NIH and burden of disease found varied relationships depending upon the burden of disease measures used. For example,\nA 2013 study assessed the allocation of research funds across 107 diseases using NIH’s Research, Condition, and Disease Categorization system (RCDC) funding data and found a strong and statistically significant relationship between NIH funding and deaths and hospitalizations. As a result, according to the study, the data suggest that NIH funding is responsive to these two measures of disease burden. Further, the study noted that the data were consistent with the argument that it is more feasible for NIH to respond to disease burden considerations through directed or applied research funding, such as funding for clinical trials, than through investigator- initiated basic research.\nA 2011 study to assess the correlation between NIH research funding and burden of disease using data from 2004 and 2006 found that current levels of NIH disease-specific research funding correlated modestly with U.S. disease burden.\nThe study noted that there could be a number of reasons that alignment of funding and burden of disease were not better correlated, including that basic science research has consistently accounted for 55 percent of NIH spending and it is difficult to attribute to a specific disease, contributing uncertainty to the analysis and reducing correlations. Measures of burden of disease for this study were incidence, prevalence, mortality, years of life lost to premature death (YLL), and disability-adjusted life years (DALY).\nStudies of research funding in other countries have also found variations in relationships between funding and burden of disease. For example,\nA 2012 study found that research expenditures by governmental agencies and charities for four of the foremost chronic diseases in the United Kingdom—cancer, coronary heart disease, stroke and dementia—was not aligned with burden of disease. Specifically, research funding for dementia and stroke was disproportionately small in comparison with funding for cancer and coronary heart disease. In this study, burden of disease was measured by prevalence and DALYs.\nA 2004 study found a significant relationship between research funding by the National Health and Medical Research Council in Australia and several measures of burden of disease, variations over the 6-year span reviewed in the study using different measures. Measures of burden of disease for this study were incidence, mortality, YLLs, years of life lost to disability, and DALYs.\nThe National Health and Medical Research Council is the main Australian body charged with the responsibility of supporting medical and public health research and training in Australia.",
"To determine the leading causes of death in the United States, we reviewed data on causes of death in 2011 that were reported by the Centers for Disease Control (CDC). First, we identified the 15 leading causes of death reported by CDC. Then, we identified subcategories of those leading causes of death. To do so, we used as the cut off the number of deaths for the 15th leading cause of death—which was 18,090 deaths from pneumonitis due to solids and liquids. We included those sub-categories of causes of death, for example pneumonia, where the number of deaths reported was greater than 18,090. See table 2 for the leading causes of deaths in the United States in 2011, including the sub- categories with at least 18,090 related deaths in 2011, and the number of deaths attributed to these causes.\nTo determine the leading causes of death globally, we reviewed the analysis in the Global Burden of Disease Study. We identified the 15 leading causes of death globally in 2010 that were reported in this study. See table 3 for the leading causes of deaths globally.\nTo determine the most prevalent chronic diseases and conditions in the United States, CDC provided us with a list of the 13 most prevalent chronic diseases and conditions for adults, and four subcategories. See table 4 for a list of the most prevalent chronic diseases and conditions for adults identified by CDC.\nTo determine the corresponding categories from the National Institutes of Health’s (NIH) Research, Condition, and Disease Categorization system (RCDC) for the diseases and conditions that are the leading causes of death in the United States, the leading causes of death globally, and the most prevalent chronic diseases and conditions in the United States, we identified the International Classification of Diseases (ICD-10) codes associated with each of these diseases and conditions and, using their related descriptions, compared them with the RCDC category descriptions. We then provided our list of diseases, conditions, and ICD- 10 codes with the corresponding RCDC categories to NIH for the agency’s review and concurrence. NIH officials confirmed most of our matches. For some of the diseases and conditions, officials noted the RCDC category that we identified was the closest match, but the category was substantially broader than the RCDC category it was selected to represent or it was substantially narrower than the RCDC category it was selected to represent. In other cases, NIH officials noted that there was not an RCDC category that was a close enough fit to the disease category we were trying to represent. See table 5 for the leading causes of death in the United States and globally, as well as the most prevalent chronic diseases and conditions, and their corresponding RCDC category or categories.",
"",
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"In addition to the contact name above, Karen Doran (Assistant Director), George Bogart, Adrienne Daniels, Carolyn Feis Korman, Cathy Hamann, Natalie Herzog, Amy Leone, and Andrea Richardson made key contributions to this report."
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"question": [
"What the GAO find about the five ICs at the NIH that received the most amount of funding?",
"Why do ICs need to set priorities for funding?",
"What might the ICs need to consider as priorities in research projects?",
"What did all ICs consider for setting priorities?",
"What strategies in planning did all ICs have?",
"Outside of the ICs, what did the NIH provide?",
"What did GAO examine about the NIH reports?",
"Why can the system not estimate the funding specific to a given disease or condition?",
"What is a major example of the issue with NIH's RCDC funding categorization?",
"What is an example of NCI's funding process?",
"What is NIHs relationship to biomedical research?",
"What was the status of NIH's budget and use in 2012?",
"What are the similarities of the ICs that support extramural research?",
"What influence do ICs have on funding projects?",
"What did GAO research regarding the NIH funding?",
"How did the GAO look further into specific ICs?",
"What did the GAO review for the NIH's 2012 fiscal year?"
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"summary": [
"Individual institutes and centers (ICs) at the National Institutes of Health (NIH) set their own research priorities, and GAO found that the five selected ICs—awarding the largest amount of research funding—that it reviewed did so considering similar factors and using various priority-setting approaches.",
"Agency officials stated that the ICs' mission and appropriations inform priority-setting approaches. Some IC officials noted that because the costs of potential research projects generally exceed the available appropriation, the ICs must prioritize among research projects.",
"In priority setting, IC officials reported taking into consideration scientific needs and opportunities, gaps in funded research, the burden of disease in a population, and public health need, such as an emerging public health threat like influenza that needs to be addressed.",
"While each IC GAO examined had its own approach for setting priorities, they all considered the input of stakeholders, including the scientific community, and used some similar strategies.",
"All five ICs developed strategic plans, though the process varied by IC. Some ICs also used annual planning activities in various forms, which then guided funding opportunity announcements. All five ICs also conducted reviews and evaluations of their research portfolios to ensure that their priorities align with scientific opportunities, research gaps, and emerging science.",
"In addition to these efforts at the IC level, agency officials told GAO that the NIH Office of the Director provides leadership and coordinates priority setting activities, especially for those activities that involve multiple ICs.",
"NIH reported funding levels that varied widely for the 40 different Research, Condition, and Disease Categorization system (RCDC) categories GAO examined that correspond to the leading causes of death and the most prevalent chronic conditions. For example, NIH reported actual fiscal year 2012 funding levels ranging from $13 million for projects in the fibromyalgia category to more than $5.6 billion for projects in the cancer category.",
"Although these categories are part of NIH's RCDC, which is used to categorize the research activities across the agency, agency officials said that the system cannot estimate a total, non-duplicated amount of funding that is specific to a given disease or condition. This is because RCDC categories are neither mutually exclusive nor exhaustive. For example, projects may be included in multiple RCDC categories, some categories are related to each other and therefore some categories may also be included within another, and funding for all diseases is not captured in the system.",
"While RCDC is NIH's official system for reporting research funding across the ICs, two of the five ICs that GAO reviewed—the National Cancer Institute (NCI) and the National Institute of Allergy and Infectious Diseases—had their own systems for tracking their funding, which allowed them to provide more detailed information than that available from RCDC. For example, NCI has a publicly available website that specifies funding for more than 40 specific cancer types as well as almost 50 research topics that are not disease-specific.",
"Funding for individual projects may be separated for specific studies into those cancer types. According to officials, the system enhances NCI's ability to plan and monitor its scientific investment.",
"NIH is the nation's leader in sponsoring and conducting biomedical research.",
"In fiscal year 2012, NIH had a budget of almost $31 billion, over 80 percent of which was used to fund extramural research that supports scientists and research personnel working at universities, medical schools, and other research institutions.",
"Twenty-four of NIH's 27 ICs that support extramural research are focused on particular diseases, conditions, or research areas, and these ICs have their own appropriations.",
"Decisions about which projects are funded are made by these individual ICs. NIH reports funding for 235 research, condition, and disease categories in RCDC.",
"GAO was asked to review NIH funding related to leading diseases and health conditions. GAO examined (1) how research priorities are set at NIH, and (2) NIH allocations of research funding across selected diseases and conditions.",
"For five ICs—National Cancer Institute; National Heart, Lung, and Blood Institute; National Institute of Allergy and Infectious Diseases; National Institute of Diabetes and Digestive and Kidney Diseases; and National Institute of General Medical Sciences—GAO reviewed documents and interviewed IC officials about priority setting.",
"GAO reviewed NIH fiscal year 2012 funding reported by RCDC for 40 research, condition, and disease categories related to the leading causes of death in the United States and globally, and the most prevalent chronic diseases and conditions in the United States."
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CRS_R44838
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{
"title": [
"",
"Introduction",
"Title I: United States Weather Research and Forecasting Improvement",
"Title II: Subseasonal and Seasonal Forecasting Innovation",
"Title III: Weather Satellite and Data Innovation",
"Title IV: Federal Weather Coordination",
"Concluding Observations"
],
"paragraphs": [
"",
"The Weather Research and Forecasting Innovation Act of 2017 ( P.L. 115-25 ) addresses a broad range of National Oceanic and Atmospheric Administration (NOAA) activities in five titles: Titles I through IV primarily address weather-related programs, policies, and activities, and Title V amends the Tsunami Warning and Education Act (Title VIII of P.L. 109-479 ). This report discusses Titles I through IV; Title V of P.L. 115-25 is addressed in CRS Report R44834, The U.S. Tsunami Program Reauthorization in P.L. 115-25: Section-by-Section Comparison to P.L. 109-479, Title VIII .\nIn P.L. 115-25 , Congress provides direction to NOAA regarding the agency's research and development (R&D) activities, with the broad goal of improving weather forecasting, warnings, and communication to recipients and users of weather information. Congress has held hearings and introduced legislation in the past two Congresses on topics that are incorporated into P.L. 115-25 . Thus the law reflects many of the priorities and issues of interest to Members of Congress regarding improving forecasts, coordination, and communication in the weather enterprise; incorporating commercially available weather data into forecasts and warnings; and enhancing the research-to-operations pathway so that new scientific and technological advances can be incorporated more rapidly into forecasts and warnings, among other topics.\nIn addition to emphasizing the transfer of R&D advances to operations at the National Weather Service (NWS), Title I of P.L. 115-25 includes a sense of Congress that not less than 30% of funding for weather R&D at NOAA's Office of Oceanic and Atmospheric Research (OAR) should be made available to the nonfederal weather research community, which includes academia, private-sector entities, and nongovernmental organizations.\nTitle II of P.L. 115-25 centers on improving NWS forecasts, specifically subseasonal and seasonal forecasts, defined in the law as forecasts of two weeks to three months and forecasts of three months to two years, respectively.\nTitle III focuses on weather satellites, including microsatellite constellations, and future needs of the weather satellite observing systems. Title III also includes direction on the acquisition of commercial weather data; it requires NOAA to evaluate whether commercial weather data from satellites could meet some or all of NOAA's future needs.\nTitle IV directs NOAA to coordinate weather data and observations; improve the exchange of expertise between R&D and operational activities; enhance communication of watches and warnings of hazardous weather events; improve outreach to the weather enterprise; and study gaps in the national NEXRAD coverage, among other topics.\nThis report discusses each title briefly by summarizing selected sections. Furthermore, the report identifies where NOAA is required to report to Congress on its progress in fulfilling the legislation's requirements. The summaries of each title in this report include information on these required studies and reports to Congress as well as on other new activities due prior to the adjournment of the 115 th Congress. Congress may exert its oversight capacity to evaluate NOAA's success in fulfilling congressional direction provided in the legislation.",
"Title I of P.L. 115-25 focuses on authorizing R&D efforts at NOAA, mostly led by the OAR, primarily to improve forecasts and warnings of potentially damaging weather events. Title I addresses a broad array of activities authorized in the legislation that would, if implemented, range from conducting basic R&D on weather to enhancing the observing systems to improve the data used for forecasts and warnings. Title I also requires NOAA to address the issue of how to improve the incorporation of research findings into NWS operations. The research-to-operations challenge also is addressed in other titles of P.L. 115-25 .\nSection 101 states that the priorities for the R&D efforts shall be the protection of life and property and the enhancement of the national economy. Section 102 authorizes a broad portfolio of R&D activities to address the priorities in Section 101, such as improving the fundamental understanding of weather; enhancing the understanding of how the public receives, interprets and responds to dangerous weather; and facilitating the transfer of knowledge, technologies, and applications to NWS.\nSections 103 and 104 focus on tornadoes and hurricanes, respectively. The goal of Section 103 is to reduce loss of life and economic damage from tornadoes by improving tornado forecasts, predictions, and warnings. The act requires NOAA to create a tornado warning improvement and extension program plan to achieve its goal and to submit to Congress a proposed budget for its tornado program plan activities each year. The goal of Section 104 is to improve hurricane forecasting to reduce loss of life, injuries, and economic damage. The section requires NOAA to maintain a project to improve hurricane forecasting, and to develop a plan to implement the hurricane project. The tornado plan and the hurricane plan are due within 180 days and one year of enactment, respectively (i.e., by October 2017 and April 2018).\nSection 105 requires an R&D and research-to-operations plan within one year of enactment (i.e., by April 2018), with the goal of restoring and maintaining U.S. leadership in numerical weather forecasting and prediction. The section also requires NOAA to consult with the National Science Foundation, the U.S. weather industry, and academic partners to identify research necessary to enhance the integration of social science research into weather forecasts and warnings.\nSections 106-109 deal with observation systems; observing system simulation experiments; computer resources; and activities to help operationalize R&D so that it can used by NWS for forecasts and warnings.\nTitle I would authorize $111.52 million per year for FY2017 and FY2018 for OAR R&D and an additional $20 million per year for the technology transfer initiative authorized in Section 102.",
"Section 201 of Title II of P.L. 115-25 amends P.L. 99-198 (15 U.S.C. 313 note) to add eight subsections (c through j) with the primary goal of improving temperature and precipitation forecasts in subseasonal forecasts (forecasts of two weeks to three months) and seasonal forecasts (forecasts of three months to two years). This section of Title II amends the part of the U.S. C ode that declares it is in the public interest that the federal government be involved in providing weather and climate information useful for agriculture and silviculture. Improving forecasts during the time spans defined as subseasonal and seasonal aligns with improving the forecasts needed by agricultural and silvicultural interests. The subsections summarized below expand on functions and requirements for these forecasts more broadly.\nSubsection 201(c) requires that the Director of NWS collect and use information to make subseasonal and seasonal forecasts; use existing models and research to improve those forecasts; determine how those forecasted conditions will affect severe weather and other weather-related natural hazards; and develop an Internet clearinghouse to share the forecasts and accompanying information.\nSubsection 201(d) requires the NWS director to provide the forecasts and accompanying information to the public. Subsection 201(e) requires NOAA to designate research and monitoring required for the subseasonal and seasonal forecasts as a priority in one or more of the solicitations of the Cooperative Institutes of Oceanic and Atmospheric Research; to contribute to the interagency Earth System Prediction Capability; and to consult with the Secretary of Defense and the Secretary of Homeland Security to determine the highest priorities for their departments regarding subseasonal and seasonal forecasts.\nSubsection 201(f) requires NOAA to foster communication, understanding, and use of the forecasts by the intended users. It gives NOAA discretion to provide assistance to states for individuals who would be designated \"forecast communication coordinators,\" who would serve as liaisons among federal agencies and other entities of the weather enterprise and who would receive and disseminate the subseasonal and seasonal forecasts. NOAA support would be limited to $100,000 per year per state and would require a 50% match (from the state, a university, a nongovernmental organization, a trade association, or the private sector).\nSubsection 201(g) requires other federal agencies to cooperate with NOAA. Subsection 201(h) requires a report to Congress on implementation of the subseasonal and seasonal forecasts, due within 18 months of enactment (October 2018). Subsection 201(i) defines terms used in Section 201. Subsection 201(j) authorizes appropriations of $26.5 million per year to carry out these activities in FY2017 and FY2018.",
"Title III of P.L. 115-25 addresses two main issues: (1) weather satellites and (2) commercial weather data. The topics are interrelated. Title III provides direction for NOAA regarding current and future weather satellite data needs and authorizes NOAA to consider how commercially provided weather satellite data could enhance and improve observations, leading to better forecasts and warnings in the future.\nSection 301 of Title III of P.L. 115-25 addresses microsatellites, integration of data from the ocean observing system, and a study and report on future satellite data needs. Subsection 301(a) requires NOAA to complete and operationalize the microsatellite project called the Constellation Observing System for Meteorology, Ionosphere, and Climate (COSMIC-1 and COSMIC-2). NOAA is to deploy microsatellites in polar and equatorial orbits, integrate the satellite data into operational and research weather forecast models, and make the data free and available to everyone. The COSMIC satellite system makes use of a technique called radio occultation, using radio signals from global positioning satellites (GPS), which allows high-precision measurements of the global atmosphere. The data from the COSMIC mission, combined with other atmospheric data, likely would improve the precision and accuracy of weather forecasts and warnings.\nSubsection 301(a) also requires the NWS director to integrate data collected by the Integrated Ocean Observing System into regional weather forecasts and to support the development of real-time data-sharing products and forecast products. It requires NOAA to identify where monitoring and observing systems have degraded and may have reduced the quality of weather forecasts. Subsection 301(a) requires NOAA to follow report recommendations, authorized under Subsection 301(b), on specifications for weather satellite systems.\nSubsection 301(b) requires NOAA to enter into an agreement with the National Academy of Sciences (NAS) to conduct a study on future weather satellite needs. The resulting report is due within two years of entering into the agreement for the study. If an agreement cannot be achieved with NAS, Subsection 301(b) would allow NOAA to enter into an agreement with another nonfederal government entity with expertise and objectivity comparable to NAS. The legislation authorizes $1 million total for the study and report during FY2018 and FY2019.\nSubsection 302(a) authorizes NOAA to purchase weather data from commercial sources and to place NOAA weather satellites on government or private-sector payloads for launch into orbit. Subsection 302(b) directs NOAA, within 180 days of enactment (October 2017), to submit to Congress a strategic plan for procuring commercial weather data.\nCongress has expressed interest in expanding NOAA's use of commercially available weather data for at least the previous two Congresses. Outstanding issues include whether and how commercially available data meet the requirements and specifications for use in NOAA's forecasts and warnings. Subsection 302(c) authorizes NOAA to address some of these issues. The subsection requires NOAA to publish data and metadata standards and specifications for space-based commercial weather data within 30 days of enactment (i.e., due by May 2017). It also requires NOAA to publish standards and specifications for geostationary hyperspectral sounder data as soon as possible.\nSubsection 302(c) requires NOAA to conduct at least one pilot program by contracting with one or more private-sector data providers that can meet the standards and specifications that NOAA would develop and publish. Within three years of the pilot project contract agreement, Subsection 302(c) requires NOAA to submit a report to Congress on the pilot program's progress toward meeting the criteria developed and published earlier. The law authorizes appropriations of $6 million annually for FY2017 through FY2020.\nSubsection 302(d) requires NOAA to obtain commercial weather data from the private sector, depending on whether the pilot program is deemed successful. The subsection also requires NOAA to determine whether a government meteorological space system is required, if NOAA finds that commercial data sources can meet any or all of the observational requirements of such a system. This provision implies that if commercial vendors can provide data that meet all the requirements developed by NOAA, then NOAA would determine if a federal government weather satellite system is in the national interest. The legislation requires NOAA to report to Congress on its determination.\nSubsection 302(e) requires that NOAA continue to meet its existing international meteorological agreements, including practices set forth in World Meteorological Organization Resolution 40. Section 303 requires NOAA to avoid unnecessary duplication between private and public sources of data.",
"Title IV of P.L. 115-25 contains 14 sections that deal with a wide range of NOAA activities, most of which address coordination, communication, and issues related to data sharing and exchanges of personnel to foster better interaction between research scientists and practitioners. Some of the authorized activities focus on improving NWS outreach to user communities, and other sections address specific issues that Congress previously has identified as possible weaknesses in the weather enterprise, namely possible gaps in ground-based radar coverage by NEXRAD systems.\nSection 401 instructs NOAA to maintain its Environmental Services Working Group to provide advice for prioritizing weather research and for existing and emerging technologies, to identify opportunities to improve communications between all entities within the weather enterprise, and to advise on other issues. Section 401 requires the working group to be composed of at least 15 members, experts in all fields relevant to weather, and requires the working group to submit an annual report on NOAA's progress in implementing working group recommendations.\nSection 402 requires the director of the White House Office of Science and Technology Policy to establish an Interagency Committee for Advancing Weather Services. The committee is charged with coordinating weather research and innovation activities across the federal government. The Federal Coordinator for Meteorology will serve as co-chair of the committee.\nSection 403 allows the directors of OAR and NWS to detail up to 10 personnel from one office to the other in an exchange program to allow OAR scientists and NWS operational staff to interact. Section 404 allows the NWS director to host postdoctoral fellows and academic researchers—for up to one year—at any of the NOAA National Centers for Environmental Prediction, to allow forecasters and academic researchers to interact directly and to foster innovation at NWS.\nSection 405 requires the NWS director to designate at least one warning coordination meteorologist at each weather forecast office to increase impact-based decision support services. The legislation requires that each warning coordination meteorologist (1) provide service to the geographic area covered by the weather forecast office; (2) work with all users of NWS products and services to evaluate their utility; (3) collaborate with state, local, and tribal agencies to improve products and services for those entities; (4) maintain severe weather call lists, severe weather policy and procedures, and severe weather dissemination methodologies and strategies; and (5) work with state, local, and tribal emergency managers to ensure better preparedness and response. The NWS director may assign other responsibilities in addition to the five required above. The NWS director also may place a warning coordination meteorologist with a state or local emergency manager.\nSection 406 requires NOAA to assess its system for issuing hazardous weather and water event watches and warnings within two years of enactment (i.e., by April 2019) and to submit the resulting report to Congress. The assessment's focus is to include how best to communicate risks that would improve mitigation, enhance broad and rapid communication to the public, preserve benefits of the existing system, and maintain the system's utility for government and commercial users. The legislation requires NOAA to consult with a wide variety of individuals and entities within the weather enterprise and to make use of NAS, if practicable. The legislation also requires NOAA to make recommendations to Congress to improve the system, based on the results of the study.\nSection 407 authorizes the NWS director to establish the NOAA Weather Ready All Hazards Award Program, which would provide annual awards to individuals or organizations that use or provide NOAA Weather Radio receivers or transmitters to save lives and protect property. Individuals and organizations that employ tools other than NOAA Weather Radios for early warnings also may qualify for the award.\nSection 408 requires NOAA to submit a report to Congress within 60 days of enactment (i.e., by June 2017) that analyzes the impact of the U.S. Air Force withdrawal from the U.S. Weather Research and Forecasting Model.\nSection 409 requires NOAA to continue its contract with an external organization to conduct a baseline analysis of NWS operations and workforce.\nSection 410 requires NOAA to submit a report to Congress within 180 days of enactment (October 2017) on the use of contractors at NWS for the FY2017 fiscal year. The section also requires that NOAA include eight different types of information in this report and make that information publicly available each year within 180 days after the end of the fiscal year.\nSection 411 requires the NWS director to review the service's research, products, and services regarding modeling and forecasting in the urban environment and to submit a report to Congress on the findings.\nSection 412 authorizes NOAA to establish outreach mechanisms to the weather enterprise by assessing the agency's forecasts and forecast products and by determining the highest forecast needs of the weather-enterprise community.\nSection 413 requires NOAA to acquire backup capabilities for its WP-3D Orion and G-IV hurricane hunter aircraft.\nSection 414 requires the Secretary of Commerce to complete a study within 180 days of enactment (October 2017) on gaps in coverage of NEXRAD. The section requires the Secretary to identify areas that have limited or no NEXRAD coverage for which no or insufficient warnings were given for hazardous weather events or for which degraded forecasts resulted in deaths, injuries, or substantial property damage. It also requires the Secretary to submit a report on the study's findings to Congress and to submit within 90 days of the study's completion (i.e., by January 2018) the Secretary's recommendations for improving hazardous weather detection and forecasting in the areas identified as having limited or no NEXRAD coverage.",
"Congress provides broad and far-ranging direction regarding weather-related activities for NOAA and NWS in the first four titles of P.L. 115-25 . Some might argue that this law may represent the most widely varied set of provisions addressing weather issues at NOAA in a single bill since NOAA was first organized. Throughout P.L. 115-25 , Congress requires reports on progress in meeting its authorizations over time frames from 30 days to several years. The reports will allow Congress to track NOAA's progress in implementing the specific requirements outlined in the law over the short term. The law's long-term goal is to improve weather forecasts and warnings to reduce damage to property and decrease the number of injuries and fatalities from severe weather events.\nSome of the issues Congress might consider in the short term include whether the level of enacted appropriations for activities authorized in P.L. 115-25 is commensurate with the scale and scope of those activities. Over the long term, Congress may choose to assess whether the law's research-to-operations focus is resulting in improved forecasts and warnings. In addition, congressional interest in the use of commercially provided weather data has spurred NOAA to examine the viability of commercial data sources. The new law aims to give Congress more information to help evaluate the potential for commercial data sources to represent an increasingly greater share of data useful for improving forecasts and warnings. Conversely, the activities authorized under P.L. 115-25 also may indicate the limitations for using commercial data in producing better forecasts and warnings, whether those limitations arise for financial, data-quality, availability, or other reasons.\nTitle IV of P.L. 115-25 addresses more than a dozen different weather-related issues, most of which pertain to improving coordination and communication between NOAA and the weather enterprise. In the future, Congress could conduct hearings and other activities related to its oversight responsibilities, to seek information from stakeholders outside the federal government to help gauge the effectiveness of NOAA's implementation of activities authorized in Title IV. The test of whether congressional direction in P.L. 115-25 is effective ultimately will be gauged by how improvements in forecasts and warnings ameliorate the amount of damage from severe weather and reduce the numbers of injuries and fatalities from dangerous storms."
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"question": [
"How does Congress direct NOAA's weather-related activities?",
"What does this legislation aim to improve?",
"What other topics does the legislation cover?",
"What specifically does Title V of P.L. 115-25 cover?",
"What else does the P.L. 115-25 include?",
"What has resulted from these goals and deliverables?",
"What are ongoing questions regarding the implementation of P.L. 115-25?"
],
"summary": [
"Congress provides direction on a broad range of the National Oceanic and Atmospheric Administration's (NOAA's) weather-related activities in Titles I through IV of P.L. 115-25, the Weather Research and Forecasting Innovation Act of 2017, signed into law on April 18, 2017.",
"The legislation aims to improve NOAA's weather forecasts and warnings, both for the protection of lives and property and for the enhancement of the national economy.",
"The act also covers topics such as future weather satellite data needs, gaps in the Next Generation Weather Radar (NEXRAD) coverage, and improvements in the transfer of advances in research and development to National Weather Service (NWS) operations.",
"Title V of P.L. 115-25 covers NOAA's tsunami program activities and is addressed in CRS Report R44834, The U.S. Tsunami Program Reauthorization in P.L. 115-25: Section-by-Section Comparison to P.L. 109-479, Title VIII.",
"P.L. 115-25 also includes requirements for various reports to Congress and other goals and deliverables, many of which are due during the 115th Congress.",
"As a result, Congress is expected to have many opportunities to track NOAA's progress in implementing P.L. 115-25.",
"Ongoing questions include if appropriated amounts will be sufficient to meet authorized activities and priorities expressed in the law and to what degree NOAA will implement the activities and priorities provided in P.L. 115-25."
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"title": [
"",
"Introduction",
"\"Cost to the Government\"",
"\"Fair Value Cost\"",
"Debate in Mid-1980s",
"Proposed Credit Reform Legislation in 1987",
"GAO's 1989 Report",
"CBO's 1989 Report",
"Federal Credit Reform Act of 1990",
"CBO's 2004 Report",
"President's 2010 Fiscal Commission",
"House FY2012 Budget Resolution",
"Budget and Accounting Transparency Act of 2011",
"Report of the Center on Budget and Policy Priorities, 2012",
"CBPP Criticism of H.R. 3581",
"Criticism of CBPP Report by Phaup",
"Analysis of Fair Value Budgeting in FY2013 Budget",
"CBO Issue Brief on Fair-Value Accounting",
"House FY2013 Budget Resolution"
],
"paragraphs": [
"",
"Since the mid-1980s, budget experts have debated whether the best method of measuring the subsidy cost of federal credit (direct loans or loan guarantees) is the cost to the government or the fair value cost. Federal credit is direct loans and loan guarantees. The cost to the government would reflect the actual budget cost measured by discounting of expected cash flows associated with each program at the interest rate on risk-free Treasury securities. The measure of the cost to the government would place the cost of federal credit on the same basis as a grant or a tax expenditure; consequently, policymakers would have an incentive to use the most appropriate means to cover the cost of a government program.\nThe fair value cost estimate would equal the cost that the credit recipient would have had to pay to borrow on the private credit market. The fair value cost estimate would include market risk and reflect the opportunity cost of shifting capital from the private sector to the public sector, thus reflecting the social cost of the programs. Proponents argue that the social cost rather than the budgetary cost should be used to allocate resources between the public and private sectors. This debate has yet to be resolved.\nThe U.S. government uses federal credit to allocate financial capital to a range of areas including home ownership, student loans, small business, agriculture, and energy. A direct loan is \"a disbursement of funds by the government to a nonfederal borrower under a contract that requires the repayment of such funds with or without interest.\" A loan guarantee is \"a pledge with respect to the payment of all or part of the principal or interest on any debt obligation of a non-federal borrower to a non-federal lender.\" At the end of FY2011, outstanding federal direct loans totaled $838 billion and outstanding guaranteed loans totaled $2,017 billion. Thus, at the end of FY2011, outstanding federal credit totaled $2.855 trillion.\nThe weak economy and expansionary monetary policy caused low nominal Treasury interest rates from FY2009 to FY2011. Consequently, the use of Treasury interest rates in the cost-to-the-government measure resulted in aggregate costs of federal credit of negative $19 billion for FY2009, negative $20 billion for FY2010, and negative $41 billion for FY2011. These negative costs reduced the sizes of the federal deficits. In contrast, the aggregate cost of federal credit averaged $3.1 billion annually for FY1998-FY2008. Arguably, these negative aggregate costs of federal credit over the past three fiscal years have contributed to the debate about changing to fair value budgeting. In the 112 th Congress, six bills have been introduced that would provide for calculation of subsidy costs using fair value accounting: companion bills S. 1651 / H.R. 3414 (Honest Budget Act), H.R. 3581 (Budget and Accounting Transparency Act of 2011), H.R. 3844 (Honest Budget Act of 2012), House Fiscal Year 2012 Budget Resolution ( H.Con.Res. 34 , 112 th Congress), and House Fiscal Year 2013 Budget Resolution ( H.Con.Res. 112 , 112 th Congress).\nBefore FY1992, federal credit programs were measured on an annual cash flow basis. Under this arrangement, a new federal direct loan was treated as a budget outlay in the current fiscal year, and repayments of principal and payments of interest were treated as offsetting collections (negative outlays) in the fiscal years in which they were repaid. If a loan recipient paid a fee, this fee was also treated as an offsetting collection. Loan defaults reduced repayments of principal and interest, and therefore offsetting collections. Administrative expenses were reported as outlays. In a given fiscal year, the budgetary cost of a loan program, not the individual loans, was its net cash flow. This equaled new loans made plus any administrative expenses associated with these loans (rarely recognized in the loan accounts) less any loan fees, repayments of principal, and payments of interest. The federal acceptance of a contingent liability when a loan guarantee was provided was not included in the federal budget because no cash flow occurred. The administrative costs of a guarantee program were outlays in the fiscal year in which they occurred. Some guarantee programs charge fees to the recipient, and these fees were considered offsetting collections. Any federal outlays necessary to compensate lenders for any default losses covered by a federal guarantee were not shown in the budget until they were actually paid.\nUsing the old cash-flow method, it was often difficult for policymakers to accurately monitor and therefore make informed decisions about federal credit. In addition, administrators at agencies could understate costs by using various budgetary techniques. One of these was generating \"savings\" from the fees on increased volumes of new guarantees while ignoring the increase in expected losses and offsetting the (cash) cost of new direct loans with current year collections from old loans.\nTo remedy these problems, Congress and the executive branch debated options to convert the budgetary treatment of federal credit from cash flow accounting to accrual accounting (measuring the cost over the life of the loan or loan guarantee). One of the primary decisions concerned whether the cost of federal credit should be measured by the \"cost to the government\" or the \"fair value\" cost.",
"The cost to the government approach reflects the actual budget cost measured by \"discounting of expected cash flows at the interest rate on risk-free Treasury securities (the rate at which the government borrows money).\" For a loan program, these credit flows consist of \"disbursements by the government (loan disbursement and other payments) minus estimated payments to the government (repayment of principal, payments of interest, and other payments) after adjusting for projected defaults, prepayments, fees, penalties, and other recoveries.\" For a loan guarantee program, these credit flows are \"estimated payments by the government (for defaults and delinquencies, interest rate subsidies, and other payments) minus estimated payment to the government (for loan origination and other fees, penalties, and recoveries).\"\nThe cost to the government concept would measure the subsidy cost in an equivalent budgetary method for a grant or a tax expenditure. Thus, a policymaker would not have any incentive to favor one type of assistance over another because credit, grants, and tax expenditures would all be measured by the cost to the government.",
"An alternative would be to use the fair value cost, which would equal the cost that the credit recipient would have had to pay to borrow on the private credit market. In other words, the fair value cost is based on the price investors would be willing to pay to purchase federal direct loan assets or reinsure federal loan guarantees. The fair value cost includes market risk and reflects the opportunity cost of shifting capital from the private sector to the public sector.\nOn November 5, 1990, President George H. W. Bush signed P.L. 101-508 , 104 Stat. 1388, the Omnibus Budget Reconciliation Act of 1990 (OBRA90). The legislation added a new title to the Congressional Budget Act, Title V, the Federal Credit Reform Act of 1990 (FCRA). Beginning with FY1992, FCRA changed the methodology in the unified budget for measuring and reporting the cost of federal direct loans and federal loan guarantees from cash flow to accrual accounting, using the cost to the government concept.\nWhether the cost to the government or the fair value cost is most appropriate is still debated, however, and the question remains unresolved. This report gives a chronological examination of this debate since the 1980s.",
"In August 1984, the Office of Management and Budget (OMB) issued a revised version of its Circular A-70, Policies and Guidelines for Federal Credit Programs , which included the requirement that federal agencies calculate and transmit data to OMB on the subsidy cost of all of their direct loan and loan guarantee programs. The method used to measure subsidy costs was specified as comparing private financing terms with those of federal credit. Since 1984, these agency data were used to report subsidy costs in Special Analysis F, \"Federal Credit Programs,\" in the President's budget documents.\nOn December 12, 1985, the passage of the Gramm-Rudman-Hollings (G-R-H) Act, Balanced Budget and Emergency Deficit Control Act of 1985 ( P.L. 99-177 ), 99 Stat. 1037, required that all new direct loans and loan guarantees be on-budget. Prior to G-R-H, many new direct loans and loan guarantees were recorded off-budget. With the passage of G-R-H, Congress and the executive branch became more interested in possible budgetary reforms to improve the recording of federal credit in the budget. One of the major issues was measuring the subsidy costs of federal credit. This new interest prompted both proposed legislation and research in legislative and executive branch agencies and the academic community.",
"In February 1987, the Reagan Administration proposed extensive credit reform in its FY1988 Budget. The Administration's proposals were introduced in the House as H.R. 1754 and the Senate as S. 745 , the Federal Credit Reform Act of 1987. Senators Lawton Chiles and Pete Domenici extensively revised the Reagan proposal. Their proposal was included as an amendment to H.J.Res. 324 to raise the debt limit as it passed the Senate on July 31, 1987, but was eliminated by the conference agreement.\nThe Administration's proposal measured the subsidy cost as the dollar benefit to the borrower, while the Chiles-Domenici proposal measured subsidy cost as the dollar cost to the federal government. Furthermore, the two proposals differed in their methods of determining the value of subsidy costs.\nThe Administration proposed to sell most loans on private credit markets. The value of a loan's subsidy cost would equal the difference between its face value and its selling price. The Administration's proposal also sought to reinsure most loan guarantees with single payment policies, and government's payment for reinsurance would measure the subsidy cost. Thus, most credit subsidies would be measured objectively by market forces. For those credit programs for which loan sales and guarantee reinsurance would be inappropriate, the subsidy cost was to be estimated by the Secretary of the Treasury in consultation with the relevant agencies.\nThe Chiles-Domenici proposal neither required nor authorized the selling of direct loans and specifically forbade the reinsurance of federal loan guarantees. These stipulations reflected the belief that market transactions would have been inappropriate in measuring the subsidy cost to the federal government. Under the Chiles-Domenici proposal, a federal credit management agency would have been established in the Treasury Department, and this agency would estimate subsidy costs as cost to the government.",
"In April 1989, the then-General Accounting Office issued a report titled Budgetary Treatment of Federal Credit Programs , which included analyses of credit reform proposals recommended by the Senate Budget Committee, CBO, OMB, and GAO. In the report, GAO stated the following:\nThe four proposals differ principally only on the method used to calculate credit subsidy costs. We [GAO] and the Senate Budget Committee propose measuring the direct budgetary costs of credit programs. In our recent reports, we recommend a \"cost-to-the-government\" model, which measures loan subsidy costs as the difference between the costs to the Treasury of making the loan and the expected receipts flowing back to the Treasury from the loan repayments—calculated on a present-value basis.\nOn the other hand, CBO and OMB prefer a market-valuation oriented measurement approach which calculates the economic benefit borrowers receive as a result of obtaining federal, rather than private sector, loans. OMB believes that the economic subsidy offered to borrowers is the most important aspect of federal credit, and it proposes putting this economic subsidy measure in the federal budget. OMB computes subsidy costs as the present value of the additional payments that a federal borrower would be required to pay for a similar loan from the private sector. CBO's preference for market-valuation subsidy costs is based on the assumption that government credit program costs appropriately measured are comparable to costs incurred by private sector financial institutions.\nAs stated in our prior reports, we [GAO] prefer the cost-to-the-government measure of credit subsidy costs because it measures future cash outlays. We believe that market-valuation subsidy costs will overstate the actual cost to the government. Subsidies measured in terms of market values will generally be larger than subsidies measured in terms of the cost to the government because they will include some costs, such as premiums for liquidity and risk (above and beyond expected default costs), which would not be reflected in budget outlays.",
"In December 1989, the Congressional Budget Office (CBO) published a report titled Credit Reform: Comparable Budget Costs for Cash and Credit , which provided an analysis of federal credit reform proposals. One chapter explained possible methods of calculating subsidy costs of federal credit, and discussed selecting the appropriate discount rate in determining costs. In examining the option of using Treasury borrowing rates, the report stated the following:\nThe bills, notes, and bonds issued by the Treasury are believed to be virtually free of default risk. Rates on such debt, therefore, contain no risk premium and are commonly considered risk-free. Use of a Treasury borrowing rate to discount future cash flows on a credit contract treats those payments as though they were certain to be received. If the government were to use its own risk-free cost of borrowing to discount uncertain future cash flows, it would be the only financial institution to do so. An aversion to risk causes others, including federally insured banks and thrifts, to discount risky income at a higher than risk-free rate.\nThose who recommend that the government use a risk-free rate to discount risky future income argue that the risk-free rate reflects what the government actually pays to provide credit assistance. GAO, for example, has advocated valuing federal loans by using Treasury borrowing rates to discount receipts, minus losses from defaults. Using a risk-free Treasury rate for discounting supports a budget policy that recognizes only costs paid in cash.\nThe report also considered the option of using market rates:\nOthers recommend that the government select a discount rate equal to the rate that the government would receive by investing in other equally risky assets. They maintain that the use of such a rate is necessary to capture the opportunity costs of credit or the value of alternatives forgone. The use of rates that account for risk is also necessary to distinguish the cost of assets with equal expected income but different degrees of risk.\nThe report indicated major data deficiencies in making subsidy cost calculations. \"In general, federal agencies do not have access to historical data on the characteristics of borrowers, on the financed project, or on the cash flows for individual loans and guarantees.\"",
"On November 5, 1990, the President signed P.L. 101-508 , 104 Stat. 1388, the Omnibus Budget Reconciliation Act of 1990 (OBRA90). The legislation added a new title to the Congressional Budget Act, Title V, the Federal Credit Reform Act of 1990 (FCRA). Beginning with FY1992, FCRA changed the methodology in the unified budget for measuring and reporting the cost of federal direct loans and federal loan guarantees from cash flow to accrual accounting.\nThe four stated purposes of FCRA (Section 501) were to\n(1) measure more accurately the costs of federal credit programs;\n(2) place the cost of credit programs on a budgetary basis equivalent to other federal spending;\n(3) encourage the delivery of benefits in the form most appropriate to the needs of beneficiaries; and\n(4) improve the allocation of resources among credit programs and other spending.\nFCRA required the budgetary cost of federal credit to be measured for any one year as the net present value of the cost to the government of credit subsidies in the fiscal year the credit is provided.\nAlthough FCRA specified the use of the cost to the taxpayer in measuring credit subsidies, some public finance professionals, including some experts at CBO, continued to advocate a shift to the use of fair value cost.",
"In August 2004, CBO issued a report on federal credit subsidies that examined two ways of including the market price for risk: risk-adjusted discount rates and options-pricing methods.\nThe risk-adjusted discount rate (ADR) method \"adds a spread—the difference between the interest rate on a Treasury security and the rate on a risky security—to Treasury rates and uses the resulting adjusted rate to discount expected cash flows associated with a loan.\" The ADR method results in a higher discount rate for both costs and revenues and, with a few exceptions for negative subsidies, raises the net cost of credit programs.\n\"An option is a marketable security which allows the owner to buy (or sell) another security at a stipulated price on or before a specified date.\" \"The general ideal behind options-pricing methods is that assets with the same payoffs must have the same price; otherwise, investors would have the opportunity to earn a risk-free profit by buying low and selling high.\" An options-pricing method is likely to be more accurate than the ADR method, but only when the necessary data and model are available. Options-pricing models are seldom used to value credit provided to individuals; instead the use of the ADR method is usually appropriate. Option-pricing methods are usually better than ADR methods in valuing credit provided to commercial enterprises. The best method to use varies for other credit programs, such as \"loan assistance to sovereign states, municipalities, and special-purpose enterprises.\"\nAs an example of the process, CBO applied a type of options pricing—the binomial pricing method—to calculate the risk-adjusted cost of extending federal loan guarantees to Chrysler in 1980 and to America West Airlines (AWA) in 2002. CBO computed that the market-value loss of the Chrysler loan guarantee was $239.0 million instead of the Treasury-rate loss of $107.6 million. CBO also found that the calculated market-value loss was $26.3 million for the AWA loan guarantee instead of a gain of $47.4 million using Treasury interest rates.",
"In 2010, President Barack Obama established the National Commission on Fiscal Responsibility and Reform \"to address the nation's fiscal challenges.\" In December 2010, the commission issued its report that included a recommendation to \"Review and Reform Budget Concepts.\" This recommendation stated that\nCurrent scoring rules and definitions cause policy makers to undervalue some policies and overvalue others. The Commission recommends a complete review of all budget scoring practices (\"budget concepts\") by the budget committees, the Congressional Budget Office, and the Office of Management and Budget. Changes should aim to more accurately reflect the true cost of government liabilities, including by considering accrual accounting, risk-adjusted credit reforms, and similar concepts.\nThus, the President's fiscal commission arguably endorsed considering a change to fair value accounting for credit programs.",
"On April 11, 2011, Representative Paul Ryan, chairman of the House Committee on the Budget, introduced the Fiscal Year 2012 Budget Resolution, H.Con.Res. 34 , 112 th Congress. This resolution passed the House by a yeas to nays vote of 235 to 193 but was rejected in the Senate by a yeas to nays vote of 40 to 57.\nSection 408, \"Fair Value Estimates,\" requires that any CBO estimate prepared for a measure under the Federal Credit Reform Act shall also provide, as a supplement, and to the extent practicable, upon the request of the chairman or ranking Member of the Committee on the Budget, an estimate of the current actual or estimated market values representing the \"fair value\" of assets and liabilities affected by such measure. Section 408 also authorizes the chairman to use such estimate to determine compliance with the Congressional Budget Act of 1974 and other budgetary enforcement controls. Thus, this budget resolution was supportive of fair value accounting.",
"On December 7, 2011, Representative Scott Garrett introduced H.R. 3581 , the Budget and Accounting Transparency Act of 2011. On February 7, 2012, the House passed H.R. 3581 by a yeas to nays vote of 245 to 180. On February 9, 2012, the act was referred to the Senate Committee on the Budget. This act includes a provision that would amend FCRA by requiring the calculation of the subsidy cost of federal credit be accounted for on a \"fair value\" basis.",
"On January 24, 2012, the Center on Budget and Policy Priorities (CBPP) issued a report opposing H.R. 3581 titled House Bill Would Artificially Inflate Cost of Federal Credit Programs . The authors argue that the addition of a risk component would overstate the federal costs of credit programs and force policy makers to offset phantom costs with phantom offsets in order to avoid overstating the size of the federal deficit. The authors maintain that H.R. 3581 has \"the four flaws,\" alleged negative characteristics that are identified below.",
"Government May Be Less Risk Averse than Individuals\nThe authors argue that \"individuals are risk averse in part because their financial assets are likely to be needed at specific times, even when the value of those assets has declined.\" In contrast, the Treasury can borrow inexpensively when the times are bad.\nRisk Aversion Is Not a Budgetary Cost\nThe authors assert that \"adding a risk-aversion adjustment to the spending side of the budget would add an extra 'cost' that the government does not actually incur─and that doesn't need to be covered by additional taxes or borrowing.\" Thus, a risk-aversion adjustment would be a phantom cost .\nProposal Does Not Treat All Programs the Same\nThe authors maintain that \"when allocating public funds, the budget must reflect costs comparable across all programs.\" But the Budget and Accounting Transparency Act of 2011 \"would make credit programs appear more expensive to the Treasury than they truly are without making similar adjustment for other programs whose actual costs also are uncertain.\"\nPhantom Costs Require Phantom Offsets\nThe authors declare that the phantom cost from the risk-aversion adjustment causes proponents \"to tacitly or explicitly advocate accompanying that adjustment with a phantom offset .\" The authors state that the Budget and Accounting Transparency Act of 2011\ncreates a phantom downward \"means of financing\" offset that, over time, would prevent the debt from being too high even though the annual deficits would consistently be overstated. One result of this approach is that the sum of deficits over time would diverge more than it already does from the amount of debt held by the public.\nAlthough the authors believe that a risk-aversion cost should not play a part in budget accounting, it \"should play a part in the cost-benefit analysis that policymakers should undertake in deciding whether a government program constitutes wise public policy.\"\nFurthermore, in response to a request from Representative Chris Van Hollen, Robert D. Reischauer, a member of the CBPP board of directors and president emeritus of the Urban Institute, sent a letter expressing his strong opposition to the use of fair value accounting in proposed H.R. 3581 . He stated that\nH.R. 3581 proposes to place an additional budgetary cost on top of the actual cash flows. This additional cost is supposed to reflect a cost to society that stems from the fact that, even if the cash flows turn out to be exactly as estimated, the possibility that the credit programs would cost more (or Less) than estimated imposes a cost on a risk-averse public.",
"Professor Marvin Phaup, a research scholar and professorial lecturer at the Trachtenberg School of Public Administration and Public Policy at George Washington University, wrote a comment on CBPP's release on H.R. 3581 . Professor Phaup made the following five points:\nH.R. 3581 , he asserted, would remove \"phantom\" budgetary gains to the government from direct lending and loan guarantee programs. Those illusory gains mislead policy makers about the costs of their policy decisions. What he described as illusory gains on federal credit also encourage budget gimmickry. For example, FCRTA would permit the government to balance its budget immediately on paper by issuing large amounts of Treasury debt and using the proceeds to invest in an equally large portfolio of risky loans. In his view, this result would be absurd because in issuing a dollar of debt and buying a dollar of risky loans at market prices, the government's net financial position is unchanged. According to Professor Phaup, if the current practice of using the prices of Treasury securities to value risky loans rather than the market value of the risky securities themselves were extended to other assets, then the government could—with the same logic—direct the Treasury to buy a ton of lead, value it at the price of gold, and record the gain as deficit reduction. The cost of market risk, he maintains, should be a budget cost because it is a cost to government stakeholders and its absorption by some yields an unrecognized subsidy to others. CBPP would include this cost in cost-benefit analyses where the purpose is to decide if a federal activity produces a net gain but not in the budget. Budgeting without an evaluation function, however, he considers to be little more than a redundant projection of Treasury's borrowing requirements. Finally, he suggests that the cost of market risk should not be excluded from the budget on grounds that the money isn't paid out by the government. Both the Universal Service Fund and the United Mine Workers of American Benefit Funds are included in the budget, even though the money is untouched by federal hands.",
"In the President's Budget for FY2013, the Office of Management and Budget selected \"Fair Value Budgeting for Credit Programs\" as a topic for in-depth analysis.\nOMB compared and contrasted the current cost to the government with fair value budgeting, which would reflect social costs. OMB found that\nThe current FCRA method for estimating cost provides a different measure of cost than the fair value method, which takes different risks and costs into account. To calculate fair value, cash flows unadjusted for expected losses would be discounted with a market rate that reflects the characters of the cash flows of the loan or loan guarantee (comparable market rate), instead of Treasury rates. The comparable market rate would differ from the maturity-matched Treasury rate in most cases and vary across credit programs, and even across individual loans and guarantees in some cases.\nFair value is conceptually appealing in that it reflects closely the preferences of market participants. It is debatable, however, whether fair value estimates for credit programs also represent the preferences of taxpayers and the society as a whole. In addition to this conceptual issue, several practical and implementation issues would need to be carefully considered in evaluating fair value proposals. Key issues include: how to develop accurate estimation methods; comparability of cost estimates across programs; and whether agencies would be able to implement fair value, particularly given limited administrative resources. A fair value proposal that does not address these conceptual and practical issues would probably fail to improve resource allocation and could even be counter-productive.\nOMB stated that the market interest rate on a private loan depends on seven factors, with only the first two of the following being reflected in the Treasury rate. These seven factors were identified by OMB:\ntime preference (present versus future, included in FCRA cost estimate) expected loss from default (included in FCRA cost estimate) compensation for uncertain returns—uncertainty premium compensation for lower liquidity—liquidity premium cost of administering the loan (This cost is not included in an FCRA cost estimate but is relevant to taxpayers. It is currently recorded on a cash basis.) tax rate on interest income contract terms determining lenders' and borrowers' rights",
"In March 2012, CBO released an issue brief titled Fair-Value Accounting for Federal Credit Programs . CBO indicated its support for fair value accounting:\nFCRA cost estimates understate the cost of federal credit programs to the government because of the requirement that Treasury rates be used for discounting. Using comprehensive cost measures for budgeting, and accounting for credit on a basis that is equivalent to that for other federal programs—stated objectives of FCRA—would be better accomplished if the cost of extending federal credit was assessed at market prices rather than on a FCRA basis.\nCBO acknowledges that fair value accounting involves implementation issues. \"Because most public-sector credit programs have no exact analogue in the private sector, estimating their fair value usually involves approximation.\" Fair value accounting would result in additional effort and expense. Fair value estimates would be more volatile \"over time because the cost of market risk is not constant.\" Finally, \"fair-value estimates might be less transparent than FCRA estimates and thus more dependent on the judgment of agencies and analysts responsible for the programs.\" CBO maintains that these concerns, however, can \"be addressed in various ways.\" For example, expert advice from private-sector accounting firms with experience in fair-value accounting could lessen the volatility of estimates, and the establishment of federal guidelines for estimation procedures could make estimates more transparent.\nCBO indicates the fair-value accounting is currently applied in a few cases. For example, the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ), 122 Stat. 3765, specified that the estimated cost of the Troubled Assist Relief Program be calculated using a discount rate adjusted for the market cost of risk. CBO also has made studies for Congress about the cost of some federal credit programs using fair value account versus the current cost to the government under FCRA.\nCBO states that under FCRA, the total subsidy cost of federal credit averaged $3.1 billion annually from FY1998 to FY2008. But the total subsidy cost of federal credit was negative $19 billion for FY2009, negative $20 billion for FY2010, and negative $41 billion for FY2011. These data suggest that a change to fair value accounting could significantly affect the deficit.",
"On March 23, 2012, Representative Paul Ryan introduced the Fiscal Year 2013 Budget Resolution, H.Con.Res. 112 , 112 th Congress. The fair value provision was similar to that in the House FY2012 Budget Resolution. On March 29, this budget resolution passed the House by a 228 to 191 vote. Section 507(a) titled \"Fair Value Estimates\"\nrequires the Congressional Budget Office, upon the request of the chair or ranking member of the Committee on the Budget, to make a supplemental estimate of the current actual or estimated market values representing the \"fair value\" of assets and liabilities affected by a measure as part of any estimate prepared for the measure under credit reform requirements of the Federal Credit Reform Act.\nAuthorizes the chair to use such estimate to determine compliance of the measure in question with the Congressional Budget Act of 1974 and other budgetary enforcement controls.\nDebate about fair value budgeting has yet to be resolved."
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"question": [
"How does the US use federal credit?",
"What is a direct loan?",
"What is a loan guarantee?",
"What was the status of outstanding loans at the end of FY2011?",
"How were federal credit programs measured before FY1992?",
"What was decided about loan guarantees?",
"What options regarding the budgetary treatment were argued about?",
"What was a primary decision concerning the accounting?"
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"The U.S. government uses federal credit to allocate financial capital to a range of areas, including home ownership, student loans, small business, agriculture, and energy.",
"A direct loan is a disbursement of funds by the government to a nonfederal borrower under a contract that requires the repayment of such funds with or without interest.",
"A loan guarantee is a pledge by the federal government to repay all or part of the principal or interest on any debt obligation of a non-federal borrower to a non-federal lender.",
"At the end of FY2011, outstanding federal direct loans totaled $838 billion and outstanding guaranteed loans totaled $2,017 billion.",
"Before FY1992, federal credit programs were measured on an annual cash flow basis. A new federal direct loan was treated as a budget outlay in the current fiscal year, and repayments of principal and payments of interest were treated as offsetting collections (negative outlays) in the future fiscal years in which they occurred.",
"In the year it was granted, a loan guarantee was a contingent liability, which means the federal government was only responsible for repayment in the event of a default.",
"Congress and the executive branch debated options to convert the budgetary treatment of federal credit from cash flow accounting to accrual accounting, which would record the subsidy cost of federal credit over the entire life of a loan or loan guarantee.",
"One of the primary decisions concerning accrual accounting was whether the subsidy cost of federal credit should be measured by the \"cost to the government\" or the \"fair value\" cost."
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"title": [
"",
"Introduction",
"The Role of Quality Measurement",
"Payment Incentives for Quality",
"The Role of Medicare",
"Overview of Payment Incentives",
"Public Reporting of Performance Information",
"The Theory Underlying Public Reporting",
"Issues with Consumer Use of Performance Information",
"The Effectiveness of Public Reporting"
],
"paragraphs": [
"",
"Quality gaps in the care delivered by the U.S health care system result in preventable mortality and morbidity and contribute costs to the system. Multiple indicators show that quality of care could be improved; these indicators include high rates of healthcare-associated infections (HAIs) and a lack of adherence to evidence-based guidelines, among others. For example, approximately 100,000 people die each year from HAIs, at an estimated cost ranging from $28.4 to $45.0 billion dollars. In addition, a 2007 study found that only 46.5% of children receive care recommended by evidence-based guidelines, and a similar study conducted in 2003 concluded that adults receive only 55% of indicated care. The 2010 National Healthcare Quality Report , released annually by the Agency for Healthcare Research and Quality (AHRQ) of the U.S. Department of Health and Human Services (HHS), found that health care quality is suboptimal, especially for low-income individuals and certain minority groups. Quality of care also varies geographically; for example, a recent study found that high-quality, low-cost hospitals were less likely to be small or located in the South.\nAlthough no single definition of high-quality health care has been agreed upon, the Institute of Medicine (IOM) provided a framework for considering the quality of care, based on six domains: (1) effective, (2) efficient, (3) equitable, (4) patient-centered, (5) safe, and (6) timely. Numerous efforts have been undertaken in recent years to improve the quality of health care; despite this, the consensus remains that progress in quality improvement across the health care system has been variable and, in some cases, slower than anticipated.\nMany efforts that aim to improve the quality of care focus on increasing health care providers' accountability for the care they provide. This includes, in some cases, a focus on improving the value of health care; that is, the ratio of desired or positive outcomes to long-term costs. In all cases, efforts include accountability to an external actor, for example the public, regulators, or payers. Policymakers have used three basic policy approaches in an effort to enhance provider accountability, among other things. These include (1) payment incentives, (2) public reporting of performance data, and (3) quality assurance through regulation and accreditation. These approaches are used for several purposes, including to determine appropriate reimbursement, to drive market share, and to demonstrate quality and cost-efficient performance.\nPayment incentives and public reporting encourage providers to change their behavior to improve quality and/or value. Regulatory oversight and accreditation of providers, on the other hand, first serve an oversight function and generally rely on mandating certain behavior, as opposed to incentivizing it (in addition to having an increasing focus on improving quality). This report focuses on payment incentives and public reporting, specifically.\nMany payment incentive and public reporting policies rely on quality measurement. For example, payment incentives based on provider performance rely on a comprehensive set of quality measures that can directly or indirectly measure clearly identified outcomes, among other things. Quality measures that highlight meaningful differences in provider performance, and that address outcomes of interest to patients, facilitate the effectiveness of publicly reporting quality performance data. Policymakers have taken steps to address these measurement needs, for example through support for health services research or the development of quality measures in areas in which they do not currently exist. In some cases, these measurement needs were not adequately addressed prior to the implementation of policies; this contributed to initial provider questions about the effectiveness of such policies.\nImproving the quality of health care involves all components of the health care system; therefore, policies supporting (1) an adequate and appropriately trained health care workforce; (2) interoperable health information technology; and (3) a robust evidence base, informed by health services research, are all relevant. In addition, improving the quality of care may be closely tied to other broad policy goals, such as (1) reducing health care disparities, (2) improving the affordability of health care, and (3) improving the health status of communities. However, a full discussion of these interactions is beyond the scope of this report.\nOngoing congressional interest in enhancing the quality of health care is likely given the federal role in the delivery and financing of health care through, for example, Medicare, Medicaid, the Children's Health Insurance Program (CHIP), the Veterans Health Administration (VHA), and the Indian Health Service (IHS). This interest is reflected to date by significant legislative activity in this area, and most recently, by the passage of the Patient Protection and Affordable Care Act of 2010 (ACA, P.L. 111-148 , as amended by the Health Care and Education Reconciliation Act of 2010, P.L. 111-152 ). The ACA contains numerous provisions, directed at both the financing and delivery of care, that use the three policy approaches outlined above to target improvement in the quality of care.\nThis report begins with a discussion of the role of quality measurement in policies to enhance provider accountability and presents selected policies addressing quality measurement in this context. It then provides an overview of payment incentives and public reporting of performance data to improve quality, along with selected policy examples for each approach.",
"Policies based on payment incentives and public reporting generally require the assessment of some combination of (or both) absolute and relative provider performance. These determinations rely on quality measures to determine current performance, as well as to monitor progress in performance. They also rely on information about the effectiveness of various interventions, care delivery models, treatment modalities, and therapeutics, and their links to health outcomes. Identifying desired outcomes, and evaluating the link between interventions and identified outcomes, relies on health services research. For example, comparative effectiveness research (CER) may contribute to identifying desired outcomes by providing evidence about the effectiveness, harms, and benefits of treatment options for specific conditions.\nWhere quality measures are not available, or clearly identified outcomes are lacking, policies to enhance accountability through payment incentives or public reporting may be of limited value. In addition, simply making measures available or identifying outcomes are, on their own, unlikely to serve as sufficient impetus for change, or for comprehensive and well-coordinated change; instead, it is the application of policy approaches, using this information, that most often brings about desired changes.\nSeveral considerations arise when considering the use of quality measures in policies aiming to enhance provider accountability through payment incentives or public reporting. These include, among others (1) the availability of a comprehensive set of quality measures, (2) the strength of the evidence base supporting the measures, (3) the National Quality Forum (NQF)-endorsement status of the measures, and (4) the relative mix of different measure types.\nThe effectiveness of policies that are based on quality measurement is at least partially determined by the comprehensiveness of available quality measures and, specifically, measures that span diseases and conditions, care settings, and provider types. NQF, a private, nonprofit membership organization concerned with improving health care quality performance measurement and reporting, notes that, \"[t]here is a strong need for the development of quality and cost measures that will ensure broad transparency on the value of care and support performance-based payment and quality improvement around the most prevalent conditions and health risks that account for the greatest share of health care spending.\" Identifying measure gaps is a part of achieving that aim. In March of 2010, at the direction of the HHS, NQF convened the Measure Prioritization Advisory Committee to identify measure gap domains and sub-domains, among other things. This effort was part of a larger effort to develop a measure development and endorsement agenda. In a recent GAO report, HHS officials noted that critical measure gaps exist with respect to their health care quality programs and initiatives; in addition, the ACA established new, and expanded the scope of existing, HHS quality programs and initiatives, increasing the need to fill existing measure gaps.\nIn policies that have an accountability component, measures that are based on a robust body of evidence may be preferred. For example, experts suggest that clinical process quality measures should be based on \"a strong foundation of research showing that the process addressed by the measure, when performed correctly, leads to improved clinical outcomes.\" The evidence should consist of more than a single study and be a majority randomized trials, thus reflecting a higher standard than that used for the development of practice guidelines (practice guidelines may serve as the basis for the development of quality measures). Research has suggested that high levels of performance on clinical process quality measures does not always correlate with a commensurate improvement in clinical outcomes.\nQuality measures may be endorsed by NQF; that is, candidate measures are evaluated against a specified set of criteria, and if these are met, the measure receives NQF's endorsement. For use in policies aiming to enhance accountability, NQF-endorsed measures are generally preferred. However, the endorsement process is lengthy and deliberative, and this can affect the availability of endorsed measures for end users (e.g., HHS). If statute does not specifically require the use of NQF-endorsed measures, policymakers may face decisions about balancing the need to move programs forward with waiting for endorsed measures to become available.\nThere are a number of different types of quality measures available, and policies may include a mix of these types, depending on the purpose or goal of the specific policy. Types of quality measures include, among others (1) structure, (2) process, (3) outcome, and (4) patient experience of care (see Textbox 1 ). There is an increasing focus on shifting away from clinical process quality measures to outcomes measures; for example, the Centers for Medicare & Medicaid Services (CMS) notes that it is seeking to \"move as quickly as possible to using primarily outcome and patient experience measures\" in its public reporting and value-based payment systems. However, clinical process quality measures are still the most commonly used type of measure in most measurement activities (for both accountability and quality improvement purposes).\nThe ability to directly compare the performance of providers is an essential component of many payment incentive and public reporting policies that aim to enhance provider accountability; at a basic level, the creation of incentives to improve quality relies on being able to make distinctions between providers. Quality measurement allows for the generation of provider-specific performance information, which, in turn, allows for these distinctions to be made based on relative comparisons between providers (as well as monitoring of improvement in individual provider performance). Given the central importance of quality measurement in payment incentive and public reporting policies, policymakers have taken steps to support the development of measures, and specifically in gap areas (see Textbox 2 ). For example, comparative performance information allows, among other things,\npayers and purchasers to selectively reward higher-quality performance (payment incentive); payers and purchasers to evaluate relative outcomes associated with new delivery models to guide payment incentives (payment incentive); providers to improve their own performance (public reporting); and patients to choose providers or care that best meets their needs (public reporting).\nDespite the role of quality measurement in payment incentive and public reporting policies that aim to enhance provider accountability, and an increasing focus on these policies overall, questions remain about the link between quality measurement and actual quality of care. As discussed before, the link between clinical process quality measures and outcomes is not always clear. Experts suggest that more systematic surveillance efforts are needed to better understand trends, links between process and outcome, and facility-by-facility differences in performance. In addition, the meaning of quality to consumers may differ from the definition used by policymakers or regulators. For example, consumers value access, the availability of their providers, cost, and provider choice, among other things; these factors are variably captured in policy efforts that use quality measurement. Consumers may also value health outcomes differently, complicating efforts to define and measure quality.",
"Emphasis has been placed on changing the way health care is paid for, away from a system where payment is simply a transaction based on the unit of care provided, to one where higher-quality, lower-cost care is preferentially rewarded. This policy approach, representing a shift from volume-based or fee-for-service (FFS) payment to value-based payment, is often referred to as value-based purchasing or value-driven health care. Value-based purchasing may be defined as modifying reimbursement to encourage health care providers, through joint clinical and financial accountability, to deliver higher quality care at lower total cost. Such efforts may modify payment through payment incentives. These incentives may include adjustments to payment (generally in the form of reductions) as well as performance-based payments; in addition, direct payment, generally in the form of a monthly fee, may be made for a desired activity (e.g., care coordination) that is not itself the actual provision of care.\nPayment incentives may be based on the reporting of, or performance on, a set of quality measures. For this reason, payment incentives may rely integrally on quality measurement. In addition, payment modification may create incentives that are directive; that is, incentives to modify the delivery of specific clinical care processes (e.g., by linking payment to specific clinical process quality measures). They also may create incentives that are non-directive; that is, incentives to modify overall delivery of care that link payment to performance on an outcome (e.g., rates of hospital readmissions or healthcare-associated infections [HAIs]), but that rely on individual providers to implement care delivery changes of their choice to improve performance on these outcomes.\nThis section begins by discussing the role of the Medicare program in this area and then summarizes the modification of payment through incentives. This discussion focuses on those payment incentives that have improving quality or value as their primary goal, rather than those aimed solely at altering resource use. In addition, it addresses mechanisms for the modification of payment, as opposed to different models of payment (e.g., capitation, shared savings); many of the payment incentives discussed here could theoretically be applied in the context of different payment models.",
"At the federal level, the Medicare program provides policymakers the opportunity to implement value-based purchasing approaches and other payment modifications. Other coverage and financing arrangements generally are not under the sole or direct control of the federal government, and therefore do not afford federal policymakers a similar opportunity. For example, government health care delivery systems (e.g., the Veterans Health Administration [VHA] or the Indian Health Service [IHS]) in which the government is a direct provider of care (i.e., both paying for and delivering care) do not offer an opportunity to implement traditional value-based purchasing approaches that incentivize individual provider behavior change through accountability because services are not paid for individually and providers are salaried. In addition, although the federal government does regulate the private health insurance market to an extent, this is a role that rests primarily with the states. Some payment incentive policies have been established at the federal level for the Medicaid program (a shared federal-state program), although the states generally have responsibility for implementing their programs and are given wide discretion in doing so.\nAlthough the opportunity to directly implement policies modifying payment, including value-based purchasing policies, is generally limited to the Medicare program at the federal level, these efforts may have a broader impact given Medicare's frequent role as a leader for private insurers. Researchers note that \"(o)ver the last 40 years, Medicare has exerted more influence on the organization, finance and delivery of USA health care than any other individual payer.\" In recent years, CMS has implemented a range of initiatives, including value-based purchasing efforts, largely at the direction of Congress, in an effort to \"transform Medicare from a passive payer of claims to an active purchaser of quality health care for its beneficiaries.\"\nThe effect of payment incentives on cost and quality is unclear, however. For example, a review by the Cochrane Collaboration concluded that there is little evidence of the success of financial incentives in improving the quality of primary health care, citing the need for additional study in this area. Given this uncertainty with respect to the impact on health care cost and quality, payment incentives implemented in the Medicare program may provide valuable data that private insurers and others may use when considering implementing these approaches. Recently, the Congressional Budget Office (CBO) noted, in a review of Medicare demonstration projects meant to reduce cost and improve quality for the program, that \"substantial changes to payment and delivery systems will probably be necessary for programs involving … value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.\"",
"As mentioned above, payment incentives may be achieved through adjustments to payment or through performance-based payments. Additionally, a fee may be offered as direct payment, generally for a desired non-clinical service. Payment adjustments may be made using a predetermined adjustment factor or through non-payment for costs associated with specific care. Payment may be decreased by an adjustment factor (e.g., a specified percentage reduction) applied to specific charges or to annual updates in payment. For example, a payment adjustment may be applied for failing to complete a discrete activity (e.g., reporting data for a set of quality measures). Such an adjustment factor can be applied for failure to meet a specific performance threshold (e.g., being in the top 25% of hospitals in terms of number of hospital acquired conditions). Payment may also be adjusted such that it is withheld for the cost of care associated with a specific undesirable outcome in an individual patient.\nPayment incentives may also be based on discrete performance, or improvement in performance over time. This type of performance-based payment may be given to individual providers, based on the individual provider's performance, and on this performance in the context of other participating providers' performance. In the Medicare program, a performance-based payment is often made in a budget-neutral manner; that is, all affected entities receive a specified decrease in payment. This generates money that may then be redistributed to the affected entities differentially as payment incentives based on performance.\nA third type of payment incentive is the offering of a fee to providers in exchange for providing services that generally fall outside of the scope of direct care provision; the basis for this approach is the contention that in the absence of direct payment, these services would not be provided to patients. Examples include payment for carrying out administrative and other duties associated with care coordination or chronic disease management (e.g., patient education, tracking receipt of recommended clinical preventive services). In the context of fee-for-service Medicare, the payment may be a per-beneficiary, per-month fee. In addition, the fee may be at-risk; that is, all or some portion of the fee may be withheld if cost targets are not met. This strategy has been tested through multiple Medicare demonstrations with mixed results.\nPayment incentives may also be blended; that is, policies may include some combination of the approaches outlined above. For example, while primary care physicians could receive a care coordination fee in exchange for carrying out the administrative duties associated with being a designated medical home for patients, payment for the actual provision of health care services could additionally be modified based in some part on performance on quality measures. This would be an example of using a fee to pay directly for a desired service that is not currently being offered (administrative duties associated with being a medical home) and a performance-based payment incentive to reward performance on quality of care measures. The Patient Centered Primary Care Collaborative (PCPCC) proposed such a blended model, which has three components: (1) a fee-for-service payment based on office visits, (2) a performance-based component based on achievement of greater quality and efficiency, and (3) a care coordination payment to reimburse for the coordination work that takes place outside of the office visit and also to support health information technology as necessary to serve as a medical home. See Textbox 3 for specific examples of payment incentive policies.",
"Policymakers have undertaken efforts to enhance provider accountability through the public reporting of performance information; these efforts have generally occurred in concert with policies that modify payment to incentivize higher quality. Public reporting, in this context, may be defined as \"the objective measurement and public disclosure of physician and hospital performance.\" The objectives of public reporting are numerous, but include, among others (1) increasing the accountability of health care organizations, professionals, and managers; and (2) maintaining standards or stimulating improvements in the quality of care provided. In addition, public reports are intended to encourage consumer participation through the facilitation of informed decision making.\nThe impact of public reporting on both consumer decision making, as well as quality improvement efforts by providers, is unclear. Regardless, a number of efforts are underway in the Medicare program to make performance information publicly available, largely at the direction of Congress; these include websites providing comparative information about hospitals, nursing homes, and physicians, for example. This section discusses the theory underlying public reporting, factors influencing consumers' use of performance information to guide decision making, and the effect of public information on provider quality improvement efforts.",
"Theoretically, making information on provider performance public serves to correct an existing information asymmetry; that is, an imbalance in information between the provider and user of a service, in this case, health care services. However, this information imbalance could, in fact, be exacerbated by the release of inaccurate information; additionally, this would have the potential to harm the reputation of providers. Assumptions underlying the public release of performance information include the contention that consumers want to make use of the data, and that they in fact will.\nThe public provision of performance information is expected to facilitate informed decision making among consumers with respect to their health care. This modified decision making, in turn, is expected to increase market share for those better performing providers. This would create a feedback loop that would reward higher performing providers financially. With respect to health care providers, public reporting of performance information is \"expected to fuel professional desire to improve care and improve quality, either out of concern for public image or in an effort to maintain professional norms and standards of self-governance.\"",
"In practice, the theory underlying public reporting of performance information is complicated by a number of other factors related to consumer decision making in health care. This decision making may be influenced by (1) characteristics of the performance information itself (e.g., how user-friendly it is); (2) characteristics of the consumer herself (e.g., health literacy); and (3) factors that are important to the consumer but unrelated to performance information or objective quality of care (e.g., referrals from family members or friends).\nCharacteristics of the performance information itself that influence its use by consumers include, among others (1) awareness of the information, (2) relevance of the information, and (3) usability of the information (e.g., its presentation). Data suggest that the public's familiarity with public sources of performance information is generally low; for example, one survey found that only 6% of the public had heard of CMS's Hospital Compare website (see Textbox 4 ). Studies have indicated that in some cases, consumers find performance information to be of limited relevance; specifically, for example, information must apply to conditions that are relevant to the consumer and must distinguish between high-quality and low-quality care in a clear manner. Finally, although a consumer's ability to use performance information is affected by the way in which the performance information is presented, it also is dependent on personal characteristics of the consumer herself, such as her ability to understand technical clinical process quality measures.\nConsumer decision making in health care is also known to be influenced by a number of factors unrelated to performance information. These factors include, for example, referrals from trusted family or health care providers, hospital location, and cost (e.g., varying insurance cost-sharing). These competitive factors may outweigh use of performance information in decision making altogether, in some cases.",
"Public reporting aims to both motivate quality improvement activities by health care providers and to facilitate consumer participation in their health care through informed decision making. Studies suggest that consumers are generally not making use of performance information in their health care decisions. For example, one survey found that only 7% of the public had seen and used quality information about hospitals, and only 6% had seen and used quality information about physicians. This is likely due, at least in part, to the presentation of the information, the actual information being presented, and other factors that are also valued by the consumer (e.g., hospital location).\nThe impact of the public reporting of performance data on motivating quality improvement efforts by providers is unclear. One study found, for example, that the release of performance information is not correlated with an increase in performance on clinical process quality measures. This study also found, however, that hospitals receiving publicly available performance reports on both an early and delayed basis undertook quality improvement initiatives in response to this information. That is, many hospitals initiated quality improvement efforts upon learning about the public reporting activity from hospitals in the group receiving early feedback, but before receiving their own hospital-specific feedback."
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"question": [
"What efforts aim to improve quality of care in health care?",
"What are some quality measurements that these incentives rely on?",
"Why is the ability to compare performance essential?",
"How have efforts to enhance provider accountability been put forward?",
"How do these implementations stand to improve the information in accountability?",
"What influences consumer decision in health care?",
"What often does not impact consumer decision making?"
],
"summary": [
"Many efforts that aim to improve the quality of care focus on increasing health care providers' accountability for the care they provide. These efforts include, among others, the modification of payment through incentives and the public reporting of performance information.",
"Many payment incentives and public reporting policies rely on quality measurement, and numerous issues arise when considering the use of quality measures in these policies. These include, among others (1) the availability of a comprehensive set of quality measures, (2) the strength of the evidence base supporting the measures, and (3) the relative mix of different measure types.",
"The ability to directly compare the performance of providers is an essential component of many payment incentive and public reporting policies, and quality measurement allows for the generation of this comparative provider-specific performance information.",
"Policymakers have undertaken efforts to enhance provider accountability through the public reporting of performance information; these efforts have generally occurred in concert with policies that modify payment to improve quality.",
"Theoretically, making provider performance information public serves to correct an existing information asymmetry; that is, an imbalance in information between the provider and user of a service, in this case, health care services.",
"Consumer decision making in health care is influenced by a number of factors, including, among others (1) awareness of the information, (2) relevance of the information, and (3) usability of the information. Other factors unrelated to the performance information itself may also affect consumer use of this information (e.g., location of hospital).",
"The impact of public reporting on both consumer decision making, as well as quality improvement efforts by providers, is unclear, although evidence suggests that consumers do not use performance information very often in their decision making."
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{
"title": [
"",
"Background",
"Early History of Jurisdictional Waters",
"Differing Agency Definitions Following the Clean Water Act",
"EPA's Initial Definitions",
"The Corps' Initial Definition",
"Callaway and its Aftermath",
"The Corps' Expansion of Jurisdictional Waters Following Callaway",
"The Corps' 1977 Regulations",
"The Clean Water Act of 1977",
"Synthesizing Definitions Following the Clean Water Act of 1977",
"Changes in \"Waters of the United States\" in the 1980s",
"Riverside Bayview Homes",
"The Migratory Bird Rule and Other Adjustments to \"Waters of the United States\"",
"Competing Wetland Manuals and Congressional Intervention Through Appropriations",
"Judicially Imposed Limitations Beginning in the Late 1990s",
"United States v. Wilson",
"The Corps' 2000 Guidance in Response to Wilson",
"SWANCC",
"Agency Guidance in Response to SWANCC",
"Rapanos",
"Lower Courts' Response to Rapanos",
"Agency Guidance in Response to Rapanos",
"The Clean Water Rule",
"Response to the Clean Water Rule During the 114th Congress",
"National Association of Manufacturers v. Department of Defense: Jurisdiction over Challenges to the Clean Water Rule",
"The Trump Administration and \"Waters of the United States\"",
"The Two-Step Rescind and Revise Process",
"Step One Status: Repealing the Clean Water Rule",
"Step Two Status: Drafting a New Definition of \"Waters of the United States\"",
"The Applicability Date Rule: Suspending the Clean Water Rule During the Two-Step Process",
"The Legal Landscape for the 116th Congress",
"Proposed Legislation",
"Conclusion",
"Appendix. Table Concerning Major Federal Actions Related to \"Waters of the United States\" in the Clean Water Act"
],
"paragraphs": [
"F or more than forty-five years, all three branches of government have struggled with how to interpret the meaning of \"waters of the United States\" in the Clean Water Act. In 1972, Congress eliminated the requirement that waters must be navigable in the traditional sense —meaning they are capable of being used by vessels in interstate commerce—in order to be subject to federal water pollution regulation. Rather than use traditional tests of navigability, the 1972 amendments to the Federal Water Pollution Control Act, which came to be known as the Clean Water Act, redefined \"navigable waters\" to include \"the waters of the United States, including the territorial seas.\" Disputes over the meaning of that phrase have been ongoing ever since the change.\nSome courts and commentators disagree on how the scope of federal jurisdictional waters changed over time as a result of interpretative approaches taken by the agencies responsible for administering the Clean Water Act—the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps). This debate resurfaced during the Obama Administration when the Corps and EPA issued a rule, known as the Clean Water Rule, which substantially redefined \"waters of the United States\" in the agencies' regulations for the first time in more than two decades. While some argued that the Clean Water Rule constituted a major expansion of federal jurisdiction, others asserted that the agencies construed the term in a narrower fashion than in prior regulations.\nA vocal critic of the Clean Water Rule, President Trump shifted the executive branch's policy toward the meaning of \"waters of the United States.\" In February 2017, President Trump issued an executive order directing EPA and the Corps to review and revise or rescind the Clean Water Rule. The agencies currently are in the process of carrying out the executive order, and they unveiled proposed regulations redefining \"waters of the United States\" in December 2018. As in nearly all prior attempts to define this phrase, however, observers disagree on whether the latest proposed definition correctly calibrates the scope of federal water pollution regulation. This report provides context for this debate by examining the history of major changes to the meaning of \"waters of the United States\" as expressed in federal regulations, legislation, agency guidance, and case law.",
"The Clean Water Act is the principal law governing pollution of the nation's surface waters. Among other requirements, the act prohibits the unauthorized discharge of pollutants into \"navigable waters,\" and requires persons wishing to discharge dredged or fill material into \"navigable waters\" to obtain a permit from the Corps. In its definition section, the act defines the term \"navigable waters\" to mean \"waters of the United States, including its territorial seas.\" This single, jurisdiction-defining phrase applies to the entire law, including the national pollutant discharge elimination system (NPDES) permit program; permit requirements for disposal of dredged or fill material, known as the Section 404 program; water quality standards and measures to attain them; oil spill liability and prevention; and enforcement.\nThe Clean Water Act itself does not expand further on the meaning of \"waters of the United States.\" Instead, the Corps and EPA have expounded on this phrase through agency guidance and regulations, which federal courts have struck down on various occasions as failing to satisfy statutory or constitutional requirements.\nFederal authority to regulate waters within the United States primarily derives from the Commerce Clause, which gives Congress the power to \"regulate commerce with foreign nations, and among the several states . . . .\" Accordingly, federal laws and regulations regulating waters of the United States cannot cover matters that exceed that constitutional source of authority. Legal challenges to the Corps' and EPA's interpretation of \"waters of the United States\"—particularly those which were successful—often followed broader trends in interpreting the Commerce Clause. For a period after its enactment in 1972, courts generally interpreted the Clean Water Act as having a wide jurisdictional reach, but, in recent decades, the Supreme Court has emphasized that \"the grant of authority to Congress under the Commerce Clause, though broad, is not unlimited.\"\nA time line of events in the evolution of the definition of \"waters of the United States\" is provided in the Appendix , and major events are shown in Figure 1 .",
"Historically, federal laws regulating waterways, such as the Rivers and Harbors Appropriations Act of 1899 (Rivers and Harbors Act), exercised jurisdiction over \"navigable water[s] of the United States[.]\" The Supreme Court interpreted this phrase to govern only waters that were \"navigable-in-fact\"—meaning that they were \"used, or are susceptible of being used, . . . as highways for commerce, over which trade and travel are or may be conducted in the customary modes of trade and travel on water.\"\nBeginning with the Federal Water Pollution Control Act of 1948, Congress began to use a different jurisdiction-defining phrase to regulate pollution of \"interstate waters,\" which it defined as \"all rivers, lakes, and other waters that flow across, or form a part of, a State's boundaries.\" Congress amended that legislation in 1961 to expand federal jurisdiction from \"interstate waters\" to \"interstate or navigable waters[.]\"\nThe Federal Water Pollution Control Act Amendments of 1972, which came to be known as the Clean Water Act, again amended the jurisdictional reach of federal water pollution legislation. There, Congress exercised jurisdiction over \"navigable waters,\" but provided a new definition of that phrase, stating: \"The term 'navigable waters' means the waters of the United States, including the territorial seas.\" This subtle definitional change proved to have tremendous consequences for the jurisdictional scope of the Clean Water Act.\nIn debating the 1972 amendments that created the Clean Water Act, some Members of Congress explained that they intended the revised definition to expand the law's jurisdiction beyond traditionally navigable or interstate waters. The conference report states that the \"conferees fully intend that the term 'navigable waters' be given the broadest possible constitutional interpretation unencumbered by agency determinations which have been made or may be made for administrative purposes.\" And during debate in the House on approving the conference report, one Representative explained that the definition \"clearly encompasses all water bodies, including streams and their tributaries, for water quality purposes.\" Courts have frequently referred to the act's legislative history when interpreting its jurisdictional reach, but they have not always agreed on the import of this history.",
"The Corps and EPA share responsibility for administering the Clean Water Act. Both agencies have administrative responsibilities under Section 404 of the act, and EPA administers most other Clean Water Act-related programs in partnership with U.S. states. Because of this shared jurisdiction, both agencies create regulations defining the waters subject to their regulatory jurisdiction. In the initial years following the enactment of the Clean Water Act, their respective definitions differed significantly.",
"In May 1973, EPA issued its first set of regulations implementing the Clean Water Act's NPDES permit program. There, EPA defined the term \"navigable waters\" to include six categories of waterbodies.\nThree months prior to issuing these regulations, EPA's general counsel had provided an opinion on the meaning of \"navigable waters\" in the Clean Water Act. The general counsel's recommended definition largely mirrored EPA's 1973 regulatory definition, but with one critical difference: categories four through six of the general counsel's recommendation would have included interstate lakes, rivers, and streams that are utilized for interstate activities rather than intrastate waters used for such activities. EPA's definition of \"navigable waters\" in its non-NPDES water pollution regulations at the time also differed in certain ways from its May 1973 definition.",
"The Corps' early implementation of the Clean Water Act differed considerably from EPA's regulations. After initially proposing regulations that simply repeated the statutory definition of \"navigable waters,\" the Corps issued final regulations in April 1974 implementing Section 404 of the Clean Water Act. There, the Corps acknowledged the language from the conference report for the Clean Water Act as calling for the \"broadest possible constitutional interpretation\" of navigable waters, but concluded that the Constitution limited its jurisdiction to the same waters that it regulated under preexisting laws, such as the Rivers and Harbors Act. Based on this reasoning, the Corps defined \"navigable waters\" using language that generally limited its jurisdiction to waters that were navigable-in-fact.",
"Less than one year after the Corps published its first regulations defining jurisdictional waters, the United States District Court for the District of Columbia struck them down as too narrow and inconsistent with the Clean Water Act. In Natural Resources Defense Council v. Callaway , the court held that because \"Congress . . . asserted federal jurisdiction over the nation's waters to the maximum extent permissible under the Commerce Clause of the Constitution[,]\" the definition could not be limited to \"traditional tests of navigability[.]\" The court ordered the Corps to produce new regulations that acknowledged \"the full regulatory mandate\" of the Clean Water Act.",
"The Corps responded to Callaway on May 6, 1975, by publishing proposed regulations that offered four alternative methods of redefining the Corps' jurisdiction under the 1972 amendments.\nAt the same time that it proposed these alternatives, the Corps published a press release stating that the holding of Callaway may require \"the rancher who wants to enlarge his stock pond, or the farmer who wants to deepen an irrigation ditch or plow a field, or the mountaineer who wants to protect his land against stream erosion\" to obtain federal permits. These events brought public and media attention to the breadth of jurisdiction under the Clean Water Act. They also created a disagreement between the Corps and EPA, and led to a series of subcommittee hearings in the House and Senate.\nIn the aftermath of this public and congressional scrutiny, the Corps issued interim final regulations in 1975 in which it revised the definition of \"navigable waters\" for purposes of the Clean Water Act's Section 404 program by adopting much of the structure used in EPA's 1973 regulations. The Corps' definition also added \"wetlands, mudflats, swamps, marshes, and shallows\" that are \"contiguous or adjacent to other navigable waters\" and \"artificially created channels and canals used for recreational or other navigational purposes that are connected to other navigable waters\" to the definition of \"waters of the United States.\" Finally, the Corps' 1975 interim regulations permitted federal regulation over all other waters that a Corps' district engineer \"determines necessitate regulation for the protection of water quality\" based on the Corps' technical standards and evaluation criteria.",
"In 1977, the Corps issued final regulations reorganizing the definition of \"waters of the United States\" into five categories.\nThe final category of the 1977 definition contained the Corps' most expansive definition of jurisdictional waters as of that time. A footnote to the Corps' regulations explained that the Category Five waters incorporate \"all other waters of the United States that could be regulated under the federal government's Constitutional powers to regulate and protect interstate commerce.\" The Corps would continue to use this Commerce Clause-focused provision (with revisions) until the Clean Water Rule was published in 2015, and EPA would later adopt it in its regulations.",
"After the Corps' 1975 and 1977 regulations, some Members of Congress introduced bills that sought to limit the Clean Water Act's jurisdiction to traditional, navigable-in-fact waters, but the proposed limiting legislation never became law. Instead, Congress amended the Federal Water Pollution Control Act through the Clean Water Act of 1977, which did not alter the jurisdictional phrase \"waters of the United States.\"\nThe original version of the Clean Water Act of 1977 introduced in the House would have limited the Corps' jurisdiction, and an amendment proposed in the Senate sought similar limitations. But the original Senate version, which generally retained the existing definition of \"navigable waters,\" was adopted in conference and passed into law. The Clean Water Act of 1977, as enacted, contained certain exemptions from Section 404 permitting for \"normal farming, silviculture, . . . ranching[,]\" and other activities.",
"While the 1977 legislation appeared to resolve temporarily some congressional dispute over the reach of the Clean Water Act, disagreement arose between the Corps and EPA over which agency had final authority to determine which waters were subject to Section 404 permit requirements. EPA independently defined the jurisdictional reach of the Clean Water Act as it related to programs like NPDES and oil pollution prevention, but it incorporated the Corps' definition into its regulations related to Section 404 permits. At the same time, however, EPA separately expanded on that definition in an appendix to its Section 404 regulations.\nThe U.S. Attorney General ultimately intervened in 1979 and provided a legal opinion that EPA has final administrative authority to determine the reach of the term \"navigable waters\" for purposes of Section 404. The Corps and EPA eventually executed a Memorandum of Agreement in 1989 resolving that EPA would act as the lead agency responsible for developing programmatic guidance and interpretation of the scope of jurisdictional waters, and the Corps would be responsible for most case-specific determinations on whether certain property was subject to Section 404.\nAlthough it took the agencies 10 years after the Attorney General's opinion to agree formally on a division of responsibilities, the Corps and EPA streamlined and harmonized the regulatory definition of \"waters of the United States\" well before that. In May 1980, EPA issued regulations redefining the term among its consolidated permit requirements, and the Corps adopted EPA's definition in interim regulations two years later . The Corps issued final regulations in 1986 that did not change the regulatory definition, and the two agencies continued to use this core definition (with modifications) until they published the Clean Water Rule in 2015 .",
"",
"The Supreme Court reviewed a legal challenge to the Corps' application of \"waters of the United States\" for the first time in 1985 in United States v. Riverside Bayview Homes, Inc . There, the Corps sought to enjoin a property owner from discharging fill material on his wetlands located one mile from the shore of Lake St. Clair in Michigan, a 468-square-mile, navigable-in-fact lake that forms part of the boundary between Michigan and Ontario, Canada. The Corps argued that, by defining \"waters of the United States\" to include wetlands that are \"adjacent to\" other jurisdictional waters, including navigable-in-fact waters like Lake St. Clair, its regulations required the landowner to obtain a Section 404 permit before discharging fill material.\nBefore the case reached the Supreme Court, the Sixth Circuit concluded that it must construe the Corps' regulatory definition narrowly in order to avoid a potential violation of the Fifth Amendment prohibition on the taking of private property for public use without just compensation. Applying this method of interpretation, the Sixth Circuit construed the Corps' regulations so as not to include the wetlands at issue, and it avoided reaching a decision on whether the Corps' regulations were constitutional.\nThe Supreme Court reversed. Although it acknowledged that on a \"purely linguistic level\" it may seem unreasonable to classify lands , wet or otherwise, as waters , the Supreme Court called such a plain language approach \"simplistic.\" Further, it rejected the lower courts' concerns over the constitutionality of the Corps' regulations as \"spurious.\" Instead of applying a narrow approach to avoid constitutional implications, the Court gave deference to the Corps' position, and concluded that because \"[w]ater moves in hydrological cycles\" rather than along \"artificial lines,\" it was reasonable for the Corps to conclude that \"adjacent wetlands are inseparably bound up with the 'waters' of the United States . . . .\"\nThe Court also cited legislative history from the passage of the Clean Water Act and the amendments in 1977—in which the term \"adjacent wetlands\" was added to the statute —as support for its conclusion that Congress intended for the Clean Water Act to have a broad jurisdictional reach which included the adjacent wetlands at issue. In concluding that adjacent wetlands could reasonably be covered, however, the Court also emphasized that it did not express any opinion on the Corps' authority to regulate discharges of fill material into wetlands that are not adjacent to bodies of open water.",
"Following Riverside Bayview Homes , the Corps and EPA engaged in rulemaking in which they interpreted the Clean Water Act to govern all waters which were used or may have been used by migratory birds crossing state lines. The agencies did not redefine \"waters of the United States\" through this interpretation, which came to be known as the Migratory Bird Rule, but instead stated that the Migratory Bird Rule was a \"clarification\" of the existing regulatory definition.\nThe agencies also continued to adjust their interpretation of the definition of \"waters of the United States\" in the late 1980s by, among other things, excluding nontidal drainage and irrigation ditches, artificial lakes or ponds used for irrigation and stock watering, reflecting pools, and swimming pools. In 1993, the agencies jointly revised their regulations to exclude \"prior converted cropland\"—areas that were previously drained and converted to agricultural use—from jurisdictional waters.",
"In addition to disputes over the textual definition of \"waters of the United States,\" disagreement surrounding the technical standards used to delineate the physical boundaries of jurisdictional waters, particularly wetlands , arose in the late 1980s. The Corps issued the first wetlands delineation manual in 1987 (1987 Manual), but EPA published its own manual the following year which used an alternative technical analysis. Differences among these and other wetlands manuals led to the preparation of an interagency Federal Manual for Identifying and Delineating Jurisdictional Wetlands in January 1989 (Federal Manual).\nSome observers criticized aspects of the Federal Manual, including the methodology it employed for identifying and delineating jurisdictional waters. Some also argued that the Federal Manual improperly expanded the scope of federal regulations of wetlands. Disagreements ultimately led to congressional action in 1991 in the form of appropriations legislation that prohibited the Corps from using funds to identify jurisdictional waters using the Federal Manual. The following year, Congress mandated that the Corps use the 1987 Manual until a new manual was published after public notice and comment. The interagency group proposed revisions to the Federal Manual, which received over 100,000 comments, but that proposal was never finalized, and no interagency wetlands manual was created.",
"In contrast to the agencies' attempt to align jurisdictional waters with what they interpreted to be the outer reaches of the Commerce Clause in the 1980s, a series of court cases beginning in the late 1990s caused the Corps and EPA to modify their interpretation of \"waters of the United States.\" For much of the 20th century, the Supreme Court broadly construed the Commerce Clause to give Congress discretion to regulate activities which \"affect\" interstate commerce, so long as its legislation was reasonably related to achieving its goals of regulating interstate commerce. In the 1995 case of United States v. Lopez , however, the Supreme Court struck down a federal statute for the first time in more than 50 years based purely on a finding that Congress exceeded its powers under the Commerce Clause.\nIn Lopez , the Court held the Commerce Clause did not provide a constitutional basis for federal legislation criminalizing possession of a firearm in a school zone because the law neither regulated a commercial activity nor contained a requirement that the firearm possession be connected to interstate commerce. The Court revisited its prior Commerce Clause cases and sorted Congress's commerce power into three categories: (1) regulation of channels of commerce, (2) regulation of instrumentalities of commerce, and (3) regulation of economic activities which not only affect but \"substantially affect\" interstate commerce. Lopez set the backdrop for a series of major opinions limiting federal jurisdiction under the Clean Water Act.",
"The United States Court of Appeals for the Fourth Circuit issued the first in the series of decisions limiting the jurisdictional reach of the Clean Water Act in 1997. Following a seven-week trial in United States v. Wilson , a jury convicted three defendants of violating Section 404 for knowingly discharging fill material into wetland property located approximately 10 miles from the Chesapeake Bay and 6 miles from the Potomac River in Maryland. On appeal to the Fourth Circuit, the defendants challenged their conviction on the grounds that the portion of the Corps' regulatory definition of \"waters of the United States\"—which included all waters \"the use, degradation or destruction of which could affect interstate or foreign commerce\"—exceeded the Corps' statutory authority in the Clea n Water Act and Congress's constitutional authority in the Commerce Clause.\nRelying in part on the holding in Lopez , the Fourth Circuit agreed with a portion of the defendants' arguments and ordered a new trial. The court reasoned that, under Lopez , the regulated conduct must \"substantially affect\" interstate commerce in order to invoke the Commerce Clause power. Because the Corps purported to regulate waters that \"could affect\" interstate commerce—without regard to whether there was any actual effect, substantial or otherwise—the Fourth Circuit concluded that the Corps exceeded its authority. Although the Fourth Circuit strongly suggested that the Corps' assertion of jurisdiction exceeded the constitutional grant of authority under the Commerce Clause, it ultimately invalidated the challenged portion of the regulations solely on the ground that it exceeded the congressional authorization under the Clean Water Act.\nAs Wilson never reached the Supreme Court, it was only binding precedent in the Fourth Circuit, and the stricken language remained in the regulations of the Corps and EPA until the release of the 2015 Clean Water Rule.",
"Although the Corps did not modify its regulatory definition of \"waters of the United States\" in response to Wilson , it did publish guidance in March 2000 on the effect of the decision on its Section 404 jurisdiction. The Corps explained that, within the Fourth Circuit only , \"isolated waters\" must be shown to have an actual connection to interstate or foreign commerce. \"Isolated waters,\" in Clean Water Act parlance, are waters that are not navigable-in-fact, not interstate, not tributaries of the foregoing, and not hydrologically connected to such waters—but whose use, degradation, or destruction could affect interstate commerce.\nThe 2000 guidance also provided clarification on certain nontraditional waters that the Corps considered part of the \"waters of the United States.\" Jurisdictional waters, the Corps explained, included both intermittent streams , which have flowing water supplied by groundwater during certain times of the year, and ephemeral streams , which have flowing water only during and for a short period after precipitation events. The Corps also deemed drainage ditches constructed in jurisdictional waters to be subject to the Clean Water Act except when the drainage was so complete that it converted the entire area to dry land.",
"In 2001, the Supreme Court took up another challenge to the jurisdictional reach of the Clean Water Act in Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers ( SWANCC ), revisiting the issue for the first time since its 1995 decision in Riverside Bayview Homes . In SWANCC , the Court evaluated whether Clean Water Act jurisdiction extended to an abandoned sand and gravel pit which contained water that had become a habitat for migratory birds. Citing the legislative history of the 1972 amendments and the Clean Water Act of 1977, the Corps had argued that the Clean Water Act can extend to such isolated waters under the Migratory Bird Rule.\nIn a 5-4 ruling, the Court rejected the Corps' position, and held that the Corps' assertion of jurisdiction over isolated waters based purely on their use by migratory birds exceeded its statutory authority. The SWANCC Court's conclusion was informed, in part, by Lopez and another landmark Commerce Clause decision issued five years later, United States v. Morrison , in which the Court held that Congress lacked constitutional authority under the Commerce Clause to enact portions of the Violence Against Women Act. In light of this jurisprudence, the SWANCC Court concluded that allowing the Corps to assert jurisdiction under the Migratory Bird Rule raised \"serious constitutional questions\" about the limits of Congress's authority and \"would result in significant impingement of States' traditional and primary power of land and water use.\" Rather than interpret the Clean Water Act in a way that would implicate these \"significant constitutional and federalism questions[,]\" the Court concluded that Congress's use of the phrase \"navigable waters\" in the Clean Water Act \"has at least the import of showing us what Congress had in mind for enacting the [act]: its traditional jurisdiction over waters that were or had been navigable in fact or which could reasonably be made so.\" Based on this reading, the Court concluded that Congress did not intend to invoke the outer limits of the Commerce Clause in the Clean Water Act, and the Corps could not rely on the Migratory Bird Rule as a basis for jurisdiction.\nIn contrast to Riverside Bayview Homes , the SWANCC Court focused less on the legislative history of the Clean Water Act, and instead emphasized the Corps' original interpretation of the 1972 amendments in which it limited its jurisdiction to navigable-in-fact waters. Although the Riverside Bayview Homes Court found that classical \"navigability\" was of \"limited import\" in determining Clean Water Act jurisdiction, the SWANCC Court distinguished that case as focused on \"wetlands adjacent to navigable waters.\" The ponds which formed in the abandoned gravel pits in SWANCC were \" not adjacent to open water[,]\" and therefore lacked the requisite \"significant nexus\" to traditionally navigable waters necessary for jurisdiction under the Clean Water Act, the Court concluded.\nSWANCC did not go as far as the Fourth Circuit, however, in striking down an entire subsection of the definition of \"waters of the United States.\" It limited its holding to the Migratory Bird Rule, which the Corps described as an effort to \"clarify\" its regulatory definition. But while its direct holding was arguably narrow, SWANCC 's rationale was much broader and called into question whether the Corps and EPA could assert jurisdiction under the Clean Water Act over many wholly intrastate isolated waters. The relationship between SWANCC 's limited holding and the Court's broader rationale generated considerable litigation over the scope of the Clean Water Act.",
"The general counsels for the Corps and EPA added their voices to the post- SWANCC debate in a joint memorandum issued on the last full day of the Clinton Administration, January 19, 2001. Combining the \"significant nexus\" language from SWANCC with the existing regulatory definition of \"waters of the United States,\" the agencies concluded that they could continue to exercise jurisdiction over isolated waters so long as the use, degradation, or destruction of those waters could affect other \"waters of the United States.\" The potential effect on or degradation on existing jurisdictional waters, the agencies reasoned, established the \"significant nexus\" mentioned in SWANCC .\nIn January 2003, the Corps and EPA issued a notice of proposed rulemaking regarding how field staff should address jurisdictional issues in the Clean Water Act and which contained a revised joint memorandum on the effect of SWANCC . The agencies later abandoned that proposed rulemaking effort, leaving unanswered questions over federal jurisdiction over isolated waters after SWANCC . These uncertainties caused the Corps and EPA to shift their attention to alternative bases for jurisdiction in defining \"waters of the United States\"—such as \"adjacent wetlands\"—and set the stage for the Supreme Court's next encounter with a Clean Water Act jurisdictional dispute in Rapanos v. United States .",
"Rapanos involved a consolidation of two cases on appeal from the Sixth Circuit— Rapanos and Carabell —both of which concerned the breadth of the Clean Water Act's jurisdiction over \"adjacent\" wetlands. In Carabell , landowners challenged whether Section 404 jurisdiction extends to \"wetlands that are hydrologically isolated from any of the 'waters of the United States[,]'\" and Rapanos presented the similar question of whether this jurisdiction includes nonnavigable wetlands \"that do not even abut a navigable water.\" In both cases, collectively referred to as Rapanos , the Sixth Circuit upheld the Corps' assertion of jurisdiction over the wetland property in question.\nMany anticipated that Rapanos would provide clarity on the disputes following SWANCC . And although a majority of five Justices agreed that the Sixth Circuit decision was flawed, they were not able to agree on a single, underlying standard which would govern future jurisdictional disputes. Instead, a four-Justice plurality opinion, authored by Justice Scalia, and an opinion by Justice Kennedy, writing only for himself, proposed two alternative tests for evaluating jurisdictional waters.",
"With no controlling rationale from the majority, lower courts interpreting Rapanos struggled with the question of what analysis to apply in Clean Water Act jurisdictional disputes. When a majority of the Supreme Court agrees only on the outcome of a case and not on the ground for that outcome, the holding of the Court which lower courts must follow \"may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.\" While this rule may appear straightforward, it is not always self-evident how courts should identify which Justice's opinion rests on the \"narrowest grounds.\" Some courts have held that Justice Kennedy's \"significant nexus\" test is the narrowest ruling to be derived from Rapanos . Others concluded that waterbodies that satisfy either the plurality test or the \"significant nexus\" test satisfy Rapanos and may be deemed jurisdictional. Of the nine circuits that have addressed the issue, all have applied Justice Kennedy's significant nexus test either alone or in combination with the plurality's test, and none have applied the plurality approach alone. Still, some courts and observers have criticized the significant nexus test as vague and difficult to implement.",
"The Corps and EPA offered their own interpretation of Rapanos through guidance to field officers in 2007, which the agencies revised and replaced after public comment in 2008. The 2008 guidance adopted the view taken by some lower courts that jurisdiction exists over any waterbody that satisfies either the plurality approach or the significant nexus test. The agencies further deconstructed the jurisdictional analysis into three categories: (1) waters that are categorically jurisdictional; (2) waters that may be deemed jurisdictional on a case-by-case basis; and (3) waters that are excluded from jurisdiction under the Clean Water Act.\nIn 2011, the Corps and EPA sought comments on proposed changes to the 2008 guidance, which the agencies acknowledged would increase the number of waters regulated under the Clean Water Act in comparison to its earlier post- Rapanos guidance. The potential enlargement of jurisdiction spawned congressional attention, including a letter signed by 41 Senators requesting that the agencies abandon the effort. Some Members of Congress introduced prohibitions on funding related to the draft guidance in several appropriations bills, but those provisions were never enacted. Instead, the agencies abandoned pursuit of the 2011 draft guidance in favor of their 2015 effort at defining the scope of \"waters of the United States,\" the Clean Water Rule.",
"The Corps and EPA issued the Clean Water Rule in May 2015 in an effort to clarify the bounds of jurisdictional waters in the wake of SWANCC and Rapanos . The agencies relied on a synthesis of more than 1,200 published and peer-reviewed scientific reports and over 1 million comments on the proposed version of the rule. The Clean Water Rule contains the same three-tier structure from the agencies' 2008 joint guidance, identifying waters that (1) are categorically jurisdictional, (2) may be deemed jurisdictional on a case-by-case basis if they have a significant nexus with other jurisdictional waters, and (3) are categorically excluded from the Clean Water Act's jurisdiction. In an effort to reduce uncertainty about the scope of federal jurisdiction, the agencies sought to increase categorical jurisdictional determinations and reduce the number of waterbodies subject to the case-specific significant nexus test.",
"The Clean Water Rule was the subject of significant debate among observers, stakeholders, and Members of Congress, and a 2015 Government Accountability Office (GAO) report found that EPA violated publicity or propaganda and antilobbying provisions in prior appropriations acts through its promotion of the Clean Water Rule on social media. The 114th Congress also took steps to block its implementation. In January 2016, the Senate and House passed a resolution of disapproval seeking to nullify the Clean Water Rule under the Congressional Review Act. However, President Obama vetoed that resolution, and a procedural vote in the Senate to override the veto failed.",
"The Obama Administration intended the Clean Water Rule to take effect on August 28, 2015, but 31 states and 53 non-state plaintiffs, including industry associations, environmental groups, and others, filed suit challenging its legality. The plaintiffs argued, among other things, that the rule exceeded the agencies' statutory and constitutional authority and did not comply with the rulemaking requirements in the Administrative Procedure Act (APA). Environmental groups, seven states, and the District of Columbia intervened in defense of the rule. Before any court could address the merits of the claims, however, an impasse arose over what court was the proper forum for the litigation. Whereas some plaintiffs filed suit in federal district courts, others argued that a judicial-review provision in Section 509 of the Clean Water Act gave the U.S. circuit courts of appeals direct appellate-level review over challenges to the Clean Water Rule.\nAt the district court level, some courts dismissed their suits, concluding that the courts of appeals had exclusive jurisdiction. But one district court—the District Court for the District of North Dakota (District of North Dakota)—ruled that it had jurisdiction to review the Clean Water Rule. In August 2015, the District of North Dakota concluded that the rule was likely to be struck down on the merits, and it granted a motion for preliminary injunction, temporarily barring the Clean Water Rule's implementation in 13 western states. (The court later added another state, Iowa, to the scope of injunction.)\nIn the parallel litigation at the appellate level, a Judicial Panel on Multidistrict Litigation consolidated and transferred all circuit court cases to the United States Court of Appeals for the Sixth Circuit (Sixth Circuit). In the consolidated, appellate-level litigation, the Sixth Circuit concluded that the agencies should not apply the Clean Water Rule during the pendency of the legal challenges, and it issued a nationwide stay of the rule. The Sixth Circuit also concluded that it—and not the district courts—had exclusive jurisdiction over the challenges to the Clean Water Rule, setting the stage for the Supreme Court to address the threshold question of which court or courts possess jurisdiction to hear the Clean Water Rule cases.\nIn National Association of Manufacturers (NAM) v. Department of Defense , the Supreme Court disagreed with the Sixth Circuit and concluded that the Clean Water Act did not provide direct appellate-level jurisdiction over the pending cases. Section 509 of the Clean Water Act lists seven categories of agency actions subject to direct appellate review, Justice Sotomayor explained in an opinion for the unanimous Court, but a legal challenge to a rule defining \"waters of the United States\" does not fall within those categories. \"Congress has made clear that rules like the [Clean Water] Rule must be reviewed first in federal district court[,]\" the Court concluded.\nWhile NAM resolved the threshold question of which courts can hear challenges to the Clean Water Rule, it did not address the merits of the challenges themselves. Merits challenges soon resumed at the district court level after the 2018 NAM decision. In the interim, while the jurisdictional issue was being litigated, the legal landscape had changed as a result of the Trump Administration's shift in United States' policy toward the jurisdictional reach of the Clean Water Act.",
"The Trump Administration opposes the Clean Water Rule, and it is in the process of attempting to rescind the rule and replace it with new regulations elaborating on the meaning of \"waters of the United States.\"",
"Less than two months after taking office, President Trump issued Executive Order 13778 directing EPA and the Corps to revise or rescind the Clean Water Rule. The executive order instructs the agencies to review the Clean Water Rule for consistency with the Administration's policy to \"ensure that the Nation's navigable waters should be kept free from pollution, while at the same time promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the role of the Congress and the States under the Constitution.\" The executive order also provides that EPA and the Corps \"shall consider\" interpreting the jurisdictional reach of the Clean Water Act in a manner consistent with Justice Scalia's plurality opinion in Rapanos .\nEPA and the Corps intend to carry out Executive Order 13778 through a two-step process. First, they proposed to issue regulations that rescind the Clean Water Rule and recodify the definition of \"waters of the United States\" that was in place before the agencies issued that rule in 2015. Second, they proposed to engage in a separate rulemaking process to develop new regulations that will define the jurisdictional reach of the Clean Water Act.",
"In July 2017, EPA and the Corps provided notice and sought comment on a proposed rule (Step One Proposal) rescinding the Clean Water Rule and replacing it with the same text that existed before the Clean Water Rule was promulgated. In 2018, the agencies issued a supplemental notice expanding on their legal rationale for repealing the Clean Water Rule and clarifying that the Step One Proposal is intended to rescind permanently the Clean Water Rule in its entirety. According to the supplemental notice, a full repeal is necessary because the Clean Water Rule exceeded the agencies' statutory authority by adopting an interpretation of Justice Kennedy's Rapanos opinion that was inconsistent with the Clean Water Act and the opinion itself. The agencies also argued that the complex legal landscape created by litigation surrounding the Clean Water Rule has undermined the Clean Water Rule's goal of providing greater clarity regarding the scope of \"waters of the United States.\" The public comment period for the proposed repeal closed on August 13, 2018.",
"In December 2018, EPA and the Corps unveiled a second proposed rule (Step Two Proposal) that would complete the second step of the repeal and revise process by creating new regulations that substantively redefine \"waters of the United States.\" According to EPA and the Corps, the Step Two Proposal is intended to provide \"predictability and consistency by increasing clarity as to the scope of 'waters of the United States' federally regulated\" under the Clean Water Act. The agencies also intend the Step Two Proposal to \"clearly implement\" the Clean Water of Act's objectives of restoring and maintaining the quality of the nation's waters while respecting state and tribal authority over land and resources. The Step Two Proposal would define \"waters of the United States\" to include six categories of waterbodies.\nThe Step Two Proposal would mark a significant change from post- Rapanos interpretations of \"waters of the United States\" because it would eliminate the case-by-case \"significant nexus\" evaluation that has been part of EPA and the Corps' guidance and regulations since 2007. According to the agencies, improvements to the definitions of \"adjacent wetland\" and \"tributary\" in the Step Two Proposal would eliminate the need for case-specific significant nexus tests.\nUnder the Clean Water Rule, a wetland is adjacent to jurisdictional waters (and therefore subject to Clean Water Act regulation itself) if, among other potential criteria, it meets certain distance requirements from the ordinary high water mark of other jurisdictional waters. The Step Two Proposal would largely eliminate the distance evaluation and define \"adjacent wetlands\" as those wetlands that \"abut\" ( i.e. , touch) or have a \"direct hydrological surface connection with\" other jurisdictional waters. Tributaries under the Step Two Proposal must contribute flow to traditionally navigable waters through other jurisdictional waters or non-jurisdictional waters that convey downstream perennial or intermittent flows. Under the Clean Water Rule, by contrast, a tributary is any water that contributes flow to jurisdictional waters that have a bed, bank, and ordinary high water mark.",
"In addition to the two-step repeal and replace plan, the Trump Administration has engaged in a third rulemaking process designed to suspend the Clean Water Rule until February 2020. While the Clean Water Rule states that it is effective as of August 28, 2015, EPA and the Corps published a separate final rule (Applicability Date Rule), which adds a new \"applicability date\" of February 6, 2020, to the Clean Water Rule.\nThe Trump Administration's impetus for the Applicability Date Rule is derived, in part, from the Supreme Court's NAM v. Department of Defense decision. Prior to NAM , the Sixth Circuit's nationwide stay of the Clean Water Rule prevented EPA and the Corps from applying the Clean Water Rule anywhere in the United States. But after NAM concluded that challenges to the rule must begin in federal district courts, the Sixth Circuit dismissed the consolidated appellate-level challenges and vacated its stay. With no nationwide stay in place and with the step-one repeal rule still in proposed form, the Clean Water Rule could have reverted into effect in states that were not subject to a district court injunction. Seeking to prevent reactivation of the Clean Water Rule in some parts of the country, EPA and the Corps promulgated the Applicability Date Rule in an effort to suspend the Clean Water Rule while the agencies undertake the two-step repeal and revise process.\nLike many prior rules related to the definition of \"waters of the United States,\" litigants challenged the Applicability Date Rule in federal courts. In late 2018, two federal district courts determined that EPA and the Corps did not comply with administrative rulemaking requirements in promulgating the Applicability Date Rule. By declining to consider comments on the substantive merits of the pre-Clean Water Rule regulations, the agencies deprived the public of a \"meaningful opportunity\" to comment on the Applicability Date Rule in violation of the Administrative Procedure Act, the courts held. Both courts issued orders vacating the Applicability Date Rule nationwide. As a consequence, there currently is no instrument (either a final rule or court order) that bars application of the Clean Water Rule on a nationwide basis.",
"The multitude of legal challenges related to \"waters of the United States\" has created a complex legal landscape for the 116th Congress. Because both rules in the Trump Administration's rescind-and-replace process are still in proposed form, the Obama Administration's Clean Water Rule remains the current regulation defining waters of the United States. However, post- NAM challenges to the Clean Water Rule have proceeded at the U.S. district court level, and three federal district courts have entered preliminary injunctions barring application of the Clean Water Rule during the pendency of the suits. At the same time, these district courts have limited the scope of their injunction to the specific states that brought legal challenges to the Clean Water Rule. The ultimate result is that the Clean Water Rule currently is enjoined in 28 states, but it is the current enforceable regulation in 22 states, the District of Columbia, and U.S. territories.\nWhile finalization of the Trump Administration's Step One and Step Two Proposals could bring greater uniformity to this fragmented legal landscape, those rules are also likely to engender new litigation. The focus of future lawsuits, if filed, is likely to depend on the rulemaking process and content of the final rules. But observers expect critics to challenge whether EPA and the Corps considered sufficient scientific data and provided an adequate rationale to depart from prior agency guidance and regulations that utilized Justice Kennedy's \"significant nexus\" test. While critics of that test argue that it is too unpredictable for the average landowner to determine whether a waterbody is part of the \"waters of the United States,\" opponents of the Trump Administration's policy contend that the Step Two Proposal would also introduce new technical definitions that ordinary landowners would not be able to implement without hiring a specialist.",
"Because the \"waters of the United States\" debate hinges on the meaning of a statutory term, Congress could enact legislation that seeks to define the jurisdictional reach of the Clean Water Act more clearly. Some Members of the 115th Congress introduced legislation that would have amended the Clean Water Act by providing a narrower definition of \"waters of the United States.\" Other legislation introduced in the 115th Congress would have repealed the Clean Water Rule or allowed EPA and the Corps to repeal the Clean Water Rule without regard to the requirements of the Administrative Procedure Act. While none of the proposed legislation in the 115th Congress was enacted, at least one bill introduced in the 116th Congress proposes to repeal the Clean Water Rule and narrow the Clean Water Act's definition of jurisdictional waters.",
"The debate over the jurisdictional reach of the Clean Water Act implicates complex and overlapping concerns of environmental protection, statutory interpretation, federalism, and constitutional law. While judicial interpretations of \"waters of the United States\" generally have followed broader trends in understanding of the scope of the Commerce Clause, the Supreme Court's inability to identify a unified rationale in Rapanos has caused significant confusion and debate over the outer reaches of the Clean Water Act in the following years. Both the Obama Administration (in the Clean Water Rule) and the Trump Administration (in its rescind and revise process) have sought to provide clarity by promulgating new definitions of \"waters of the United States\" in EPA and the Corps' regulations. But both Administrations' efforts have faced criticism and legal challenges from certain stakeholders, creating a fragmented legal landscape for the 116th Congress in which \"waters of the United States\" means different things in different parts of the nation. Because the \"waters of the United States\" debate hinges on the meaning of a statutory term, Congress could provide greater clarity and uniformity by amending the Clean Water Act to define its jurisdictional scope more clearly, but legislative proposals thus far have not been enacted.",
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{
"question": [
"What have all branches of the government struggled with?",
"What was eradicated with the 1972 Amendments to the Clean Water Act?",
"What did this amendment change in the wording of the act?",
"Where is the federal authority to regulate waters derived from?",
"How has the interpretation of the Clean Water Act changed?",
"How has the Congress's authority under the Commerce Clause changed?",
"How clear are the rules for determining which bodies of water are under the jurisdiction of the U.S.?",
"What is a controversy regarding the administration of the Clean Water Act?",
"Why did this debate resurface during the Obama administration?",
"What arguments were made by opposing parties regarding the Clean Water Rule?",
"How did President Trump shift policy towards the Clean Water Rule?",
"What is currently being enacted to change the Clean Water Rule?",
"How are the current changes regarded?"
],
"summary": [
"For more than forty-five years, all three branches of government have struggled with how to interpret the meaning of \"waters of the United States\" in the Clean Water Act.",
"In a shift from early water pollution legislation, the 1972 amendments to the Federal Water Pollution Control Act, which came to be known as the Clean Water Act, eliminated the requirement that federally regulated waters must be capable of being used by vessels in interstate commerce.",
"Rather than use traditional navigability tests, the 1972 amendments redefined \"navigable waters\" for purposes of the Clean Water Act's jurisdiction to include \"the waters of the United States, including the territorial seas.\" Disputes over the proper meaning of that phrase have been ongoing since that change.",
"Federal authority to regulate waters within the United States primarily derives from the Commerce Clause, and accordingly, federal laws and regulations concerning waters of the United States cannot cover matters which exceed that constitutional source of authority.",
"During the first two decades after the passage of the Clean Water Act, courts generally interpreted the act as having a wide jurisdictional reach.",
"In recent decades, however, the Supreme Court has emphasized that \"the grant of authority to Congress under the Commerce Clause, though broad, is not unlimited.\" This modern Commerce Clause jurisprudence has informed federal courts' approach to interpreting which \"waters\" are subject to the Clean Water Act.",
"At the same time, the Supreme Court has not always provided clear rules for determining whether a particular waterbody is a water of the United States. In its most recent case on the issue, Rapanos v. United States, the High Court issued a fractured 4-1-4 decision with no majority opinion providing a rationale for how to evaluate jurisdictional disputes.",
"Some courts and commentators disagree on how the scope of federal jurisdictional waters changed over time as a result of interpretative approaches taken by the agencies responsible for administering the Clean Water Act—the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (Corps).",
"This debate resurfaced during the Obama Administration when the Corps and EPA issued a rule, known as the Clean Water Rule, which substantially redefined \"waters of the United States\" in the agencies' regulations for the first time in more than two decades.",
"While some argued that the Clean Water Rule constituted a large-scale expansion of federal jurisdiction, others asserted that the agencies construed the term in a narrower fashion than in prior regulations.",
"A vocal critic of the Clean Water Rule, President Trump shifted the executive branch's policy toward the meaning of \"waters of the United States.\"",
"The agencies currently are in the process of carrying out the executive order, and they unveiled proposed regulations redefining \"waters of the United States\" in December 2018.",
"As in nearly all prior attempts to define this phrase, observers disagree on whether the latest proposed definition correctly calibrates the scope of federal jurisdiction to regulate water pollution."
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CRS_R42130
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{
"title": [
"",
"Introduction",
"The Medical Device Review Process: Premarket Requirements",
"Device Classification",
"Medical Device Marketing Applications",
"Premarket Approval (PMA)",
"PMA Supplements",
"Evaluations of the PMA and PMA Supplement Process",
"Humanitarian Device Exemption (HDE)",
"Parallel Review: FDA Approval or Clearance and Medicare National Coverage Determinations (NCDs)111",
"510(k) Notification",
"Traditional 510(k)",
"Abbreviated and Special 510(k)s",
"De Novo 510(k)",
"Assessments of the 510(k) Process",
"The Medical Device Review Process:Post-Market Requirements",
"Postmarketing Surveillance and the National Evaluation System for Health Technology (NEST)",
"Postmarket Surveillance Studies (\"522 Studies\")",
"Adverse Event Reporting",
"Medical Device Tracking",
"The Sentinel Initiative",
"Unique Device Identification (UDI) System",
"Labeling",
"Manufacturing",
"Compliance and Enforcement",
"Inspection",
"Warning Letter",
"Product Recall"
],
"paragraphs": [
"",
"Medical device regulation is complex, in part because of the wide variety of items that are categorized as medical devices. They may be simple tools used during medical examinations, such as tongue depressors and thermometers, or high-tech life-saving devices that are implanted in the patient, like pacemakers and coronary stents. The medical device market has been described as consi sting of eight industry sectors: surgical and medical instrument manufacturing, surgical appliance and supplies, electromedical and electrotherapeutic apparatus, irradiation apparatus, ophthalmic goods, dental equipment and supplies, dental laboratories, and in vitro diagnostic products (IVDs, or laboratory developed tests).\nThe federal agency responsible for regulating medical devices is the Food and Drug Administration (FDA)—an agency within the Department of Health and Human Services (HHS). A manufacturer must obtain FDA's prior approval or clearance before marketing many medical devices in the United States. FDA's Center for Devices and Radiological Health (CDRH) is primarily responsible for medical device premarket review. Another center, the Center for Biologics Evaluation and Research (CBER), regulates devices associated with blood collection and processing procedures, cellular products and tissues.\nCDRH activities are funded by congressional appropriations and user fees collected from device manufacturers, which together comprise the program level budget. In general, CDRH user fees may be used only for medical device premarket review activities, not other CDRH activities. User fees account for 43% of FDA's total FY2016 program level and 28% of CDRH's FY2016 program level. The CDRH program level budget in FY2016 is $450 million, including $127 million in user fees. FDA's authority to collect medical device related user fees, originally authorized in 2002 ( P.L. 107-250 ), has been reauthorized in five-year increments and was reauthorized through FY2017 by the 112 th Congress via Title II of the FDA Safety and Innovation Act (FDASIA, P.L. 112-144 ).\nCongress has historically been interested in balancing the goals of allowing consumers to have access, as quickly as possible, to new and improved medical devices with preventing devices that are not safe and effective from entering or remaining on the market. The goals of device availability and device safety may exert opposite pulls, with implications for consumers, the health care system, and the economy.\nPrivate investment in medical device development reportedly reached a high of $3.7 billion in 2007. Investment has slowed somewhat to $2.5 billion in 2012, $2.3 billion in 2013, $2.7 billion in 2014, and $2.8 billion in 2015. According to one report, the U.S. medical technology industry generated $336 billion in revenue in 2013 and employed almost 671,000 workers. The \"medical technology industry\" includes \"medical device, diagnostic, drug delivery and analytic/life science tool companies\" but does not include \"distributors and service providers\" such as contract research or contract manufacturing organizations. A 2011 analysis found that \"32 of the 46 medical technology companies with more than $1 billion in annual revenue are based in the United States.\" Although the largest companies dominate the market for devices in terms of sales, some believe it is often the small device companies that make a significant contribution to early innovation. Small companies may partner with larger companies to bring products to market if they lack access to the capital and resources to conduct clinical trials and navigate regulatory and reimbursement hurdles.\nManufacturers make decisions about pursuing new devices based in part on the cost of their development. Additional regulatory requirements may escalate these costs, while other incentives, such as tax breaks or market exclusivity extensions, may diminish them. If the device development cost is too high, the eventual result may be that consumers are denied access to new devices because new products are not developed or brought to market. Access problems have led to proposals for, and the enactment of, incentives to develop medical devices for rare diseases and pediatric populations. However, if the regulation and oversight of device development are not adequate, unsafe or ineffective products may reach the market and cause harm to consumers.\nProblems related to medical devices can have serious consequences for consumers. Relatively recent examples in the media that have caused severe patient injuries and deaths include metal-on-metal hip implants; pacemakers, defibrillators, and associated leads (wires); stents; endoscopes; surgical mesh; and, power morcellators. The metal-on-metal hip has \"been implanted in millions of patients [worldwide], many of whom suffered serious harm and, as a result, needed additional procedures to replace the device.\" An estimated 500,000 patients in the United States have received this type of hip replacement.\nThese device problems have raised questions as to whether adequate enforcement tools, resources, and processes are in place at FDA to ensure that marketed devices are safe and effective. Reports by the Government Accountability Office (GAO), the Department of Health and Human Services Office of the Inspector General, and the Institute of Medicine (IOM) have voiced concerns about FDA's device review process. In 2009, 2011, 2013, and 2015 GAO included FDA's oversight of medical products on the GAO list of high-risk areas.\nThis report provides a description of FDA's medical device review process and related policy issues. The report is divided into two parts: premarket requirements and postmarket requirements. Appendix A provides a comparison of elements comprising the FDA premarket review of drugs and medical devices. Appendix B provides a brief history of laws governing medical device regulation, and Appendix C provides a table of acronyms used in the report.",
"FDA requires all medical product manufacturers to register their facilities, list their devices with the agency, and follow general controls requirements. FDA classifies devices according to the risk they pose to consumers. Many medical devices, such as plastic bandages and ice bags, present only minimal risk and can be legally marketed upon registration alone. These low-risk devices are deemed exempt from premarket review and manufacturers need not submit an application to FDA prior to marketing. In contrast, most moderate- and high-risk devices must obtain the agency's permission prior to marketing. FDA grants this permission when a manufacturer meets regulatory premarket requirements and agrees to any necessary postmarket requirements which vary according to the risk that a device presents.\nThere are two main paths that manufacturers can use to bring moderate- and high-risk devices to market with FDA's permission. One path consists of conducting clinical studies, submitting a premarket approval (PMA) application, and requires evidence providing reasonable assurance that the device is safe and effective. The PMA process is generally used for novel and high-risk devices and results in a type of FDA permission called approval.\nThe other path is shorter and less costly. It involves submitting a 510(k) notification demonstrating that the device is substantially equivalent to a device already on the market (a predicate device ) that does not require a PMA. The 510(k) process is unique to medical devices and results in FDA clearance . Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. To be considered substantially equivalent, the new device must have the same intended use and technological characteristics as the predicate; clinical data demonstrating safety and effectiveness are usually not required. The manufacturer selects the predicate device to compare with its new device. However, FDA has the ultimate discretion in determining whether a comparison is appropriate.\nOf the unique devices that are listed by manufacturers with FDA in FY2016, as shown in Figure 1 , about 63% were exempt from premarket review; the remainder entered the market via the 510(k) process (35%), the PMA process (1%), or other means (such as the \" Humanitarian Device Exemption (HDE) ]\").",
"Under the terms of the Medical Device Amendments of 1976 (MDA, P.L. 94-295 ), FDA classified all medical devices that were on the market at the time of enactment—the preamendment devices—into one of three classes. Congress provided definitions for the three classes—Class I, Class II, and Class III—based on the risk (low-, moderate-, and high-risk respectively) to patients posed by the devices. Examples of each class are listed in Table 1 .\nDevice classification determines the type of regulatory requirements that a manufacturer must follow. Regulatory requirements for each class are described below in more detail. General controls apply to all three classes of FDA-regulated medical devices, unless exempted by regulation, and are the only level of controls that apply to Class I devices. Examples of general controls include establishment registration, device listing, premarket notification, and good manufacturing practice requirements.\nClass I devices are those under current law for which general controls \"are sufficient to provide reasonable assurance of the safety and effectiveness of the device.\" Many Class I devices are exempt from the premarket notification and/or the Quality System (QS) regulation requirements, though they still have to comply with the other general controls. A device is exempt if FDA determines that it presents a low risk of illness or injury to patients.\nClass II devices are those under current law \"which cannot be classified as class I because the general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness of the device.\" Class II includes devices that pose a moderate risk to patients, and may include new devices for which information or special controls are available to reduce or mitigate risk. Special controls are usually device specific and may include special labeling requirements, mandatory performance standards, and postmarket surveillance. Currently \"15% of all device types classified in Class II are subject to special controls.\" Although most Class II devices require premarket notification via the 510(k) process, a few are exempt by regulation.\nClass III devices are those under current law which \"cannot be classified as a class I device because insufficient information exists to determine that the application of general controls are sufficient to provide reasonable assurance of the safety and effectiveness of the device,\" and \"cannot be classified as a class II device because insufficient information exists to determine that the special controls ... would provide reasonable assurance of [their] safety and effectiveness,\" and are \"purported or represented to be for a use in supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health,\" or present \"a potential unreasonable risk of illness or injury, [are] to be subject ... to premarket approval to provide reasonable assurance of [their] safety and effectiveness.\"\nIn other words, general and/or special controls are not sufficient to assure safe and effective use of a Class III device. Class III includes devices which are life-supporting or life-sustaining, and devices which present a high or potentially unreasonable risk of illness or injury to a patient. New devices that are not Class I or II are automatically designated as Class III unless the manufacturer files a request or petition for reclassification.\nAlthough most Class III devices require premarket approval (PMA), some Class III devices may have been cleared via the 510(k) process. In fact, during the first 10 years following enactment of MDA, over 80% of postamendment Class III devices entered the market on the basis of 510(k) submissions showing substantial equivalence to preamendment devices. These are Class III devices that entered the market prior to regulation calling for a PMA application. FDA explains the situation as follows:\nWhen FDA's medical device regulation program began in the late 1970s, FDA regulated over 170 Class III device types through the 510(k) program, and those devices were never required to submit PMAs, like a typical Class III device. The intent was that FDA's regulation would be temporary and that, over time, the FDA would reclassify those device types into Class I or II, or sustain the classification in Class III and call for PMA applications. This reclassification process is described in Section 515 of the Federal Food, Drug and Cosmetic Act (FD&C Act). Over the years, the FDA made significant progress on the original list of 170 devices; however, as of 2009, 26 medical device regulations still required final action.\nAt the time that the MDA of 1976 was drafted, \"relatively few medical devices were permanently implanted or intended to sustain life. The 510(k) process was specifically intended for devices with less need for scientific scrutiny, such as surgical gloves and hearing aids.\" Over time, FDA's 510(k) review process was \"challenged as new devices changed more dramatically and became more complex.\"\nIn late 2009, FDA implemented the 515 Program Initiative \"to facilitate action on these remaining Class III device types.\" Examples of Class III devices that were still regulated via the 510(k) program include the metal-on-metal hip implant, certain dental implants, automated external defibrillator, electroconvulsive therapy device, pedicle screw spinal system, intra-aortic balloon and control system, and several device types related to pacemakers. In 2012, FDASIA changed the process for the reclassification of a device from rulemaking to an administrative order. As a result, since 2013 FDA has published a number of final orders in the Federal Register to reclassify many of these remaining Class III device types.",
"As stated above, in general, before a nonexempt medical device may be legally marketed, a manufacturer must submit to FDA either: a PMA application, and the agency may approve the device; or, a 510(k) notification, and the agency may clear the device. FDA makes its determination—either approval or clearance—based on information the manufacturer submits to the agency. The information that is required—in other words, the type of submission the manufacturer must make (if any)—is determined based on the risk that the device poses, if used according to the manufacturer's instructions. FDA typically evaluates more than 4,000 510(k) notifications and about 40 original PMA applications each year.\nThe Food and Drug Administration Modernization Act of 1997 (FDAMA; P.L. 105-115 ) gave FDA the authority to establish procedures for meeting with manufacturers prior to preparing a submission. The procedures aim to speed the review process by giving FDA and a manufacturer the opportunity to address questions and concerns about the device and/or the planned studies that will be used to support the marketing application before the studies are initiated and the application is submitted.\nGenerally speaking, under the Federal Food, Drug and Cosmetic Act (FFDCA), manufacturers\nare prohibited from selling an adulterated product; are prohibited from misbranding a product; must register their facility with FDA and list all of the medical devices that they produce or process; must file the appropriate premarket submission with the agency at least 90 days before introducing a non exempt device onto the market; and must report to FDA any incident that they are aware of that suggests that their device may have caused or contributed to a death or serious injury.\nUnder the terms of the Medical Device User Fee Act (MDUFA), manufacturers must pay a fee for most types of submissions. In FY2016, the user fee for FDA review of a PMA submission is $261,388 or $65,347 for a small business; the user fee for FDA review of a 510(k) submission is $5,228 or $2,614 for a small business. GAO found that in 2005, the average cost for FDA to review a PMA was $870,000 and the average cost to review a 510(k) submission was $18,200. User fees account for 43% of FDA's total FY2016 program level and 28% of CDRH's program level. The CDRH program level budget in FY2016 is $450 million, including $127 million in user fees.\nThe following sections describe the PMA and 510(k) submissions in more detail, and provide information about making changes to a PMA device using a supplement, the Humanitarian Device Exemption, special types of 510(k) submissions, and parallel review of a device by FDA and the Centers for Medicare & Medicaid Services (CMS).",
"A PMA is \"the most stringent type of device marketing application required by FDA\" for new and/or high-risk devices. PMA approval is based on a determination by FDA that the application contains sufficient valid scientific evidence to provide reasonable assurance that the device is safe and effective for its intended use(s). In contrast to a 510(k), PMAs generally require some clinical data prior to FDA making an approval decision.\nAll clinical evaluations of investigational devices (unless exempt) must have an investigational device exemption (IDE) before the clinical study is initiated. An IDE allows an unapproved device (most commonly an invasive or life-sustaining device) to be used in a clinical study to collect the data required to support a PMA submission. The IDE permits a device to be shipped lawfully for investigation of the device without requiring that the manufacturer comply with other requirements of the FFDCA, such as registration and listing. In August and in November 2011, FDA released draft guidance intended to ensure the quality of clinical trials and streamline the IDE process by clarifying the criteria for approving clinical trials. Final guidance on these topics was issued in 2013 and 2014. All clinical studies must also receive prior approval by an institutional review board (IRB).\nA PMA must contain (among other things) the following information:\nsummaries of nonclinical and clinical data supporting the application and conclusions drawn from the studies; a device description including significant physical and performance characteristics; indications for use, description of the patient population and disease or condition that the device will diagnose, treat, prevent, cure, or mitigate; a description of the foreign and U.S. marketing history, including if the device has been withdrawn from marketing for any reason related to the safety or effectiveness of the device; proposed labeling; and a description of the manufacturing process.\nApproval is based not only on the strength of the scientific data, but also on inspection of the manufacturing facility to ensure that the facility and the manufacturing process are in compliance with the quality system (QS) regulation. FDAMA made it easier for manufacturers to submit the required sections of a PMA in a serial fashion as data are available (\"modular PMA\").\nWhen a PMA is first received by FDA, it has 45 days to make sure the application is administratively complete. If not, the application is returned. If the application is complete, it is formally filed by FDA. The agency then has 75 days to complete the initial review and determine whether an advisory committee meeting will be necessary.\nAdvisory committees may be convened to make recommendations on any scientific or policy matter before FDA. They are composed of scientific, medical, and statistical experts, and industry and consumer representatives. An advisory committee meeting allows interested persons to present information and views at a public hearing. FDA typically accepts advisory committee recommendations for an application (approvable, approvable with conditions, or nonapprovable). However, there have been cases where FDA's decision has not been consistent with the committee's recommendation. CDRH will hold joint advisory committee meetings with other FDA centers when necessary. Though FDA regulations allow 180 days to review the PMA and make a determination, total review time can be much longer. MDUFA performance goals have been established to reduce the review time for PMAs.\nAs a condition of approval for a PMA device, FDA may order a post-approval study to obtain information on device safety, effectiveness, and/or reliability over long-term use of the device in real world populations (as opposed to clinical studies). A report published in November 2014 by JAMA Internal Medicine analyzed 223 post-approval studies of 158 medical devices ordered to be conducted by FDA between 2005 and 2011. The report found that delays in launching and completing such studies were common. The report found limited information on the causes of study delays and variable detail provided on the reason a post-approval study (PAS) was ordered. According to the authors, \"the FDA has never issued a warning letter to a manufacturer for failing to start or complete a mandated PAS, which may undermine its authority in ordering these studies. The most common effect of a PAS was a change to device labeling. The influence of such label changes is unknown.\"\nIn 2015, 98% of PMAs accepted for filing were approved by FDA. After FDA notifies the applicant that the PMA has been approved, a notice is posted on the Internet for the approved PMA, making available a summary of the safety and effectiveness data upon which the approval is based and providing interested persons an opportunity to petition FDA within 30 days for reconsideration of the decision.",
"If a manufacturer wants to make a change to an approved PMA device, it must submit to FDA one of several different types of PMA supplements to request agency approval of the device change. The various types of PMA supplements and associated fees are briefly described in Table 2 . The manufacturer is also required to pay a user fee, except in the case of the Special PMA Supplement. FDA provides information about approved PMA supplements on the FDA website.\nDevices approved via a PMA supplement have smaller fees, shorter review times, and often do not require the collection of premarket clinical data. Clinical data refers to data obtain during a clinical trial involving human subjects and preclinical data refers to mechanical engineering tests as well as animal studies. The features of the PMA supplement \"encourage manufacturers to implement evolving technologies to create new models of devices that are incrementally different from previously approved additions. This helps facilitate rapid improvement in device technology, but also means that high-risk medical devices can gain PMA approval as supplements without any direct clinical study of the specific change made to the device.\"",
"As mentioned above, FDA considers a PMA to be the most stringent type of device marketing application required for new and/or high-risk devices. However, studies in the academic medical literature have questioned the quality of the data submitted to the agency in support of PMA applications.\nA December 2009 report in JAMA (Journal of the American Medical Association) reviewed data submitted to support PMAs for high-risk cardiovascular devices that received FDA approval between 2000 and 2007. The authors found that 65% of the PMA applications were based on a single study that often was not a high-quality randomized controlled clinical trial. This is in contrast to drug applications, which require two randomized well-controlled trials. For a comparison of FDA premarket review processes for drugs and devices, see Table A-1 . The JAMA report found that only 27% of all cardiovascular PMAs were based on a randomized trial and only 14% of the trials of cardiovascular devices used a blinded design.\nIn addition, the 2009 JAMA report also found that a majority (88%) of the cardiovascular studies used surrogate end points, \"which may not be reliable predictors of actual patient benefit.\" A surrogate end point of a clinical trial \"is a laboratory measurement or a physical sign used as a substitute for a clinically meaningful end point that measures directly how a patient feels, functions, or survives.\" An example of a surrogate is measurement of cholesterol level that is used as a surrogate marker for the clinical end point, death from heart disease. A drug that lowers cholesterol, however, may not lengthen life.\nThe authors of the 2009 JAMA study chose to examine cardiovascular devices \"because it was expected they would undergo the most stringent approval process given their far-reaching impact on morbidity and mortality and their increasing use.\" The authors stated that their findings \"raise questions about the quality of data on which some cardiovascular device approvals are based.\" They argue that in comparison with drug approval, \"the bar for evidence of benefit should be higher for devices because they are implanted and cannot simply be discontinued, as drugs can.\" The importance of FDA device approval versus clearance is significant, as it may preempt consumer lawsuits on device safety leaving injured patients no avenue of legal recourse or redress.\nDecisions by physicians and patients could be more informed regarding the use of high-risk devices, such as cardiovascular devices, if the clinical trial data that FDA reviews to support approval were more accessible. A June 2015 BMJ (British Medical Journal) report found selective reporting problems in the medical literature regarding the published trials of high-risk cardiovascular medical devices. Reporting bias is a well-documented problem in the drug-related medical literature. Those who have analyzed clinical trial information in FDA new drug applications and compared it with the corresponding publications in the medical literature have found the selective reporting of favorable results in the literature. \"Results favoring the new drug over the comparator were significantly more likely to be reported in the literature than unfavorable results. The selective publication of favorable results for drugs includes several types of reporting bias,\" including failure to publish entire studies and failure to publish unfavorable outcomes.\nThe June 2015 BMJ report, the first of its kind, found that \"half (51%) of clinical studies of novel high risk cardiovascular devices remain unpublished over two years after FDA approval.... When these studies are published, there are often clinically relevant discrepancies between FDA documents and corresponding publications.\" According to the authors, these findings \"point to the importance of mandatory registration on a public clinical trials platform. Clinicaltrials.gov is an important step in this direction, but recent data show that published trials often have discrepant findings between clinicaltrial.gov and publications.\" The authors state that \"the accessibility and user friendliness of FDA reports needs to be considerably improved. As clinicians can use devices immediately after FDA approval, it is in the public interest that all of the data be available to clinicians at that time.\"\nA January 2014 JAMA report examined FDA approval of cardiac implantable electronic devices (CIEDs)—such as pacemakers, implantable cardioverter-defibrillators (ICDs), and other cardiac devices—via the PMA process and the PMA supplement process. CIEDs were chosen as \"a useful case study because they have been the subject of substantial evolution over the past 30 years,\" and the authors sought to \"characterize the nature of the changes in each supplement and understand the data supporting these changes.\" The first CIED was approved by FDA via the PMA process in 1979. The report found that from 1979 to 2012, FDA approved 77 CIED PMAs and 5829 PMA supplements based on those 77 original CIED PMAs. That represents a median of 50 supplements per original PMA. The authors warn clinicians and patients that \"clinical data are rarely collected as part of PMA supplement applications prior to marketing.\" Of the 5829 PMA supplements, almost half (2,754, 47%) were allowed onto the market via the 30-day notice supplement, about a quarter were 180-day supplements (1,538, 26%), and another quarter were real-time supplements (1,312, 23%) and special supplements (108, 2%); only a small fraction used the more rigorous panel-track supplement (15, 0.3%).\nTwo medical device recalls that were widely reported in the media—the Medtronic Sprint Fidelis and St Jude Medical Riata ICD leads—both entered the market via the PMA supplement process. The Medtronic Sprint Fidelis was a 180-day supplement, and the St Jude Medical Riata was a real-time supplement; neither was studied in human trials prior to FDA approval. According to the authors of the January 2014 JAMA report, the \"FDA's approval of many supplements without new human trials, as in the case of these recent ICD changes, highlights the importance of collecting rigorous postapproval performance data.\" Yet the January 2014 JAMA report states that postapproval studies for devices on the market via a PMA supplement are uncommon. PMA supplements \"allow patients to benefit from incremental innovation in device technology by providing efficient and inexpensive FDA review pathways for smaller device changes.\" However, many such minor design changes may add up to a substantial difference from the device approved in the original PMA application. Therefore, the authors of the January 2014 JAMA study recommend \"more widespread implementation of rigorous postmarket studies to evaluate device performance once approved for clinical use.\"\nAs stated previously in this section, others might also argue that because such devices are implanted within the patient, and cannot be easily removed without the risk of causing major complications, the evidence of benefit should be higher for devices during the FDA premarket review process in comparison with the evidence for drugs. Allowing innovative but potentially defective devices to quickly enter the market may leave large numbers of patients and their physicians with very difficult decisions.\nFor example, the failure rate for the Sprint Fidelis lead was 2.8% per year. When the lead fails, it can deliver a painful and unnecessary shock (750 volts) to the patient's heart. According to one cardiologist, \"[m]ost patients can tolerate one shock, as the pain is over almost before the brain has time to process the magnitude of the insult. But almost no one can tolerate multiple shocks. The first shock starts the fear cycle. First is extreme anxiety, but after a second or third shock, anxiety from the possibility of more shocks progresses quickly to near terror.\"\nThe risk of major complications in replacing the lead is 15.3%. The leads \"run a long course through the veins into the heart. The body's natural healing process forms scar tissue at multiple sites along the lead that can create strong attachments to the wall of a blood vessel or a heart chamber. Freeing a lead from these attachments requires considerable skill and experience and is more difficult and risky than implanting the leads in the first place.\" Therefore, if a lead does not show signs of malfunction, most patients would be closely watched rather than receive prophylactic surgery to remove the lead.\nIn two announcements, dated October 2015 and February 2016, the Department of Justice (DOJ) stated that over 500 hospitals in 43 states had been fined more than $280 million for implanting ICDs in \"Medicare patients in violation of Medicare coverage requirements.... In terms of the number of defendants, this is one of the largest whistleblower lawsuits in the United States.\" The DOJ announcement provides further details about the settlement:\nMedicare coverage for the device, which costs approximately $25,000, is governed by a National Coverage Determination (NCD). [CMS] implemented the NCD based on clinical trials and the guidance and testimony of cardiologists and other health care providers, professional cardiology societies, cardiac device manufacturers and patient advocates. The NCD provides that ICDs generally should not be implanted in patients who have recently suffered a heart attack or recently had heart bypass surgery or angioplasty. The medical purpose of a waiting period—40 days for a heart attack and 90 days for bypass/angioplasty—is to give the heart an opportunity to improve function on its own to the point that an ICD may not be necessary. The NCD expressly prohibits implantation of ICDs during these waiting periods, with certain exceptions. The Department of Justice alleged that from 2003 to 2010, each of the settling hospitals implanted ICDs during the periods prohibited by the NCD.\nAccording to Dr. Rita Redberg, a cardiologist at the University of California, San Francisco, and editor of JAMA Internal Medicine , \"Hospitals put ICDs in people outside the coverage guidelines who would not get a benefit and likely suffer. It's a big invasive procedure, and the guidelines are there to make sure that for people who are getting the procedure the benefits outweigh the harm.\" Dr. Redberg reviewed cases for the DOJ and indicated that \"many, if not most of the cases we looked at not only violated the CMS guidelines, but were also unjustified by any clinical data other than the MD's opinion, and were clearly outside any boundaries of good or appropriate care.\"\nBryan Vroon, the attorney who represented the whistleblowers in the Medicare ICD false claims suit, states that \"since the beginning of the DoJ investigation in 2008, the number of surgeries to implant the device has dropped by about 28%, reaping a savings for Medicare of some $2 billion over the five years that followed.\" Unnecessary and potentially harmful ICD implantation surgery is less of a problem in Europe. \"The implantation rates for all types of devices are lower in Europe than in the United States; thus, the need for [lead] extraction can be expected to be higher in the United States than in Europe.\"",
"The Safe Medical Devices Act of 1990 (SMDA, P.L. 101-629 ) authorized the Humanitarian Device Exemption (HDE) to encourage the development of devices that aid in the treatment and diagnosis of diseases or conditions that affect fewer than 4,000 individuals in the United States per year. An HDE application is similar to a PMA, but it is exempt from the effectiveness requirements to encourage manufacturers to develop devices for these small markets.\nHowever, there are some important restrictions: there is a 4,000-unit limit per year on the number of devices shipped, and use of an HDE device requires approval by an institutional review board (IRB) at the institution where the device is to be used. The IRB process may involve \"substantial costs for meticulous record keeping, application production, and IRB fees (which could involve hundreds of sites).\" Also, there is \"the potential for insurers not to cover the device (for lack of evidence of efficacy).\"\nIn the past, the device sponsor was also not allowed to make a profit on the sale of the HDE device if its price was more than $250. FDAAA ( P.L. 110-85 ) removed the restriction on profit for HDEs developed for pediatric use and required GAO to report by 2012 on the impact of removing this restriction. FDASIA allows an HDE device to qualify for an exemption to the general ban on selling such devices for a profit if the HDE device is intended for the treatment or diagnosis of (1) a disease or condition that does not occur in pediatric patients, or (2) that occurs in pediatric patients in such numbers that device development is impossible, highly impracticable, or unsafe. Also, a sponsor of a device granted an HDE prior to FDASIA's enactment may seek a determination as to whether it would qualify for an exemption to the profit ban.\nIn order for a device to receive HDE marketing approval, there cannot be another legally marketed device, either via the 510(k) process or the PMA process, available to treat or diagnose the disease or condition. Once a device with the same intended use as the humanitarian use device is approved or cleared, an HDE cannot be granted for the humanitarian use device. However, the agency will \"consider an HDE application if a comparable device has been approved under another HDE or if a comparable device is being studied under an IDE.\"",
"CMS requires as a condition of coverage under the Medicare program, with certain exceptions, that devices (including IVDs) be FDA-approved or cleared where such approval or clearance is required. This approval does not guarantee coverage, as there are a number of other factors that CMS considers in its coverage decisions. CMS has stated that manufacturers will often focus their efforts on gaining FDA approval, without realizing that upon receiving such approval, Medicare coverage of the device is not automatic. Most private payer coverage decisions also require FDA approval where such approval is required by law. For example, BlueCross BlueShield's Technology Evaluation Center (TEC) requires that final FDA approval be received where required by law.\nThere are a few specific circumstances where a device may be covered under Medicare without FDA approval or clearance. These include cases where the FDA has (1) granted an investigational device exemption (IDE); (2) provided a classification of nonexperimental investigational device, for which underlying questions of safety and effectiveness have been resolved for that device type; and (3) required that clinical trials be conducted, with Medicare beneficiaries participating in the FDA-approved clinical trial.\nImportantly, Medicare coverage determinations are often closely monitored by private health insurance plans, and many private plans will follow Medicare's decisions. Therefore, a decision by CMS to cover a device through a positive national coverage determination (NCD) will often result in more rapid diffusion and adoption of that device in the health care system. For this reason, from the perspective of the device manufacturer, CMS's coverage decision carries significant weight.\nThe statutory basis of and processes used for determining FDA approval (or clearance) of a device are distinct from the statutory basis of and processes used by CMS to make its NCDs. In each case, the purpose of the review differs, as do the contextual factors of the decision. FDA review and Medicare NCDs are usually carried out in a serial manner (i.e., one after the other). However, in order to try to shorten the timeframe for getting a device into clinical use, in October 2011 CMS and FDA launched a two-year pilot program for the parallel review of medical products. The pilot program was extended for an additional two years, effective December 2013.\nAlthough the agency has not formally extended the pilot program beyond December of 2015, the original Memorandum of Understanding (MOU) between FDA and CMS from 2010 that was created to facilitate the parallel review pilot was amended in 2015 to have a termination date of \"indefinite.\" The original MOU termination date was no later than five years after it was signed, in June 2010. Congress has expressed interest in the ongoing status of the parallel review pilot. Both the House and Senate Appropriations Committee reports, accompanying the respective Agriculture appropriations bills, included language directing FDA to report on whether it plans to extend the pilot and how it anticipates encouraging more manufacturers to participate. In addition, based partially on the experience with the parallel review pilot, FDA published a request for expressions of interest from coverage organizations who would like to share input on coverage decisions with medical device sponsors. The agency states that it has realized the value of earlier discussions between the agencies, payers and manufacturers with respect to which information and evidence may be needed to support a positive coverage decision.\nOn August 11, 2014, FDA announced that it had approved a product for the first time through the CMS Parallel Review Program, resulting in the simultaneous FDA approval of the product (Exact Sciences' Cologuard) and CMS issuance of a proposed NCD for the product. The agencies plan to evaluate the pilot once a representative group of products have gone through the process and to extend the program to both drugs and biologics.",
"In general, a 510(k) submission is required for a moderate-risk medical device that is not exempt from premarket review. A 510(k) could also be used for currently marketed devices for which the manufacturer seeks a new indication (e.g., a new population, such as pediatric use, or a new disease or condition), or for which the manufacturer has changed the design or technical characteristics such that the change may affect the performance characteristics of the device.\nBetween 1996 and 2009, more than 80% of the devices cleared by FDA using 510(k) notification were Class II devices, about 10% were Class I and less than 5% were Class III. A 2009 GAO report found that 25% of the 10,670 Class II devices cleared by FDA in FY2003 through FY2007 were either implantable, life sustaining or presented significant risk to the health, safety, or welfare of the patient. The agency cleared about 90% of 510(k) submissions reviewed during FY2003 through FY2007.\nAccording to FDA data, 85% of 510(k)s accepted for review in 2015 were determined to be substantially equivalent. As noted previously, the standard for clearance of a traditional 510(k) is substantial equivalence with a predicate device. A predicate device can be one of two things. It can be a previously cleared Class I or II device that does not require a PMA. It can also be preamendment Class III for which the agency has not issued regulations requiring a PMA. (PMAs, which are more rigorous submissions than 510(k)s, are discussed in the \" Premarket Approval (PMA) \" section.)\nA manufacturer may choose one of three types of 510(k) submissions for premarket clearance: traditional, special, or abbreviated. A study of 510(k) submissions between 1996 and 2009 found that about 80% were traditional, 16% were special, and 3% were abbreviated. For novel devices without a predicate, there is another alternative called the de novo 510(k) process.",
"A traditional 510(k) must include the name of the device, a description of the device, a comparison with a predicate device, the intended use of the device, and the proposed label, labeling, and advertisements for the device and directions for use. Studies supporting a 510(k) submission are usually preclinical studies (laboratory testing), not clinical studies (in human beings). Substantial equivalence, in many cases, means only that the device performs in a similar fashion to the predicate under a similar set of circumstances. As a result, many devices never have to demonstrate safety and effectiveness through studies using human subjects.\nIn addition to not requiring clinical studies, three other characteristics of the 510(k) process make it much less rigorous than the PMA process: (1) premarket inspections of how devices were manufactured are generally not required by FDA; (2) postmarket studies are not required by FDA as a condition of clearance; and (3) FDA has limited authority to rescind or withdraw clearance if a 510(k) device is found to be unsafe or ineffective.\nFDA may take any of the following actions on a 510(k) after conducting its review:\nfind the device substantially equivalent to the predicate and issue a clearance letter; find the device not substantially equivalent (NSE) and issue an NSE letter prohibiting marketing; determine that the device is exempt from a 510(k) submission; request additional information (with the final clearance decision pending review of that information).\nA manufacturer generally has 30 days to provide any additional information, or FDA may issue a notice of withdrawal of the application. The manufacturer may, at any time, withdraw its 510(k). FDA has 90 days to review a traditional 510(k).",
"Abbreviated and special 510(k)s were new approaches to premarket notification that came from FDAMA. These approaches were intended to streamline and expedite FDA's review for routine submissions meeting certain qualifications, thus leaving reviewer time for more complicated submissions.\nAn abbreviated 510(k) uses guidance documents developed by FDA to communicate regulatory and scientific expectations to industry. Guidance documents have been prepared for many different kinds of devices, and are available on FDA's website. All guidance documents are developed in accordance with Good Guidance Practices (GGP), and many with public participation or opportunities for public comment. In addition to issuing guidance documents, FDA can either develop performance or consensus standards or 'recognize' those developed by outside parties. In an abbreviated 510(k), the manufacturer describes what guidance document, special control, or performance standard was used, and how it was used to assess performance of their device. Other minimum required elements are the product description, representative labeling, and a summary of the performance characteristics. FDA typically reviews an abbreviated 510(k) in 60 days.\nA special 510(k) may be used for a modification to a device that has already been cleared under the 510(k) process. It typically uses the design control requirement of the Quality System (QS) regulation. The QS regulation describes the good manufacturing practice (GMP) requirements for medical devices. The special 510(k) allows the manufacturer to declare conformance to design controls without providing the data. This type of submission references the original 510(k) number, and contains information about the design control requirements. FDA aims to review most special 510(k)s in 30 days.",
"Under the FFDCA, novel devices lacking a legally marketed predicate are automatically designated Class III. FDAMA amended FFDCA Section 513(f) to allow FDA to establish a new, expedited mechanism for reclassifying these devices based on risk, thus reducing the regulatory burden on manufacturers. The de novo 510(k), though requiring more data than a traditional 510(k), often requires less information than a premarket approval (PMA) application.\nUnder the original de novo 510(k) process created in 1997 by FDAMA, the manufacturer submitted a traditional 510(k) for its device. Because there was no predicate device or classification, FDA would return a decision of not substantially equivalent. Within 30 days, the manufacturer would submit a petition requesting reclassification of its device into Class II or I, as appropriate. Within 60 days, FDA would render a decision classifying the device.\nSection 607 of FDASIA modified FFDCA Section 513(f)(2), creating an alternative de novo pathway that does not require that a device be reviewed first under a 510(k) and found NSE prior to submission of a de novo. FDA has released draft guidance on the alternative de novo review process. \"Under the new de novo pathway, if a person believes their device is appropriate for classification into Class I or Class II and determines there is no legally marketed predicate device, they may submit a de novo without a preceding 510(k) and NSE.\" This classification request may be declined by FDA if there exists a legally marketed device on which to base a substantial equivalence review, or if the new device is not a low-moderate risk device or general controls would be inadequate to control risks and special controls cannot be developed.",
"As mentioned earlier, several reports have examined aspects of the FDA device review process. FDAAA (2007) required GAO to study and report on the appropriate use of the 510(k) process \"to determine whether a new device is as safe and effective as a classified device.\" The report, released in January 2009, found that a number of Class III devices—including device types that are implantable, life sustaining, or posing a significant risk to the health, safety, or welfare of a patient—were cleared for the U.S. market through FDA's less stringent 510(k) review process. GAO recommended that \"FDA expeditiously take steps to issue regulations for Class III device types currently allowed to enter the market via the 510(k) process by requiring PMAs or reclassifying them to a lower class.\"\nIn December 2008 an orthopedic device made by ReGen, a New Jersey company, was cleared for marketing via the 510(k) process. In April 2009, Acting FDA Commissioner Joshua Sharfstein initiated an internal review of the decision to clear the ReGen Menaflex device. In September 2009, FDA released a preliminary report on the review of ReGen Menaflex device. The report provided a list of 22 instances in which the agency did not follow established processes, procedures, or practices. The report provides a possible reason for this, noting \"the presence of widespread internal disagreement and confusion about the legal standard for 510(k) review.\" Acting Commissioner Sharfstein said that the report made \"a series of recommendations, all of which will be adopted.\"\nIn September 2009, FDA announced that it had requested an independent evaluation of the 510(k) process by IOM. The agency also stated it would convene its own internal comprehensive assessment of the 510(k) process by forming two FDA staff working groups. One group would review the 510(k) program and make recommendations to enhance the decisionmaking process. The second group would review how the agency incorporates new science into its decisionmaking and make recommendations on incorporating new science while maintaining predictability in the process for industry. During the development of the two internal reports, FDA sought public input via two public meetings, three town hall meetings, three public dockets, and many smaller meetings with various stakeholder groups.\nFDA released the two final reports of the agency's internal review in August 2010. The reports contained a total of 55 recommendations; the agency again sought public comment on the reports and their recommendations. In January 2011, FDA released its \"Plan of Action,\" based on some of the recommendations in the August 2010 internal review reports. Further information about FDA's \"Plan of Action\" and list of accomplishments for its implementation is provided on the agency's website.\nIn July 2011, IOM released a report on the 510(k) process. The IOM Committee recommended that the current 510(k) process be \"replaced with an integrated premarket and postmarket regulatory framework that effectively provides a reasonable assurance of safety and effectiveness throughout the device life cycle.\" In response to the 2011 IOM 510(k) report, CDRH Director Jeffrey Shuren stated in July 2011 that \"FDA believes that the 510(k) process should not be eliminated but we are open to additional proposals and approaches for continued improvement of our device review programs.... Many of the IOM findings parallel changes already underway at the FDA to improve how we regulate devices. These actions, plus a sufficiently funded device review program, will contribute to a stronger program. Any major modifications made to the agency's premarket review programs should be based on sound science and through thoughtful and transparent discussion\"\nIt is interesting to note that the 510(k) clearance process has not been adopted elsewhere, in contrast to the FDA approach to drug regulation, which has been adopted by many other countries. Although the U.S. system of medical device regulation has been in place much longer than systems elsewhere, such as the European Union, and FDA has greater experience than most countries in regulating medical devices, the IOM report found that \"other countries that tightly regulate medical devices do not rely solely on substantial equivalence to a predicate for premarket review of medium-risk devices.\" In addition, the IOM report notes that the \"Global Harmonization Task Force also does not offer as part of its guidance a predicate-based system for premarket review of medical devices.\"",
"Once approved or cleared for marketing, manufacturers of medical devices must comply with various regulations on labeling and advertising, manufacturing, and postmarketing surveillance. This section describes such requirements as well as efforts under development—the Sentinel Initiative and the Unique Device Identification (UDI) system—and CDRH compliance and enforcement actions.",
"Because the premarket review process cannot be designed to completely ensure the safety of all devices before they enter the market, it is essential to have a strong surveillance system that monitors the safety of medical devices. When a problem is identified with a particular medical device, various corrective actions can then be implemented. Corrective actions might include changing the device labeling and instructions for use, improving user training, continued study of the device problem via postmarket surveillance, or removal of the device from the market if appropriate.\nHowever, the iterative nature of medical device development adds a layer of complication to devising postmarket requirements for a product that may be replaced by the next-generation product before the start of, for example, a postmarket surveillance study. As noted earlier in this report, for high-risk cardiac implantable electronic devices that entered the market between 1979 and 2012, there was a median of 50 supplements per original PMA approved by FDA; clinical data are rarely collected as part of PMA supplement applications prior to marketing. The 2011 IOM report recommended that FDA \"develop and implement a comprehensive strategy to collect, analyze, and act on medical-device postmarket performance information.\"\nIn response to the 2011 IOM report and its recommendation to replace the 510(k) process, CDRH released its own report in September 2012. The 2012 CDRH report stated that \"several high-profile medical device performance concerns have led some to question whether the current United States postmarket surveillance system is optimally structured to meet the challenges of rapidly evolving medical devices and the changing nature of health care delivery and information technology.\"\nIn some cases, foreign surveillance systems have identified serious device safety concerns sooner than in the United States. For example, a Swedish registry found that drug-eluting stents were associated with an increased risk of death compared with bare-metal stents. An Australian registry was the first to identify the increased failure rates of metal-on-metal hip joints and found that many other new hip replacement products did not improve health outcomes compared with older devices. Patients and taxpayer-financed health care programs were receiving limited or no benefit from expensive new devices with a higher risk of adverse events. Postmarket data can be used to not only monitor device safety, but also to better understand and measure device innovation and cost-effectiveness.\nAccording to the CDRH report, the \"current United States medical device postmarket surveillance system depends primarily upon\" the following sources for detecting potential problems with medical devices:\nMedical Device Reporting (MDR). FDA annually receives several hundred thousand reports of confirmed or possible medical device related malfunctions, serious injuries, and deaths. Limitations of this passive surveillance system include incomplete, inaccurate, and/or delayed data reporting; underreporting of events; and lack of information on the total number of devices on the market in clinical use. Medical Product Safety Network (MedSun). FDA receives about 5,000 higher quality reports each year on device use and adverse outcomes from a network of 280 U.S. hospitals. The network \"can be used for targeted surveys and clinical research\" and has specialty subnetworks that focus on particular device types (HeartNet), laboratories (LabNet), or patients (KidNet). Post-Approval Studies. Such studies may be ordered by FDA as a condition of approval for a PMA device. These studies are typically \"used to assess device safety, effectiveness, and/or reliability including longer-term, real-world device performance.\" Postmarket Surveillance Studies. FDA may order a manufacturer of a Class II or Class III device to conduct a 522 study (FFDCA Section 522) if failure of the device is reasonably likely to have serious adverse health consequences, if it is expected to have significant use in pediatric populations, or if it (1) is intended to be implanted for longer than one year or (2) has life-supporting or life-sustaining use outside a device user facility. Approaches used in 522 studies \"vary widely and may include nonclinical device testing, analysis of existing clinical databases, observational studies, and, rarely, randomized controlled trials.\" FDA Discretionary Studies. In addition to those mentioned above, FDA \"conducts its own research to monitor device performance, investigate adverse event signals and characterize device-associated benefits and risks to patient sub-populations.\" Sources of privacy-protected data for these studies include \"national registries, Medicare and Medicaid administrative and claims data, data from integrated health systems, electronic health records, and published scientific literature.\" Other Tools. Identified in the appendix of the September 2012 FDA report.\nThere are limitations associated with the above sources of information on postmarket problems caused by medical devices. \"Currently, medical device data arise from disparate data sources with variable data elements, data definitions, data quality, and frequently from only limited subsets of patient exposures.\" Because of these limitations, FDA is attempting to create a new resource for all stakeholders—patients, physicians, hospitals, payers, manufacturers, regulators, and other federal entities—involved in the use of medical devices.\nThe September 2012 CDRH report described \"FDA's vision\" for the creation of a national system focused on medical devices that \"would augment, not replace, other mechanisms of surveillance such as FDA's MDR and MedSun.\" The new national system would conduct \"active surveillance in near real-time using routinely collected electronic health information containing unique device identifiers [UDIs], quickly [identify] poorly performing devices, accurately [characterize] the real-world clinical benefits and risks of marketed devices, and [facilitate] the development of new devices and new uses of existing devices through evidence generation, synthesis and appraisal.\"\nThe September 2012 CDRH report proposed four specific actions to strengthen the U.S. medical device postmarket surveillance system:\n1. establish a UDI system and promote its incorporation into electronic health information; 2. promote the development of national and international device registries for selected products; 3. modernize adverse event reporting and analysis; and 4. develop and use new methods for evidence generation, synthesis, and appraisal.\nThe agency held a series of meetings in September 2012 in order to solicit public comments regarding the U.S. medical device postmarket surveillance system.\nIn a series of subsequent reports, FDA and its partners have further refined this vision and provided updates on efforts to move toward the creation of a new National Evaluation System for health Technology (NEST). Two reports focus on providing medical devices with a UDI that corresponds to the product's manufacturer and model. Incorporation of UDI into patient electronic health records, health insurance claims, and registries would eventually allow for assessment of medical device performance in large patient populations. The remaining reports discuss recommendations for implementing the system as a whole, including a coordinating center, a seven-year implementation plan and several pilot programs. The cost to implement and maintain the system over the first five years is estimated to be $200 million to $250 million, or about $50 million annually, $25 million from appropriations, and $25 million from user fees. The reports by FDA and its partners on the medical device postmarket surveillance system are listed in the text box below.\nA January 2016 Senate Health, Education, Labor and Pensions Committee minority staff report on antibiotic-resistant infections associated with the use of duodenoscope devices recommends that Congress fully fund the National Medical Device Evaluation System. A public workshop, sponsored by the FDA and the University of Maryland/Center of Excellence in Regulatory Science and Innovation, on the National Evaluation System for Medical Devices was held on March 24, 2016.\nOn July 27, 2016, FDA released draft guidance on how the agency plans to use real-world data (RWD) in making premarket and post market regulatory decisions regarding medical devices. RWD is defined as \"data collected from sources outside of traditional clinical trials.\" Such sources may include, for example, \"administrative and healthcare claims, electronic health records, data obtained as part of a public health investigation or routine public health surveillance, and registries.\"",
"While the term postmarketing surveillance refers to a wide range of programs, the term postmarket surveillance refers to a specific activity defined in law. For certain class II and class III devices, FDA may order a manufacturer to conduct a postmarket surveillance study—also called a 522 study—once the device is approved or cleared for marketing in order to gather safety and efficacy data. A postmarket surveillance study may be ordered if\ndevice failure would be reasonably likely to have serious adverse health consequences; the device is expected to have significant use in pediatric populations; the device is intended to be implanted in the body for more than one year; or the device is intended to be a life-sustaining or life-supporting device used outside a device user facility.\nThe primary objective of postmarket surveillance is to study the performance of the device after clearance or approval as it is used in the population for which it is intended—and to discover cases of device failure and its attendant impact on the patient. Manufacturers may receive notification that their device is subject to postmarket surveillance when FDA files (i.e., accepts) the submission, and again when a final decision is made. If notified, manufacturers must submit a plan for postmarket surveillance to FDA for approval within 30 days of introducing their device into interstate commerce.\nFDASIA specifies that the Secretary's authority to order the conduct of postmarket surveillance is at the time of approval or clearance of a device or at any time thereafter. It also requires the manufacturer to commence any required postmarket surveillance not later than 15 months after being so ordered.\nResearchers have found that 522 studies \"have often been difficult to implement and complete reliably.\" For example, a \"key challenge in conducting these studies is a lack of incentives for clinicians and patients to participate, because they represent already marketed devices and an additional reporting burden and other requirements on top of their usual practice.\" In addition, \"522 studies have been criticized for inconsistencies in design, the lack of oversight, timeliness of reporting findings, and how the information is eventually used.\" On May 16, 2016, FDA issued final guidance on postmarket surveillance under FFDCA Section 522.\nA September 2015 GAO study described \"(1) the types of devices for which FDA has ordered a postapproval study and the status of these studies, and (2) the types of devices for which FDA has ordered a postmarket surveillance study and the status of these studies.\"\nGAO analyzed FDA data on 313 post approval studies that FDA ordered between January 1, 2007, and February 23, 2015. GAO found that 56% of the postapproval studies were for cardiovascular devices, 11% were for orthopedic devices, 9% were for general and plastic surgery devices, and 24% were for devices used by other medical specialties, such as anesthesiology, neurology, obstetrics and gynecology, and gastroenterology-urology. Nearly all (94%) of the postapproval studies were for devices approved through the PMA process, the remainder (6%) were for devices approved through the HDE process. Of the 313 postapproval studies, GAO found that 225 (72%) were ongoing, 62 (20%) were completed, and 26 (8%) were inactive. Of the 225 ongoing studies, 81% were making adequate progress and 19% were delayed due to, for example, limited patient enrollment.\nGAO analyzed FDA data on 392 postmarket surveillance studies that FDA ordered between May 1, 2008, and February 24, 2015. GAO found that 196 (50%) of the postmarket surveillance studies were for orthopedic medical devices. \"In 2011 alone, FDA ordered 176 studies for orthopedic devices following safety concerns about metal-on-metal hip implants, including potential bone or tissue damage from metal particles.\" Another 121 postmarket surveillance studies were ordered by FDA in 2012 \"following safety concerns about the use of implanted surgical mesh used for urogynecological procedures.\" Of the 392 studies, most (94%) were for devices cleared through the 510(k) process (primarily metal-on-metal hips and surgical mesh), 2% were approved through the PMA process, and 4% were approved through the HDE process. GAO found that 88% of the 392 postmarket surveillance studies were inactive, 10% were ongoing, and 2% were completed.",
"The Safe Medical Devices Act of 1990 (SMDA, P.L. 101-629 ) required FDA to establish a system for monitoring and tracking serious adverse events that resulted from the use or misuse of medical devices. Medical Device Reporting (MDR) is one mechanism that FDA uses to identify and monitor significant adverse events involving medical devices.\nDevice manufacturers are required to report to FDA (1) within 30 calendar days of acquiring information that reasonably suggests one of their devices may have caused or contributed to a death, serious injury, or malfunction and (2) within 5 working days if an event requires action other than routine maintenance or service to prevent a public health issue. User facilities, such as hospitals and nursing homes, are also required to report deaths to both the manufacturer, if known, and FDA within 10 working days. User facilities must report serious injuries to the manufacturers (or FDA if the manufacturer is unknown) within 10 working days. User facilities must also submit annual reports to FDA of all adverse event reports sent to manufacturers or FDA in the past year.\nIn August 2009, FDA published notice of a proposed rule, and a related draft guidance document, that would require manufacturers to submit MDRs to the agency in an electronic format. According to FDA, the proposed regulatory changes would provide the agency with a more efficient data entry process that would allow for timely access to medical device adverse event information and identification of emerging public health issues. The device industry requested a longer timeframe to implement the changes. A report by the HHS Office of Inspector General released in October 2009 raised a number of questions about adverse event reporting for medical devices. The report found that CDRH does not consistently use adverse event reporting and made several recommendations about how it could better do so.\nOn February 13, 2014, FDA published a final rule on Electronic Medical Device Reporting (eMDR) requiring manufacturers to submit MDRs to the agency in an electronic format. User facilities may also submit eMDR reports, but the final rule allows user facilities to continue to submit paper MDR reports.",
"\"Manufacturers are required to track certain devices from their manufacture through the distribution chain when they receive an order from [FDA] to implement a tracking system for a certain type of device.\" Device tracking ensures that manufacturers of these devices can locate them quickly, if needed once in commercial distribution, to facilitate notifications and recalls if serious risks to health are associated with a particular device. FDA may issue a tracking order for any Class II or Class III device:\nthe failure of which would be reasonably likely to have serious adverse health consequences; which is intended to be implanted in the human body for more than one year; or which is intended to be a life-sustaining or life-supporting device used outside a device user facility.\nFDA has issued orders to track a number of implantable devices (including silicone-gel filled breast implants, certain joint prostheses, implantable pacemakers, implantable defibrillator, mechanical heart valves, and implantable infusion pumps) and various other devices that are used outside a device user facility.",
"Section 905 of FDAAA mandated that FDA create an active postmarket risk identification system. Although the FDAAA language is focused on monitoring drugs, FDA is using its general authority to monitor all FDA-regulated products, including medical devices, after they have reached the market. FDASIA required the Secretary to modify the postmarket risk identification and analysis system, now called Sentinel, to include medical devices and to engage stakeholders during this expansion.\nFDA launched the Sentinel Initiative in May 2008; once completed, it will be called the Sentinel System. FDAAA set goals that the new system must be able to access data on 25 million people by July 2010, a goal which FDA has met, and 100 million people by July 2012. FDA met the 100 million people goal in December 2011, and as of June 2012 \"has secure access to data concerning approximately 126 million patients nationwide derived from 17 different data partners.\" According to FDA, Sentinel aims to develop and implement a proactive system that will complement existing systems that the agency has in place to track reports of adverse events linked to the use of its regulated products.\nFDA is collaborating with institutions throughout the United States, including academic medical centers, health care systems and health insurance companies, who act as data partners in the system. Additional collaborators will include patient and health care professional advocacy groups, academic institutions and the medical products industry. As an example of data applicable to medical devices, \"one Sentinel-related project identified, described, and evaluated potential US orthopedic-implant registries that could participate in the creation of a national network of such registries as part of the Sentinel Initiative. Data related to medical devices include rates of selected outcomes (for example, myocardial infarction and stroke), rates of infection, and rates of implant revision and reintervention.\" According to FDA and other stakeholders, including a Unique Device Identification (UDI) on CMS claims forms is \"the best way to expand the agency's Sentinel system to include medical devices.\"",
"FDAAA required the HHS Secretary to promulgate regulations establishing a UDI system. FDASIA required the Secretary to issue proposed regulations for the UDI system not later than December 31, 2012. The proposed rule was published in July 2012, and the final rule was published in September 2013. When fully implemented, the label of most devices will include a UDI in human- and machine-readable (bar code) form. A UDI is an alphanumeric code composed of two parts: the device identifier (DI) indicating the device's manufacturer and model number, and the production identifier (PI) identifying the device serial number, lot number, manufacture date, and in some cases expiration date. According to FDA, the UDI system offers \"a range of benefits to industry, FDA, consumers, health care providers and health care systems,\" such as\n• Allowing more accurate reporting, reviewing and analyzing of adverse event reports so that problem devices can be identified and corrected more quickly.\n• Reducing medical errors by enabling health care professionals and others to more rapidly and precisely identify a device and obtain important information concerning the characteristics of the device.\n• Enhancing analysis of devices on the market by providing a standard and clear way to document device use in electronic health records, clinical information systems, claim data sources and registries. A more robust postmarket surveillance system can also be leveraged to support premarket approval or clearance of new devices and new uses of currently marketed devices.\n• Providing a standardized identifier that will allow manufacturers, distributors and healthcare facilities to more effectively manage medical device recalls.\n• Providing a foundation for a global, secure distribution chain, helping to address counterfeiting and diversion and prepare for medical emergencies.\n• Leading to the development of a medical device identification system that is recognized around the world.\nUDI is being implemented in phases. In general, the Class III device compliance date was September 2014 (one year after the final rule was published), Class II is September 2016 (three years after the final rule), and Class I is September 2018 (five years after the final rule). FDA has held a number of public meetings and workshops with stakeholders to discuss the adoption, implementation, and use of a UDI system and has posted further information about the use of UDI for medical devices on its website.\nMembers of Congress, FDA, and other organizations, such as the Brookings Institute and the Pew Charitable Trusts, have called for the inclusion of the UDIs in Medicare claims forms. For example, in a January 2016 Senate Health, Education, Labor and Pensions Committee minority staff report on outbreaks of antibiotic-resistant infections associated with the use of duodenoscope devices, the first recommendation is that Congress should require and promote that UDIs be included in insurance claims.\nIn a September 2015 letter to Senators Elizabeth Warren and Charles E. Grassley, the HHS Inspector General, Daniel Levinson, indicates the benefits of incorporating UDI into \"claims data, both to protect beneficiaries from adverse events and the Medicare trust funds from significant losses.\" Research performed by two independent groups estimates that following the recall of the Medtronic Sprint Fidelis defibrillator lead (wire) in October 2007, \"Medicare incurred costs exceeding $1 billion due to this recall alone.\" According to the HHS Inspector General, at the present time,\nMedicare claims forms insufficiently identify Medicare beneficiaries who received a recalled or defective device. Therefore, we cannot readily determine the number of Medicare beneficiaries affected by medical device recalls and failures or assess the financial impact on Medicare. However, we have identified over 200 FDA recalls for cardiac devices alone since early 2010 that we believe have significantly increased Medicare costs. There have also been numerous orthopedic-related recalls within the last 5 years that we believe have significantly increased Medicare costs.\nIn the past, CMS has been opposed to the inclusion of UDIs in claims. Former Medicare Administrator Marilyn Tavenner stated in a February 2015 letter that \"including UDIs on claims would entail significant technological challenges, costs and risks\" for the agency. The February 2015 letter estimated the costs at $700 million. However, in a July 13, 2016, letter, CMS Acting Administrator Andrew Slavitt and FDA Commissioner Robert Califf stated support for including UDI on claims and urged the Accredited Standards Committee X12 to permit the device identifier portion of UDI for implantable devices to be included in the next version of the claims form.",
"Like drugs and biological products, all FDA approved or cleared medical devices are required to be labeled in a way that informs a user of how to use the device. The FFDCA defines a \"label\" as a \"display of written, printed, or graphic matter upon the immediate container of any article.\" \"Labeling\" is defined as \"all labels and other written, printed, or graphic matter upon any article or any of its containers or wrappers, or accompanying such article\" at any time while a device is held for sale after shipment or delivery for shipment in interstate commerce.\nThe term \"accompanying\" is interpreted to mean more than physical association with the product; it extends to posters, tags, pamphlets, circulars, booklets, brochures, instruction books, direction sheets, fillers, web pages, etc. Accompanying can also include labeling that is connected with the device after shipment or delivery for shipment in interstate commerce. According to an appellate court decision, \"most, if not all advertising, is labeling. The term 'labeling' is defined in the FFDCA as including all printed matter accompanying any article. Congress did not, and we cannot, exclude from the definition printed matter which constitutes advertising.\"\nAll devices must conform to the general labeling requirements. Certain devices require specific labeling, which may include not only package labeling, but informational literature, patient release forms, performance testing, and/or specific tolerances or prohibitions on certain ingredients.\nA section of the Quality System (QS) regulation also has an impact on various aspects of labeling. The QS regulation applies to the application of labeling to ensure legibility under normal conditions of use over the expected life of the device and also applies to inspection, handling, storage, and distribution of labeling. FDA considers a device to be adulterated if these requirements are not met. These requirements do not apply to the adequacy of labeling content, except to make sure the content meets labeling specifications contained in the device master record. However, failure to comply with GMP requirements, such as proofreading and change control, could result in labeling content errors. In such cases, the device could be misbranded and/or adulterated.",
"Like drug manufacturers, medical device manufacturers must produce their devices in accordance with Good Manufacturing Practice (GMP). The GMP requirements for devices are described in the QS regulation. The QS regulation requires that domestic or foreign manufacturers have a quality system for the design, manufacture, packaging, labeling, storage, installation, and servicing of nonexempt finished medical devices intended for commercial distribution in the United States. The regulation requires that various specifications and controls be established for devices; that devices be designed and manufactured under a quality system to meet these specifications; that finished devices meet these specifications; that devices be correctly installed, checked, and serviced; that quality data are analyzed to identify and correct quality problems; and that complaints are processed. FDA monitors device problem data and inspects the operations and records of device developers and manufacturers to determine compliance with the GMP requirements. Though FDA has identified in QS regulation the essential elements that a quality system should have, manufacturers have a great deal of leeway to design quality systems that best cover nuances of their devices and the means of producing them.",
"Compliance requirements apply to both the premarket approval process and postmarket surveillance. When a problem arises with a product regulated by FDA, the agency can take a number of actions to protect the public health. Initially, the agency tries to work with the manufacturer to correct the problem on a voluntary basis. If that fails, legal remedies may be taken, such as asking the manufacturer to recall a product, having federal marshals seize products, or refusing imported products that are in violation of the FFDCA. If warranted, FDA can ask the courts to issue injunctions or prosecute individual company officers that deliberately violate the law. When warranted, criminal penalties, including prison sentences, may be sought.\nSection 516 of the FFDCA gives FDA the authority to ban devices that present substantial deception or unreasonable and substantial risk of illness or injury. Section 518 enables FDA to require manufacturers or other appropriate individuals to notify all health professionals who prescribe or use the device and any other person (including manufacturers, importers, distributors, retailers, and device users) of any health risks resulting from the use of a violative device, so that these risks may be reduced or eliminated. This section also gives consumers a procedure for economic redress when they have been sold defective medical devices that present unreasonable risks. Section 519 of the act authorized FDA to promulgate regulations requiring manufacturers, importers, and distributors of devices to maintain records and reports to assure that devices are not adulterated or misbranded. Section 520(e) authorizes FDA to restrict the sale, distribution, or use of a device if there cannot otherwise be reasonable assurance of its safety and effectiveness. A restricted device can only be sold on oral or written authorization by a licensed practitioner or under conditions specified by regulation.",
"Each FDA center has an Office of Compliance (OC) that ensures compliance with regulations while pre- or postmarket studies are being undertaken, with manufacturing requirements, and with labeling requirements. The objectives of CDRH's OC's Bioresearch Monitoring (BIMO) program are to ensure the quality and integrity of data and information submitted in support of IDE, PMA, and 510(k) submissions and to ensure that human subjects taking part in investigations are protected from undue hazard or risk. This is achieved through audits of clinical data contained in PMAs prior to approval, data audits of IDE and 510(k) submissions, inspections of IRBs and nonclinical laboratories, and enforcement of the prohibitions against promotion, marketing, or commercialization of investigational devices. Any establishment where devices are manufactured, processed, packed, installed, used, or implanted or where records of results from use of devices are kept, can be subject to inspection. (See Table 3 .)\nThe OC also reviews the quality system design and manufacturing information in the PMA submission to determine whether the manufacturer has described the processes in sufficient detail and to make a preliminary determination of whether the manufacturer meets the QS regulation. If the manufacturer has provided an adequate description of the design and manufacturing process, a preapproval inspection can be initiated. Inspection is to include an assessment of the manufacturer's capability to design and manufacture the device as claimed in the PMA and confirm that the quality system is in compliance with the QS regulation. Postapproval inspections can be conducted within 8 to 12 months of approval of the PMA submission. The inspection is to primarily focus on any changes that may have been made in the device design, manufacturing process, or quality systems.\nThe compliance offices work closely with the Office of Regulatory Affairs (ORA), which operates in the field to regulate almost 124,000 business establishments that annually produce, warehouse, import and transport $1 trillion worth of medical products. ORA field inspectors typically have conducted about 22,000 domestic and foreign inspections a year to ensure that regulated products meet the agency's standards. CSOs also monitor clinical trials. Scientists in ORA's 13 laboratories typically have analyzed more than 41,000 product samples each year to determine their adherence to FDA's standards.",
"A Warning Letter is a written communication from FDA notifying a responsible individual, manufacturer, or facility that the agency considers one or more products, practices, processes, or other activities to be in violation of the laws that FDA enforces. The Warning Letter informs the recipient that failure to take appropriate and prompt action to correct and prevent any future repeat of the violations could result in an administrative or judicial action. Although serious noncompliance is often a catalyst for issuance of a Warning Letter, the Warning Letter is informal and advisory (see Table 4 ).",
"A recall is a method of removing or correcting products that FDA considers are in violation of the law. Medical device recalls are usually conducted voluntarily by the manufacturer after negotiation with FDA. Manufacturers (including refurbishers and reconditioners) and importers are required to report to FDA any correction or removal of a medical device that is undertaken to reduce a health risk posed by the device. A recall may involve the removal of all or a portion of the product on the market (such as a single lot). In rare instances, where the manufacturer or importer fails to voluntarily recall a device that is a risk to health, FDA may issue a recall order to the manufacturer.\nWhen a recall is initiated, FDA performs an evaluation of the health hazard presented taking into account the following factors, among others:\nWhether any disease or injuries have occurred from the use of the product; Whether any existing conditions could contribute to a clinical situation that could expose humans or animals to a health hazard; Assessment of hazard to various populations (e.g., children, surgical patients, pets, livestock) who would be exposed to the product; Assessment of the degree of seriousness of the health hazard to which the populations at risk would be exposed; Assessment of the likelihood of occurrence of the hazard; Assessment of the consequences (immediate or long-range) of the hazard.\nFollowing the health hazard assessment, FDA assigns the recall a classification according to the relative degree of health hazard. Class I recalls are the most serious, reserved for situations where there is a reasonable probability that the use of, or exposure to, a product will cause serious adverse health consequences or death. Class II recalls are for situations where the use of, or exposure to, a product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote. In a Class III recall situation, the use of, or exposure to, a product is not likely to cause adverse health consequences (see Table 5 ). In addition to a warning letter or recall, FDA may issue a public notification or safety alert (e.g., \"Dear Doctor\" letter), to warn health care providers and consumers of the risk of the device.\nFDASIA requires the Secretary to establish a program to improve the device recall system. Among other things, it requires an assessment of information on device recalls, an assessment of the effectiveness of corrections or action plans for recalls, and documentation of the basis for terminations of recalls.\nAppendix A. A Comparison of FDA Premarket Review of Prescription Drugs and Medical Devices\nAppendix B. History of Laws Governing Medical Device Regulation\nThe Federal Food, Drug and Cosmetics Act of 1938\nThe first general federal food and drug law, the Food and Drugs Act of 1906 , did not contain any provisions to regulate medical device safety or claims made regarding such devices. Strong support for reform developed during the 1930s due to \"false therapeutic claims for medical devices [that] were being presented to the public through radio and newspaper advertising.\" Medical devices came under federal scrutiny when Congress passed the Federal Food, Drug and Cosmetic Act (FFDCA) of 1938 (P.L. 75-717). The regulatory authority provided to FDA by the 1938 law was \"limited to action after a medical device has been offered for introduction into interstate commerce\" and only when the device was deemed to be \"adulterated or misbranded.\"\nMost of the legitimate devices on the market at the time the 1938 act became law \"were relatively simple items which applied basic science concepts such that experts using them could readily recognize whether the device was functioning properly; the major concern with respect to these devices was assuring truthful labeling.\" During the first 20 years following enactment of the 1938 law, FDA's activity with respect to medical devices involved protecting the American public from fraudulent devices; FDA began to turn its attention to the hazards from legitimate devices around 1960.\nThe post-war revolution in biomedical technology had resulted in the introduction of a wide variety of sophisticated devices. New developments in the electronic, plastic, metallurgy, and ceramics industries, coupled with progress in design engineering, led to invention of the heart pacemaker, the kidney dialysis machine, defibrillators, cardiac and renal catheters, surgical implants, artificial vessels and heart valves, intensive care monitoring units, and a wide spectrum of other diagnostic and therapeutic devices. Although many lives have been saved or improved by the new discoveries, the potential for harm to consumers has been heightened by the critical medical conditions in which sophisticated modern devices are used and by the complicated technology involved in their manufacture and use. In the search to expand medical knowledge, new experimental approaches have sometimes been tried without adequate premarket clinical testing, quality control in materials selected, or patient consent.\nThe Dalkon Shield, a contraceptive device introduced in November 1970, is \"an example of a legitimate device which was marketed without adequate premarket testing.\" Other examples include defective cardiac pacemakers and intraocular lenses which, following implantation, caused unusual eye infections resulting in serious vision impairment or the need for removal of the eye.\nCongress amended the FFDCA in 1962 to require FDA approval of a new drug application prior to marketing and to require that a new drug be shown to be effective as well as safe. Following these changes, FDA began \"to impose rigorous premarket approval of some products that today would be deemed devices.\" Court decisions in the late 1960s upheld FDA's authority to regulate some medical devices as drugs due in part to the overlapping definitions of drug and device in the 1938 law. FDA classified a number of devices as drugs (contact lenses, injectable silicone, pregnancy-test kits, bone cement), and only such devices were subject to premarket review (prior to 1976). However the approach of classifying devices as a drug was unsuccessful in other court decisions and the need for more comprehensive authority to regulate devices was recognized by the Kennedy, Johnson, and Nixon Administrations.\nThe Medical Device Amendments of 1976\nThe Medical Device Amendments of 1976 (MDA; P.L. 94-295 ) was the first major legislation passed to address the review of medical devices. The MDA provided a definition for the term device. It established a number of requirements referred to as general controls that applied to all devices. Examples include provisions on adulteration and misbranding, prohibitions on false or misleading advertising, and a requirement to register all medical device manufacturers with FDA. One such provision required manufacturers to notify FDA 90 days prior to the marketing of any new device; if the agency failed to act, marketing could begin. Because this provision is outlined in section 510(k) of the FFDCA, it is often referred to as a \"510(k) notification.\"\nThe MDA directed FDA to classify, into one of three classes, all medical devices that were on the market at the time of enactment; these are the preamendment devices. Congress provided definitions for the three classes—Class I, Class II, Class III—based on the risks to patients posed by the devices. In contrast to the approach taken with pharmaceuticals (all, except generic agents, undergo rigorous premarket review and approval), Congress limited premarket approval to only a small number of devices. \"Only the highest-risk category [Class III] would require agency review and approval as a precondition for commercial sale and routine medical use. The other two categories would be subject not to a rigorous review but merely a requirement [510(k)] that the manufacturer of a device notify FDA, at least 90 days before commencing marketing, of its intent to distribute the product commercially.\" For Class I devices, no additional review was needed once the status of Class I was confirmed; general controls were considered to be sufficient to protect public health. For Class II devices, limited supplemental review would be needed to verify conformity with performance standards if such standards had been established by the agency.\nUnder MDA, all devices coming to market after enactment were automatically placed in Class III until reclassified; these are the postamendment devices. As stated above, Class III medical devices receive more intense scrutiny and require an application for premarket approval (PMA) before the device can be marketed. However, the MDA allowed for the reclassification of a device from one class to another. According to a 2011 IOM report on medical devices:\nThe classification and reclassification process did not include any evaluation of the safety or effectiveness of the device types being categorized. Once a device type was assigned to Class III, the FDA was directed to promulgate a regulation calling for manufacturers of devices of that type to submit a [PMA] application. The agency would then (and only then) undertake a review of the safety and effectiveness of the devices. For device types placed into Class I or Class II, there was no mechanism for the systematic review of safety and effectiveness. Congress envisioned instead that the agency would use its postmarketing tools to identify and address issues of lack of safety or lack of effectiveness case by case. Thus, preamendment devices in Class I and II were never subjected to a comprehensive FDA evaluation for safety or effectiveness. The classification process was not completed until 1988.\nFor postamendment devices, which were automatically placed into Class III, there were two important exceptions:\nThe primary exception involved a postamendment device that was substantially equivalent to another device of the same type that either as a preamendment device that had not been classified into any class or was not a preamendment device but had already been classified into Class I or Class II. The FDA permitted manufacturers of postamendment devices to demonstrate substantial equivalence to a preamendment device in Class I or II as part of the 510(k) submission. An alternative exception provided that the postamendment device would not be in Class III if the FDA, in response to a petition, classified it into Class I or Class II.\nThe MDA did not provide a definition for the term substantially equivalent. The MDA also did not itemize the required contents of a 510(k). Such a notification \"need only set forth its proposed intended use or indications for use, the device to which substantial equivalence is claimed, and evidence demonstrating that equivalence.\"\nThe Safe Medical Devices Act of 1990\nThe Safe Medical Devices Act of 1990 (SMDA; P.L. 101-629 ) made a number of changes to the law such as providing a definition for the term substantial equivalence and revising the definition for Class II. FDA had not promulgated performance standards for most Class II devices. The new law authorized the use of alternative restrictions, called special controls, at the agency's discretion and simplified the process of establishing performance standards for Class II devices. Examples of special controls include special labeling requirements, mandatory performance standards, patient registries and postmarket surveillance.\nFDA also had experienced difficulty in promulgating regulations needed to require submission of PMA applications for Class III devices. SMDA authorized FDA to reconsider all the preamendment devices that had been placed in Class III and reclassify some of these devices into Class I or Class II. The purpose was \"to reduce the number of device types that needed PMA review.\" For those devices remaining in Class III, the agency was directed to establish a schedule for promulgation of regulations calling for PMAs of devices that still used the 510(k) notification as an entry to the marketplace.\nUnder SMDA, FDA must issue a response to a 510(k) submission before marketing of a new device can begin. SMDA allowed for the evaluation of safety and effectiveness data in 510(k) notifications, but only in certain situations. These were limited to cases in which a new device offered different technologic characteristics from the already marketed pre a mendment or postamendment (predicate) device. \"Because the assessment of substantial equivalence generally did not require evidence of safety or effectiveness of a device and because a preamendment device to which equivalence was established was not itself reviewed for safety or effectiveness, the FDA made clear from the outset that clearance of a 510(k) notification was not a determination that the cleared device was safe or effective. That position was reiterated by the agency numerous times. The US Supreme Court accepted this interpretation in a 1996 opinion.\"\nSMDA established postmarket requirements for medical devices. SMDA required facilities that use medical devices to report to FDA any incident that suggested that a medical device could have caused or contributed to the death, serious illness, or injury of a patient. Manufacturers of certain permanently implanted devices were required to establish methods for tracking the patients who received them and to conduct postmarket surveillance to identify adverse events. The act authorized FDA to carry out certain enforcement actions, such as device product recalls, for products that did not comply with the law.\nThe Food and Drug Administration Modernization Act of 1997\nThe Food and Drug Administration Modernization Act of 1997 (FDAMA; P.L. 105-115 ) mandated wide-ranging reforms in the regulation of foods, drugs, and medical devices by FDA. In general, provisions involving medical devices \"were designed to reduce FDA's workload and permit concentration of resources on devices that presented greater potential for harm\" and \"to limit the FDA's discretion and authority in regulating the device industry\" in order to \"accelerate the pace of technology transfer.\"\nFDAMA eliminated the 510(k) notification requirement for most Class I devices and some Class II devices. It authorized the creation of a third-party review system of 510(k) submissions for Class I and most Class II devices that still required 510(k) review. It allowed certain new devices (those not substantially equivalent to another device and automatically placed in Class III) to be evaluated for immediate placement in Class I or Class II. This process, called the de novo 510(k), avoids PMA review, must be completed in 60 days, and may be requested by the sponsor.\nFor substantial equivalence determinations in which the new device has a different technological characteristic, FDAMA requires that FDA \"consider the least burdensome means of demonstrating substantial equivalence and request information accordingly.\" For a medical device using an important breakthrough technology, or which does not have an approved alternative device, priority review of the PMA must be provided by FDA.\nFDAMA limited the use of some postmarket controls (device tracking and postmarket surveillance) to Class II and Class III devices, eased reporting requirements of adverse events for device user facilities, eliminated mandatory reporting of adverse events by medical device distributors, and directed FDA to establish a sentinel reporting system to collect information on deaths and serious injuries or illnesses associated with the use of a medical device.\nMedical Device User Fee Acts\nThe Medical Device User Fee and Modernization Act of 2002 (MDUFMA; P.L. 107-250 ) established a user fee program for premarket reviews of 510(k) submissions and PMA applications; user fees may not be used for other FDA or CDRH activities. MDUFMA also made targeted changes that would reduce regulatory burdens and agency workload, such as allowing establishment inspections to be conducted by accredited persons (third parties). MDUFMA was amended and clarified by two laws: the Medical Device Technical Corrections Act of 2004 (MDTCA, P.L. 108-214 ), and the Medical Device User Fee Stabilization Act of 2005 (MDUFSA, P.L. 109-43 ), and had its user fee provisions reauthorized by the Medical Device User Fee Act of 2007 (MDUFA; Title II of FDAAA, see below).\nFDA Amendments Act of 2007\nThe Food and Drug Administration Amendments Act of 2007 (FDAAA; P.L. 110-85 ) amended the FFDCA and the Public Health Service Act (PHSA) to reauthorize several expiring programs (including the medical device user fee act) and to make agency-wide changes, several of which have implications for the regulation of medical devices. FDAAA created incentives as well as reporting and safety requirements for manufacturers of medical devices for children; required that certain clinical trials for medical devices and some other products be publicly registered and have their results posted; created requirements to reduce conflicts of interest in advisory committees for medical devices and other products; and made certain other amendments to the regulation of devices.\nFDA Safety and Innovation Act\nThe Food and Drug Administration Safety and Innovation Act of 2012 (FDASIA, P.L. 112-144 ) amended the FFDCA and the PHSA to reauthorize the prescription drug and medical device user fee programs, created new user fee programs for generic and biosimilar drug approvals, and modified FDA authority to regulate medical products. Several provisions in FDASIA made modifications to various aspects of premarket and postmarket device regulation. Examples of premarket changes include those which affect the efficiency, transparency, and data requirements of the 510(k) and PMA processes; and alter or make clarifications to certain types of exempt devices, for example, custom devices and humanitarian use devices. Provisions affecting postmarket regulation include those which focus on expanding active postmarket surveillance; altering requirements related to postmarket studies for devices; and strengthening both device recall and tracking capabilities through a recall program and the unique device identifier system. Miscellaneous reforms include those aimed at increasing transparency of FDA's approval and clearance decisions and processes for issuing industry guidance documents; improving health information technology for the agency; and harmonizing device regulation with FDA's international counterparts.\nAppendix C. Acronyms Used in this Report"
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"question": [
"What concern exists regarding the access of medical devices by consumers?",
"Why is medical device regulation complex?",
"What can medical device regulation affect?",
"What organization is in charge of medical device review in the United States?",
"What comprises the FDA's program budget?",
"What is accounted for in the budget?",
"What has allowed for the reauthorization of FDA's authority to collect medical device user fees?",
"How does the FDA classify medical devices?",
"How does the classification of the medical devices affect their market approval?",
"What are the paths that can be taken to bring a moderate- or high-risk device to market?",
"What does the process for proving equivalence require?",
"What is the FDA's history for approval and review in 2015?",
"What problems are related to medical devices?",
"What agencies have voiced concerns about the FDAs medical device review process?",
"How has the FDA addressed these concerns?"
],
"summary": [
"Prior to and since the passage of the Medical Device Amendments of 1976, Congress has debated how best to ensure that consumers have access, as quickly as possible, to new and improved medical devices and, at the same time, prevent devices that are not safe and effective from entering or remaining on the market.",
"Medical device regulation is complex, in part, because of the wide variety of items that are categorized as medical devices; examples range from a simple tongue depressor to a life-sustaining heart valve.",
"The regulation of medical devices can affect their cost, quality, and availability in the health care system.",
"In order to be legally marketed in the United States, many medical devices must be reviewed by the Food and Drug Administration (FDA), the agency responsible for protecting the public health by overseeing medical products. FDA's Center for Devices and Radiological Health (CDRH) is primarily responsible for medical device review.",
"CDRH activities are funded by congressional appropriations and user fees collected from device manufacturers, which together comprise the program level budget.",
"User fees account for 43% of FDA's total FY2016 program level and 28% of CDRH's FY2016 program level. The CDRH program level budget in FY2016 is $450 million, including $127 million in user fees.",
"FDA's authority to collect medical device user fees, originally authorized in 2002 (P.L. 107-250), has been reauthorized in five-year increments and was reauthorized through FY2017 in the FDA Safety and Innovation Act (FDASIA, P.L. 112-144).",
"Under the Federal Food, Drug, and Cosmetic Act (FFDCA), all medical device manufacturers must register their facilities and list their devices with FDA and follow general controls requirements. FDA classifies devices according to the risk they pose to consumers.",
"The FFDCA requires premarket review for moderate- and high-risk devices. There are two main paths that manufacturers can use to bring such devices to market.",
"One path consists of conducting clinical studies and submitting a premarket approval (PMA) application that includes evidence providing reasonable assurance that the device is safe and effective. The other path involves submitting a 510(k) notification demonstrating that the device is substantially equivalent to a device already on the market (a predicate device) that does not require a PMA.",
"The 510(k) process results in FDA clearance and tends to be much less expensive and less time-consuming than seeking FDA approval via PMA. Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. Demonstrating substantial equivalence does not usually require submitting clinical data demonstrating safety and effectiveness. Once its device is approved or cleared for marketing, a manufacturer must comply with regulations on manufacturing, labeling, surveillance, device tracking, and adverse event reporting.",
"In 2015, FDA approved 98% of PMAs accepted for review and 85% of 510(k)s accepted for review were determined to be substantially equivalent.",
"Problems related to medical devices can have serious consequences for consumers. Defects in medical devices, such as artificial hips and pacemakers, have caused severe patient injuries and deaths.",
"Reports published in 2009 through 2011—by the Government Accountability Office (GAO), the Department of Health and Human Services Office of the Inspector General, and the Institute of Medicine—have voiced concerns about FDA's device review process. In 2009, 2011, 2013, and 2015 FDA's oversight of medical products was included on the GAO list of high-risk areas.",
"In 2009, 2011, 2013, and 2015 FDA's oversight of medical products was included on the GAO list of high-risk areas. In response to these concerns, FDA has conducted internal reviews and has implemented changes, including plans for a new National Evaluation System for health Technology (NEST)."
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GAO_GAO-14-190
|
{
"title": [
"Background",
"Program Is Continuing to Meet Cost, Schedule, and Performance Estimates",
"Key Acquisition Cost, Schedule, and Performance Metrics Have Remained Relatively Stable",
"Funding Set Aside to Alleviate Program Risk Is Almost Depleted",
"Program Stabilized the KC-46 Design and Is Now Focused on Software Development and Testing Challenges",
"Program Successfully Completed Its Critical Design Review",
"Software Development Is Progressing",
"Software Test Schedule Will Be Challenging",
"Pace of Flight Test Schedule Poses Future Risk",
"Manufacturing Has Begun with Some Delays",
"Development Aircraft Manufacturing Has Started",
"Program Is Capturing Manufacturing Knowledge",
"Status of Key Military Subsystems",
"Conclusions",
"Recommendation for Executive Action",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Comparison of Current KC-135 Versus Planned KC-46 Performance Capabilities",
"Appendix III: Description of Key Performance Parameters",
"Appendix IV: KC-46 Critical Technology Elements",
"Appendix V: Comments from the Department of Defense",
"Appendix VI: GAO Contact and Acknowledgments",
"GAO Contact",
"Acknowledgments"
],
"paragraphs": [
"In February 2011, Boeing won the competition to develop the Air Force’s next generation aerial refueling tanker aircraft, the KC-46. This program is one of a few weapon system programs to use a fixed price incentive (firm target) contract for development in recent years. Defense officials stated that a fixed price incentive (firm target) contract was appropriate for the program because KC-46 development is considered to be a relatively low-risk effort to integrate mostly mature military technologies onto an aircraft designed for commercial use. The KC-46 development contract is designed to hold Boeing accountable for cost associated with the development of four test aircraft and includes options to manufacture the remaining production lots. The contract limits the government’s financial liability and provides the contractor incentives to reduce costs in order to earn more profit. Barring any changes to KC-46 requirements by the Air Force, the contract specifies a target price of $4.4 billion and a ceiling price of $4.9 billion, at which point Boeing must assume responsibility for all additional costs. We previously reported that both the program office and Boeing have estimated that development costs would exceed the contract ceiling price. As of March 2014, Boeing and the program office estimated costs would be over the ceiling price by about $271 million and $787 million, respectively. The program office estimate is higher because it includes additional costs associated with performance as well as cost and schedule risk.\nIn all, 13 production lots are expected to be delivered. The contract includes firm fixed price contract options for the first production lot in 2015 and the second production lot in 2016, and options with not-to-exceed firm fixed prices for production lots 3 through 13. The contract also requires Boeing to deliver 18 operational aircraft by August 2017. In addition, all required training must be complete, and the required support equipment and sustainment support in place by August 2017. Contract provisions also specify that Boeing must correct any required deficiencies and bring development and production aircraft to the final configuration at no additional cost to the government. After the first two production lots, the program plans to produce aircraft at a rate of 15 aircraft per year, with the final 6 aircraft procured in fiscal year 2027. Separate competitions may occur for later acquisitions, nominally called the KC-Y and KC-Z, to replace the rest of the KC-135 fleet and the KC-10 fleet (the Air Force’s large tanker).\nBoeing plans to modify the 767 aircraft in two phases to produce a militarized aerial refueling tanker: In the first, Boeing is modifying the 767 with a cargo door and an advanced flight deck display borrowed from its new 787 and calling this modified version the 767-2C. The 767-2C will be built on Boeing’s existing production line. In the second, the 767-2C will proceed to the finishing center to become a KC-46. It will be militarized by adding air refueling capabilities, an air refueling operator’s station that includes panoramic three-dimensional displays, and threat detection and avoidance systems.\nThe Federal Aviation Administration (FAA) has previously certified Boeing’s 767 commercial passenger airplane and will certify the design for both the 767-2C and the KC-46. Boeing established plans for the FAA to accomplish the 767-2C and the KC-46 certifications concurrently rather than consecutively, which is the typical procedure. The Air Force also has to certify the KC-46 and will use the FAA’s findings to make the overall airworthiness determination. See Figure 1 for a depiction of the conversion of the 767 aircraft into the KC-46 tanker.\nThe new KC-46 tanker is expected to be more capable than the KC-135 it replaces in several respects. Unlike the KC-135, it will allow for two types of refueling to be employed in the same mission—a refueling boom that is integrated with a computer assisted control system, as well as a permanent hose and drogue refueling system. The KC-135 has to land and switch equipment to transition from one mode to another. Also, the KC-46 is expected to be able to refuel in a variety of night-time and covert mission settings and will have countermeasures to protect it against infrared missile threats. The KC-135 is restricted in tactical missions and does not have sufficient defensive systems relative to the KC-46. Designed with more refueling capacity, improved efficiency, and increased cargo and medical evacuation capabilities than its predecessor, the KC-46 is intended to provide aerial refueling to Air Force, Navy, Marine Corps, and allied aircraft. Appendix II compares, in more detail, the current capabilities of the KC-135 with the planned capabilities of the new KC-46 tanker.",
"KC-46 total program acquisition costs (development, production, and military construction costs) have remained relatively stable since program start, changing less than 1 percent since February 2011, and the program is meeting schedule and performance goals. Boeing set aside $354 million in contract funds to address identified, but unresolved development risks. As of December 2013, Boeing had about $75 million remaining to address these risks. Based on Boeing’s monthly usage, we calculate that the management reserves will be depleted about 3 months before the KC-46’s first flight and approximately 3 years before the development contract is completed. The government, however, would bear no financial risk for future work if Boeing uses all of its management reserves as long as the Air Force does not make changes to the KC-46 requirements, schedule, or other relevant terms and conditions of the contract. Our prior work has found that flight testing is likely to uncover problems that will require management reserves to address.",
"The KC-46 total acquisition cost estimate has remained relatively stable since February 2011 although there have been some minor fluctuations among the development, procurement, and military construction costs that make up this estimate. The largest change is in the program’s development cost estimate, which has decreased by about $345 million, or about 5 percent. Development cost reductions can be attributed to fiscal year 2013 sequestration cuts, support for DOD’s Small Business Innovative Research fund, and cuts to a fund dedicated to tanker replacement. According to program officials, these reductions have not affected the program because it had set aside funds to address engineering changes, which have not occurred thus far. Overall, total acquisition and unit costs have decreased less than 1 percent and quantities have remained the same. Table 1 summarizes the initial and current estimated quantities, costs, and milestone dates for the KC-46 program.\nThe October 2013 development cost estimate of about $6.8 billion includes several contracts for various activities. For example, the program office awarded Boeing a contract for $4.9 billion to develop 4 test aircraft and budgeted over $0.3 billion for the development of aircrew and maintenance training systems. An estimated $1.6 billion is needed to cover other government costs, such as program office support, test and evaluation support, contract performance risk, and other development risks associated with the aircraft and training systems. The procurement cost estimate of $40.3 billion is to procure 175 production aircraft, initial spares, and other support equipment. The military construction estimate of $4.2 billion includes the projected costs to build aircraft hangars, maintenance and supply shops, and other facilities to house and support the KC-46 fleet at 10 main operating bases, 1 training base, and the Oklahoma City Air Logistics Complex depot.\nBoeing is also meeting the high level schedule milestones. Most recently, it conducted the critical design review (CDR) in July 2013, on schedule. However, there are indications that the start of initial operational test and evaluation, which is scheduled for May 2016, may slip. DOD’s Office of the Director, Operational Test and Evaluation, which is responsible for approving operational and live fire test and evaluation within each major defense acquisition program, recently issued its 2013 annual report and continued to recommend that the Air Force plan for a 6- to 12-month delay to the start of initial operational test and evaluation to allow more time to train aircrew and maintenance personnel and verify maintenance procedures. The KC-46 program office agrees that the test schedule is aggressive, but does not believe the delays are certain.\nThe program office projects that the KC-46 aircraft will meet the requirements of all nine key performance parameters by the end of development. Satisfying these key performance parameters will ensure that the KC-46 will be able to accomplish its primary mission of providing worldwide, day and night, adverse weather aerial refueling as well as its secondary missions. See appendix III for a list of the KC-46 key performance parameters. The program office has developed a set of metrics to help gauge its progress towards meeting the performance parameters. For example, one metric tracks operational empty weight because in general, every pound of excess weight equates to a corresponding reduction in the amount of fuel the aircraft can carry to accomplish its primary mission. Boeing currently projects that the aircraft will meet the weight target of 204,000 pounds.",
"At the outset of development, Boeing set aside $354 million from contract funds in a management reserve account, about 7 percent of the contract ceiling price, to address identified, yet unresolved, development risks. Last year we reported that Boeing had accomplished approximately 28 percent of the development work and had allocated about 80 percent of the contract’s management reserves. We raised concerns about the high rate at which the management reserves were being used because doing so early in a program is often an indicator of future contract performance problems.\nSince then, there have been two major actions related to management reserves in 2013. First, in January 2013, Boeing returned $72 million to the management reserves account because program officials determined that the program would pay for fuel for test flights rather than Boeing, new labor rates were lower than planned, and Boeing calculated costs associated with some types of labor incorrectly. Second, in August 2013, Boeing allocated about $42 million of its management reserves, with the largest portion, $24 million, used for a wet fuels laboratory. Boeing initially planned on using corporate funding for the wet fuels laboratory, which was intended for general wet fuels research. However, since the laboratory became more focused on meeting the specific needs of the KC-46 program, Boeing determined it was more appropriate to use management reserves. The other $18 million was used for a variety of other efforts, including minor design and architectural changes. The following figure illustrates management reserve allocation since program start and projects when reserves will be depleted.\nAs of December 2013, about $75 million in unallocated reserves remain. If the current usage trend continues—a monthly average of over $9 million—the program office projects management reserves will be depleted in September 2014, about 3 months before the start of KC-46 developmental flight testing and approximately three years before the development contract is completed. According to GAO’s Cost Estimating and Assessment Guide, significant use of management reserves early in a program may indicate contract performance problems and decreases the amount of reserves available for future risks, particularly during the test and evaluation phase when demand may be the greatest. Barring any changes to KC-46 requirements, schedule, or other relevant terms and conditions of the contract by the Air Force, Boeing would be solely responsible for the cost of future changes if it uses all of its management reserves, so the government bears no financial risk.",
"The program office and Boeing held the program’s CDR in July 2013 and released over 90 percent of the total engineering design drawings, a key indicator that the design is stable. The program is now focused on completing software development and integration, as well as test plans in preparation for developmental flight testing. Software development plans changed over the course of the past year in large part because the program solidified requirements at CDR and Boeing brought two of the program’s software intensive system components in-house and found ways to use some of its existing software. Overall, software development is progressing largely according to plan; however, software verification testing has not yet started and software problem reports are increasing. The flight test program is also a concern because it depends on coordination among several separate government entities, requires timely access to receiver aircraft (the aircraft the KC-46 will refuel while in flight), and requires a more aggressive pace than on past programs. The program office is conducting a series of rehearsal test exercises and is working with Air Force officials to finalize agreements related to receiver aircraft availability to mitigate these risks.",
"The program office held its CDR in July 2013, with Boeing releasing over 90 percent of the total engineering design drawings. The 90 percent drawing release met a contractual requirement and is consistent with acquisition best practices that use this metric as an indicator that the design is stable. According to program officials, as of December 2013, Boeing had released 98.6 percent of the expected engineering design drawings and the remaining drawings relate almost exclusively to aircraft interiors and are not considered to be complex. Figure 3 shows the number of design drawings completed since Boeing began tracking it in May 2011.\nPrior to CDR, the program office and Boeing took a number of steps to ensure the program had a stable design. This included holding a series of sub-system CDRs, replacing two system components that were not sufficiently mature, and addressing previously identified risks, such as aircraft weight. Currently, Boeing is working to alleviate lingering instability in key physical components related to aerial refueling—the centerline drogue system and wing aerial refueling pod. Boeing still considers the instability of these components to be a moderate program risk, and its strategy is to conduct modeling and simulation studies and perform ground tests to help mitigate this risk.",
"As of January 2014, Boeing estimates that 15.8 million lines of code will be needed for the KC-46. Boeing plans to rely primarily on reused software from its commercial aircraft for the 767-2C and more heavily on modified or new software for the military subsystems on the KC-46. As shown in table 2, the most recent plan is for Boeing to reuse existing software for 83 percent of its software needs, which has helped reduce risks associated with software development.\nAccording to program officials, the changes in reused, modified, and new software between 2011 and 2013 are largely the result of the program solidifying requirements for CDR and Boeing’s effort to reduce the risk associated with the development of two software-intensive system components related to situational awareness. According to these officials, there were limitations with the original software developer’s software and Boeing ultimately decided to bring the development effort in-house, leveraging existing software code to mitigate risk.\nOverall, we found that software development is currently progressing mostly according to Boeing’s plan. As shown in figure 4, as of January 2014, Boeing reported that 73 percent of software had been delivered compared to its plan for having 76 percent at this time (96 percent of the planned activities).\nA large portion of the software that has been delivered to this point is reused software that is needed for the initial build of the 767-2C aircraft. A small amount of development work related to the aerial refueling software, about 3 percent, is behind schedule. The remaining software, related to key military subsystems for remote vision and situational awareness, among other capabilities, is expected to be delivered to Boeing through the beginning of June 2014.",
"While the program’s progress for software development is encouraging, program officials are expecting software verification testing, which has not yet begun, to be challenging. Notably, Boeing must verify the software code to determine if it works as intended. Approximately 735,000 lines of the code are new and relate in large part to key military unique systems. Moreover, Boeing’s software integration lab that simulates the KC-46 cockpit will be at near capacity between February and June 2014. Boeing could have difficulty completing all testing if more retests are needed than expected.\nIn addition to capacity concerns, we found that software problem reports are increasing. There were over 600 software problem reports as of January 2014 that needed to be addressed, which will add pressure to an integration lab already operating at near capacity. Thirty-five percent of the problem reports were considered urgent or high priority problems that need to be fixed as quickly as possible. Program officials stated that avionics flight management computer software has been a major contributor to the problem reports to date and that Boeing is working closely with this supplier to ensure problems are addressed. This particular supplier has recently increased the number of staff working on this software effort from 3 to 24 people to address the backlog of problem reports.",
"The program’s flight test schedule continues to be a concern due to the need for extensive coordination among government entities, the need for timely access to receiver aircraft, and its aggressive pace. The following is a summary of the various testing concerns and the steps, if any, the program office and Boeing are taking to address them.\nCoordinating on concurrent test activities: Government agencies and Boeing have agreed to a “test once” approach, whereby many of the test activities for FAA certification, developmental testing, aerial refueling, and operational testing will be combined to achieve greater efficiency. Currently, Boeing, the program office, the Air Force, Navy, FAA, and officials from the Office of the Secretary of Defense organizations for developmental and operational testing are finalizing detailed test plans, which are needed to guide flight test activities that are scheduled to begin in June 2014 for the 767-2C and in January 2015 for the KC-46. The program office is conducting a series of rehearsal test exercises before any flight tests take place to ensure that all parties understand their roles and responsibilities during testing. Program officials report that three of four such exercises have been completed, with the next scheduled for September 2014. Officials said this exercise will focus on preparing for the KC-46’s first flight.\nEnsuring receiver aircraft availability: To meet the test schedule, receiver aircraft, such as the F-22 A and the F/A-18 C, are needed at certain locations and times to participate in the program’s test activities. The program office has finalized one memorandum of agreement with Air Force officials for access to 14 receiver aircraft and stated that it is currently in the process of developing two additional agreements with the Navy for two additional types of aircraft and the United Kingdom for their respective aircraft. If the receiver aircraft are not available when needed, the Air Force risks affecting Boeing’s test schedule.\nMaintaining flight test pace: The program office and Boeing report that maintaining the program’s flight test pace is among the program’s greatest risks. Program officials explained that this risk captures both the 65 hour per month commercial test pace for the 767-2C aircraft and the 50 hour per month military test pace for the KC-46 aircraft. To adhere to the aggressive test schedule, Boeing officials stated that they plan to fly development aircraft 5 to 6 days per week with roughly 5 to 6 hours per mission (which DOD test organizations have shown is more aggressive for the military flight testing than other programs have demonstrated historically). Boeing officials believe they can achieve the test pace required because of Boeing’s testing experience with other commercial aircraft and the KC-10 tanker program. In addition, Boeing has local maintenance and engineering support available to support the test program as well as control over flight test priorities for the commercial testing since the development aircraft are being tested at Boeing facilities.",
"The program has made progress in readying the KC-46 for low rate initial production in 2015. Boeing has started manufacturing all four development aircraft on schedule, but has experienced some delays with the first aircraft. The program office and Boeing have also taken several steps to capture the necessary manufacturing knowledge to make informed decisions as the program transitions from design into production. This includes identifying and assessing critical manufacturing processes to determine if they are capable of producing key military subsystems in a production representative environment. The program also established a reliability growth curve and Boeing will begin tracking its progress towards reaching reliability goals once testing begins. Boeing is making progress manufacturing most of the military unique subsystems, but a test article for a critical aerial refueling subsystem has been delayed by almost a year due to parts issues.",
"Boeing has started manufacturing all four development aircraft on schedule, but has experienced some delays with the first aircraft. The Air Force plans to eventually field a total of 179 aircraft no later than January 2031. Figure 5 displays the time line for the manufacture of the development, low rate production, and full rate production aircraft.\nBoeing began producing the first development aircraft (a 767-2C) in June 2013, and Boeing officials said the aircraft was 76 percent complete as of mid January 2014. The aircraft was scheduled to be powered on for the first time in early December 2013, but program officials told us that activity has slipped until the end of April 2014. Boeing officials attributed the schedule slip to late supplier deliveries. Completion of major assembly operations has also slipped from mid January until mid March. Program officials told us that Boeing has been able to resequence tasks thus far to avoid affecting the critical path, such as adding the body fuel tanks to the first 767-2C earlier and in a different facility than originally planned. Program officials are assessing whether these delays will affect the timing of the first flight of the 767-2C, scheduled for June 2014.\nBoeing and program officials said that manufacturing of the second development aircraft was going better than on the first aircraft, reporting that the aircraft was 65 percent complete as of mid January 2014. Officials added that there had been a 75 percent reduction in overall parts shortages. The third and fourth aircraft just began production in late October 2013 and mid January 2014, respectively. From the first to the fourth development aircraft, Boeing is anticipating improvement in its ability to manufacture the aircraft. For example, the first aircraft is scheduled to take about 11 and a half months from the start of major assembly until first flight while the fourth aircraft is only scheduled to take about 7 months. Once complete, the four development aircraft will then enter the finishing center at various points between June 2014 and September 2015 to be converted to a KC-46 tanker.",
"The program office and Boeing have taken several initial steps to help ensure that the KC-46 will be ready for low rate production in August 2015 and that the aircraft will be reliable. In our prior work, we identified the activities required to capture manufacturing knowledge. These activities include (1) identifying key system characteristics and critical manufacturing processes; (2) establishing a reliability growth plan and goals; (3) conducting failure modes and effects analysis; (4) conducting reliability growth testing; and (5) determining whether processes are in control and capable. Table 3 provides a description of these activities and progress the program has made for each.\nSince the 767-2C will be manufactured on Boeing’s existing 767 production line, the program office and Boeing have focused their attention on identifying the key system characteristics and critical manufacturing processes for the military unique subsystems. Prior to CDR, the program office and Boeing completed assessments of 12 critical manufacturing processes, such as the assembly of aerial refueling components. These assessments indicated that key military subsystems could be manufactured in a production representative environment. The program office and Boeing plan on conducting another assessment prior to August 2015 to determine if the program is ready to begin low rate initial production.\nThe program office has established a reliability growth curve and goal. To assess reliability growth, the program is tracking the mean time between unscheduled maintenance events due to equipment failure, which is defined as the total flight hours divided by the total number of incidents requiring unscheduled maintenance. These failures are caused by a manufacturing or design defect and require the use of Air Force resources, such as spare parts or manpower, in order to fix them. The program has set a reliability goal of 2.83 flight hours between unscheduled maintenance events, but does not expect that goal to be achieved until the program has logged 50,000 flight hours. Figure 6 below depicts how the program office expects the aircraft’s reliability to improve over the program’s initial 5,000 flight hours.\nThe program expects to be above the idealized reliability growth curve at the start of testing because initial testing will be on a 767-2C, a derivative of a commercial aircraft that has been flying since the 1980s. Reliability is projected to fall below expectations once the military sub-systems are added to the aircraft. The program then expects the reliability to steadily improve to the point where the aircraft could fly about 2 hours between unscheduled maintenance events at the start of initial operational test and evaluation. As shown in figure 6 above, the program will be on the idealized reliability growth curve at that point.\nBoeing has also initiated a failure modes and effects analysis that covers 41 subsystems. Boeing and the program office rely on this analysis to determine which subsystems on the aircraft are likely to fail, when and why they fail, and whether those subsystems’ failures might threaten the aircraft’s safety. Boeing is also using this information to develop a tool to detect and log equipment failures. The program office plans to share the analysis with aircraft maintenance staff.\nThe program has not yet begun two critical manufacturing and reliability assessment activities. First, the program is not currently tracking reliability growth because the 767-2C first flight is not scheduled to take place until June 2014 and no flight hours have been accrued yet. Second, the program has not determined whether manufacturing processes are in control and capable of producing parts consistently with few defects. The program plans to review and verify that process controls are in place to ensure the quality of the manufacturing process as part of its next assessment of critical manufacturing processes prior to the low rate production decision in August 2015. Program officials said their review would be focused on whether these process controls are in place rather than analyzing the data to determine if the processes are actually in control.",
"Boeing is making progress manufacturing most of the military unique subsystems, such as the aerial refueling operator station, but the test refueling boom’s schedule has slipped by almost a year due to parts delays. Boeing’s original design included parts that proved challenging to fit within the boom’s space constraints, and other parts were redesigned to improve the boom’s safety. Boom parts suppliers, however, have experienced delays in delivering the redesigned parts to Boeing, which has prompted Boeing to send staff to help one of the suppliers minimize further schedule slips. Boeing officials told us they decided to build a test boom as a risk reduction effort and plan to apply lessons learned from producing the test boom to future boom production. However, program officials currently estimate that boom parts delays have also led to an approximately 1-month schedule slip in the first development aircraft’s boom. Boeing is facing some schedule pressure on this boom because it is now scheduled to be completed only a few days before the start of ground vibration testing. Boeing officials said they needed the boom for this testing and would like to complete ground vibration testing before the 767-2C’s first flight. The second development aircraft’s boom is scheduled to be built in only 5 months. Based on its current schedule, Boeing needs to have this boom completed by June 2014 in order to meet the KC-46’s first flight, scheduled for January 2015.",
"The KC-46 program has made good progress to date—acquisition costs have remained relatively stable, high-level schedule and performance goals have been met, the critical design review was successfully completed, and the contractor is building development aircraft. The next 12 months will be challenging as the program must accomplish a significant amount of work and the margin for error is small. For example, the program is scheduled to complete software integration and the first test flights of the 767-2C and KC-46. The remaining software development and integration work is mostly focused on military software and systems and is expected to be more difficult relative to the prior work completed. The program’s test activities continue to be a concern due to its aggressive test schedule. Detailed test plans must be completed and the program must maintain an unusually high test pace to meet this schedule. Perhaps more importantly, agencies will have to coordinate to concurrently complete multiple air worthiness certifications. While efficient, this approach presents significant risk to the program. The program office must also finalize agreements now in progress to ensure that receiver aircraft are available when and where they are needed to support flight tests. Any discoveries made in testing that require design changes may negatively affect program schedule and delivery to the warfighter. Parts delays on the first development aircraft and a critical aerial refueling subsystem are also causing increased schedule pressure.\nWith these risks in its near future, the KC-46 program will continue to bear watching. While all of the risks currently appear to be recognized, any slips in software testing, flight testing, and manufacturing as the program moves forward could cause delays in the program.",
"Due to existing schedule risks and the fact that the program is entering a challenging phase of testing, we recommend that the Secretary of Defense direct the Air Force to study the likelihood and potential effect of delays on total development costs, and develop mitigation plans, as needed, related to potential delays.",
"DOD provided us with written comments on a draft of this report, which are reprinted in appendix V. DOD concurred with our recommendation. The KC-46 program office conducts an annual analysis of cost and schedule risks to quantify the potential effect of delays on program costs and officials told us they will consider the risks we identified in that analysis. We also incorporated technical comments from DOD as appropriate.\nWe are sending copies of this report to the Secretary of Defense; the Secretary of the Air Force; and the Director of the Office of Management and Budget. The report is also available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff has any questions concerning this report, please contact me at (202) 512-4841 or sullivanm@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 contributing to this report are listed in appendix VI.",
"This report examines the Air Force’s continued development of the KC-46 tanker program. Specifically, we examined (1) progress toward cost, schedule, and performance goals; (2) development challenges, if any, and steps to address them; and (3) progress in manufacturing the aircraft.\nTo assess progress toward cost, schedule and performance goals in the calendar year of this review (2013), we reviewed briefings by program and contractor officials, financial management documents, program budgets, defense acquisition executive summary reports, selected acquisition reports, monthly activity reports, technical performance indicators, risk assessments, and other documentation. To evaluate cost information, we analyzed earned value management data and the contractor’s use of management reserves. To assess development schedule progress, we compared program milestones established at program start to current estimates and reviewed Defense Contract Management Agency monthly assessments of KC-46 schedule health and program office schedule analyses. We also interviewed program officials to determine the status of Department of Defense (DOD) efforts to implement our prior recommendations aimed at improving the program’s integrated master schedule. To measure progress toward performance goals, we reviewed current estimates of key performance parameters, key system attributes, and technical performance metrics and compared them to threshold and objective requirements. We discussed results of the initial KC-46 operational assessment with officials from the Air Force Operational Test and Evaluation Center and the Director of Operational Test and Evaluation. We also interviewed relevant officials from the KC-46 program office, Boeing, and the Department of Defense.\nTo assess development challenges and steps to address them, we examined program documentation, such as critical design review briefings, risk assessments and briefings, software metrics reports, integrated test team meeting minutes, and updates to key documents such as the technology maturation, software development, and integrated test plans. We also analyzed pertinent DOD documents including the Defense Contract Management Agency’s monthly program assessment reports, the first operational assessment by the Air Force Operational Test and Evaluation Center, and annual reports issued by the Deputy Assistant Secretary of Defense for Developmental Test and Evaluation and the Director of Operational Test and Evaluation. When possible, we attended integrated test team and program management meetings to obtain additional insight on any challenges or mitigation efforts being discussed by Boeing and program officials. In addition, we examined the program’s progress in completing design drawings and maturing critical technologies at the critical design review. Furthermore, we interviewed officials from Boeing, the program office, the Office of the Secretary of Defense, and the Department of the Navy to assess development challenges and the suitability of steps taken to address them.\nTo assess progress in manufacturing aircraft, we analyzed program office and Boeing documents, such as the manufacturing program plan; quarterly manufacturing and quality briefings; and program schedules. We used these documents to compare Boeing’s initial schedule for completing aircraft and boom manufacturing to its actual performance and to identify challenges, if any. We also evaluated whether the program captured manufacturing knowledge recommended in prior GAO best practices work. This included reviewing manufacturing readiness assessments and comparing the results and future plans to DOD guidance and manufacturing best practices identified in prior GAO work. Lastly, we interviewed Boeing and program officials to discuss manufacturing progress and challenges and conducted a site visit of Boeing’s 767 production line and its temporary and permanent boom production facility and finishing center.\nWe conducted this performance audit from May 2013 to April 2014 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.",
"",
"Appendix III: Description of Key Performance Parameters Description Aircraft shall be capable of accomplishing air refueling of all Department of Defense current and programmed (budgeted) receiver aircraft. The aircraft shall be capable of conducting both boom and drogue air refueling on the same mission.\nAircraft shall be capable of carrying certain amounts of fuel (to use in air refueling) certain distances.\nOperate in Civil and Military Airspace Aircraft shall be capable of worldwide flight operations in all civil and military airspace.\nAircraft shall be capable of transporting certain amounts of both equipment and personnel.\nAircraft shall be capable of receiving air refueling from any compatible tanker aircraft.\nAircraft shall be able to operate in chemical and biological environments.\nAircraft must be able to have effective information exchanges with many other Department of Defense systems to fully support execution of all necessary missions and activities.\nAircraft shall be capable of operating in hostile threat environments.\nAircraft shall be capable of conducting drogue refueling on multiple aircraft on the same mission.",
"Appendix IV: KC-46 Critical Technology Elements Description The display screens at boom operator stations inside the aircraft provide the visual cues needed for the operator to monitor the aircraft being refueled before and after contact with the refueling boom or drogue. The images of the aircraft on the screens are captured by a pair of cameras outside the aircraft that are meant to replicate the binocular aspect of human vision by supplying an image from two separate points of view, replicating how humans see two points of view, one for each eye. The resulting image separation provides the boom operator with greater fidelity and a more realistic impression of depth, or a 3rd dimension.\nTesting to date Similar technology has been used on two foreign-operated refueling aircraft and a representative model in tests with other Boeing tankers.\nThe route generation engine is a component of the reactive threat avoidance sub-system. This sub-system monitors for ground and surface threats based on the aircraft’s location and the active flight route. It identifies threats that impact the current route, provides a safer alternative route, and alerts the pilot that a new route is available for review and acceptance.\nA recent version of the route generation engine was flown and demonstrated on a Navy aircraft, but improvements have been made that have not been flight tested.",
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"In addition to the contact name above, the following staff members made key contributions to this report: Cheryl Andrew, Assistant Director; Jeff Hartnett; Katheryn Hubbell; John Krump; LeAnna Parkey; and Robert Swierczek."
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{
"question": [
"What was the status of Boeing's management reserves as of 2013?",
"To what extent is the operational test and evaluation on track?",
"Why might the evaluation be delayed?",
"How did the program demonstrate the design's stability?",
"What must be done to finalize the program over the next 12 months?",
"Why might the program be delayed?",
"How are program officials attempting to mitigate these risks?",
"How will the KC-46 initially be produced?",
"To what extent is the manufacturing of the development aircraft on schedule?",
"How has the program office reviewed the manufacturing process?",
"Why have there been minor manufacturing delays?",
"How does aerial refueling affect U.S. military aircraft capabilities?",
"How modern are the U.S. tanker forces?",
"Why is the tanker fleet's age a cause for concern?",
"How is the Air Force approaching this age issue?",
"Why does GAO annually review the KC-46 program?",
"What does this report address?",
"How did GAO source their data for this report?"
],
"summary": [
"As of December 2013, Boeing had about $75 million of its management reserves remaining to address identified, but unresolved development risks.",
"There are indications that the start of initial operational test and evaluation, which is scheduled for May 2016, may slip 6 to 12 months.",
"According to the Director of Operational Test and Evaluation, more time may be needed to train aircrew and maintenance personnel and verify maintenance procedures.",
"The program released over 90 percent of the KC-46 design drawings at the critical design review, indicating that the design is stable.",
"The next 12 months will be challenging as the program must complete software development, verify that the software works as intended, finalize developmental flight test planning, and begin developmental flight tests.",
"Software problem reports are increasing and Boeing could have difficulty completing all testing if more retests are needed than expected. Developmental flight testing activities are also a concern due to the need for extensive coordination among government agencies, the need for timely access to receiver aircraft (aircraft the KC-46 will refuel while in flight), and the aggressive test pace.",
"The program office is conducting test exercises to mitigate risks and working with Navy and United Kingdom officials to finalize agreements to have access to necessary receiver aircraft.",
"The program has also made progress in ensuring that the KC-46 is ready for low rate initial production in 2015.",
"Boeing has started manufacturing all four development aircraft on schedule.",
"The program office has identified its critical manufacturing processes and verified that the processes are capable of producing key military subsystems in a production representative environment.",
"Boeing is experiencing some manufacturing delays due to late supplier deliveries on the first aircraft and parts delays for a test article of a critical aerial refueling subsystem, but the program has not missed any major milestones.",
"Aerial refueling allows U.S. military aircraft to fly farther, stay airborne longer, and transport more weapons, equipment, and supplies.",
"Yet the mainstay of the U.S. tanker forces—the KC-135 Stratotanker—is over 50 years old.",
"It is increasingly costly to support and its age-related problems could potentially ground the fleet.",
"As a result, the Air Force initiated the $51 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft in total.",
"The National Defense Authorization Act for Fiscal Year 2012 mandated GAO to annually review the KC-46 program through 2017.",
"This report addresses (1) progress made in 2013 toward cost, schedule, and performance goals, (2) development challenges, if any, and steps to address them, and (3) progress made in manufacturing the aircraft.",
"To do this, GAO reviewed key program documents and discussed development and production plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor, Boeing."
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CRS_R42327
|
{
"title": [
"",
"Federal Role at Pavillion",
"EPA Investigation Authority",
"Related Federal Public Health Study",
"Primary Findings of the EPA Draft Report",
"Background",
"Detecting Contamination in Groundwater",
"Contaminants in Shallow Groundwater—Surface Pits",
"Contaminants in Deeper Groundwater—Natural Gas Operations and Hydraulic Fracturing?",
"High pH Values",
"Elevated Potassium and Chloride Concentrations",
"Detection of Synthetic Organic Compounds",
"Detection of Petroleum Hydrocarbons",
"Breakdown Products of Organic Compounds",
"Well Design and Integrity of Gas Production Wells42",
"Excursion of Fracture Fluids from Sandstone Units and Along the Wellbore",
"Enhanced Migration of Natural Gas?",
"Isotopic Data",
"Proximity of Methane in Domestic Wells to Production Wells",
"Methane Concentrations Highest Near MW01",
"Shallow Surface Casing, Lack of Cement, Sporadic Bonding",
"Citizen Complaints",
"Summary of EPA's Reasoning",
"Stakeholder Responses to the EPA Draft Report",
"Industry Organizations",
"Encana Oil & Gas, Inc.",
"Energy in Depth",
"The Petroleum Association of Wyoming",
"Independent Petroleum Association of America",
"Environmental Organizations",
"Natural Resources Defense Council",
"Environmental Defense Fund",
"Pro Publica",
"Congressional Action",
"Discussion",
"Independent Sampling by the U.S. Geological Survey: Two Reports",
"Moving Forward After the EPA Draft Report",
"Tight Sand Gas Versus Shale Gas",
"Hydraulic Fracturing in Deep Versus Shallow Reservoirs",
"Vertical Wells Versus Horizontal Wells",
"The Hydraulic Fracturing Process",
"Next Steps at Pavillion",
"Appendix. EPA Response Authority under CERCLA"
],
"paragraphs": [
"On December 8, 2011, the U.S. Environmental Protection Agency (EPA) issued a draft report on its investigation of groundwater contamination near the town of Pavillion, Wyoming. This CRS report provides a synopsis of the statutory authority for EPA's investigation under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), a summary of the primary findings in the EPA Draft Report, and a brief discussion of issues raised subsequent to the release of the draft report by proponents and opponents of the use of hydraulic fracturing for natural gas development.\nEPA had extended the public comment period on its Draft Report through September 30, 2013, but on June 20, 2013, EPA announced that it no longer plans to finalize the report. EPA indicated that it would defer to the state of Wyoming to assume the lead role in investigating drinking water quality in the area, and that the continuing role of EPA would focus on providing technical support and input to the state. The scope of the investigation by the state would seek to address water quality concerns by evaluating the water quality of certain domestic water wells, the integrity of certain oil and gas wells, and the historic use of waste disposal pits in the Pavillion area. In its announcement, EPA noted that the state intends to conclude its investigation and release a final report by September 30, 2014.\nAlthough the EPA Draft Report focused on one specific region where hydraulic fracturing was employed to enhance the production of natural gas, it has raised concerns about hydraulic fracturing practices in general, and whether EPA's findings at Pavillion are more broadly applicable to other regions of the country.",
"",
"The EPA Draft Report stated that the agency received complaints from domestic well owners in the vicinity of Pavillion in 2008 who observed objectionable taste and odor in their well water. In response to these citizen complaints, the EPA Region 8 Office initiated an investigation of possible contamination of the drinking water aquifer underlying the town, using the authorities of CERCLA delegated to EPA by Executive Order 12580. Section 104(a) of the statute authorizes EPA to respond to a release or substantial threat of a release of a hazardous substance, or a pollutant or contaminant that may present an imminent and substantial danger to the public health or welfare. This authority is available in such situations if EPA deems that response actions would be necessary to protect public health or welfare, or the environment, subject to the availability of appropriations under the Superfund program to carry out such actions. The federal regulations of the National Oil and Hazardous Substances Pollution Contingency Plan (often referred to as the National Contingency Plan or NCP for short) establish the procedures under which EPA may evaluate a site to determine where federal response actions may be warranted under Section 104(a) of CERCLA. State or local officials often are responsible for elevating sites to EPA for evaluation under CERCLA, in their capacity as first responders under the NCP.\nSection 105(d) also establishes a mechanism under which citizens may request that EPA perform a preliminary assessment to determine whether response actions may be warranted at a site, if EPA has not previously assessed the site. This provision provides the authority for any person who is, or may be, affected by a release or threatened release of a hazardous substance, pollutant, or contaminant to petition EPA to assess the potential hazards to public health and the environment that may arise from such a release or threatened release. EPA is required either to complete a preliminary assessment of a site within 12 months of the submission of a citizen petition, or to provide an explanation of why an assessment may not be appropriate.\nAs specified in the NCP, a citizen petition under CERCLA should be addressed to the EPA Regional Administrator in the region in which the site is located and should identify the location of the release, how the petitioner is or may be affected by the release, and to the extent available, what types of substances were or may be released and the nature of the activities that have occurred where the release is located. Petitions also should indicate whether state and local officials have been contacted about the release. EPA would use such information to determine whether a site assessment may be warranted at the federal level under CERCLA. The EPA Draft Report for the Pavillion site indicated that the EPA Region 8 Office determined an assessment of the groundwater underlying the site was appropriate based on the observations about domestic well water quality cited in the citizen complaints that the agency received in 2008.\nSee the Appendix at the end of this report for further discussion of EPA's response authorities under CERCLA.",
"To help inform its investigation of the groundwater underlying the Pavillion site, EPA requested that the Agency for Toxic Substances and Disease Registry (ATSDR), an agency of the U.S. Department of Health and Human Services, examine the potential health hazards that may be associated with contaminants found specifically in private residential well water, but not other portions of the aquifer. Section 104(i)(4) of CERCLA authorizes EPA (or state or local officials) to request that the ATSDR provide consultations on potential health issues that may be associated with the release of a hazardous substance at a specific site. In response to EPA's request under this authority, the ATSDR issued a Health Consultation for Pavillion in August 2010.\nThe ATSDR concluded that exposure to some of the contaminants found in the private residential well water were at levels that could lead to certain health effects, based on the potential for exposure relative to the health screening criteria that the ATSDR applied, and that some of the contaminants (such as methane) could present potential explosive hazards in residences under certain conditions. The ATSDR recommended that residents use alternate or treated water supplies, and recommended certain other measures to address potential explosive hazards, such as ventilating bathrooms while showering.\nIt should be emphasized that the ATSDR's study focused specifically on potential hazards associated with the private residential well water, whereas the scope of EPA's site investigation was broader in terms of identifying and characterizing contaminants across the aquifer more widely and at greater depths. The ATSDR's finding of the presence of potential hazards was limited to the private residential well water itself, at shallower depths common to most domestic wells, and not the greater depths of natural gas production wells. The distinction between chemical constituents found at shallow depths in the aquifer and those found in deeper portions is discussed below.",
"",
"The Pavillion gas field lies within the Wind River Basin, a deep sedimentary basin extending across a large area of central Wyoming and bounded on the north and southwest by upfolded and faulted mountain ranges. (See Figure 1 .) The Wind River Formation, an accumulation of sandstone, conglomerate, shale, and mudstone, is the major source of drinking water for domestic and public-supply uses in the Wind River Basin. The Wind River Formation varies in thickness, and extends from the ground surface to as deep as 3,400 feet in the Pavillion gas field area. Natural gas is produced from wells drilled into the Wind River Formation, and from deeper wells drilled into the Fort Union Formation, which lies directly underneath the Wind River Formation. The most productive zone of natural gas extraction is from the bottom of the Wind River Formation, although hydraulic fracturing to enhance gas production has occurred at locations as shallow as 1,220 feet below ground surface, according to the EPA Draft Report.\nThe EPA sampled residential wells, stock wells, shallow monitoring wells, and two municipal wells. The domestic wells range in depth from approximately 20 feet to nearly 800 feet, and the two municipal wells are 505 and 515 feet deep. The shallow monitoring wells were approximately 15 feet deep. According to the EPA Draft Report, the early phases of the investigation detected the presence of methane and diesel-range organic chemicals in some of the deeper domestic wells, which prompted EPA to install two deep monitoring wells in June 2010. EPA stated that the purpose of installing two deep monitoring wells—one at 785 feet and the second at 980 feet—was to differentiate potentially deep sources from potentially shallow sources of contamination. Shallow sources of contamination were thought to be related to leakage from surface pits used for storage and disposal of drilling wastes and produced and flowback water. Potential deeper sources were thought to be related to gas production, which would include drilling and hydraulic fracturing, as well as actual gas production.\nDetecting and distinguishing between potentially shallow and potentially deep sources of groundwater contamination lies at the heart of the primary findings in the EPA Draft Report. Whether the report clearly links groundwater contamination to drilling or hydraulic fracturing activities at depth has been the source of relatively heated commentary by proponents and opponents of the use of hydraulic fracturing for natural gas development. The primary findings in the report and examples of reactions and commentary by stakeholders are discussed below.",
"",
"According to the EPA Draft Report, the objective of the EPA investigation was to determine the presence of groundwater contamination above the Pavillion gas field, and to the extent possible identify the source of the contamination. The investigation identified a suite of contaminants in samples from shallow monitoring wells—wells that monitor the upper portions of the Wind River aquifer. The contaminants identified in the shallow portions of the aquifer included benzene, xylenes, gasoline-range organics (GROs), and diesel-range organics (DROs). According to the report, at least 33 surface pits were likely sources for the contaminants detected in shallow groundwater: \"detection [of these contaminants] in ground water samples from shallow monitoring wells near pits indicates that pits are a source of shallow ground water contamination in the area of investigation.\" The pits were used for disposal of drilling cuttings, hydraulic fracturing flowback, and water produced from the formation.\nThe Draft Report further noted that EPA is a member of a stakeholder group working with the gas field operator—Encana Oil & Gas Inc., a subsidiary of the Canadian Encana Corporation—to \"determine the areal and vertical extent of shallow ground water contamination caused by these pits.\" EPA added that Encana is currently engaged in investigating and remediating several pit areas. Encana has contributed to the cost of furnishing alternate supplies of drinking water to some Pavillion citizens while its investigation continues as part of the stakeholder group. Encana acquired the natural gas field and its infrastructure in 2004; however, drilling for natural gas began in the 1960s and the surface pits were excavated prior to 2004.\nThe EPA Draft Report does not discuss the shallow groundwater contamination in much detail, and it does not indicate that the source of the contaminants in shallow groundwater is anything other than the surface pits. Reactions to the report and commentary by stakeholders also have not focused on the shallow groundwater issues, or on the surface pits as likely sources of contaminants. The focus of the EPA Draft Report and the issues raised by proponents of natural gas development and hydraulic fracturing concern the detection and source of contaminants in the deeper portions of the aquifer. Domestic water wells in the Pavillion area generally use groundwater from the shallower portions of the aquifer.",
"The EPA Draft Report acknowledged that \"[d]etection of contaminants in ground water from deep sources of contamination (production wells, hydraulic fracturing) was considerably more complex than detection of contaminants from pits necessitating a multiple lines of reasoning approach common to complex scientific investigations.\" The Draft Report further explained that, \"[w]hile each individual data set or observation represents an important line of reasoning, taken as a whole, consistent data sets and observations provide compelling evidence to support an explanation of data.\" According to the report, this approach led to its primary finding, \"that constituents associated with hydraulic fracturing have been released into the Wind River drinking water aquifer at depths above the current production zone.\"\nThe first set of \"lines of reasoning\" described in the report refers primarily to chemical constituents detected in the two deep monitoring wells the EPA installed during June 2010. Monitoring Well 1 (MW01) was screened (open to the aquifer) between 765 and 785 feet below ground surface; Monitoring Well 2 (MW02) was screened between 960 and 980 feet below ground surface. For comparison, the domestic wells sampled during the EPA investigation ranged between 20 and 800 feet deep, and the two municipal wells included in the study were 505 and 515 feet below the ground surface. However, EPA also notes in the report the absence of baseline groundwater monitoring data that could indicate groundwater conditions prior to gas production in the area.\nThe EPA Draft Report also provided a second set of \"lines of reasoning\" for supporting the agency's conclusion that \"[a]lthough some natural migration of gas would be expected above a gas field such as Pavillion, data suggest that enhanced migration of gas has occurred to ground water at depths used for domestic water supply and to domestic wells.\" These \"lines of reasoning\" refer to chemical data from other wells, to the length of casing and the presence or absence of cement in gas production wells, and to the nature and timing of citizens' complaints about taste and odor problems with their drinking water.\nA brief description of the \"lines of reasoning\" that led EPA to its explanation for the contaminants in deeper groundwater follows.",
"The EPA Draft Report cited \"unusual and unexpected\" pH values measured in both monitoring wells. The pH values ranged from 11.2 to 12.0. (A pH of 12 is unusually high for most natural waters, and is approaching the caustic or strongly pH range.) The Draft Report noted that pH values in domestic wells ranged between 6.9 and 10, indicating that groundwater measured in the deep monitoring wells was between 10 and 100 times more alkaline than the most alkaline domestic well sampled during the investigation. In the report, EPA also cited geochemical modeling results indicating that the addition of a strong base, such as potassium hydroxide (KOH), to groundwater of the Pavillion aquifer at depths of 328 feet or more would increase pH values significantly. The EPA Draft Report noted that KOH was used in fracking operations in the Pavillion gas field as a cross-linker and in a solvent, and suggested that the addition of a strong base (such as KOH) was \"the causative factor for elevated pH in the deep monitoring wells.\"",
"The EPA Draft Report stated that the inorganic chemistry of the groundwater measured from deep monitoring wells is distinctive from the groundwater in domestic wells sampled in the study and from the expected composition of groundwater in the Wind River Formation. In particular, the report cited elevated concentrations of potassium and of chloride. According to the report, potassium levels in the monitoring wells were between 8.2 and 18.3 times the mean value of levels observed in domestic wells. Chloride levels in MW02 were 18 times the mean value for chloride concentrations measured in domestic wells. (Chloride values in MW01, however, were approximately 23 milligrams per liter, less than the mean value for domestic wells of 25.6 milligrams per liter.) It is difficult to ascertain from the report whether the higher potassium and chloride levels represent a range of natural variability in the deeper portions of the aquifer, or whether they are related to drilling and hydraulic fracturing activities.\nThe report cited information from well completion reports and material safety data sheets (MSDSs) for each of the wells indicating the use of chemicals containing potassium and chloride in fracture fluids. Namely, the report noted the use of potassium chloride, potassium metaborate, potassium hydroxide, and ammonium chloride in foam jobs and as cross-linkers in fracture fluids. However, the report did not include any information linking the use of these chemicals with site-specific hydraulic fracturing jobs, nor did it cite specific groundwater pathways from hydraulic fracturing to the monitoring wells. The report also considered alternate explanations for elevated potassium and chloride levels, such as contamination by drilling fluids and additives used in constructing the monitoring wells, contamination from well completion materials, and contamination from surface soils. But in its description of how the wells were constructed and how the materials were handled, EPA did not state that these alternative explanations were responsible for elevated potassium and chloride levels in the monitoring wells.",
"During its investigation, EPA detected several synthetic organic compounds in water samples taken from MW01 and MW02. The synthetic organic compounds would not be expected to occur naturally in groundwater. These compounds included isopropanol, diethylene glycol, and triethylene glycol. The EPA Draft Report noted that these three compounds were used in hydraulic fracture fluids, as a foaming agent, and in solvents, according to well completion reports and MSDSs. EPA reported that tert -butyl alcohol was also detected in MW02. Tert -butyl alcohol is a known breakdown product of methyl tert -butyl ether, or MTBE, a gasoline additive used to raise the oxygen content of the fuel. It is also a breakdown product of tert -butyl hydroperoxide, a gel breaker used in hydraulic fracturing fluids. Tert -butyl hydroperoxide was not listed on MSDSs or on well completion logs, according to the EPA Draft Report. However, the report added that tert -butyl alcohol is not expected to occur naturally in groundwater, and its source in Pavillion groundwater remains unresolved.",
"The EPA Draft Report stated that a number of petroleum hydrocarbons were detected in groundwater in wells MW01 and MW02. These compounds included benzene, toluene, ethylbenzene, and xylene (BTEX), trimethylbenzenes, GROs, DROs, and napthalene. The report noted that compounds listed on MSDSs that were used in hydraulic fracturing solutions contained the petroleum hydrocarbon constituents listed above. For example, the report stated, MSDSs indicate that diesel fuel was used in a guar polymer slurry; an aromatic solvent that was typically a BTEX mixture was used as a breaker; and other compounds were used in different components comprising the suite of chemicals that make up a hydraulic fracture fluid.",
"The EPA Draft Report stated that more organic chemicals were detected at higher concentrations in the deeper monitoring well (MW02), whereas breakdown products of those organic chemicals were detected at higher concentrations in the shallower well (MW01). Examples of breakdown products found in these wells included acetate and benzoic acid, which can be formed from the breakdown of BTEX and glycols. The report cited the occurrence of flowing stock wells as evidence of an upward hydraulic gradient in the study area, which the report suggested concurs with the presence of enriched breakdown products in shallower, downgradient monitoring well MW01. In other words, the report suggested that groundwater containing organic compounds such as BTEX and glycols would travel in an upward direction, and during the course of that travel those compounds would break down, or degrade, into acetate and benzoic acid.",
"The EPA Draft Report stated that the design and integrity of gas production wells were possibly \"one causative factor in deep ground water contamination at this site.\" The report noted several components of well design and integrity that could have been involved: (1) the surface casing of most production wells did not extend below the deepest domestic wells; (2) there was little vertical separation between the uppermost zones that were hydraulically fractured and the deepest domestic wells; and (3) there was an absence of cement, or only sporadic bonding between the cement, well casing, and formation, in several production wells. Typically, cement fills the gap between the outside of the well casing and the formation to prevent any leakage of fluids along the outside of the wellbore into an aquifer. The EPA investigation relied on geophysical logs of the production wells to infer that in many instances cement was lacking along portions of the wellbore or that sporadic bonding existed just above the zones of hydraulic fracturing. The absence of cement or the sporadic bonding of some portions, inferred by EPA from the geophysical logs, implies that fluids could have leaked from the fractured intervals up along those zones to the aquifer above.",
"A lithologic barrier, such as a thick layer of impermeable shale, would typically prevent or limit the amount of natural gas that would seek to migrate from the gas-filled sandstone lenses upward toward the surface. The EPA Draft Report suggested that the absence of a lithologic barrier above the gas production zone, such as a laterally continuous shale layer, meant that gas might have migrated upward \"in the event of excursion from fractures.\" Similarly, if fluid leaked vertically from hydraulically induced fractures in thin sandstone lenses, it could also have migrated laterally to nearby wellbores, and then travelled vertically upward along the wellbore if cement was lacking or if the cement was only sporadically bonded to the well casing and formation, according to the report.",
"In addition to the seven \"lines of reasoning\" summarized above, the EPA Draft Report also claimed that \"data suggest that enhanced migration of gas has occurred to ground water at depths used for domestic water supply and to domestic wells.\" The report noted that some natural migration of gas would be expected above the gas field at Pavillion. However, the report listed a second set of \"lines of reasoning\" to support the interpretation that hydraulic fracturing and gas development activities allowed gas and other constituents to migrate into the aquifer where they would not have if gas development had not taken place.",
"Analysis of carbon isotopes can often be used to identify the source of organic compounds. The EPA Draft Report pointed to analyses of carbon isotopes indicating that the methane found in monitoring wells is similar to the methane found in production wells. The isotopic data indicate that the methane gas is \"thermogenic,\" derived from the thermal breakdown of organic matter under pressure in deeper source rocks. Thermogenic methane is distinguished from \"biogenic\" methane, which is produced by the breakdown of organic material by organisms called methanogens. Biogenic methane typically occurs close to the earth's surface (e.g., methane gas in landfills is biogenic) and is thus distinguished from methane associated with oil and gas operations. The EPA Draft Report suggested that the patterns indicated by carbon isotope data support the hypothesis that organic compounds in the study area migrated upward from depth.",
"The EPA Draft Report stated that levels of dissolved methane in domestic wells generally increase in wells closest to gas production wells in the Pavillion study area. The report said that methane was not detected in domestic water wells that had two or fewer production wells within approximately 2,000 feet (with the exception of two domestic wells where methane was detected).",
"The EPA Draft Report observed that methane concentrations were highest in samples in an area encompassing MW01 and two domestic wells labeled PGDW30 and PGDW05 (shown in Figure 5 on p. 6 of the EPA Draft Report). The report noted that high levels of methane were found in well PGDW30 at a depth of 260 feet, much shallower than MW01 at 784 feet. The report also stated that a blowout occurred during gas drilling in 2005 at a depth of 520 feet in a well adjacent to well PGDW05. The report cited data from a mud-gas log conducted in 1980—prior to most of the gas production activities—in a well nearly 1,000 feet from where the blowout occurred that did not indicate the presence of natural gas. From that log, EPA inferred that natural gas was not present at depths shallower than 1,000 feet in the area where the blowout occurred prior to natural gas development.",
"The EPA Draft Report noted that surface casing of gas production wells does not extend deeper than the maximum depth of domestic wells in the Pavillion study area (with the exception of two production wells). In other words, portions of nearly all the production wells were uncased at the same depth in the aquifer where the deepest domestic wells obtained their water. EPA asserted that the shallow surface casing, combined with data suggesting lack of cement or sporadic cement bonding between production casing and the formation (discussed above), would facilitate upward migration of natural gas from deeper gas production zones toward shallower domestic wells.\nFigure 2 is a diagram of a well showing a typical array of casing types extending from the ground surface downwards. It shows the casing extending through and beneath the aquifer. According to the EPA Draft Report, most gas wells in the Pavillion field were not constructed with casing extending completely through the deepest portion of the aquifer.",
"Last, the EPA Draft Report stated that citizen complaints about odor and taste problems with their well water that began concurrently with or after hydraulic fracturing were \"internally consistent,\" but no baseline data for domestic wells are available for comparison. Baseline data would help determine past levels of gas flux to domestic wells. Nevertheless, the report stated that \"[c]itizens complaints often serve as the first indication of subsurface contamination and cannot be dismissed without further evaluation, particularly in the absence of routine ground water monitoring prior to and during gas production.\" Furthermore, Section 105(d) of CERCLA would have obligated EPA at least to perform a preliminary assessment of the site once potentially affected citizens submitted a petition, unless the agency had determined that such an assessment were inappropriate and had provided the citizens with an explanation for such a determination.",
"In summary, EPA claimed that its \"lines of reasoning\" approach best supports the explanation that inorganic and organic compounds associated with hydraulic fracturing have contaminated the aquifer at or below the depths used for domestic water supply in the Pavillion area. EPA also stated that its approach indicates that gas production activities have likely enhanced the migration of natural gas in the aquifer and the migration of gas to domestic wells in the area.",
"Because the EPA Draft Report linked groundwater contamination in Wyoming to activities related to hydraulic fracturing, it had raised concerns about hydraulic fracturing practices in general. Some stakeholders took issue with some of the findings in the draft report. Various organizations representing private business interests within the oil and gas industry questioned the scientific validity of EPA's contention that \"the explanation best fitting the data for the deep monitoring wells is that constituents associated with hydraulic fracturing have been released into the Wind River drinking water aquifer at depths above the current production zone.\" In contrast, some environmental organizations cited EPA's findings in calling for more stringent regulation of hydraulic fracturing. Some stakeholders also commissioned independent assessments of EPA's Draft Report and released their respective assessments in May 2012. An assessment commissioned by an industry organization disagreed with EPA's findings, whereas an assessment commissioned by four environmental organizations supported the agency's findings. Stakeholder responses of various industry and environmental organizations are discussed further below.",
"",
"On December 12, 2011, Encana Oil & Gas (USA), Inc., issued a press release in which the company disagreed with the preliminary conclusions of the EPA Draft Report. (Encana Oil & Gas Inc. acquired the Pavillion gas field in 2004 and drilled 44 wells between 2004 and 2007.) In the press release, Encana asserted that EPA's data align with previous testing done by Encana and do not show any impacts to domestic wells from oil and gas development. Encana further asserted that EPA's findings that compounds used in hydraulic fracturing have contaminated Pavillion groundwater \"are conjecture, not factual and only serve to trigger undue alarm.\"\nEncana's press release raised several issues that the company felt cast doubt on the conclusions of the EPA Draft Report:\nThe Pavillion area has a \"unique geology and hydrology.\" Previous reports have indicated poor water quality in the Pavillion aquifer. EPA's two deep monitoring wells were drilled into a natural gas reservoir and detected components of natural gas, which is not unexpected, according to the company. The chemical results from the deep monitoring wells are \"radically different than those in domestic water wells ... thereby showing no connection.\" Several of the manmade chemicals detected in the two deep monitoring wells were not detected in other wells sampled, but some were detected in quality control samples. In the press release, Encana states that this indicates problems with EPA's methodology in drilling and sampling. The press release stated that EPA's results from the investigation do not exceed state or federal drinking water quality standards for any constituent related to oil and gas development.\nIn its press release, Encana called on EPA and other government officials to subject their data to independent third-party review. In announcing the opportunity for public comment, EPA had stated its intention to convene an independent panel of scientific experts for external peer review in addition to the review of any comments that may be submitted by members of the public.",
"Energy in Depth (EID) is an outreach campaign started by the Independent Petroleum Association of America in 2009 to promote the development of U.S. onshore energy resources. In December 2011, EID released a set of questions about the EPA Draft Report, some of which echo concerns voiced by Encana Oil & Gas, such as why were chemical results from the deep monitoring wells different from those found in the domestic water wells. The questions touched on whether chemicals used by EPA in drilling its monitoring wells may have affected the results of sampling the deep groundwater. The group also raised the issue that high levels of potassium and chloride have been found previously in the Pavillion area, and that high levels found in the monitoring wells may reflect background water quality and natural variations in groundwater flow or composition.",
"On December 9, 2011, the Petroleum Association of Wyoming issued a press release also raising concerns with the EPA Draft Report. The press release stated concerns similar to those raised by Encana Oil & Gas, Inc., and by EID about the deep monitoring wells being drilled into gas-bearing zones, the differences between compounds found in the deep monitoring wells and in domestic water wells, and quality assurance issues with EPA's drilling and testing.",
"The Independent Petroleum Association of America (IPAA) commissioned an independent assessment of the EPA Draft Report, and released this assessment on May 16, 2012. It generally disagreed with the scientific basis of the agency's findings that hydraulic fracturing fluids have contaminated the groundwater. The IPAA-commissioned report agreed with the EPA Draft Report's conclusion that surface pits were the source of shallow groundwater contamination in the area of investigation, but disagreed that constituents associated with hydraulic fracturing were released into the Wind River drinking water supply (Conclusion 2 of the EPA Draft Report), and that hydraulic fracturing has led to enhanced migration of natural gas to groundwater used for domestic water supply (Conclusion 3 of the EPA Draft Report).\nThe IPAA-commissioned report indicated that EPA's findings, using \"multiple lines of evidence,\" were unconvincing and that the available data supported explanations other than hydraulic fracturing. For example, the IPAA report suggested that problems with sampling the two EPA monitoring wells, such as contamination by cement grout used for constructing the wells, led to measurements of high pH and detection of anomalous chemistry. The IPAA report also indicated that many of the organic compounds in the EPA analyses could have come from natural petroleum sources in the Wind River Formation. The IPAA report observed that EPA had not characterized the hydrogeology of the study area, and thus could not make definitive conclusions regarding the migration pathway from the zones where hydraulic fracturing took place to the shallow groundwater regions used for drinking water. In sum, the IPAA report concluded that all of the \"lines of evidence\" cited by EPA could be adequately explained with alternative hypotheses.",
"",
"A commentator from the Natural Resources Defense Council (NRDC) pointed to the EPA Draft Report's findings to underscore the NRDC position that\nwells that will be hydraulically fractured be located in a geologically suitable location such that a suitable confining zone is present, any potential contamination pathways—including improperly constructed or abandoned wells—must be identified and remediated, and properly constructed wells, baseline testing, and site characterization are crucial to preventing contamination of USDWs [underground sources of drinking water].\nAnother NRDC commentator also cited the results of the report to support the claim that many factors are at play in hydraulic fracturing, any one of which \"can go wrong.\" The commentator stated that much stronger rules are needed and that is why NRDC supports federal regulation of fracking under the Safe Drinking Water Act.\nThe NRDC also has partnered with the Wyoming Outdoor Council, Sierra Club, and the Oil and Gas Accountability Project to commission their own independent assessment of EPA's Draft Report. The NRDC released the assessment on May 1, 2012, which stated that \"the EPA's conclusion is sound\" and \"it is clear that hydraulic fracturing has caused pollution of the Wind River formation and aquifer.\" The NRDC-commissioned report agreed with all of EPA's conclusions, and dismissed other explanations, such as those raised by the IPAA-commissioned report discussed above. For example, the NRDC report asserted that EPA appropriately accounted for the potential that poor construction of the EPA monitoring wells could have led to anomalously high pH values. The IPAA-commissioned report argued that poor well construction was the most likely reason for the high pH values.\nThe NRDC-commissioned report also recommended further work to improve the EPA analysis, such as continuing to collect data to better verify the sources of the contaminant plume, installing deeper monitoring wells, mapping the depth to water, estimating vertical gradients, correlating the gradients to contaminated areas and their sources, and others.",
"A commentator from the Environmental Defense Fund (EDF) echoed remarks in the NRDC critique that the \"draft report is Exhibit A on why stronger regulation and enforcement is necessary if the general public is EVER going to believe that shale gas development is a safe source of natural gas.\"",
"An article published by Pro Publica, an independent nonprofit news service, stated that findings from the EPA Draft Report \"could be a turning point in the heated national debate about whether contamination from fracking is happening, and are likely to shape how the country regulates and develops natural gas resources in the Marcellus Shale and across Appalachian states.\" The article also stated that some of the findings in the report contradict what the drilling industry has argued about why fracking is safe. The article said that those industry arguments are \"that hydrologic pressure would naturally force fluids down, not up; that deep geologic barriers provide a watertight barrier preventing the movement of chemicals towards the surface; and that the problems with the cement and steel barriers around gas wells aren't connected to fracking.\"",
"The issuance of EPA's Draft Report also received attention in the second session of the 112 th Congress and in the first session of the 113 th Congress. On January 20, 2012, 11 members of the Senate Environment and Public Works Committee sent a letter to EPA Administrator Lisa Jackson asking that the EPA investigation be considered a \"highly influential scientific assessment and that any related, generated report is subject to the most rigorous, independent, and thorough external peer review process.\"\nNotwithstanding the Senators' request, EPA did not classify the Pavillion Draft Report as constituting \"highly influential scientific information.\" However, the agency did classify the draft as \"Influential Scientific Information\" and explained as follows:\nEPA classified the Pavillion draft report as \"Influential Scientific Information\" (ISI) rather than a Highly Influential Scientific Assessment (HISA) because the Pavillion investigation is a single study rather than the type of broad assessment involving an evaluation of a body of scientific or technical knowledge that comprises a HISA (as defined by OMB). Such a classification, however, does not limit the rigor of the peer review. In recognition of the high profile of this investigation, the Agency is using the peer review procedures for the draft report that are equivalent to those required for a HISA, including higher standards for ensuring reviewer independence from the agency and making agency responses to the peer reviewers available to the public. In fact, EPA has gone one step beyond the HISA requirement of simply making the final peer review charge publicly available by soliciting public comments on the draft charge to the reviewers.\nIn the House, the Subcommittee on Energy and Environment of the Committee on Science, Space, and Technology held a hearing on February 1, 2012, to examine EPA's findings and stakeholder concerns. The subcommittee received testimony from officials representing EPA and the state of Wyoming, the Western Energy Alliance (an industry organization representing oil and natural gas exploration and production companies), and a public health scientist.\nTestifying for EPA, James Martin, Regional Administrator for EPA Region 8, noted that Pavillion Draft Report analysis \"is limited to the particular geologic conditions in the Pavillion gas field and should not be assumed to apply to fracturing in other geologic settings.\" Mr. Tom Doll, testifying for the State Oil and Gas Supervisor at the Wyoming Oil and Gas Conservation Commission, questioned EPA's conclusions, stating that, \"State of Wyoming experts do not support the EPA's data or analysis and recommend further testing before any conclusion of groundwater contamination by any source can be made.\" All of the witnesses agreed that more research is needed.\nIn the first session of the 113 th Congress, some members of the Senate Committee on Environment and Public Works had expressed concern in January 2013 about the pending EPA Draft Report for the Pavillion site and the quality of the science upon which it was based. EPA's June 20, 2013, decision not to finalize the Pavillion Draft Report, and to defer to the state of Wyoming to assume the lead role in investigating drinking water quality in the area, has received support from the entire Wyoming delegation.",
"On December 14, 2011, EPA officially issued notice of the public availability of its Draft Report and initially began a 45-day public comment period with a closing date of January 27, 2012. Due to heightened interest, EPA subsequently extended the public comment period for an additional 45 days through March 12, 2012. Shortly after this period expired, EPA announced on March 29, 2012, that the agency would continue to accept public comments through October 16, 2012. EPA decided to continue accepting public comments for this longer period while the agency collected more data than first examined in the Draft Report. On March 8, 2012, EPA had announced its decision to collect additional samples from the deep monitoring wells in response to concerns about the scientific validity of the agency's findings. EPA stated that it would partner with the U.S. Geological Survey (USGS) and the state of Wyoming to perform the additional sampling and analysis, in collaboration with the tribes.\nIn conjunction with its decision to extend the public comment period, EPA delayed the convening of a panel of independent scientists to peer review the findings of its Draft Report until the additional sampling was completed and the data could be made available to the panel to incorporate into its review. On January 17, 2012, EPA had published a 30-day notice inviting public nominations of scientific experts to be considered as peer reviewers for the external review of the Draft Report.\nEPA subsequently extended the public comment period on its Draft Report to January 15, 2013, and again to September 30, 2013. On June 20, 2013, EPA announced that it no longer intends to finalize its Draft Report or to seek scientific peer review. Instead, EPA has deferred to the state of Wyoming to assume the lead role in investigating drinking water quality in the vicinity of Pavillion, but noted that it would continue to provide technical support to the state. The Wyoming Department of Environmental Quality and the Wyoming Oil and Gas Conservation Commission are the two agencies that would lead the continuing investigation on behalf of the state. The scope of the investigation by the state would seek to address water quality concerns by evaluating the water quality of certain domestic water wells, the integrity of certain oil and gas wells, and the historic use of waste disposal pits in the Pavillion area. EPA reported in its June 20, 2013, announcement that the state's investigation would seek to clarify water quality concerns and assess the need for any further action to protect drinking water resources. EPA also noted that the state intends to conclude its investigation and release a final report by September 30, 2014. The following sections discuss various issues related to the EPA Draft Report, including subsequent sampling by the USGS, how EPA's findings may be used moving forward, and certain hydrogeological characteristics for consideration in interpreting and applying these findings.",
"On September 26, 2012, the U.S. Geological Survey released two reports on EPA monitoring wells MW01 and MW02 installed by the EPA during its initial investigation at Pavillion. One USGS report described the sampling and analysis plan developed for sampling the two wells. The other USGS report provided data and other information from groundwater samples. According to the sampling plan report, the purpose of the data collection effort was to provide an independent perspective of the quality of groundwater pumped from the two EPA monitoring wells. In its press release, the USGS noted that it collected the additional samples in cooperation with the Wyoming Department of Environmental Quality.\nThe USGS made clear that it did not interpret the data from its sampling effort, and stated that the raw data results added to \"the body of knowledge to support informed decisions.\" The raw data include water quality properties, such as pH and temperature; inorganic constituents, such as sodium and chlorine; organic constituents, such as gasoline-range organics and diesel-range organics; dissolved gases, such as oxygen and radon; and other properties of the groundwater.\nThe USGS report contains raw data results only from EPA well MW01. The USGS was unable to collect samples from well MW02. The USGS noted in one report that the purge and sampling history for well MW02 indicated that the EPA had experienced much difficulty in collecting water level data from the well because pumping MW02 caused a rapid decline in water levels. A rapid decline in water levels during pumping often indicates that the well has poor yield, and refills very slowly after pumping. In its report, the USGS stated that it is standard USGS practice to avoid sampling low-yield wells, if possible, because without an adequate purge of the standing borehole water the samples are at risk of containing artifacts that can compromise the representativeness of water in the actual formation. The USGS attempted to redevelop well MW02 to increase its yield before sampling, but was unable to do so. Consequently, the USGS chose not to collect any samples from MW02.\nIn an initial news report, an EPA spokesperson stated that the USGS data are \"generally consistent\" with the earlier EPA draft report findings. The news report also cited Rob Jackson of Duke University commenting that the results appear consistent with the earlier EPA study. A spokesman from Encana stated that there was nothing surprising in the USGS results, based on a preliminary examination of the data.\nThe USGS has chosen not to interpret the results from its sampling of MW01, and has no plans to do additional work at Pavillion. In response to a question from CRS regarding whether the USGS would issue a future report interpreting the results from the study, a USGS spokesperson stated that USGS hydrologists concluded that interpretation would require a broad understanding of the hydrogeological setting and groundwater movement in the region, which is beyond the scope of this study.",
"The Draft Report indicates that EPA identified certain constituents above the production zone of the natural gas wells that are consistent with some of the constituents used in the well operations. EPA did not appear to conclude that there was a definitive link to a release from the production wells, nor to the constituents found in the domestic wells in the shallower portion of the aquifer. Absent such a link, EPA also did not conclude in its Draft Report that the constituents found in the aquifer were caused by a specific release that may pose a threat to human health or the environment at the Pavillion site.\nAt this juncture, it does not appear that these findings would be revisited by EPA, now that the agency has decided not to finalize the report nor to subject it to independent scientific peer review. However, EPA did indicate in its June 20, 2013, announcement that the sampling data obtained during the agency's groundwater investigation at Pavillion would be considered by the state of Wyoming in its further investigation of drinking water quality in the area, and that EPA would offer input to the state in a supporting role. Although EPA acknowledged in its announcement that it \"stands behind its work and data,\" the agency does not plan to rely upon the conclusions in its Draft Report. EPA noted the broader national research that it has been conducting under congressional direction on the potential relationship between hydraulic fracturing and drinking water quality in different areas of the United States. EPA stated that it would \"look to the results of that national program as the basis for its scientific conclusions and recommendations on hydraulic fracturing.\"\nJudging by a preliminary scan of public comments made by stakeholders, some of which are described above, proponents and opponents of hydraulic fracturing have disagreed over the EPA Draft Report's main conclusions linking hydraulic fracturing chemicals, and perhaps the hydraulic fracturing process specifically, with groundwater contamination in the Pavillion area. Some may attempt to generalize the EPA Draft Report's findings to regions where hydraulic fracturing is used to develop other natural gas resources, such as the Marcellus Shale in the Northeast, the Barnett Formation in Texas, and the Bakken Formation in North Dakota. However, the geology and hydrology of each region differs. The differences in geology and hydrology could make a significant difference in the likelihood of contaminating drinking water aquifers from hydraulic fracturing and from other natural gas development activities. The overall process of hydraulic fracturing and of exploration and production of natural gas, however, is broadly similar irrespective of region.\nA few of the important similarities and differences between the Pavillion region and other gas-producing regions are described below, to offer some context for evaluating potential arguments for and against generalizing results from the EPA Draft Report more broadly.",
"The Pavillion field is known as a tight sand gas field. Natural gas is extracted from sandstone lenses in the Wind River Formation and in the underlying Fort Union Formation. The sandstone lenses are interbedded with less permeable rocks, such as shales and mudstones. The natural gas did not originate in the sandstone lenses, but was likely formed in deeper and older rocks and then migrated into the sandstone lenses. The sandstone lenses, therefore, constitute the reservoir for natural gas, but not the source . The gas remains trapped in the sandstone reservoirs because the surrounding rocks are relatively impermeable to flow and keep the gas within the sandstone lenses.\nTight gas sandstones generally are defined as unconventional gas deposits because they generally have lower permeability than other types of sandstones in conventional deposits. Unconventional gas deposits require enhanced recovery techniques to produce the gas, such as hydraulic fracturing. Conventional gas deposits, by contrast, can produce gas to the surface via a well under the natural pressure and permeability of the reservoir (at least, until the natural pressure is depleted). Figure 3 is a schematic showing conventional and unconventional types of natural gas deposits, including shale gas and tight sand gas.\nThe crucial geologic difference between tight sand gas formations and shale gas formations is that shale gas formations are both the source rock and the reservoir rock. The natural gas is formed within the shale layers, but because shale is virtually impermeable to flow, the gas remains trapped and bound to the matrix of organic matter in the shale. Shale gas formations are also deemed unconventional gas deposits.\nThe distinction between tight sand gas and shale gas is important in the Pavillion area because in the upper 1,000 feet of the Wind River Formation, the sandstone lenses are also part of the aquifer used for water supply. The sandstone, in contrast to shale, has enough permeability to transmit groundwater to water wells in the region. In a sense, the sandstone lenses can act as a reservoir for both natural gas and for groundwater. Shale formations, such as the Marcellus Shale, are not permeable enough to transmit water and are generally not considered aquifers. In fact, thick layers of shale are considered to be barriers to groundwater flow",
"The issue at Pavillion, where hydraulic fracturing and gas production are occurring only slightly deeper than the deepest water wells, would likely not be an issue for most shale gas plays. The uppermost region of hydraulic fracturing in the Pavillion field is within a few hundred feet of the deepest water wells. The close vertical proximity of natural gas development activities and the bottom of the drinking water aquifer means that injected fluids would not have to travel far to reach the aquifer, provided the fluids had a suitable pathway. Put another way, at Pavillion there is less rock between the gas development activities and the aquifer. In contrast, deeper shale gas reservoirs, such as the Marcellus Shale in the northeast United States, are separated from overlying drinking water aquifers by thousands of feet of rock in areas under active development.\nIn addition, if the intervening interval contains layers of rock relatively impermeable to flow, such as other shale formations, then the chances of upward migration of injected fluids are reduced. In such cases, the only pathways for fluid migration from a deep shale gas reservoir would be along leaky old wells or poorly constructed production wells. Those types of wells would provide possible routes for fluids to migrate upward because the wells pierce the intervening rock layers and could connect the drinking water aquifer to the deeper, hydraulically fractured gas shale reservoir.",
"Vertical wells were drilled in the Pavillion field to hydraulically fracture and produce natural gas. In tight sand reservoirs, such as the Pavillion field, often more wells are required to efficiently produce the gas from a given section of the reservoir than from conventional sand reservoirs. In other words, one well in a tight gas reservoir will produce less gas over time than what would be expected from a well in a conventional sand reservoir. That means that the well spacing for tight gas sands could be much denser than for conventional sand gas fields. According to one source, well spacing in a conventional sand reservoir is generally 160 to 320 acres per well, but in a tight sand reservoir the well spacing can be as little as 10 acres per well. The greater number of wells required to produce gas in tight sands also increases the number of potential vertical pathways from the fracture or production zone to the surface, or to a drinking water aquifer if some wells are improperly constructed or leak over time.\nWell spacing for vertical wells in other unconventional gas reservoirs, such as the Marcellus Shale, would also be more dense as compared to conventional gas reservoirs. However, horizontal drilling is increasingly used to both hydraulically fracture and produce gas from shale gas reservoirs. According to one source, shale gas development could require only one horizontal well instead of four vertical wells to produce the same amount of gas. Also, one drill pad is required for each vertical well drilled, while multiple horizontal wells could be drilled from the same drill pad. If four horizontal wells were drilled from a single drill pad, that would be the equivalent of drilling 16 vertical wells. For shale gas fields where horizontal wells are chiefly used, the number of potential vertical pathways per land area that could transport leaked contaminants to overlying drinking water aquifers likely would be far fewer than for tight gas sand fields such as at Pavillion.",
"Although there would likely be some differences in the exact composition of hydraulic fracturing fluids used and the volumes of fluid injected, the overall hydraulic fracturing process used at the Pavillion field was probably generally similar to hydraulic fracture processes for other unconventional gas fields. Horizontal wells used for hydraulically fracturing shale gas fields, such as the Marcellus Shale, probably require a greater overall volume of fluid per well than is required for vertical wells drilled into tight gas sands, such as Pavillion. The requirement for greater volumes of water in shale gas fields would present different challenges regarding water supply and water disposal than for tight gas sand fields, such as Pavillion. In addition to greater volumes injected into the subsurface, greater volumes of fracture fluid would need to be stored at the surface during a hydraulic fracturing operation, which could also increase the likelihood of surface spills. Surface spills could infiltrate into shallow drinking water aquifers and pose a threat to nearby water wells.",
"In sum, the EPA Draft Report has raised many issues, questions, and concerns among potentially affected stakeholders, including the oil and natural gas industry, environmental organizations, and individual citizens. EPA's actions since the release of its Draft Report in December 2011 have entailed collecting additional samples from the deep monitoring wells to broaden the data for its analysis, and extending the public comment period and delaying the convening of the independent scientific peer review panel until the additional sampling and analysis are complete. Now that EPA has decided not to finalize its report, nor to subject it to independent scientific peer review, whatever additional actions may be taken at the Pavillion site would appear to depend on the outcome of the investigation of the state of Wyoming and what role EPA may play in a supporting capacity. (The following Appendix to this report reviews EPA's response authorities under CERCLA at the federal level.) Regardless of these outcomes, the potential applicability of either the findings of EPA or the state of Wyoming at the Pavillion site to other sites where hydraulic fracturing operations are conducted would depend heavily upon the extent to which the geology and hydrogeology are similar, as well as other site-specific factors.",
"The Pavillion site groundwater investigation outlined in the EPA Draft Report constitutes an early stage of the standard site-specific evaluation process under CERCLA. This process first focuses on characterizing a site to identify potential contamination and potential sources of contaminants to discern whether a release of hazardous substances may have occurred that may warrant further action under CERCLA. If EPA were to determine that cleanup of contamination is warranted to protect human health and the environment, certain exclusions, limitations, or exemptions could constrain the actions that EPA could pursue under CERCLA. In the case of a site like Pavillion, these constraints may include the exclusion of releases of natural gas from the reach of the statute, the general limitation on the use of the authorities of the statute to respond to releases of hazardous substances that may be naturally occurring, and the exemption from liability under the statute for response costs or damages resulting from federally permitted releases of hazardous substances (including permits issued by states with delegated federal authorities, and certain permits issued by states under their own authorities that govern underground injection involved in oil or natural gas production).\nAlthough the initial site-specific evaluation process under CERCLA may be funded and performed under EPA's Superfund program, it does not constitute the placement of a site on the National Priorities List (NPL). Rather, such an evaluation is the initial—and in most cases the only—stage of the site-specific process under CERCLA. Most potentially contaminated sites initially brought to EPA's attention are deferred to the states for further action. EPA's investigation of the Pavillion site formally constituted the Preliminary Assessment/Site Inspection step of the site-specific evaluation process under CERCLA. EPA broadened the Site Inspection phase at the Pavillion site to an \"Expanded Site Inspection\" to collect additional samples and more fully characterize the contaminants that may be present in the groundwater and the potential sources.\nThe primary purpose of this step of the process is to identify whether a release of hazardous substances may warrant emergency response actions to address immediate risks, and whether the site may warrant listing on the NPL to take more extensive response actions. Relatively few potentially contaminated sites reported to EPA result in an NPL designation. Approximately 50,000 potentially contaminated sites have been reported to EPA over time since the enactment of CERCLA in 1980. Of this total site universe, more than 21,000 sites have been the subject of Site Inspections similar to that conducted at Pavillion, of which 1,685 have been listed on the NPL to date, including sites that have since been deleted once the cleanup objectives were met.\nWhether EPA may pursue further action at a site under investigation depends on the findings. In its Draft Report for the Pavillion site, EPA did not reach a conclusion definitively linking contaminants found in the groundwater to a specific release that may present a risk to human health or the environment. Accordingly, the agency did not determine that cleanup actions were warranted, nor did the agency identify any potentially responsible parties as being liable for any response actions under Section 107 of CERCLA. At any site, a source of contamination first would have to be confirmed and the potential risks further examined, before any determinations could be made as to whether cleanup may be warranted and whether any potentially responsible parties are identified who may be liable for the cleanup.\nIf EPA were to find that a release or threatened release of a hazardous substance may present a threat to human health or the environment, EPA would evaluate the potential hazards according to the criteria established under Section 105(a)(8)(A) of CERCLA to determine whether the site may be eligible for listing on the NPL. These criteria and how to apply them are outlined in federal regulation under the Hazard Ranking System (HRS). This system is based on a scale of 1 to 100 to rank the degree or severity of the potential hazards. Sites scoring 28.5 and higher generally are eligible for listing on the NPL. Whether EPA may list an eligible site on the NPL to elevate its priority for cleanup at the federal level would depend on numerous other criteria, including the criteria under Section 105(h) of CERCLA for deferring a site to the state in which the site is located instead of listing it on the NPL, if the state requests such deferment.\nIf a site is not listed on the NPL but still is not deferred to the state, EPA may take certain actions at the federal level to address potential health and environmental risks, including the performance of emergency \"removal\" actions if warranted. Under CERCLA, removal actions generally are measures intended to address more immediate risks of exposure, whereas \"remedial\" actions generally are measures intended to provide a more permanent solution to address long-term risks. Although a site must be listed on the NPL to be eligible for Superfund appropriations to perform remedial actions, removal actions are eligible for such federal funds regardless of a site's listing status. The initial stage of evaluating a site also may be funded with Superfund appropriations prior to any listing decision, to determine whether further response actions may be warranted. The use of Superfund appropriations at the Pavillion site was limited to the performance of the Preliminary Assessment/Site Inspection of potential groundwater contamination, upon which the EPA Draft Report was based.\nEPA also may pursue mechanisms to enforce cleanup liability under CERCLA if the source of contamination is confirmed, the release that caused the contamination falls under the authorities of the statute, and the potentially responsible parties who can be held liable under the statute can be identified and are financially viable. These mechanisms include cleanup orders under Section 106 and cleanup agreements under Section 122, neither of which hinges upon whether a site is listed on the NPL. However, Section 128(b) of the statute generally limits EPA's enforcement authority under CERCLA to issue a cleanup order under Section 106, if a state is already pursuing the cleanup of a site under its own authorities.\nEPA did not use any of these enforcement authorities of CERCLA at the Pavillion site. Rather, the EPA Draft Report identified constituents in certain portions of the aquifer that the agency characterized as being consistent with, or similar to, some substances used in the natural gas production operations. EPA did not definitively identify the source of the constituents, any potentially responsible parties, or any potential risks that may warrant cleanup."
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{
"question": [
"Why did the EPA issue a draft report about groundwater contamination near Pavillion, Wyoming?",
"How will the draft report be finalized?",
"What are likely sources of groundwater contamination in this case?",
"What was the EPA's conclusion with regards to the gas production wells?",
"How did the EPA respond to concerns about the adequacy of the original data?",
"What data did the USGS release to augment the EPA survey?",
"Why did the USGS only provide raw data from one well?",
"To what extent were the USGS reports consistent with the EPA findings?",
"How will additional actions be taken at the Pavillion site?"
],
"summary": [
"EPA had initiated the investigation under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in response to citizen complaints in 2008 about domestic well water quality.",
"On June 20, 2013, EPA announced that it would not finalize the report but would defer to the state of Wyoming to assume the lead in investigating drinking water quality in Pavillion.",
"The EPA draft report indicated that certain constituents in groundwater are consistent with some of the constituents used in natural gas well operations, including the process of hydraulic fracturing. EPA claimed that its approach to the investigation best supports the explanation that different compounds associated with hydraulic fracturing have contaminated the aquifer used for domestic water supply in the Pavillion area.",
"EPA did not appear to conclude that there was a definitive link to a release from the production wells, nor to the constituents found in domestic wells in shallower parts of the aquifer.",
"In response to concerns about the adequacy of the original data, EPA worked with the U.S. Geological Survey and the state of Wyoming to collect additional samples from two deep monitoring wells installed by EPA.",
"On September 26, 2012, the USGS released two reports regarding their sampling program for the two wells.",
"The USGS provided raw data from only one well because the second well did not yield enough water to collect representative samples.",
"A news report cited an EPA spokesperson stating that the USGS sampling results were generally consistent with findings from the earlier EPA draft report.",
"Now that EPA has decided not to finalize its report, whatever additional actions may be taken at the Pavillion site would appear to depend on the outcome of the investigation of the state of Wyoming and what continuing role EPA may play in a supporting capacity."
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CRS_R42495
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{
"title": [
"",
"Insider Trading",
"Commodity Exchange Act",
"Initial Public Offerings (IPOs)",
"Public Financial Disclosure Reports",
"Elimination of Mortgage Exemption for Personal Residences of Certain Officials",
"Prompt Public Reporting of Financial Transactions",
"Internet Posting of Disclosure Reports; Electronic Reporting",
"Pensions of Members of Congress",
"Other Provisions",
"Influencing Private Employment Decisions",
"Negotiations for Post-Government Employment",
"Bonuses to Fannie Mae and Freddie Mac Executives",
"Study on Political Intelligence"
],
"paragraphs": [
"On April 4, 2012, the STOCK Act (Stop Trading on Congressional Knowledge Act of 2012) was signed into law. The act clarifies and confirms that the \"insider trading\" rules apply to all government officials, including Members of Congress, and provides for more transparency and access to the reports on the personal financial information, assets, and transactions of federal officers and employees.\nThe STOCK Act has, in summary, four major features:\nFirst, the law reaffirms the fact that the existing \"insider trading\" provisions of securities law and regulations do not contain any exemption or exclusion for Members of Congress, congressional staff, or other federal officials. Furthermore, the law makes explicit the duty of confidentiality and trust that all public employees have concerning material, nonpublic information that comes to them by virtue of their federal employment. Secondly, the law requires the establishment of an electronic filing system for certain financial disclosure reports that must be filed by legislative and executive branch officials under the Ethics in Government Act of 1978, and requires that the public reports of personal financial information filed by Members of and candidates to Congress, the President, the Vice President, and presidentially appointed and Senate confirmed officials at levels I (cabinet positions) and level II of the Executive Schedule are to be available to be publicly accessed on the Internet in a searchable and sortable format. Thirdly, the law requires public reporting within 30 days after receiving a report concerning, but no later than 45 days after, a covered financial transaction in income-producing property (such as the purchase or sale of stocks or bonds) by all legislative and executive branch personnel who are required to file the annual public financial disclosure reports under the Ethics in Government Act of 1978. Finally, the law expands the list of crimes, conviction of which would result in a Member of Congress losing all of his or her creditable service as a Member for congressional pension purposes, and broadens the time period when such conviction would apply to federal pension forfeiture.",
"The provisions of the new law expressly affirm that there exists no exemption for Members of Congress, congressional employees, or for other federal officers or employees from the \"insider trading\" prohibitions in federal securities law and regulation. It should be emphasized that there never was any exemption or exception from the \"insider trading\" provisions of securities law for Members of Congress, congressional staff, or for other federal employees, and such persons were subject to the insider trading restrictions in the same manner as members of the general public. However, certain media reports and allegations created the public impression that Members of Congress and staff were actually exempt or had \"excepted themselves\" from the insider trading provisions. This legislation addressed that perception.\nIn addition to affirming that the insider trading restrictions of securities law and regulation apply to Members of Congress and to other federal officials, the STOCK Act further affirms expressly that each officer and employee of the legislative branch, each executive branch official, and each judicial officer and employee owes a duty of trust and confidence to the United States and the citizens of the United States with respect to material, nonpublic information derived from such person's public employment.\nThe STOCK Act directs the ethics entities in the House and Senate—the House Ethics Committee and the Senate Select Committee on Ethics—to issue interpretations of chamber rules \"clarifying\" that Members and staff are prohibited from using nonpublic information derived from their positions \"as a means for making a private profit.\" Although such explicit regulations already exist in the executive branch, the legislation directs that the Office of Government Ethics issue such interpretive guidance, and that the Judicial Conference of the United States issue such guidance to federal judges and to judicial employees.\nFrom the inclusiveness of the language of the legislation, and from previous guidance, it would appear that the restrictions on the use of nonpublic, material information extends not only to trading directly by the Member of Congress or by staff on such information, but would extend also to passing on such material, nonpublic information to another so that such other person may make a private profit for himself or herself, or for the public official.",
"The STOCK Act expressly includes Members and employees of Congress within those employees or agents of the federal government, including all executive branch and judicial branch officers and employees, who are prohibited from using nonpublic information, imparting such nonpublic information, or stealing or converting nonpublic information to purchase or sell commodities, commodities futures, or options, for personal gain.",
"The STOCK Act amends the Securities Exchange Act of 1934 to provide that all officers or employees of the federal government who are required to file annual public financial disclosure reports under the Ethics in Government Act are prohibited from purchasing securities that are the subject of an \"initial public offering ... in any manner other than is available to members of the public generally.\"",
"Under existing and pre-STOCK Act law, Members of Congress and certain employees of the legislative branch (including those paid at a rate of pay exceeding 120% of the base salary of a GS-15), as well as executive branch officials who occupy \"a position classified above GS-15,\" or, if not on the General Schedule are in a position compensated at a \"rate of basic pay ... equal to or greater than 120 percent of the minimum rate of basic pay payable for GS-15,\" are generally subject to the public financial disclosure provisions of the Ethics in Government Act of 1978, as amended. Those employees compensated at the rate of pay described above are required to file detailed public financial disclosure statements by May 15 of the following year if the individual works for the government for more than 60 days in the calendar year. These disclosure reports have been available to the public for viewing at the office of the agency ethics officer, or a copy may be furnished to those requesting a copy.",
"Under existing law in the Ethics in Government Act, one of the \"liabilities\" of over $10,000 that did not have to be disclosed on an annual personal financial disclosure report was the mortgage on officers' or employees' personal residences. By removing the exemption for such disclosure from reports made by the President, the Vice President, Members of Congress, and nominees and incumbents in positions which are appointed by the President and confirmed by the Senate (other than Foreign Service officials below the rank of ambassador, military personnel at or below grade 0-6, or special government employees), the STOCK Act now requires disclosure of information about the mortgages on such officials' own personal residences.",
"The Ethics in Government Act of 1978 has, since its enactment, required the annual public reporting of all \"transactions\" in income-producing property of over $1,000 in value for covered executive and legislative branch officers and employees. This requirement applies generally to the purchase or sale of such assets as stocks, bonds, commodity futures, or other securities, as well as the purchase or sale of real property which is income producing (such as rental property).\nThe STOCK Act requires, as of July 3, 2012, the public reporting of covered transactions exceeding $1,000 in many of these income-producing assets to be made within 30 days of receiving notice of the transaction, but not later than 45 days after the transaction, from all federal officers and employees in the legislative and executive branches who are required to file public financial disclosure reports under the Ethics in Government Act of 1978, as amended. This requirement for more prompt public reporting of financial transactions will not apply to a widely held investment fund, such as mutual funds, if the fund is publicly traded, the assets are widely diversified, and the reporting individual neither exercises nor is allowed to exercise control over the financial interests of the fund. Furthermore, the periodic transaction reports generally apply only to transactions in securities, and do not apply to transactions in things such as real property. Such transactions in income producing real property, or in such holdings as mutual funds, must still, however, be reported on the annual financial disclosure reports of the official. In clarifications adopted as an amendment to the STOCK Act in August of 2012, it is now clear that reporting individuals who are required to file periodic transaction reports must file such reports with respect to covered transactions by the official's spouse or dependent children, except in very limited and unusual circumstances.\nAlthough the requirement for Internet posting of the periodic financial transaction forms filed by most federal officials will be rescinded in legislation recently passed by Congress, the underlying requirement to report such transactions to the proper, relevant ethics office within 30 days of receiving notice of the transaction, but not later than 45 days after the transaction, remains in force and continues to be required by all covered officials—that is, for all public filers—in the legislative and executive branches of government.",
"The STOCK Act as originally adopted had required the posting on the respective official websites of the House and Senate the annual financial disclosure reports, as well as the new prompt reporting disclosures of financial transactions, made in 2012 by Members, officers of the House or Senate, candidates to Congress, and employees of the entire legislative branch who are required to file public financial disclosure reports under the Ethics in Government Act. Similarly, the public disclosure reports made in 2012 by officers and employees of the entire executive branch under the Ethics in Government Act (including the periodic transactions reports) had been required under the original provisions of the STOCK Act to be posted on the official websites of the respective executive branch agencies. In subsequent reporting years, these reports were to be posted on the publicly accessible websites no later than 30 days after filing.\nWith regard to such Internet postings of the detailed financial information of nearly 30,000 federal employees in the executive and legislative branches of government, concerns were expressed by federal employees, officials, and employee associations over increasing the opportunities and potential for identity theft, the increased prevalence of \"data mining\" on the Internet for malicious purposes, and concerns over the safety of federal workers and their families, particularly those who serve abroad. Additionally, a group of federal executive employees filed suit against the provision in the United States District Court for the Southern District of Maryland. In that case, on March 27, 2013, the court denied in part the government's motion to dismiss the suit, and strongly indicated its view that forced publication of employees' financial reports on the Internet, in light of new technologies and communications, might violate a constitutional \"right to informational privacy\" of federal employees. Although the Supreme Court and courts in other federal circuits have not necessarily recognized an expanded personal \"privacy\" right under the Constitution to this extent, the District Court in Maryland indicated that such interests were protected under precedents in the Fourth Circuit.\nIn response to such concerns and judicial actions, Congress had delayed the implementation of the requirement for Internet posting of personal financial data for most federal officials until the potential impact of these new Internet disclosures may be studied by the National Academy of Public Administration [NAPA]. Issuing their study on March 28, 2013, the NAPA, in a detailed report, concluded that \"the online posting requirement does little to help detect conflicts of interest and insider trading, but that it can harm federal missions and individual employees.\" The panel thus recommended that \"the online posting requirement be indefinitely suspended while continuing the implementation of all the other provisions of the STOCK Act.\"\nUnder the latest amendments to the STOCK Act passed by Congress, the disclosure reports and periodic transactions reports for high level officials—the President, Vice President, Members of Congress, candidates to Congress, and Presidential appointed and Senate confirmed officials on the Executive Schedule I (cabinet level) and Executive Schedule II—continue to be required to be posted on the Internet. However, for all other officers and employees in the legislative and executive branches of government who must file public reports with their agencies, these reports will no longer be required to be posted on the Internet.\nBy January 1, 2014, the Clerk of the House and Secretary of the Senate, as well as the appropriate entities in the executive branch of government, are instructed to develop and implement an electronic filing system for the financial disclosure reports required to be filed under the Ethics in Government Act for Members of and candidates for Congress, the President, the Vice President, and presidentially appointed and Senate confirmed officials on Levels I and II of the Executive Schedule. The system is to allow the public to search these reports on the Internet and, with a login, to be able to download the reports. The system for the executive branch is to be maintained on the official website of the Office of Government Ethics.\nIn the legislative branch, the reports filed by Members of Congress are to be kept for a period of six years after the date the person is no longer a Member; and other reports filed by legislative officers and employees are to be retained for a period of six years after receipt.",
"Under current law, if convicted of certain offenses relating to corruption in public office while serving as a Member, a Member of Congress forfeits all of his or her creditable service as a Member for federal pension purposes. This bill expands that provision so that a Member of Congress would lose the credit for service as a Member for pension purposes if convicted of one of the numerous corruption offenses not only during time served as a Member of Congress, but also if convicted of any of such offenses while the President, the Vice President, or as an elected official of a state or local government.\nThe STOCK Act also adds numerous other federal criminal laws for which a final felony conviction would result in losing creditable service as a Member of Congress for federal pension purposes. Such other criminal offenses include conflicts of interest (18 U.S.C. §203); conspiracy to make false claims (18 U.S.C. §286); making false claims to the government (18 U.S.C. §287); vote buying (18 U.S.C. §597); illegal solicitation of political contributions from federal employees (18 U.S.C. §602); soliciting political contributions in a federal building or office (18 U.S.C. §607); theft, conversion, or embezzlement of government funds or property (18 U.S.C. §641); false statements to the government (18 U.S.C. §1001); obstruction of proceedings before government agencies (18 U.S.C. §1505); attempt to evade or defeat paying taxes (26 U.S.C. §7201), among other offenses.",
"",
"Section 18 of the Stock Act amends 18 U.S.C. Section 227 to include officers and employees of the executive branch of government in the prohibition on wrongfully attempting to influence private employment decisions based on partisan political affiliations.",
"The STOCK Act now requires any individual who must file a public financial disclosure report under the Ethics in Government Act to report all negotiations or agreements for future private employment within three days after commencement of such negotiations or agreement to the employee's supervising ethics office, and then to recuse himself or herself when there is a conflict of interest or an appearance of a conflict of interest \"with respect to the subject matter of the statement.\" These provisions do not appear to supersede, but appear to add to, the existing criminal conflict of interest provision in 18 U.S.C. Section 208. With respect to all executive branch employees, 18 U.S.C. Section 208 requires recusal of such executive branch officer and employee from any particular governmental matter when that matter may affect the financial interests of \"any person or organization with whom he [the employee] is negotiating or has any arrangement concerning prospective employment.\" Additionally, there are detailed executive branch regulations on negotiating and seeking private employment, at 5 C.F.R. Section 2635, Subpart F, Sections 2635.601 - 2635.606.",
"The STOCK Act prohibits the receipt of bonuses by \"senior executives\" at the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation during any period of conservatorship for those entities after the passage of this act.",
"The STOCK Act had required a report to be made by the Comptroller General of the Government Accountability Office, in consultation with the Congressional Research Service, within one year concerning the role of \"political intelligence\" in the financial markets, including the extent that such information sold is considered nonpublic; the legal and ethical issues in the sale of political intelligence; benefits from imposing reporting and registration requirements on those who engage in political intelligence; and legal and practical issues in imposing such reporting and registration requirements. The Government Accountability Office has released this report discussing potential issues in the implementation of such registration requirements, the difficulties of measuring the impact of a particular piece of \"political intelligence\" on financial markets, the practical issues in attempting to determine the public or non-public nature of particular disclosures, and discussing the costs versus the benefits of a registration scheme for political intelligence firms similar to the registration of lobbyists and lobbying firms."
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"question": [
"What does the the acronym of the STOCK Act stand for?",
"How does the Act stop insider trading among Members of Congress?",
"What is the \"duty\" of trust and confidentiality?",
"How does the STOCK Act affect the financial transactions of federal officials?",
"How does the Act affect public reporting of these transactions?",
"What transactions are covered by this Act?"
],
"summary": [
"The STOCK Act (Stop Trading on Congressional Knowledge Act of 2012) was signed into law on April 4, 2012.",
"It affirms and makes explicit the fact that there is no exemption from the \"insider trading\" laws and regulations for Members of Congress, congressional employees, or any federal officials.",
"The law also expressly affirms that all federal officials have a \"duty\" of trust and confidentiality with respect to nonpublic, material information which they may receive in the course of their official duties, and a duty not to use such information to make a private profit.",
"The STOCK Act, as part of the law's regulation of securities transactions by public officials, now requires expedited, periodic public disclosure of covered \"financial transactions\" by all officials in the executive and legislative branches of the federal government who are covered by the public reporting provisions of the Ethics in Government Act of 1978, as amended.",
"The act thus works to require not only annual public reporting of such transactions (which reporting has been required since 1978), but also now requires public reporting within 30 days of receipt of a notice of a covered financial transaction (but in no event more than 45 days after such transaction).",
"These periodic reports are filed with reference to any financial transactions of $1,000 or more in securities, but are not required for transactions in mutual funds or income-producing real property."
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GAO_GAO-18-116
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{
"title": [
"Background",
"The Kissell Amendment",
"The Buy American Act",
"DHS Obligations for Textile Procurements",
"DHS Updated Policies and Procedures to Incorporate the Kissell Amendment Restriction",
"DHS Procurement Policies Contain the Kissell Amendment Restriction",
"DHS Has Procedures to Ensure That the Kissell Amendment Restriction Is Properly Applied",
"The Kissell Amendment Restriction Has a Limited Effect on DHS Textile Procurements",
"The Kissell Amendment Restriction Affects a Limited Number of DHS Textile Procurements Due to Multiple Factors",
"TSA Procurement Is Excluded from Coverage of Most U.S. International Trade Agreements",
"DHS Procured Over Half of the Value of Textile Items for the Current Uniforms Contract from Foreign Sources",
"Sourcing Only from the United States Could Be More Costly for DHS",
"DHS Reported Procuring All Body Armor from U.S. Sources",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"The Kissell Amendment applies to contracts entered into by DHS as of August 16, 2009, and, according to the Congressional Record, would require DHS to purchase uniforms made in the United States. According to the Congressional Record, the amendment was intended to extend some of the provisions found in the Berry Amendment to DHS. The Berry Amendment generally restricts the Department of Defense’s (DOD) procurement of textiles, among other items, to those produced within the United States. Pursuant to the Kissell Amendment, subject to exceptions, funds appropriated, or otherwise available to DHS, may not be used to procure certain textile items directly related to the national security interests of the United States if the item is not grown, reprocessed, reused, or produced in the United States. The Kissell Amendment specifies categories and types of textiles including items such as clothing, tents, tarpaulins, covers, and protective equipment, as well as the fibers used for fabrics such as cotton and other natural and synthetic fabrics. We refer to these textile items that are directly related to the national security interests of the United States as “Kissell-covered items.”\nThe Kissell Amendment also has multiple exceptions to the procurement restriction, including:\nSmall Purchases Exception – procurements under the simplified acquisition threshold (currently set at $150,000).\nAvailability Exception – satisfactory quality and sufficient quantity of any Kissell-covered item cannot be procured when needed at U.S. market prices.\nProcurements Outside the United States – procurements by vessels in foreign waters or emergency procurements outside the United States.\nDe Minimis Exception – DHS may accept delivery of a Kissell-covered item if it contains non-compliant (i.e., foreign) fibers as long as the total value of those fibers does not exceed 10 percent of the total purchase price of the item.\nIn addition to the exceptions noted above, the Kissell Amendment also states that the Amendment shall be applied in a manner consistent with U.S. obligations under international agreements. As a result, purchases of Kissell-covered items, including uniforms and body armor, by DHS and its components must be procured consistent with U.S. obligations under relevant U.S. trade agreements. These agreements include the World Trade Organization (WTO) Government Procurement Agreement (GPA) and 14 bilateral or regional free trade agreements (FTAs) with 20 countries. These agreements generally require each party’s goods and services to be given treatment comparable to what is given to domestic goods and services in certain government procurements. The United States implements these obligations through the Trade Agreements Act of 1979 (TAA) and subpart 25.4 of the Federal Acquisition Regulation (FAR). According to DHS and its components, officials apply the Kissell Amendment by following the TAA as implemented in FAR subpart 25.4. As a result, when an international trade agreement applies to a DHS procurement of a Kissell-covered item, the Kissell Amendment does not restrict DHS’s purchasing of textile items from that foreign source, regardless of the item’s relationship to the national security interests of the United States.",
"The Buy American Act (BAA) can also apply to DHS procurements. The BAA restricts the U.S. government from purchasing nondomestic end products, unless an exception applies. Examples of exceptions include:\nWhere the cost of the domestic end product would be unreasonable.\nWhere sufficient commercial quantities of domestic end products of a satisfactory quality are not reasonably available.\nIn acquisitions covered by the WTO GPA or FTAs, USTR has waived the Buy American statute and other discriminatory provisions for eligible products. The BAA could apply to procurements of certain textile items valued below the $150,000 simplified acquisition threshold, to which the Kissell Amendment does not apply. The applicability of the act to a particular procurement depends on a number of factors such as the existence of a waiver or whether an exception applies.",
"DHS and its components procure textiles and fabrics for numerous purposes, including clothing and equipping its officers and employees. From October 2009 through June 2017, of DHS’s more than $105 billion in obligations for procurements, $774 million, or less than one percent, was for textile products, according to FPDS-NG. The majority of textiles and fabrics procured by DHS components are for uniforms and body armor. In particular, of the $774 million, DHS obligated $516 million (or 67 percent) to procure uniforms and body armor for DHS personnel (see fig. 1).",
"",
"In August 2009, DHS updated its procurement regulations, the HSAR, to incorporate the Kissell Amendment restriction on the procurement of textiles from foreign sources; since then DHS inserted language incorporating the restriction into the 11 uniform and body armor contracts we reviewed. The HSAR establishes standardized DHS policies for all procurement activities within the department; according to DHS officials, all DHS components are to follow these policies. Pursuant to the Kissell Amendment, the restriction on the procurement of textiles became effective for DHS on August 16, 2009. One day later, DHS published an interim rule with a request for comments from the public that amended relevant HSAR sections to reflect the statutory change limiting the procurement of products containing textiles from sources outside the United States (i.e., the Kissell Amendment). On June 9, 2010, after receiving comments from the public, DHS adopted the amendments issued under the interim rule as final and without change. The amended sections detail the restriction on procurements of foreign textiles. They also provide a list of the types of textile items included in the restriction (i.e., yarn, wool, cotton), the exceptions noted in the Kissell Amendment, and provide detail on the specific application of trade agreements. Under the regulations, unless an exception applies, a specific clause shall be inserted in solicitations and contract actions detailing the requirement to use domestic goods for any procurement of a Kissell-covered item.\nSome components within DHS issued additional, supplemental guidance to the HSAR, while other components determined that additional guidance would be duplicative, according to officials. For example, Transportation Security Administration’s (TSA) Internal Guidance and Procedure Memorandum, updated in June 2016, provides additional guidance to contracting officers at TSA on the procurement of textiles. This guidance specifically states that for certain textile products, TSA’s contracting officers can only evaluate and/or accept offers from specified countries. Other components determined that additional guidance was not needed because the HSAR adequately covers the requirements of the Kissell Amendment for their purposes. For example, U.S. Secret Service officials stated that, for any procurement of textiles, they insert the required language from the HSAR into the request for proposals in case an item could be considered directly related to U.S. national security interests and thereby subject to the Kissell Amendment restriction.\nDHS officials stated that contracts for the procurement of uniforms and body armor are their only contracts for textile-related products that are directly related to national security interests. See figure 2 for examples of DHS uniforms and body armor.\nAccording to DHS officials, other textile or apparel procurements, such as curtains for DHS offices, would likely not be subject to the foreign procurement restriction under the Kissell Amendment because they are not directly related to national security interests. DHS components can also procure textiles through the Federal Supply Schedules (FSS) program. When ordering from these contracts, DHS contracting officers would make the determination of whether or not the purchase is directly related to national security interests and therefore subject to the Kissell Amendment restriction, according to DHS officials. DHS officials also explained that if the purchase under the FSS program contract is subject to the Kissell Amendment, the contracting officer would be responsible for inserting the required language from the HSAR into the delivery order.\nAll 11 of the contracts we reviewed for uniforms and body armor entered into by a DHS component since August 2009 included language regarding the restriction of the Kissell Amendment. Many of DHS’s components that buy uniforms, including TSA and U.S. Customs and Border Protection (CBP), were already under contract with a vendor to supply uniforms when the Kissell Amendment took effect in August 2009. The Kissell Amendment specified that it applied to contracts entered into by DHS 180 days after the enactment of the American Recovery and Reinvestment Act of 2009. Therefore, DHS and its components did not apply the Kissell restriction to contracts signed before August 16, 2009. Several components separately signed contracts with uniform vendors after prior contracts expired and the Kissell restriction was in effect. For example, in February 2010, TSA signed a contract for uniforms with a vendor that included language restricting the foreign procurement of those uniforms per the Kissell Amendment.\nIn 2012, DHS decided to enter into a single, department-wide contract for the procurement of uniforms for all of its components. While that contract was being developed, several components signed additional contracts for uniforms with vendors to ensure a continuous supply of uniform items for their officers. This included a “bridge” contract between TSA and a vendor in February 2013, which also included language referencing the Kissell Amendment and language restricting the foreign procurement of those uniforms. In September 2014, DHS entered into its current 5-year, department-wide uniforms contract that provides eight DHS components with uniform clothing items. One vendor holds this uniforms contract.",
"DHS employs multiple procedures, according to officials, in an effort to ensure that the restriction on the procurement of foreign textiles from the Kissell Amendment was and is properly applied, including (1) a standardized procurement contract review process; (2) a requirement for all DHS components to use established department-wide contracts; (3) verification procedures to ensure the stated country of origin is correct; and (4) trainings on foreign procurement restrictions.\nFirst, the DHS official review process for all procurements helps ensure that the Kissell restriction is applied, if appropriate, to contracts for textiles and apparel, according to officials. Specifically, each procurement goes through a standardized review process that includes several levels of acquisition supervisors and DHS legal counsel, depending on the estimated dollar amount of the procurement. The DHS Acquisition Manual requires this review and approval process, which is designed to ensure compliance with all relevant federal acquisition laws, regulations, policies, and procedures. Through this process, officials evaluate the proposed contract for a number of restrictions, such as the appropriate use of a small business set-aside or a sole-source contract, which must also be reviewed by supervisors and legal departments before contract approval.\nAccording to DHS officials, while the applicability of the Kissell Amendment is part of the standard review process, there is no separate review for whether the foreign procurement restriction should be applied to the procurement. Officials also stated that the small number of contracting officers handling these textile procurements are aware of the requirements.\nSecond, DHS now uses department-wide contracts for uniforms and body armor rather than each component entering into its own contracts for those items. Establishing and using these department-wide contracts increases efficiencies and reduces duplication in the department’s procurement processes, according to DHS documentation. According to agency officials, the establishment of a department-wide uniforms contract for use by all DHS components reduces opportunities for mistakes, including the possibility of a contracting officer issuing a contract that does not include the required restriction for a Kissell-covered item.\nThird, the department relies on the vendor to verify that the item is in compliance with all applicable restrictions. It is not the responsibility of the agency or department to verify the country of origin of an item procured through a contract. According to the FAR, the contracting officer may rely on the vendor’s certification of the country of origin for an end product when evaluating a foreign offer. DHS officials told us that, for each contract, the vendor is responsible for certifying the country of origin and notifying DHS if a uniform item from a previously approved country is no longer available and a replacement must be located. According to representatives from the current uniforms vendor, both its manufacturing facilities and its subcontractors have measures and internal controls in place to ensure that all items under the current uniforms contract are sourced from designated countries. Furthermore, if an item is being misrepresented, or not from the reported country of origin, other vendors in the industry could report such suspected violations to DHS and the department would investigate possible false claims. According to DHS officials, no reports have been made against the vendor for the current uniforms contract.\nIn addition, CBP’s Textiles and Trade Agreements Division is responsible for the Textile Production Verification Team Program. Under this program, CBP deploys teams of personnel drawn from many DHS components to FTA partner countries to visit manufacturers of textiles imported into the United States. These teams review textile production and verify compliance with the terms of the FTA. CBP provided information that showed it had made numerous verification visits to factories used by DHS’s uniform vendor since October 2011. However, CBP officials said they did not know the degree to which the vendor’s imports from these factories were used to fulfill the DHS uniform contract.\nFourth, DHS provided training in 2009 and in 2017 to contracting personnel who conduct textile and apparel procurements subject to the Kissell Amendment and other Buy American-like provisions to ensure that the requirements are applied appropriately. The Kissell Amendment required that the Secretary of DHS ensure that each member of DHS’s acquisition workforce “who participates personally and substantially in the acquisition of textiles on a regular basis receives training during fiscal year 2009 on the requirements” of the Kissell Amendment and the regulations implementing the amendment. The amendment further states that any training program developed after August 2009 include comprehensive information on the Kissell Amendment restriction. According to officials, appropriate DHS contracting personnel were trained on the requirements of the Kissell Amendment through a presentation to DHS’s Acquisition Policy Board in July 2009. DHS officials, however, were unable to identify the number of personnel present during this meeting or the materials associated with this training.\nAccording to DHS officials, no further training on Kissell requirements was conducted until June and July 2017, when DHS officials conducted two webinars that included approximately 570 DHS acquisition professionals on the requirements of the Kissell Amendment and its implications under the President’s Buy American and Hire American Executive Order from April 2017. Our review on the implementation of the Kissell Amendment, as well as the President’s new actions to increase opportunities for government agencies to buy American and hire American, precipitated the trainings, stated DHS officials. We observed the July 2017 training, at the invitation of DHS, and confirmed that the materials and topics covered included Kissell Amendment requirements.",
"In practice, the Kissell Amendment affects DHS textile purchases in a limited manner due to multiple factors. For most DHS components, these factors limit the effect of the Kissell Amendment restriction to certain foreign textile procurements directly related to U.S. national security interests that fall between $150,000 and $191,000. Specifically, from October 2009 to June 2017, only 14 DHS-awarded textile contracts, excluding TSA, fell within this range, according to FPDS-NG data. TSA textile procurements, unlike most DHS components, are excluded from the coverage of most U.S. international agreements. Therefore, the Kissell Amendment restricts TSA’s procurement of certain foreign textiles above $150,000 from all but three foreign countries. According to DHS officials, the current contracts to which the Kissell Amendment applies are department-wide contracts for uniforms and body armor. As of June 2017, under the current uniforms contract, 58 percent of the value of ordered uniform items by DHS came from foreign sources. In addition, DHS officials stated that the current body armor contracts source all textile items from the United States.",
"The number of DHS’s textile procurements that could be affected by the Kissell Amendment restriction is limited by multiple factors. The Kissell Amendment restriction applies only to those textile items that are directly related to national security interests for procurements above the $150,000 simplified acquisition threshold, and must be applied in a manner consistent with U.S. obligations under international agreements. In practice, this limits the number of procurements that could be affected by the amendment’s restriction to those of Kissell-covered items between the current simplified acquisition threshold and the current WTO GPA threshold of $191,000, a $41,000 range, for most DHS components. Furthermore, statutory and regulatory provisions generally require that government agencies acquire U.S.-made or designated country end products and services for procurements covered by the WTO GPA. For most of DHS, the procurement of certain textiles is covered by the WTO GPA. Therefore, due to these regulations, most DHS components are limited in their textile procurements at or above $191,000 to the United States or designated countries, regardless of the Kissell Amendment. However, the number of TSA contracts that could be affected by the Kissell Amendment restriction is potentially greater since procurement of textiles by TSA is not subject to statutory and regulatory provisions that affect the rest of DHS’s procurement of textiles.\nU.S. obligations under international agreements, as implemented by the TAA and FAR, require that offers of eligible products receive equal consideration with domestic offers. The FAR additionally specifies that agencies, “in acquisitions covered by the WTO GPA, acquire only U.S.- made or designated country end products unless offers for such end products are either not received or are insufficient to fulfill the requirements.” To be a U.S. procurement covered by the WTO GPA, the procurement must (1) be performed by a covered government entity; (2) be for a covered item; and (3) be at or above the WTO GPA threshold, which is currently $191,000. Other international trade agreements have their own thresholds currently ranging from $25,000 to $191,000. Figure 3 outlines the various key procurement thresholds that may affect the designated and non-designated countries from which DHS could source textiles with respect to the Kissell Amendment. Most of these dollar thresholds are subject to revision approximately every 2 years.\nDue to the multiple factors that affect DHS’s textile procurements, most of DHS’s components may source eligible textiles from up to 128 designated countries outside the United States in procurements at or above $191,000 (see fig. 4). This is because most DHS components’ textile procurements are considered covered items under the WTO GPA. Therefore, most DHS components’ foreign textile procurements that either meet or exceed the current $191,000 threshold are restricted to designated countries regardless of the Kissell Amendment, due to the FAR. These designated countries include WTO GPA countries, Free Trade Agreement countries, least developed countries, and Caribbean Basin countries.\nAs noted above, multiple factors influence DHS’s procurement of textiles and the number of contracts that could be affected by the Kissell Amendment restriction. Based on our analysis of contract data from FPDS-NG, from October 2009 to June 2017, DHS awarded 111 textile contracts above the simplified acquisition threshold. Of the 111 contracts, only 14 DHS textile contracts, excluding TSA, were valued between the simplified acquisition threshold and $191,000, the current threshold for coverage under the WTO GPA. In part, because FPDS-NG does not designate whether or not a contract is directly related to the national security interests of the United States, we could not determine whether these contracts were subject to the provisions of the Kissell Amendment. According to DHS officials, the only current contracts considered directly related to U.S. national security and therefore subject to the Kissell Amendment are for uniforms and body armor.\nThe Kissell Amendment includes additional language regarding the use of any availability exception and states that any availability exception issued by DHS shall be publically posted on a government procurement internet site within 7 days of the contract. However, according to agency officials, since the passage of the Kissell Amendment, DHS has not issued any waivers for availability exceptions and has therefore been limited to procuring certain textile items from the United States and designated countries identified in the FAR.",
"The Kissell Amendment restriction affects TSA textile procurements differently than other DHS components. As implemented, the Kissell Amendment restricts TSA’s procurement of certain textiles above $150,000 to the United States, Canada, Mexico, and Chile. TSA’s procurement of textiles is different because it is not included in the U.S. coverage schedules of the WTO GPA and all U.S. free trade agreements, with the exception of the North American Free Trade Agreement and the U.S.-Chile Free Trade Agreement. According to USTR officials, some of TSA’s security functions were originally held by the Federal Aviation Administration (FAA), which is not subject to the FAR. Furthermore, TSA was also not subject to the FAR prior to 2008, until Congress passed legislation removing the requirement that TSA procurements be subject to the acquisition management system established by the administrator of the FAA. Those circumstances resulted in TSA’s exclusion from the WTO GPA for textiles and most other international trade agreements, according to USTR officials. Figure 5 illustrates when the Kissell Amendment could affect TSA procurements and the applicability of international trade agreements. Based on our analysis of FPDS-NG data, from October 2009 to June 2017, TSA entered into 13 textile contracts above the simplified acquisition threshold.",
"From October 2014 to June 2017, 58 percent of the value of uniform items ordered by DHS came from outside the United States. In September 2014, DHS entered into its current department-wide uniforms contract, the largest value textile contract since the passage of the Kissell Amendment in 2009. In the request for proposals, DHS included a clause detailing the Kissell restriction on the purchase of foreign items in the uniforms contract documentation. As implemented, when combined with the purchasing restriction in the TAA, the clause in the Kissell Amendment that states the act shall be applied consistent with U.S. obligations under international agreements allows the uniforms contract vendor to source items from up to 128 designated countries. In the request for proposal for the current uniforms contract, DHS components included a list of over 900 uniform items including shirts, pants, shoes, and insignias. The vendor that was awarded the contract then reported the cost and expected country of origin for each item, which DHS approved. Table 1 shows the estimated cost and quantity of items estimated to be procured under the contract for components that primarily have a national security function.\nAfter the uniform contract was entered into by DHS in September 2014, DHS components began ordering uniform items under the contract. In addition to more than 900 types of uniform items that were agreed upon at the initiation of the contract, DHS components issued contract modifications to add or remove uniform items from the approved list. Common types of items expected to be ordered included uniform shirts, pants, socks, and shoes that met DHS component specifications.\nFrom October 2014 to June 2017, $164.6 million in uniform items was ordered by DHS components that primarily have a national security function. Of that amount, 58 percent, or $96 million, in uniform items ordered by DHS came from a reported 12 countries outside the United States. The remaining 42 percent, or $69 million, in uniform items was reported as originating in the United States. By value, Mexico, the largest source of uniform items from outside of the United States, accounted for 30 percent of the ordered uniform items. In addition, 8 percent of the value of uniform items was sourced from least developed countries, including Cambodia (5 percent) and Bangladesh (2 percent). Figure 6 illustrates the percentage value of DHS procurement of uniform items by reported country of origin for the current contract by components that primarily have a national security function.\nBased on our analysis of the vendor’s ordering data, the majority of the value of uniform items ordered by all five components were sourced from outside the United States. In addition, a larger value of the uniform items ordered by three of the five components were sourced from Mexico than from any other country, including the United States. Table 2 shows the total value of the uniform ordering data for the five DHS components that primarily have a national security function under the current uniforms contract.\nFrom October 2014 through June 2017, CBP ordered approximately $101.1 million in uniform items under the contract, and TSA ordered approximately $53.5 million. CBP and TSA accounted for the majority of the dollar value of uniform orders from October 2014 through June 2017, representing 94 percent of the value of uniform items ordered by DHS components that primarily have a national security function under the contract. Specifically, 32 percent of the value of TSA ordered uniform items were from the United States, with the other 68 percent sourced from Mexico. As mentioned above, the Kissell Amendment, as implemented, restricts TSA’s foreign procurement of certain textiles above $150,000 to Canada, Mexico, and Chile.",
"According to DHS officials and representatives of the current uniforms vendor, both the price of the uniform items and the time it would take to find appropriate U.S. sources could potentially increase if current statutory and trade agreements requirements changed and DHS was required to source all of its uniform items from the United States. According to the FAR, it is the responsibility of agencies to obtain the best value for the U.S. government. According to DHS officials, the best value may be sourced from foreign countries, especially when the country is a party to an international trade agreement with the United States. DHS officials and representatives of the vendor stated that it would be possible to source most of the items in the current uniforms contract from the United States. However, representatives of the vendor speculated that sourcing only from the United States could result in a 50 to 150 percent price increase for items that are currently sourced from foreign countries. Therefore, DHS costs could increase for over half of the uniform items currently procured from foreign sources. Additionally, DHS officials stated that the domestic availability of some items, such as footwear, is limited and that it could take approximately 2 years to find U.S. suppliers for all items currently procured from foreign sources.",
"The second largest current textile contract is the department-wide contract for body armor. Effective November 1, 2016, the department- wide contract for body armor is not to exceed $93.8 million. As of June 2017, DHS had obligated $6.8 million under these body armor contracts. DHS did not provide GAO documentary evidence that the body armor is produced in the United States. However, according to DHS officials, textile items under the current body armor contracts are produced in the United States. According to DHS officials, to verify that materials are produced in the United States, DHS visited the site where these materials are produced and assembled in the United States. In addition, the contract contains specific language restricting the vendor from procuring items that are not in compliance with the Kissell Amendment.",
"We provided a draft of this report for review and comment to DHS and USTR. DHS did not provide written comments on the draft report but provided a number of technical comments that we incorporated as appropriate. USTR did not provide written or technical comments to the draft report.\nWe are sending copies of this report to the appropriate congressional committees, to the Secretary of Homeland Security, the U.S. Trade Representative, 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) 512-8612 or gianopoulosk@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.",
"A Senate Report accompanying Senate Bill 1619, a bill related to the Consolidated Appropriations Act, 2016, includes a provision for us to review the Department of Homeland Security’s (DHS) implementation and compliance with the Kissell Amendment, as well as the effectiveness of the policy. This report examines the extent to which (1) DHS has incorporated the Kissell Amendment into its procurement policies and procedures and (2) the Kissell Amendment affects DHS’s procurement of textiles.\nTo address these objectives, we reviewed relevant laws and policies, such as Section 604 of the American Recovery and Reinvestment Act of 2009 (the “Kissell Amendment”), the Trade Agreements Act of 1979 (TAA) as amended, the Federal Acquisition Regulations (FAR), Homeland Security Acquisition Regulations (HSAR), and the DHS Acquisition Manual, as well as select U.S. free trade agreements. We interviewed officials from DHS and the office of the U.S. Trade Representative (USTR). We also interviewed officials from the U.S. textile and apparel industry, including the National Council of Textile Organizations and the American Apparel and Footwear Association. Finally, we spoke with officials from the vendor for DHS’s current department-wide uniforms contract, VF Imagewear.\nTo determine the extent to which DHS incorporated the Kissell Amendment into its procurement policies and procedures, we reviewed relevant DHS documents and policies, including the HSAR, interim and final rules on the implementation of the Kissell Amendment, and component-level procurement guidance. We also interviewed officials from DHS’s Office of the Chief Procurement Officer and from the components in DHS that have their own contracting authority, including U.S. Customs and Border Protection (CBP), Federal Emergency Management Agency (FEMA), U.S. Immigration and Customs Enforcement (ICE), Transportation Security Administration (TSA), U.S. Coast Guard, and U.S. Secret Service.\nTo analyze whether or not language indicating the restriction on the procurement of foreign textiles from the Kissell Amendment was included in DHS and component level contracts, we reviewed contract files for 11 available uniforms and body armor contracts entered into since August 16, 2009, the date the Kissell Amendment became effective. We reviewed contract files from DHS uniform and body armor contracts because these are the only DHS textile contracts that are directly related to U.S. national security and therefore subject to the Kissell Amendment, according to DHS officials. We identified these uniforms and body armor contracts through reviews of Federal Procurement Data System–Next Generation (FPDS-NG) data for DHS and components contracts in groups 83 and 84 since August 16, 2009, and through discussions with CBP, DHS, and TSA officials. We were not, however, able to review every uniforms contract all DHS components have entered into since August 16, 2009, because, for example, some of the contract files were no longer available, consistent with federal document retention policies, according to DHS officials. The results of our reviews of selected contracts are not generalizable to all DHS textile contracts entered into since August 16, 2009.\nTo determine the extent to which the Kissell Amendment affects DHS’s procurement of textiles, we reviewed relevant government regulations and laws, U.S. international agreements, DHS contract files, and ordering data for the largest textile contract since the effective date of the Kissell Amendment. We reviewed the FAR to evaluate which international agreements are applicable to DHS textile procurements, the thresholds for each international trade agreement, and the countries from which DHS may procure certain textiles. We reviewed the U.S. central government coverage schedule of the World Trade Organization (WTO) Government Procurement Agreement (GPA) to determine which procurements by DHS component are covered by the WTO GPA and therefore subject to the purchasing restriction in the TAA, as implemented in the FAR.\nTo identify the dollar range for textile contracts that could be affected by the Kissell Amendment, we reviewed the Kissell Amendment and the relevant provisions of the FAR. We also interviewed USTR officials and DHS officials from the Office of the Chief Procurement Officer, CBP, and TSA to understand how international trade agreements affect DHS’s textile procurement under the Kissell Amendment. We reviewed award and obligation data from the FPDS-NG to identify the number of textile contracts awarded by DHS components and delivery orders through the General Services Administration’s Federal Supply Schedules program above the simplified acquisition threshold and those that could be affected by the Kissell Amendment. To assess the reliability of procurement data from FPDS-NG, we reviewed relevant documentation and performed verification through electronic testing. We determined the data to be sufficiently reliable for the purposes of this report.\nTo evaluate DHS’s procurement of uniform items from the United States versus foreign sources, we reviewed the ordering estimates, which were provided as an attachment to DHS’s request for proposals for the current uniforms contract, and ordering data provided by the vendor for the current uniforms contract. The current uniform and body armor contracts are the only two active contracts to which the Kissell Amendment applies, according to DHS officials. For the purposes of ordering data and estimates, we did not review previous contracts. In addition, since all body armor items are sourced from the United States, we focused our ordering analysis on the current uniforms contract. Because we did not evaluate ordering data for previous DHS uniforms contracts, these values cannot be extrapolated to all DHS uniforms contracts.\nTo calculate the ordering estimates for the current uniforms contract, we analyzed data created by DHS and the uniform vendor during the development phase of the contract. To focus on the DHS components that primarily have a national security function under the current uniforms contract, we analyzed ordering estimates to identify the number of uniform items that DHS components reported as being directly related to national security. Under the current uniforms contract estimates, CBP, ICE, National Protection and Programs Directorate (NPPD), TSA, and U.S. Secret Service are the five DHS components that reported the majority of uniform items as being directly related to national security. As a result, we included these five DHS components in our analysis of the ordering estimates under the current uniforms contract. We did not include FEMA or Federal Law Enforcement Training Center (FLETC) in our analysis because FEMA did not list any uniform items as related to national security and FLETC identified only one item out of 88 as related to national security. We also did not include ordering estimates from the Food and Drug Administration, which is a party to the contract but is not a DHS component. In addition, the U.S. Coast Guard did not provide ordering estimates since it was not included in the original proposal for the current uniforms contract.\nFor each of the identified DHS components that reported the majority of uniform items as directly related to national security, we analyzed the estimated data based on description, the estimated quantity, the unit price, and the country of origin. While we did not analyze the value of any contract modifications that added or removed uniform items from the contract, we did review select modifications and found that contract modifications were generally consistent with the original contract estimates for that non-generalizable sample. To obtain insights into the countries of origin in the modifications, we reviewed a small, non- generalizable sample of 10 modifications. We concluded that the breakdown between domestic and foreign sourced items for the items added through the modifications was generally consistent with the breakdown between domestic and foreign sourced items in the original contracts’ estimates.\nTo determine the reasonableness of the processes by which DHS and its vendors generated these estimates, we interviewed knowledgeable officials, reviewed documents submitted by the vendor, and performed data reliability testing. DHS officials told us that they had provided the contractor with detailed lists of the textile items it required, and the vendor reported that they determined the prices and countries of origin based on prevailing market conditions. DHS officials then reviewed the estimates provided by the vendor and approved the items, price, and country of origin under the contract. DHS officials and the vendor informed us that because these estimates reflected market conditions when the contract was signed, actual purchases of items might be from countries other than those listed in the contract, depending on changes in those conditions and availability of the items. We determined these estimates were sufficiently reliable to represent DHS’s intended purchases of textile products by country of origin under this contract.\nTo analyze the orders of uniform items, we relied on ordering data provided by the vendor for the current uniform contract. We reviewed uniform ordering data for the five DHS components that reported the majority of uniform items as being directly related to national security: CBP, ICE, NPPD, TSA, and the U.S. Secret Service. The uniform ordering data included items ordered by individual DHS employees through an allowance system and by DHS components through bulk orders. We did not include the U.S. Coast Guard in our analysis since it primarily orders U.S.-made uniform items through the Department of Defense’s Defense Logistics Agency, according to Coast Guard officials. We analyzed the value of uniform items procured from the United States and foreign sources based on the reported country of origin and component from October 2014 to June 2017.\nTo assess the reliability of the ordering data provided by the vendor, we reviewed the data for inconsistencies. We clarified with the vendor the relevant data sets for our analysis and any discrepancies we identified in the data. DHS relies on the vendor to provide the countries of origin, and it was beyond the scope of this engagement for us to verify the vendor provided country of origin. We determined that the ordering data were sufficiently reliable for the purposes of comparing orders to estimates by countries of origin for uniforms under the contract, and presenting details about purchases from the United States versus other countries of origin. The result of our analysis is limited to the current department-wide uniforms contract with DHS and cannot be extrapolated to other DHS textile contracts.\nFor the body armor contracts, we relied on FPDS-NG data for the obligations under the current and previous contracts. We also interviewed DHS officials who identified the country of origin of the items purchased under the current body armor contracts; it was beyond the scope of this engagement to verify the agency-provided country of origin. To assess the reliability of the obligations data from FPDS-NG, we reviewed relevant documentation performed verification through electronic testing. We determined the data to be sufficiently reliable for the purposes of this report.\nWe conducted this performance audit from January 2017 to November 2017 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.",
"",
"",
"In addition to the individual mentioned above, Adam Cowles (Assistant Director), Christopher J. Mulkins (Analyst-in-Charge), Martin Wilson, Lynn Cothern, Martin de Alteriis, Neil Doherty, Grace Lui, and Julia Kennon made key contributions to this report."
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{
"question": [
"How has the DHS updated its policies regarding textile restrictions?",
"To what extent do new DHS contracts reflect the Kissell Amendment restriction?",
"How does DHS ensure compliance with the Kissell Amendment?",
"What procedures does the DHS use?",
"What is the practical effect of the Kissell Amendment?",
"What textile purchases do these restrictions affect?",
"How do these restrictions affect the TSA?",
"What was the effect of the contract that DHS signed?",
"How have the finances of the U.S. textile industry changed from 2006 to 2009?",
"How has Congress reacted to large losses by the U.S. textile industry?",
"How are these restrictions used by the DHS?",
"What was the purpose of the amendment?",
"Why did GAO review the DHS's implementation of the Kissell Amendment?",
"What does this report cover?",
"How did GAO source their data for this report?",
"How did GAO augment their raw data with comments from officials?"
],
"summary": [
"The U.S. Department of Homeland Security (DHS) has updated its policies and procedures to incorporate a restriction on its procurement of certain textiles as specified in the “Kissell Amendment.” In August 2009, DHS amended its procurement policies to reflect the Kissell Amendment restriction and describe the limitations on DHS's procurement of specified textiles from sources outside the United States.",
"All 11 contracts GAO reviewed for uniforms and body armor entered into by a DHS component since August 2009 included language regarding the Kissell Amendment restriction.",
"In addition, according to officials, DHS has several procedures to ensure that contracting officers adhere to the requirements of the Kissell Amendment.",
"These include a required acquisition review process; a requirement for all DHS components to use department-wide contracts; verification procedures; and training for contracting personnel on the Kissell Amendment restriction.",
"In practice, the Kissell Amendment restriction affects a limited number of procurements due to multiple factors and has not fully restricted DHS from purchasing textiles from foreign sources.",
"The restriction applies only to certain textile purchases directly related to U.S. national security interests above the simplified acquisition threshold of $150,000, and must be applied consistent with U.S. obligations under international agreements. For most of DHS, this restriction limits only procurements that fall between $150,000 and $191,000, the World Trade Organization Government Procurement Agreement threshold.",
"However, because procurements by the Transportation Security Administration (TSA) of textiles are excluded from most international agreements, the Kissell Amendment prevents TSA's purchasing of certain textiles above $150,000 from all but three foreign countries.",
"In September 2014, DHS signed a uniforms contract, the largest procurement covered by the Kissell Amendment. Under this contract, DHS has ordered 58 percent of the $164.6 million in uniform items from foreign sources through June 2017 (see figure).",
"The U.S. textile industry sustained significant losses when textile production fell from $71 billion in 2006 to $46 billion in 2009, according to the U.S. Bureau of Economic Analysis.",
"As a part of the American Recovery and Reinvestment Act of 2009, Congress passed the Kissell Amendment, which placed a restriction on DHS's procurement of certain textiles from foreign sources.",
"DHS has applied this restriction to uniforms and body armor.",
"The amendment was intended to increase opportunities for American textile and apparel manufacturers, according to the Senate Committee on Appropriations.",
"The Senate report that accompanied Senate Bill 1619, a bill related to the Consolidated Appropriations Act, 2016, includes a provision for GAO to review DHS's implementation of the Kissell Amendment and its effectiveness.",
"This report addresses the extent to which (1) DHS has incorporated the Kissell Amendment into its procurement policies and procedures and (2) the Kissell Amendment affects DHS's procurement of textiles.",
"To perform this work, GAO analyzed DHS policies and procedures, procurement obligations data, textile contract files, and vendor ordering data from DHS's current uniforms contract.",
"GAO also interviewed DHS and U.S. Trade Representative officials and private sector representatives, including the vendor for the current DHS uniforms contract. GAO received technical comments from DHS, which GAO incorporated as appropriate."
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CRS_R41970
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{
"title": [
"",
"Introduction",
"The Budget Control Act and the Fiscal Cliff",
"The Timing of Deficit Reductions",
"Long-Term Budget Issues: Overview",
"Federal Spending and Taxes: Patterns over Time",
"Distribution of Spending By Fundamental Economic Form: Government Goods and Services Versus Transfers",
"Distribution of Spending by Broad Mandatory and Discretionary Categories19",
"Distribution of Spending by Function",
"Tax Revenues, Tax Structure, Tax Expenditures and Earmarked Spending",
"Tax Revenues",
"Tax Structure",
"Tax Expenditures",
"Earmarked Revenues and Trust Funds",
"Growth in the Debt in Recent Years and the Recession",
"Deficit Challenges Going Forward",
"Debt Reduction Approaches and Strategies",
"How Much Can Discretionary Spending Cuts Reduce the Budget Deficit?",
"Are Social Security and Medicare Trust Funds to Be Preserved?",
"Can Long-Run Budget Issues Be Addressed by Keeping Tax Levels and the Size of Government at FY2007 Levels?",
"What Would Be Required to Protect Entitlements? A Review of Tax Options",
"Justifications for Maintaining Entitlements",
"Revenue Raising Options",
"Effects on State and Local Governments"
],
"paragraphs": [
"",
"The growth of the national debt, which is considered unsustainable under current policies, continues to be one of the central issues of domestic federal policy making. On August 2, 2011, Congress adopted, and the President signed, the Budget Control Act (BCA; P.L. 112-25 ), which might be viewed as an initial step in addressing long-run debt issues. It had been recognized for some time that the growing long-term debt is an issue, and this concern was reinforced with Standard and Poor's downgrading of U.S. Treasury securities from AAA to AA+ on August 5, 2011. As part of the BCA, the Joint Committee on Deficit Reduction (sometimes referred to as the Super Committee) was appointed to find ways to achieve a specified amount of deficit reduction. The committee failed to reach agreement, which triggered a set of automatic spending cuts, largely on discretionary spending, that were put into effect in FY2013.\nAt the end of 2012, however, concerns about the effect of recent spending cuts and tax increases about to take effect (called the fiscal cliff ) on economic recovery became a central issue. Action to address this problem resulted in retaining tax cuts compared with present law by making most expiring tax cuts permanent and increasing discretionary spending levels. These decreases in revenue collection and increases in spending resulted in higher budget deficits.\nThis report examines alternative approaches to reducing the deficit, relating to the immediate issues arising from the BCA and the extended tax cuts as well as to ongoing, longer-term decisions about how to bring the debt under control. It focuses on the trade-offs between limiting the provision of defense and domestic public goods, reducing transfers to persons including entitlements for the elderly and those with low income, reducing support for state and local governments, and raising taxes. Using projections of the debt and deficit, it also addresses how limiting reliance on one source of deficit reduction creates pressure on other sources.",
"The BCA, the result of months of negotiation, combined a multistep increase in the debt ceiling with proposals to begin reducing the deficit. As part of the legislation increasing the debt ceiling, the BCA adopted caps that cut discretionary spending by $741 billion from FY2012 to FY2021. Along with mandatory spending reductions of $20 billion and savings in interest of $156 billion, these measures were estimated to reduce deficits by $916 billion over the FY2012-FY2021 period. The act also directed a newly created joint committee, composed of 12 members (3 each from the House majority, the House minority, the Senate majority, and the Senate minority) to find an additional $1.2 trillion over 10 years in deficit reduction for a total of 1% of gross domestic product (GDP) over that period from the act. In addition, the plan contained a process and enforcement mechanism. The committee was unable to reach agreement by the deadline of November 23, 2011, setting into motion automatic spending cuts ( sequestration ) that took effect on January 1, 2013.\nCongress faced, at the end of 2012, the expiration of the Bush tax cuts, which would increase revenues by 1.5% of GDP. In addition, at the end of 2012, some other temporary tax cut and expenditure provisions were scheduled to expire, including the 2 percentage point reduction in the payroll tax and some temporary increases in unemployment benefits. These reductions in spending were set to occur in addition to the cuts contained in the BCA, and the full set of spending cuts and tax increases came to be referred to as the fiscal cliff . Concern developed about the fiscal cliff's short-run contractionary effects on the economy. At the end of the 112 th Congress, the American Taxpayer Relief Act ( P.L. 112-240 ) made most of the Bush tax cuts permanent. Some other tax cuts (although not the payroll tax reduction) were extended, reductions under the BCA were delayed (and a portion of them were eliminated), and unemployment benefits continued for another year. These actions reduced, but did not eliminate, the contractionary effect of the fiscal cliff. In December 2013, the Bipartisan Budget Act of 2013 ( P.L. 113-67 ) increased the discretionary spending caps for FY2014 and FY2015. The caps for FY2016 and later years were not changed.",
"How much should be done to address the budget issues, and how quickly, is a topic of some debate. As noted above in relation to the fiscal cliff, there was concern about front-loading deficit reduction at a time when the economy was operating well below potential. The economy's recovery from the 2007-2009 recession was slow, although by October 2014 the unemployment rate had dropped to 5.8%, close to the full employment rate. At that time, labor force participation was still below prerecession levels, as was part-time and long-term unemployment. According to the Congressional Budget Office (CBO), the output gap (the difference between potential and actual output) was at 3.5%.\nFor that reason, some believed the deficit should not be significantly reduced until the economy fully recovered. Indeed, although the budget plan agreed upon on August 2, 2011, had limited spending cuts in FY2012, critics of the plan suggested at that time that it might be inappropriate given current economic conditions. Others suggested it did not go far enough. However, the budget plan may be viewed as an initial step toward addressing the long-run budget challenges.\nA case can also be made that once the economy recovered it would be important to move quickly to address the deficit. The greater the debt-to-GDP ratio grows, the more burdensome interest payments become and the more the debt compounds. For example, in CBO's long-run budget projections, under the agency's alternative baseline, which reflects current services, interest payments are projected to rise to 3.3% of output by FY2024 and 4.7% by FY2039. CBO also projects that a sustained reduction in the deficit of 1.2% of GDP would be required to stabilize debt at 74% of GDP, its current level, under the standard baseline, whereas a 2.6% cut would be required to bring debt to the average of the last 40 years (39%). If the reduction is delayed for 5 years, the required decreases would be 1.5% and 3.2% of GDP; if delayed for 10 years, 2.1% and 4.3% of GDP.\nThe need to not move too slowly can also affect the optimal approaches to deficit reduction. For example, it is difficult to change current entitlements for the elderly (such as Social Security, Medicare, and part of Medicaid, which funds nursing home care). Many already-retired individuals have little leeway to adjust to such changes and could be particularly burdened by benefit reductions, which suggests that benefit changes be adopted in the near term but applicable to the future. Changing discretionary spending or increasing taxes can be achieved more quickly, although, as discussed below, the long-run gap between spending and taxes is too large to be addressed with discretionary spending revisions alone.",
"Addressing a federal budget deficit that is unsustainable over the long run involves choices. Fundamentally, the issues require deciding what government goods, services, and transfers are worth paying taxes for. Most people would agree that the country benefits from a wide range of government services—air traffic controllers, border security, courts and corrections, and so forth—provided by the federal government. Yet, as shown below, federal government provision of goods and services, outside of defense, constituted only 10% of federal spending and 2% of GDP in 2007, the last normal year before the recession. Transfers, including interest payments, accounted for around 70% of the federal budget. Finding budget savings by reducing nondefense federal government services alone would fall short of what is needed to address the deficit.\nTransfers, including interest payments, accounted for 75% of the federal budget in FY2014, up from the 70% figure from FY2007. Outside of the 10% for provision of domestic goods, defense spending for goods and services constitutes about 20% of federal spending. In this area as well, there are limits to the savings that might be found without compromising national security. Therefore, to address the budget shortfalls facing the country over the long run, it is likely that transfer payments to or on behalf of individuals (such as Social Security and Medicare), which already account for almost half of federal spending and are growing, must be reduced; transfers to state and local governments must be reduced (which would shift the budget problem to a different level of government); taxes must be raised; or some combination of the above.\nThe next section of this report examines the allocation of government spending, the method of its financing, and how these shares and sources have changed over time. It demonstrates that the surge in the debt is a recent phenomenon that has occurred with the recession and is inherently transitory. Going forward, however, as shown in the subsequent section, the growth in transfers to the elderly and spending for health car—a trend that has been under way for some time but was offset by a decline in spending for other purposes, relative to GDP—will increasingly contribute to unsustainable deficits. The following section addresses philosophies for approaching deficit reduction, as embodied in a number of proposals. It discusses how different approaches to and constraints imposed on deficit reduction will have consequences for the menus of other choices available. For example, if deficit reduction begins with a constraint that taxes will not rise, policy would almost certainly require significant cutbacks in Social Security and Medicare. If the benefits of these programs are to be maintained, an increase in taxes would likely be required.\nCentral findings of this analysis include the following:\nA comparatively small share of federal spending is for direct provision of domestic government goods and services, which many people may think of when considering federal spending. Because this spending is normally about 10% of total federal spending and about 2% of GDP, whereas deficits excluding interest are projected to be 2% to 7% by FY2039, cutting this type of spending alone cannot realistically contain the problem of unsustainable deficits. Transfers and payments to persons and to state and local governments constitute most of federal spending, about 70% or more. Defense spending, accounting for about 20% of federal spending, has declined as a share of output over the past 35 years, but it also tends to vary depending, in part, on the presence and magnitude of international conflicts. Until the recent recession, most types of nondefense spending had been constant or declining as a percentage of output, but spending on programs for the elderly and health care have been rising. Although some recent increases in the debt can be attributed to the Bush tax cuts and the conflicts in Iraq and Afghanistan, along with growth in spending on the elderly and health, the concern about the debt is not the result of prolonged and large deficits in the past. Debt grew during the recession and its aftermath. Debt held by the public had actually declined from almost 50% of GDP in 1993 to 33% in 2001; it rose slightly to 36% by 2007. During the first three recession and recovery years (2008 through 2010), it rose to 62%. With many of the Bush tax cuts made permanent and a slow recovery, it eventually rose to 74% by FY2014. It is projected to stabilize for a period of time and then grow, reaching 106% or more of GDP by FY2039. The problem with the debt lies not in the past but in the future, as growth in spending for health and Social Security is projected to continue. Because much of the pressure on future spending arises from imbalances in Social Security and Medicare Part A (Hospital Insurance) trust funds, keeping these funds and their source of financing intact is a concern that could constrain choices. Reductions in discretionary spending are insufficient to reduce the deficit to a sustainable level, so limiting taxes as a percentage of output or constraining the overall size of the government to current levels would likely require significant cuts in mandatory spending, including entitlement programs such as Social Security, Medicare, and Medicaid. Preserving entitlements would likely require significant increases in taxes, such as raising rates, reducing tax expenditures, increasing other taxes, or introducing new revenue sources. Tax expenditures may be difficult to eliminate, but they may be a reasonable source of new revenue if not used to lower rates. Addressing the eventual Social Security trust fund shortfall largely with tax increases would smooth the burden of accommodating longer lives across both working and retirement years. This argument might apply in part to Medicare and Medicaid issues. Because the federal government provides about one-fifth of the revenue for state and local governments, cutbacks in transfers to these governments may, in part, shift the burden of providing services from the national to subnational governments rather than altering the overall size of government services.",
"The objectives of government spending and taxes are generally viewed as providing for public and quasi-public goods, such as defense, law enforcement, infrastructure, and education; correcting market failures, including externalities (both negative, such as pollution, and positive, such as research and development); achieving distributive justice; and managing business cycles. Measured by amount of spending, the most important pure public good the federal government provides is defense. Many public and quasi-public goods, as well as income-support programs, are provided by state and local governments, and some federal spending is through grants to state and local governments for these programs. For example, in the state and local governments' FY2007, state governments received 21% of total revenues from federal transfers and local governments received 3.6%. States also provide transfers to local governments, and local governments provide transfers among themselves as well. These intergovernmental transfers are important in evaluating budget proposals because a reduction in transfers to state and local governments may in large part shift the burden to these governments rather than reduce the overall government role.\nSpending in the U.S. budget can be divided in various ways that are relevant to considering deficit reduction. In the remainder of this section, government spending is divided by whether the spending is to provide public goods or transfers, whether it is discretionary or mandatory (and the major categories within those divisions), and by function. This section also discusses taxes by source, tax structure, tax expenditures, and receipts and payments in the major trust funds. The first approach to presenting spending distinguishes between the provision of goods and services (defense and nondefense) and transfers to persons or to state and local governments. This approach is not a typical way of presenting budget data. It is important to divide spending in this way, however, to address concerns about potential inefficiency in federal government operations, especially outside of defense, as it indicates the scope for cutbacks relative to the deficit. The second approach divides spending into discretionary (requiring appropriations) and mandatory (embodied in laws providing entitlements to benefits). It is associated with the procedures needed to alter spending. The third, also a common way of presenting budget data, divides spending by function (defense, education, energy, health, etc.).",
"One way to look at spending is to examine the extent to which spending involves actual government consumption or production (that is, spending on the direct provision of goods and services) as compared with transfers. In calendar year 2007, a more normal year than the recent recession years, only 29% of government spending involved the direct provision of goods and services. Of the remaining payments, 45% were transfers to persons, 13% transfers to state and local governments, 11% interest payments, and 2% subsidies. Although federal government spending amounted to 20.6% of output in 2007, spending by the federal government on the provision of public and quasi-public goods was only 6% of output. Based on budget data reported subsequently, 3.9% was for defense, leaving 2.1% for nondefense. Because total nondefense discretionary spending was 3.6% of GDP, 40% of this amount was transfers. By the third quarter of 2014, as the economy was approaching full employment, consumption spending had declined to 5.6% of output, whereas transfers and interest had increased. Government spending on nondefense goods and services was 2.6% of GDP, and defense spending was 3%. Budget data for FY2014 indicate that discretionary spending was 6.9% of GDP, with defense spending at 3.4% and nondefense at 3.5%. Thus, a quarter of nondefense spending, about 1% of GDP, was transfers at that time.\nState and local government spending (netting out transfers between these remaining two levels of government spending) in 2007 was 14% of output, and total spending by all forms of government (after netting out federal transfers) was 32% of output. A larger share of state and local spending (which includes federal government transfers), 50%, was in government provision of goods and services (consumption), with 39% transfers to persons, 9% interest payments, and 1% subsidies. In the third quarter of 2014, state and local spending net of federal transfers was 11%, for a total of 34% for all governments. Provision of goods and services was 66%; transfers were 25%; and interest was 8%.\nCombining all levels of government, government production of goods and services in 2007 was 16% of output, so the federal government share (6%) was 38% on the total provided by all levels of government. Subtracting 4% from the federal government share and the total share to eliminate national defense spending (shown subsequently), the federal share of nondefense provision of goods and services by all levels of government was 17%. In 2014, the nondefense share had declined to 15%, with the federal share (6% of output) remaining at 38%.\nSimilar results are found when examining employment levels. Total government civilian employment is 16% of total nonagricultural employment, with the federal government accounting for 2%, the state government accounting for 4%, and local government accounting for the remainder (11%). By October 2014, the share remained about 16%, and each level of government maintained approximately the same shares (with local government falling to 10%).\nThe share of federal government spending that goes to the direct provision of public or quasi-public goods (consumption) has declined over time, as shown in Table 1 , which compares 1971 with 2007 and 2014. The decline from 9% of GDP in 1971 to 6% of GDP in 2007 is largely due to a reduction in defense spending, which was higher in 1971 during the Vietnam War.\nThe discussion in this section indicates that although total spending as a percentage of GDP grew by about a percentage point between 1971 and 2007, government involvement in the economy, narrowly defined as using resources to provide public goods directly, had fallen by a third and, outside of defense, had remained roughly constant and small (at around 2% of output). At the same time, transfers to persons increased by more than 40% and transfers to state and local governments increased by more than a third. Spending rose another 2% of GDP by 2014, primarily due to transfers to persons, whereas consumption declined.",
"Budget accounts often classify spending in budget documents as mandatory or discretionary spending, along with subcategories of spending. Interest payments are listed separately because they are a consequence of past spending and tax policies. Discretionary spending is determined in the annual appropriations process and is normally divided into defense and nondefense categories. It is also sometimes divided into security and nonsecurity spending, although security spending outside of defense is small. Discretionary spending is where most of the public provision of goods and services occurs, but some discretionary spending is in the form of transfers. Mandatory spending is governed by a set of permanent provisions, and some of these programs (such as Social Security and Medicare) are referred to as entitlements. These types of spending are listed in Table 2 as a percentage of output.\nSince 1971, defense spending has declined as a share of output, first as a result of the ending of the Vietnam War (by FY1981, defense spending was 5.2% of output). It rose in the 1980s and then fell, reaching 3.0% by 2001, before rising again with the Afghanistan and (second) Iraq wars. This pattern suggests that although defense spending may generally grow with the economy and be affected by other factors (such as moving to an all-volunteer force or the peacetime buildup in the 1980s), it also fluctuates depending on whether the United States is engaged in international conflicts.\nNondefense discretionary spending has fluctuated much less, although it rose in the late 1970s, then reverted back to historical levels. Nondefense discretionary funding, although small as a share of the budget and of GDP, is largely the spending that many people think of when they think of the direct provision of goods and services by the federal government.\nWhat does nondefense discretionary spending include? About 16% is education, training, employment, and social services, and the vast majority of this spending is for elementary and secondary education for disadvantaged and special-needs children. A similar share, about 15%, goes to transportation, with about half related to highways, almost a quarter air transport, and about one-sixth mass transit, as well as small shares for marine and railroad transportation. About 11% is for income security (mostly low-income housing assistance); 10% is for health research and public health; 10% is for veterans' benefits; 9% is for international purposes (about half of which is for humanitarian and development aid and about 15% is funding for the State Department); and 9% is for administration of justice (border security, Federal Bureau of Investigation (FBI), Drug Enforcement Administration, courts and corrections). Finally, about 6% is for the environment and natural resources (of this, about one-quarter goes to the Environmental Protection Agency, one-quarter is for the Army Corps of Engineers, 15% is for the forest service, and the remainder is for parks, fish, and wildlife and national oceanic and atmospheric programs). About 5% is for general space and science (about half of that is for the space program). As noted in the discussion above, nontransfer domestic spending is 2% of GDP. In 2007, less than half (40%) of total discretionary nondefense spending was for transfers, such as highway funds and grants provided to state and local governments.\nThus, any one program area is modest as a share of output, which means that cuts in a particular area would also be small. For example, total spending on the entire federal domestic enforcement program, including immigration and the border patrol, federal courts and prosecutors, federal prisons, and the FBI, constitutes only three-tenths of 1% of output, and even a significant cutback in this spending would be small compared with projected deficits of 3.8 percentage points of GDP by FY2024.\nMandatory spending, although it varies over time, increased over the period FY1971 through FY2007 and again in FY2013. The increase is most pronounced for Medicare, which provides health care for the elderly and has grown relative to GDP due to rising health care costs, certain other benefit changes, aging, and increased life spans. Social Security has also grown relative to GDP, although by a smaller amount, due to aging and longer life expectancy of the population. A significant percentage of Medicaid benefits the elderly (largely through long-term care), and its growth has also been influenced by increased life spans as well as costs. Other mandatory programs that provide benefits for low-income individuals, the unemployed, retirement programs for federal workers, and other purposes (such as agricultural support payments) have remained relatively constant or declined between FY1971 and FY2007. The rise in some of these programs between FY2007 and FY2013 is probably due to the effects of the recession.",
"Another traditional way of viewing the budget is by budget function relating to the area of spending (education, health, etc.). These comparisons, shown in Table 3 , provide a similar picture to the previous allocation: although total spending as a share of output has remained about the same from FY1971 to FY2007, the federal government has an increasing share of output in health and programs for the elderly, with declining shares for almost every other functional category. In 2007, 64% of spending was for human resources, with 20% for defense, 9% for interest, and 7% for all other functions. These ratios were similar in FY2013. Table 3 presents these categories as a percentage of GDP and illustrates that the subcategories for many types of spending, which are those that represent direct provision of government goods and services, are small as a percentage of GDP.",
"This section discusses four issues related to taxes: the sources of tax revenue and their growth over time, the differences in structure and distribution of revenue sources, the size and distribution of tax expenditures (special income tax provisions such as exclusions, deductions, and credits), and taxes that are specified as the revenue source for certain spending.",
"Table 4 provides the major sources of revenue and how they have changed over time. The individual income tax, the largest single source of revenue as a percentage of GDP, was about the same in FY1971, FY2007, and FY2013, but over the time period it fluctuated considerably. Individual income tax revenues grew during the 1970s due to bracket creep, reaching 9.4% in FY1981. The tax cuts in the Reagan Administration are the major reason revenues declined, falling to 7.6% in FY1992. Revenues increased slightly with the 1993 Clinton Administration tax increase, but the more significant growth occurred with the strong economic performance in the late 1990s, leading to a ratio of 9.7% in FY2001. They declined during the first decade of the 21 st century following the George W. Bush Administration tax cuts. Along with the individual income tax, total taxes have also fluctuated, dropping as low as 17.1% in FY1977 and rising as high as 20.6% in FY2001. The lower level in FY2013 reflects, in part, the lingering effects of the recession.\nCorporate taxes have fluctuated as well, although largely due to economic conditions, whereas payroll taxes rose to around their current levels by the mid-1980s, reached a peak of 6.8% in 2001, and have since declined slightly. Excise taxes have declined by two thirds, and other revenue sources have remained about the same. Part of the decline in excise taxes is because these taxes are imposed on a per unit basis and not indexed for inflation and, with the exception of tobacco taxes, have not been recently increased.",
"These revenue sources differ in some important ways. Individual and corporate income taxes are progressive, have graduated rates, and can be revised in a variety of ways, including changing rates, deductions, exclusions, and credits. Income taxes are the main source of revenue for most federal spending outside of Social Security and Medicare Hospital Insurance (HI, whose benefits are about half of Medicare spending). Estate taxes are also progressive, but they are a very small share of government revenues and currently are smaller than they were in FY2007. Payroll taxes, which are significant, and excise taxes, which are small, tend to fall more heavily on middle- and lower-income individuals.\nPayroll taxes, the next-largest source of revenue after income taxes, have flat rates with an earnings cap for Social Security (but not Medicare). These taxes tend to be proportional, with a reduced burden on high-income taxpayers. Because of their simple structure, the main options for increasing revenues from this source are increasing rates and raising or eliminating the earnings cap. Social Security taxes are the basic source of finance for Social Security, and they are linked to benefits so that larger taxes lead eventually to larger benefits, although there are progressive elements in the benefit formula. Medicare payroll taxes qualify individuals for Medicare HI coverage, but the Medicare benefits are the same for all recipients.\nExcise taxes, which largely apply to alcohol, tobacco, and transportation fuels, tend to be regressive but are also small. Transportation fuel taxes are a major source of finance for highways, airports, and other transportation needs.",
"Tax expenditures are revenue losses attributable to federal income tax laws that allow a special exclusion, exemption, deduction, credit, preferential rate of tax, or deferral of tax liability. The special tax credits and deductions in the income tax can also be viewed as a form of spending through the tax code. That is, one can view revenues as receipts without the special benefits and think of the special benefits from tax expenditures as spending. In FY2007, without tax expenditures, individual income tax receipts would have been an estimated 77% larger, corporate receipts 25% larger, and overall income tax receipts 39% larger. In FY2014, without tax expenditures, individual income taxes would have been an estimated 75% larger, corporate receipts would have been 44% larger, and overall income tax receipts would have been 39% larger. The significant increase in corporate tax expenditures relative to revenues appears to be largely due an increase in the estimated cost of deferring taxes on foreign source income . According to a Government Accountability Office (GAO) study, tax expenditures have tended to be around 7.5% of GDP during the period of the study (FY1974-FY2004). In FY2007, tax expenditures were 7.2% of GDP and about 36% of total government direct spending. In FY2014, tax expenditures were 6.9% of GDP and about 39% of government spending.\nViewed from the perspective of dividing government activity between transfers and direct provision of public goods, as in Table 1 , tax expenditures are transfers and subsidies that go to persons, as is the case with the bulk of federal spending. Viewed from the perspective of discretionary versus mandatory spending, as in Table 2 , they are similar to a mandatory form of spending. Finally, viewed from the perspective of budget function, as in Table 3 and as shown in Table 5 , which compares spending and tax expenditures by function for FY2004, the pattern of tax expenditures is quite different from that of spending. A much larger share of tax expenditures is for physical resources. For specific subcategories, the largest share of tax expenditures is for commerce and housing, a category that attracts a small share of spending. The size of this category reflects special benefits for earnings from capital income. It also reflects benefits for housing in the form of mortgage interest and property tax deductions and, to a lesser extent, exemption from capital gains tax on owner-occupied housing and the low-income housing credit. The relatively large share for general government reflects tax-exempt bonds and itemized deductions for state and local income and sales taxes. (These amounts could also be distributed across the functional categories of state spending and thus would be more broadly distributed. Much of the benefit for tax-exempt bonds goes to education and highways, where funds are borrowed for capital improvements.) Tax expenditures also provide significant benefits for health through the exemption of employer-provided health insurance and for income security, largely through benefits for pensions and other retirement savings.",
"As noted above, spending on some categories of services is financed by dedicated revenues, some of which are termed trust funds and some special federal funds. There are about 200 trust funds, but only a handful of them are important in terms of magnitude or for considering budgetary reform.\nIn some cases, the trust funds lead to questions about addressing the deficit. Although some of these funds rely on contributions from general revenues, the Social Security and the Medicare HI trust funds rely on payroll taxes. (Transfers are made to the Social Security and Medicare HI trust funds in the amount of income taxes collected on Social Security benefits. A temporary transfer was also made for the temporary two percentage point reduction in the employee share of Social Security taxes for 2011 and 2012.) The largest trust funds relate to Social Security, which is divided into Old Age and Survivors Insurance (OASI) and Disability Insurance (DI), and Medicare, which is divided into Hospital Insurance Part A and Supplemental Medical Insurance (SMI) Parts B and D.\nPayroll taxes are the basic source of finance for Social Security and Medicare HI (also known as Medicare Part A). These programs are organized through trust funds that can also hold assets and earn interest. Medicare SMI to pay physicians and drugs is financed by a combination of premiums and general revenues.\nTable 6 shows the inflow of revenues and the payment of benefits in the three trust funds financed by payroll taxes. (This table does not include earnings from interest on government securities held by the funds and transfers of income taxes collected on Social Security benefits; it also does not reflect administrative costs.) As indicated in the table, in the HI fund, benefits exceeded taxes in FY2007. In that year, the Social Security trust funds were close to or at the point at which payouts were as large as revenues. By FY2013, benefits in all three funds exceeded outlays, although some of that was probably due to lingering effects of the recession. Because initial Social Security benefits are indexed to wages (and subsequently to prices), they tend to be a relatively constant share of output. Benefits have grown because of increasing longevity. Revenues also tend to be a relatively constant share of output but were increased in the mid-1980s, and Medicare as a program expanded significantly in its scope during this period.\nTable 7 provides income and outflow for the SMI trust fund. In FY1971, this fund was about equally financed by premiums paid by the beneficiaries and federal contributions from general revenues. Although premiums have increased as a percentage of output, the vast majority of financing is now from general revenues. The premium share for Medicare Part B (physicians) fluctuated over time, but it is now set by law at 25% of the cost of funding Medicare Part B; premiums are not as large as for the recently enacted Medicare D (drug) program, which is much smaller.\nAs these tables indicate, the size of these programs, particularly Medicare, has grown over time. MSI has grown faster than HI, and the contribution of general revenues has grown at a similar pace. MSI currently accounts for slightly more than half the cost of Medicare.\nOne open question surrounding the formulation of a long-run budget policy is whether to maintain the financing of Social Security and Medicare HI from payroll taxes. In both cases, the future benefits due from these programs are expected to outstrip future receipts and eventually draw down all the assets. The Social Security trust fund is projected to run out of accumulated assets in 2033, and the HI trust fund is predicted to run out in 2030.\nIn the case of Social Security, there is a long history (dating from 1935, when the program was implemented) of treating Social Security as a separate program, similar to a retirement plan, in which contributions during the working years create an entitlement to benefits in old age. A similar approach has been used for the more recently established Medicare HI. If these programs are to be kept separate, then they will have to be brought into balance separately and, to maintain the historic source of financing, any shortfall not addressed through benefit cuts or delayed eligibility will need to be addressed through increases in a specific tax—the payroll tax.",
"In 2001, the CBO baseline projected a surplus for the next 10 years of $5.6 trillion, which would have led to a further decline in the debt. Ultimately, that surplus became a deficit of $6.2 trillion, or an $11.8 trillion shift. Some have addressed the causes of the growth in debt by referring to the shift in these CBO projections. Legislated changes in revenues accounted for an estimated 24% of the discrepancy, with most of that amount reflecting the 2001-2003 Bush tax cuts and extensions of these cuts. Changes in spending accounted for 37% (with about two-thirds due to discretionary spending), 11% was from increased interest, and the remainder was essentially some form of forecasting error.\nThe CBO baseline should not be taken as a projection of what future deficits are likely to be for a continuation of current services. Rather, it is a benchmark by which lawmakers can consider changes in policy. For those items (revenues and mandatory spending) that are based on laws other than appropriations, the baseline reflects those laws. Because of that convention, in FY2007 the baseline did not allow for some expected tax cuts (such as the indexing of the alternative minimum tax exemption and the extension of temporary tax provisions). On the spending side, the baseline projects that discretionary spending will grow with inflation but not, as historically has been the case, with output. The baseline currently reflects the caps for discretionary spending through FY2021, with the caps subsequently adjusted for inflation.\nIt is instructive to consider the path of debt and spending relative to output. In FY1971, debt held by the public was 28% of output, and it fluctuated in that vicinity (as both spending and taxes increased as a percentage of GDP) until the early 1980s. At that point, debt began to rise, reflecting a combination of a recession, lower income taxes, lower spending on nondefense discretionary programs, and higher defense spending. By FY1993, debt held by the public had reached 49.3% of GDP. Following the 1993 tax increase, spending caps, and the strong economic growth in the late 1990s, it declined, reaching 32.5% by FY2001. During this time, there was a gradual increase in health spending (Medicare and Medicaid) and Social Security benefits.\nRather than a decline in the debt after 2001 as would have occurred with a surplus (and as CBO projected), debt began to rise slightly, reaching 36.9% in FY2005, although it declined to 36.2% by FY2007. The largest contributor to this rise was the decline in income-tax revenues (due largely to the 2001 and 2003 tax cuts and their speedups) along with an increase in defense spending and, to a lesser extent, an increase in Medicare payments. (Part of the reason Medicare spending rose was increased payments to physicians. Legislation was adopted in 1997 to limit these payments, the Sustainable Growth Rate [SGR] System, but the cuts required by this legislation have repeatedly been suspended. Addressing the increased spending compared with the baseline in reference to deficit reduction proposals is referred to as the doc fix .)\nThis modest increase in debt accelerated with the recession, rising to 40.3%, 53.5%, and 62.1% in FY2008, FY2009, and FY2010, respectively. As shown in Table 8 and Table 9 , spending increased and revenues declined during this serious recession, both contributing about equally to the deficit increase by FY2010. The increased deficit between these years reflects measures undertaken to combat the recession, along with automatic stabilizer effects (taxes fall and spending rises during a downturn) that increased the deficit by about 2.5% of output between FY2007 and FY2010. (Note that comparing the two years obscures the temporary effect of the Troubled Asset Relief Program; in FY2009. Other mandatory spending was 2.6% of output due to this provision, although there was an offset in FY2010, with the net effect small.) On the spending side, the increases came from income-support programs as well as discretionary domestic spending, whereas on the tax side the primary decrease was in income taxes. These effects reflected, in part, stimulus provided through tax cuts as well as increases in programs such as unemployment compensation and transfers to states to fund infrastructure, Medicaid, education, and other programs (see Table 8 and Table 9 ).\nThe slow recovery of the economy led to an additional rise in the deficit to 74% in FY2014. CBO projects it will stabilize before rising again.\nThe debt's current level thus accumulated quickly due to the recession and, prior to that point, was not out of line with historical levels for the past 40 years. That is, today's debt has not been the consequence of years of excessive deficits. Rather, the current debt level reflects years of modest deficits with an increase due to the recession. The next section suggests that current debt problems are less troubling than those projected in the future, which will arise from population aging and rising health costs. These longer-run spending increases have long been anticipated. The fact that the U.S. government is beginning from a higher level of debt in the context of a fragile economy (rather than from the lower level of debt that was expected in the beginning of the 21 st century) makes these future issues more challenging.",
"The CBO baseline projects the debt will stay at about 74% of GDP (its FY2014 level) for a number of years, then grow to 78% in FY2024. However, CBO also uses an alternative baseline that may reflect policies consistent with current service levels, expectations, or history. In this baseline, the debt will continue to rise, reaching 87% of GDP in FY2024. This alternative baseline includes increased discretionary spending, eventually rising with output, higher Medicare payments to doctors, an extension of certain temporary tax provisions, and other limits on taxes.\nTable 10 shows the projected spending against the CBO baseline by FY024. As indicated earlier with respect to the baseline issues, this table includes the effects of spending caps.\nThe table indicates that past patterns are expected to continue, in that programs for the elderly and health programs are becoming more costly over time. In addition, as deficits persist and interest rates are projected to rise, interest payments will increase as well.\nTable 11 shows the forecast for revenues, again using the baseline assumptions. With these assumptions and economic growth, revenues will rise to 18.4% of GDP by FY2024.\nCBO's long-run budget analysis indicates the possible pressures from a more realistic baseline, especially for health programs.\nTable 12 shows spending and revenues, along with debt-to-output ratios, further into the future under the CBO extended baseline. Table 13 compares this extended baseline with the alternative baseline. The alternative baseline may be a more realistic representation of current policy.\nCBO standard projections show an increase in transfers for old-age and health programs but a decline in other programs' relative size. The standard baseline assumes income taxes will continue to rise through real bracket creep, whereas the alternative baseline assumes that action will constrain revenues.\nThe debt-to-GDP ratio increases in both scenarios, but it rises more steeply under the alternative baseline. In that baseline, the deficit reaches 17% of GDP in FY2039 and the primary deficit (excluding interest) reaches 7%.",
"Numerous proposals were put forward to address the budget deficit while attention was focused on deficit reduction in 2011 and 2012. The Committee for a Responsible Federal Budget (CRFB) identified 32 different proposals and provided comparisons of provisions. This section relies in part on that comparison to summarize the different approaches taken by the various plans, which provide examples of potential changes. Also presented are projections for some plans of the expected effects on revenues and spending relative to GDP. Because updated estimates are not available for these plans, data are presented as they were projected to be in 2012. Although projections may have changed somewhat, the measures are presented as long-run effects rather than changes from a baseline and indicate the overall objectives of the plans.\nAll of the plans aimed at reducing the debt-to-GDP ratio, but they varied in spending, taxes, and the deficit relative to output. For those plans in which measures were reported (for 2020), spending-to-GDP ratios ranged from 18% to 25%, whereas taxes-to-GDP ratios varied from 18% to 22.5%. Deficits ranged from 0% to 4% of output.\nA debt level can still be sustainable with some continuing deficit. The deficit causes the debt to grow, but as long as it is not large enough to cause debt to grow faster than GDP, the debt-to-GDP ratio will be stable or in decline.\nAlthough summarizing all of these plans is beyond the scope of this report, Table 14 shows five plans that have been widely discussed along with the CBO standard baseline projection at that time and the CRFB's own estimate of what it considered a realistic projection. That projection is similar to CBO's baseline for spending but reflected a tax assumption that permanently extended the Bush tax cuts (similar to the CBO alternative baseline at that time and roughly consistent with what occurred.). The five plans are the House Republican Budget Plan, the President's Framework, the bipartisan Fiscal Commission, and two private plans that are widely discussed, the Galston-MacGuineas plan and the Debt Reduction Task Force (Domenici-Rivlin). (In subsequent plan comparisons, the Senate's \"Gang of Six\" plan is also discussed; the CRFB reports no numbers for that plan.)\nMost of these plans had spending rising constantly or relative to 2007 (at which time spending was approximately 20% of GDP) but falling relative to current law projections at that time (and to the CBO alternative baseline projection). Taxes relative to GDP ranged from slightly below the 2007 level of 18.5% to slightly above the CBO baseline projection of 20.0% (a baseline that has the Bush tax cuts and other temporary provisions expiring as scheduled).\nThese proposals raise five issues for consideration. First, although discretionary spending cuts were the short-term target of many proposals, how easy is it to make these specific cuts? Second, to what extent did proposals appear to maintain the current trust fund revenues for Social Security and Medicare, and how important is maintaining this relationship? Third, what spending measures would be required, and how realistic might it be, to maintain tax revenues at or below the levels experienced prior to the recessions? Fourth, is there a feasible way to preserve entitlement programs for the elderly and persons with low income (Social Security, Medicare, and low-income programs), and what measures would be necessary to achieve that purpose? Fifth, what are the consequences for state and local governments?",
"Discretionary spending, as discussed above, whether for defense or nondefense purposes, is not the cause of the long-run growth in spending and historically has been relatively constant or in decline as a percentage of GDP. Discretionary spending, however, is targeted as a source of budget savings in the proposals and, because it is easier to change in the short run, may be a source of initial savings. Defense discretionary spending has declined since FY1971, and nondefense discretionary spending is projected to be at a low point (compared with the period FY1971-present) as a percentage of output in the CBO baseline by FY2024.\nThe CBO baseline already built in a decline in discretionary spending as a percentage of output because that baseline assumed spending grew at the rate of inflation. It also incorporated the cuts in the BCA through FY2021. There is no magic number indicating how high this spending should be in relation to output. Nevertheless, recent history has shown that nondefense discretionary spending has been higher in the past and hence cuts would lead to lower level of government services than has traditionally been the case. (Defense spending, as noted above, fluctuates depending on international conflicts, although it has increased to respond to perceived threats or other changes such as an all-volunteer force. Overall, however, it has declined since FY1971.)\nAs shown in Table 15 and Table 16 , all of the deficit reduction proposals envisioned lower levels of discretionary spending relative to GDP. At the same time, most of the proposals did not spell out the specific cuts proposed, an important issue given the diversity in the types of programs in nondefense spending. That is, these plans generally directed agencies to cut spending without outlining the specifics. Thus, the plans did not indicate, for example, if fewer prisons will exist, if grants for special-needs children will be reduced, if fewer highways will be built or repaired, etc. However, these reductions might have needed to be significant. For example, the Fiscal Commission proposed cuts that were 18% below the CBO baseline (as shown in Table 16 ).\nEven so, it is unlikely that reductions in discretionary spending could close much of the long-run deficit gap. The Fiscal Commission's proposed cut in discretionary spending, for example, would have reduced overall spending by about 1.3 percentage points of GDP. Yet, as seen in Table 13 , the gap between spending and taxes by FY2039 if present policies continue (alternative scenario) is 17% of GDP. Thus, closing this gap is likely to require cuts in other spending, including entitlements, increases in tax revenues, or a combination.\nCBO's 2011 study on budget options contained some specific proposals for cuts in discretionary spending, which might suggest the types of cuts that might be considered in these proposals, although most of these were small. For example, consider education, training, employment, and social services, the largest category in domestic discretionary spending. CBO included proposals to eliminate grants for educational opportunities outside school hours for low-income students, limit the availability of grants for college to the neediest students, eliminate national community service funding (which funds AmeriCorps and similar operations), eliminate funding for community-service jobs for low-income individuals over the age of 55, and cut funding for the arts by 25%. Taken together, these changes added up to about $40 billion over 10 years. In contrast, the Fiscal Commission's cuts for this area appear to be over $100 billion if allocated proportionally to all programs.",
"Since its inception in the 1930s, Social Security has been financed through a trust fund mechanism in which benefits were financed from payroll tax contributions. Payroll taxes are imposed at a flat rate, with a cap on income covered that is indexed to wages. Because of increasing disparities in income, this ceiling falls lower in the income distribution than it has in the past. Benefits, although they are linked to contributions, are progressive in that the replacement rate for wages falls as wages rise.\nBecause of the link between wages and benefits, many viewed Social Security as much like a pension, with income in retirement earned through contributions. With Social Security, there was a link between contributions and benefits, although it was not precise and, because the trust fund did not accumulate retirement contributions in the same way as a pension plan (but rather paid most benefits out of current contributions), the trust fund's financing was affected by demographics. Currently, the trust fund is spending more in benefits than it collects in payroll taxes and using interest earnings to fill the gap.\nBenefits, as shown above, are growing faster than payroll taxes. As a result, under current policy the Social Security trust fund has been using its assets and will become insolvent by 2033, at which point it will have income sufficient to pay about three-fourths of benefits. Moreover, if a position is taken that taxes cannot be increased (as discussed below) or that payroll taxes are not to be increased, then either the close link between payroll contributions and earnings will have to be abandoned or the burden of restoring solvency will fall on cutting benefits.\nAs shown in Table 17 , some of the plans had specific proposals to cut Social Security benefits and raise taxes (generally by adjusting the payroll cap). These proposals tended to be similar in some respects in the types of revisions they proposed. (Specific proposals for revision can also be found in the CBO's Budget Options document.)\nSome of the proposals do not directly provide changes to Social Security revisions but rather provide instructions to make the trust fund solvent. In general, therefore, these plans apparently intend to preserve the structure of the Social Security program.\nThe Medicare HI trust fund has been affected over time (as has Medicare in general) by demographics and, more importantly, by the growth in health care expenditures per capita due to technical advances and cultural expectations. As shown in Table 18 , the plans have specific suggestions for health care (Medicare, Medicaid, and the new health mandates). In some cases, they include instructions to find savings in the future. There was no specific reference to trust funds and no payroll tax revenues raised for the Medicare HI trust fund.",
"Most of the proposals, as seen in Table 14 , envisioned some increase in taxes as a percentage of output compared with FY2007, the last year before the 2007-2009 recession, when the Bush tax cuts were in effect and taxes were 18.5% of output. One plan set the level at 18%, but the others set the tax revenue at around the peak historical level (19.5% in FY2001) or higher.\nOne philosophy behind the view of keeping revenues fixed relative to GDP is that government spending takes away from private choices and creates inefficiency and that taxes impose distortions and inhibit economic activity. (This view depends on strong assumptions about benefits generated by federal spending.) By limiting revenues available, the scope of the government will be constrained. Most proposals contained higher tax levels.\nAn argument is sometimes made that tax increases would inhibit economic activity so much that revenues will decline rather than rise. Empirical evidence does not generally support this view, however.\nIf revenues are limited, significant pressure would be placed on major entitlements. For example, Social Security, health spending, and interest alone are projected to total 18% in FY2039 ( Table 12 ). If revenues are around 18.4% of GDP, only 0.4% is left for everything else. (In FY2014, this amount was 9.3% of GDP.) Defense, nondefense discretionary, and other mandatory programs are projected to amount to 6.9% of GDP in FY2039. These calculations would be even more constrained with the alternative scenario and the economic feedback in Table 13 . Thus, it would appear that major reductions in Social Security and health spending would be required to constrain tax levels at current percentages of GDP.\nThe Republican Budget Committee's plan would have set the tax level at 18% and spending at 20% in 2020, fully four percentage points below the CBO baseline at that time (24%) and inclusive of interest payments. How did it accomplish this?\nRelative to the CBO baseline, it recommended a level of spending that was $5.8 trillion lower in the first 10 years. The discretionary spending reductions were large ($2.8 trillion), especially for nondefense, compared with other proposals. For nondefense spending, reductions by 2021 were 34% of the CBO baseline, which projected a level that was already historically low.\nThe second-largest major change within the first 10 years, $1.4 trillion, was to repeal parts of the health care legislation that imposed costs (while retaining other cost-reducing provisions). The plan converted Medicaid payments to the states into a block grant that would reduce spending by $0.8 billion over 10 years, or 35% in 2022 according to CBO. The remainder included $0.7 trillion from other spending, which includes, as shown in Table 19 , a block grant for food support (SNAP) as well as other mandatory spending changes. Interest payments also were to fall. For Medicaid, the plan stipulated that either the programs' benefits would have to decline or the states would have to shoulder a larger share of the financial burden.\nSignificant changes would have been made after 2021, primarily by converting Medicare to a voucher system (required for those under the age of 55 in 2011), which would then grow at the inflation rate. In addition, discretionary spending would continue to grow with inflation, so that it would continually decline as a percentage of output (the CBO long-run standard baseline assumes this spending will grow with output after FY2021). Essentially, this plan converted major entitlements into fixed payments that are constrained to grow with inflation to control the deficit and debt without raising taxes.\nAlthough this plan and its approach are illustrative, they are also suggestive of what would likely be necessary to hold the size of government and tax revenues fixed at 2007 levels: major changes to government programs for health care and other entitlements.",
"To examine the other side of this coin, consider what would be required to protect entitlements. Protecting entitlements reflects a view that government should maintain its social safety net for lower-income persons and programs for the elderly, including provisions for health care, because they are important components of maintaining a reasonable standard of living.\nWith respect to Social Security, sizeable surplus revenues have already been paid to support the payment of future benefits. Medicare HI also has accumulated surpluses that will maintain benefits for some years to come. Nevertheless, neither of these plans is sustainable in its current formulation, and the shortfall in revenues relative to payments contributes to the overall deficit.\nMost of the proposals already envisioned some increase in taxes (see Table 20 for details) along with cuts in benefits, but they also cut back on entitlements. Tax increases would likely be required to maintain the current level of entitlement programs. These effects can be seen by examining the different scenarios in\nTable 12 , Table 13 , and Table 14 . In Table 13 , under the alternative baseline, taxes are held at current levels and spending rises relative to the standard baseline, resulting in a deficit of 5% of output in FY2024 and 17% of output in FY2039. Consider the lower amount of spending from the CBO baseline compared with holding taxes at current levels from the CFRB projections in Table 14 , in which the deficit is 5.5%. As noted in the previous section, it is unlikely that cuts to discretionary and other non-entitlement spending alone would suffice to close the deficit to a sustainable level. Therefore, it is realistic to expect that tax collections would have to rise to restore the path of future deficits to sustainability.",
"Is there a justification for increasing the size of government to continue the present Social Security and health benefit payments? It is useful to consider separately Social Security, whose issues arise from demographics, and health care, whose issues arise from a combination of demographics and health care costs.\nSocial Security benefits are expected to rise from the current 4.9% of output to 6.3% in FY2035. However, beyond that point, the costs remain about the same, falling slightly as the baby boom generation begins to die and then rising as longevity increases. The problem with Social Security funding did not arise from the baby boom; it arose from the increase in life span whose pressures on the system were masked for a time by the growth in the labor force (both from the baby boom and the entry of women into the labor force). Unlike health care, Social Security benefits are not expected to grow continuously but to settle down so that benefits and costs are relatively constant (with benefits slightly greater than 6% and revenues about 5% of GDP). There are, therefore, a range of tax increases, as well as benefit cuts, that could bring the program into permanent balance.\nA Congressional Research Service study of Social Security suggests that there are important justifications arising from market failure and that there is a rationale, based on life-cycle considerations, for making most of the adjustment in the imbalance through higher taxes rather than lower benefits. Another option, which affects both taxes and benefits, is to increase the retirement age, although such increases put pressure on the disability-insurance program because some individuals will find it more difficult to work longer. Thus, there are justifications for addressing more of the long-run insolvency of the Social Security program through tax increases rather than benefit reductions.\nThis assessment considers outcomes in the steady state. There is also an issue of which generation bears the burden during the transition. The more the system relies on tax increases as opposed to benefit cuts in the short and medium term, the more the burden is shifted to younger generations.\nSimilar life-cycle arguments could be applied to any program for the elderly to the extent that program is increasing in cost because of longevity, including Medicare and nursing home costs under Medicaid. These programs are financed by a combination of payroll taxes and general revenues, but most of these taxes would be collected during most individuals' working years.\nCost increases for health care are a different matter, in part because they seem to be growing continuously and in part because there are different ways to view them. To the extent that rising costs reflect better medical care that extends and improves the quality of life, spending more money on health care may appropriately reflect preferences of individuals whose higher incomes permit them to spend more of their resources in this area. However, to the extent that rising medical costs reflect serious inefficiencies in the system arising from failure to allocate resources by price and causing patients and their physicians to consume large and inefficient amounts of health care, then increased benefits may not be justified.",
"If benefits are to be largely maintained, and because it is relatively clear that cutting other forms of spending will probably not be adequate, what are the tax options? Basically, these options, some of which are discussed in a number of the budget proposals, are raising rates, broadening the income tax base through reductions in tax expenditures, increasing other taxes (such as payroll and excise taxes), and introducing new taxes (such as a carbon tax).\nRates can easily be varied, and many of the proposals included allowing the Bush tax cuts, especially for high-income taxpayers, to expire. Because most of these tax cuts were extended, this change would be the equivalent of a rate increase currently. The barriers for rate increases might be viewed as largely political rather than technical, and top tax rates in the past have been much higher than they are today. Allowing the temporary tax provisions to expire and including real bracket creep was reflected in the difference between the CBO standard and alternative baselines and accounted for 2.7% by FY2022.\nAlthough tax expenditures have received much attention and are included in budget proposals, policy makers face significant political and technical barriers to implementing changes. Some tax expenditures are technically difficult to eliminate (especially employer fringe benefits), some are valued as part of the social safety net (such as the earned income credit or exclusion of transfers), some are desirable for other reasons, and some are so politically popular (e.g., the home mortgage interest deduction) that eliminating them or scaling them back could be difficult.\nFor example, considering technical challenges alone, the largest individual tax expenditure is the exclusion of employer health insurance, which accounts for 11% of the total revenue foregone. As discussed during the health reform debate, however, fairly designing an inclusion is very difficult because the value of insurance varies, for example, with the age of the employee and other characteristics. If not allowed to vary by age, young employees who work for firms with higher average employee ages will be imputed more income than employees working for firms with younger employees. Potentially more serious imputation problems arise with the third-largest tax expenditure (the exclusion of pension contributions and earnings), which accounts for 9% of the total. Problems arise with regard to this tax expenditure because of defined benefit pension plans, whose benefits are difficult to allocate because they ultimately depend on future work history with the firm.\nAt the same time, many of the proposals discussed in Table 20 also envision eliminating tax expenditures to lower rates. If used to generate additional revenue, reducing tax expenditures could result in significant progress toward reducing the deficit. One study, for example, suggests that a more realistic appraisal of tax expenditure options, taking into account technical barriers, political barriers, and justification for some provisions, would increase income-tax revenues by about 15%. In the earlier CBO alternative baseline, income-tax revenues would have been about 10.6% in FY2021, suggesting increased revenues of 1.6% of GDP. This increase is about two-thirds of the difference in revenues between the regular and alternative CBO baselines, which reflected the Bush tax cuts, other temporary provisions, and some real bracket creep (growth in revenues because real incomes are rising).\nTwo other types of taxes that might be altered are the payroll and excise taxes. For example, some proposals have included a provision for raising or eliminating the cap on earnings for payroll taxes. Other options include raising rates and expanding the base to include fringe benefits, such as pension contributions and health care. (Imputing income, however, as noted above, may be problematic.) A number of options could significantly extend solvency to the Social Security trust fund. Revenue could also be raised by taxing Social Security benefits in the same way as pensions, and this revenue, although considered as part of tax expenditures, could be designated to finance Social Security benefits.\nIn addition, proposals have included increases in gasoline taxes to provide additional funding for highways and increases in alcohol taxes, whose real value has been declining since 1991 and would be an estimated 60% higher if they had been indexed to inflation since then.\nFinally, there are options for additional types of taxes. Three new tax sources that have been included in the proposals are value-added taxes, carbon taxes (revenue could also be collected through an auction of carbon rights through a cap-and-trade system), and taxes on sugar-sweetened beverages. Both value-added taxes and carbon taxes could raise significant amounts of additional revenues.\nThese revenue sources differ in the incentives they create and also in their progressivity. Because income taxes tend to fall more heavily than other taxes on high-income individuals and tax expenditures tend to benefit higher-income individuals, these changes would likely add to the progressivity of the system. Changes in payroll rates would tend to be proportional and affect higher-income individuals less, although raising the wage cap would concentrate the effect on higher-income workers. Flat rate consumption taxes, including value-added taxes, carbon taxes, and specific excise taxes (such as those on gasoline, alcohol, and sugared beverages) tend to be regressive. A combination of changes could, however, achieve approximately the same distribution as current revenues.",
"Some of the proposals would address the budget deficit by reducing transfers to state and local governments. Because the details of discretionary spending (other than caps and limits) are not generally spelled out, some of this reduction could reduce transfers to state and local governments in areas such as education, transportation, and community development. In addition, many entitlements, both for health and income security, are administered by the state and local governments with federal transfers. One of the largest of these programs is Medicaid, which the House Republican Budget proposal restricts to a block grant that grows at population rates plus inflation rates. As noted above, federal transfers to state and local governments are 2.8% of output and constitute 21% of the receipts of these governments. State and local governments also benefit from tax expenditures that allow itemized deductions for state and local taxes and exclusions for interest on state and local bonds. Depending on how these governments respond, restrictions that affect state and local transfers could largely shift the burden of spending from federal to subnational governments."
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{
"question": [
"What portion of federal spending is for the direct provision of domestic government services?",
"As such, how would cutting this type of spending affect the deficit?",
"What is discretionary spending?",
"What is the largest source of federal spending?",
"What portion of federal spending is defense spending?",
"How frequent are federal debt discussions in Congress?",
"How has the federal debt changed from 2007 to 2014?",
"How is the debt projected to change in the near future?",
"What is causing the increase in debt?",
"How are these trajectories projected to change?",
"How will preserving entitlements affect tax rates in the future?",
"How could the federal budget be made more sustainable?",
"How could Congress address the eventual Social Security funding shortfall?",
"To what extent could this also be used for Medicare and Medicaid?"
],
"summary": [
"A small share of federal spending is for direct provision of domestic government services, which many people may think of when considering federal spending.",
"Because this spending is normally about 10% of total federal spending and about 2% of gross domestic product (GDP) and deficits are projected to be 2.8% of GDP and rising in the future, cutting this type of spending can make only a limited contribution to reducing the deficit.",
"Discretionary spending is spending that requires appropriations.",
"Transfers and payments to persons and state and local governments constitute most of federal spending, about 70%.",
"Defense spending, currently accounting for about 20% of spending, has declined over the past 35 years but tends to vary depending, in part, on the presence and magnitude of international conflicts.",
"Recently, issues concerning the level of federal debt have become a significant source of debate in Congress.",
"As a result of the recent recession (December 2007 to June 2009), along with policies enacted in response to it, federal debt held by the public rose from 36% of GDP in 2007 to 74% in 2014.",
"Although the debt held by the public is projected to be relatively stable over the next decade, the Congressional Budget Office (CBO) projects it will rise to 106% of GDP by 2039.",
"This increase in debt is mainly due to growth in federal spending on health care programs and Social Security, as well as increasing interest payments that typically accompany rising budget deficits. Although spending on these programs is rising, other types of federal spending have remained constant or declined.",
"These trajectories are projected to continue under current policy.",
"Preserving entitlements would eventually require increases in taxes; CBO's baseline projection shows spending on Social Security, health, and interest will absorb virtually all revenue collected by 2039, leaving little room for any discretionary and other mandatory spending.",
"Options to put the federal budget on a more sustainable path include raising tax rates, reducing tax expenditures, increasing other taxes, or introducing new revenue sources. Tax expenditures may be difficult to eliminate, but if not used to lower rates they may be a source of additional revenue.",
"If Congress were to address the eventual Social Security trust fund shortfall largely with tax increases, it would smooth the burden of accommodating longer lives across both working and retirement years.",
"This argument might also apply, in part, to Medicare and Medicaid."
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GAO_GAO-13-56
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{
"title": [
"Background",
"DHS’s Mission",
"History and Administrative Structure of CAP",
"Field Organization and Resources of CAP",
"CAP Has Performed Certain Homeland Security Missions for Federal, State, and Local Customers",
"Air Force Auxiliary Missions Include Some Homeland Security Activities, but Consist Primarily of Training and Flight Orientation",
"All 10 Select CAP Wings Performed Homeland Security Missions for Federal, State, and Local Customers",
"Key Factors Affect CAP’s Ability to Support Homeland Security Missions; Assessment of CAP Capabilities and Resources Could Inform Decision- Making",
"Several Factors May Affect CAP’s Ability to Support Homeland Security Missions",
"Legal Parameters Guide CAP’s Mission Involvement",
"Additional Homeland Security Missions May Require Reimbursement",
"DHS Has Not Assessed CAP’s Ability to Support Additional Homeland Security Missions",
"Conclusions",
"Recommendation for Executive Action",
"Agency Comments, Third-Party Views, and Our Evaluation",
"Appendix I: Comments from the Department of Homeland Security",
"Appendix II: Comments from the Civil Air Patrol",
"Appendix III: GAO Contacts and Staff Acknowledgments",
"GAO Contacts",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"In early 2010, DHS defined its mission and strategy for responding to homeland security threats. The result of this effort was the completion of the QHSR report––a strategic framework to guide the activities of participants in homeland security toward a common goal. One of the key themes of the QHSR report is the importance of sharing homeland security responsibilities across a variety of actors including federal, state, local, tribal, territorial, nongovernmental, and private sector entities. Emphasizing this shared responsibility, the QHSR report notes that in some areas—such as border security or immigration management—DHS possesses unique capabilities and responsibilities that are not likely to be found elsewhere. However, in other areas, such as critical infrastructure protection or emergency management, DHS mainly provides leadership and stewardship because the capabilities for these areas are often found at the state and local levels.",
"In December 1941, CAP was established out of the desire of civil airmen of the country to be mobilized with their equipment in the common defense of the Nation. Under the jurisdiction of the Army’s Air Forces, CAP pilots were active during World War II, performing border patrol, search and rescue, and emergency transport, among other missions. In 1946, CAP was established as a federally chartered organization. In 1948, shortly after the Air Force was established, CAP was designated as the civilian auxiliary of the Air Force, and later, in October 2000, CAP was designated as the volunteer civilian auxiliary of the Air Force when CAP provides services to any department or agency in any branch of the federal government.cadet programs, and emergency services.\nCAP has three missions: aerospace education, As a nonprofit organization, CAP has a unique relationship with the Air Force, which may use CAP’s services to fulfill its noncombat programs and missions. The Secretary of the Air Force governs the conduct of CAP when it is operating as the auxiliary of the Air Force and prescribes regulations governing the conduct of CAP. CAP is embedded in the Air Force’s command structure under the Air Education and Training Command. provides technical advice to ensure flying safety, ensures that CAP’s federal funds are used appropriately, and provides building space, among other things. CAP also has its own administrative structure governed by a volunteer national commander, national vice-commander, and an 11 member Board of Governors. A paid chief operating officer manages CAP’s headquarters at Maxwell Air Force Base in Montgomery, Alabama.\nThe Air Force’s Air Education and Training Command provides basic military training, initial and advanced technical training, flight training, and professional military and degree- granting professional education.\nHowever, the chief operating officer has no command authority over the volunteers and assets spread throughout the United States.",
"CAP is divided into eight geographic regions consisting of 52 state wings (the 50 states, Puerto Rico, and the District of Columbia). Each state wing is divided into smaller squadrons, of which there are approximately 1,500 nationwide. CAP has more than 61,000 members divided between cadet (26,725) and adult (34,693) members. According to CAP officials, of the adult members, there are approximately 3,000 active mission pilots.Nonpilot adult members contribute to the organization in various ways, serving as crew members, administering wing operations, and managing cadet programs, among other things. CAP has 550 single-engine aircraft, 42 gliders, and 960 vehicles. Figure 1 depicts a CAP aircraft.\nThe majority of CAP’s operating budget comes from funds included in the Department of Defense’s appropriation and designated by Congress for CAP. CAP is included in the Air Force’s internal budgeting process and submits each year a financial plan to the Air Force for consideration. CAP’s financial plan is reviewed and adjusted by both the Air Education and Training Command and Air Force headquarters. According to an Air Force official involved with CAP’s budget submission, the Air Force attempts to ensure that CAP receives at least the same amount of funding it had the previous year. However, CAP is competing against other Air Force priorities in the normal Air Force budget development process. Still, according to the Air Force official, CAP often receives additional funding from Congress above the Air Force’s request. For example, in fiscal year 2011, Congress provided an additional $4.2 million of funding above the Air Force’s request. See table 1 for CAP’s appropriations since fiscal year 2007.\nThe funds in table 1 are used to reimburse CAP for some Air Force- assigned missions, cover the costs associated with maintenance, and fund aircraft and other procurement, including vehicles. For example, these funds cover mission costs associated with some Air Force- assigned missions, such as air intercept exercises and counterdrug activities. CAP also receives mission reimbursement from other federal, state, and local agencies. For example, in fiscal year 2011, FEMA reimbursed CAP approximately $155,000 for a variety of disaster-related missions. In addition, CAP receives funding from other sources throughout the course of the year, including state appropriations, membership dues, and member contributions. In fiscal year 2011, CAP received approximately $3.2 million in appropriations from 37 states. State funding is sometimes earmarked for a specific state activity, such as disaster response. CAP also received in fiscal year 2011 $3,076,925 in membership dues.\nCAP can conduct missions either as an auxiliary of the Air Force or in its corporate status. Approximately 75 percent of CAP’s missions are conducted in Air Force auxiliary status. While all missions in support of federal agencies must be conducted in its Air Force auxiliary status, CAP may conduct missions in its corporate status on behalf of state and local agencies and nongovernmental organizations. CAP pilots are not afforded federal protections when they fly in corporate status.\nAll requests for CAP operational missions––with the exception of corporate missions and those for Alaska and Hawaii––are coordinated through CAP’s National Operations Center and approved by 1st Air Force. Agencies requesting CAP support contact the CAP National Operations Center with a formal request for support. The National Operations Center works with the requesting agency and the CAP wing to develop an operations plan, budget, and funding documents for the mission. These are then forwarded to 1st Air Force, which conducts legal, funding, operations, and risk management reviews to ensure that the mission meets CAP requirements. Once these reviews are complete, the Air Force can approve the mission and CAP can task its wings with the assignment. CAP corporate missions undergo a similar review process— wherein legal, funding, and risk reviews are conducted—but are not routed through the Air Force for approval.",
"Our review of fiscal year 2011 CAP flight hour data and discussions with officials from 10 CAP wings show that CAP has performed missions that fit within three of the five QHSR homeland security mission areas: (1) preventing terrorism and enhancing security, (2) securing and managing borders, and (3) disaster response. CAP missions related to these areas have accounted for 9 percent of CAP’s flying hours; however, CAP has devoted the majority of its flying hours (approximately 63 percent) to training for these and other missions and cadet and Reserve Officer Training Corps flying orientations. The remaining 28 percent of CAP’s missions consisted chiefly of assistance to law enforcement for domestic drug interdiction activities, such as marijuana crop identification, and maintenance-related flights.",
"CAP flight hour data for fiscal year 2011 show that CAP participated in a variety of homeland security activities, but that a majority of the organization’s Air Force-assigned flying time was devoted to training and flying orientation for cadets and Reserve Officer Training Corps members. Specifically, CAP devoted about 63 percent (46,132 hours) of its total Air Force-assigned mission flying hours to training and flying orientations.Of the remaining 37 percent of Air Force-assigned flight hours, 9 percent (6,575 hours) were dedicated to homeland security-related missions. For example, CAP reported 2,583 Air Force-assigned hours devoted to air defense, which includes CAP’s participation in the Department of Defense’s low-flying aircraft readiness exercises and exercises for training military pilots to intercept low-flying aircraft. These missions relate to the homeland security mission area of preventing terrorism and enhancing security. CAP also devoted 2,314 Air Force-assigned flight hours to defense support to civilian authorities/disaster relief, corresponding to the homeland security mission area of ensuring resilience to disasters. Figure 2 provides a breakdown of CAP fiscal year 2011 flight hours by mission.\nCAP headquarters and officials from all 10 CAP wings we spoke with generally concurred that the fiscal year 2011 flight hours are reflective of their activities in recent years—that is, training and cadet activities have accounted for the majority of their missions. CAP intends for its training and pilot certification missions to prepare its pilots and other volunteers to perform homeland security-related missions. In addition, CAP wing officials told us that they have modified training schedules to accommodate the demand for real-world missions when they have occurred—including those related to homeland security—and will continue to do so in the future.",
"Officials from all 10 CAP wings we spoke with said their wings had performed missions related to at least one of the three QHSR mission areas covered by CAP for a variety of federal, state, and local customers. For example, 9 of the 10 wings had contributed to preventing terrorism and enhancing security by participating in military readiness exercises where CAP aircraft acted as mock targets for airborne interceptors or ground-based radar. In most cases CAP aircraft acted as slow-moving, potentially hostile targets that were identified, tracked, and escorted by active-duty, reserve or state Air National Guard radar or airborne fighters. Figure 3 shows examples of these and other homeland security missions conducted by the 10 CAP wings during fiscal years 2007 through 2012.\nAs part of efforts to secure and manage the nation’s borders, 3 of the 4 CAP wings shown in figure 3 that share a land border with Mexico or Canada were involved in various reconnaissance activities for federal customers that included flights over border regions to identify suspicious activity.conducted reconnaissance for suspicious persons and vehicles in the Barry Goldwater Air Force Testing Range, which is located on the border with Mexico. Similarly, Texas CAP officials stated that they had conducted border reconnaissance missions in support of CBP operations along the state’s border with Mexico. According to CBP officials, these reconnaissance missions were for monitoring, detection, and reporting of any suspicious border activity observed. New Mexico CAP officials stated that they had not performed any specific border-related missions in recent years, but that they were interested in doing so and in the process of conducting outreach to potential federal, state, and local customers to offer their services in this area.\nFor example, as shown in figure 3, the Arizona CAP wing As part of efforts to ensure resilience to disasters, officials from 7 of the 10 CAP wings stated they had engaged in disaster assistance operations for a variety of federal, state, and local customers. CAP wings provided imaging technology for post storm damage assessments for the National Oceanic and Atmospheric Administration, FEMA, and state and local emergency management officials. Two of the 7 CAP wings that indicated involvement in disaster assistance also stated that they had engaged in reconnaissance for wildfires in response to requests from both federal and state officials.\nOfficials from all 10 of the wings we contacted also told us they have provided support to local governments (i.e., counties and municipalities), including search and rescue missions. While search and rescue does not strictly fit within the QHSR homeland security mission areas, DHS has noted that search and rescue activities are often intertwined with and mutually supporting of homeland security activities.",
"There are several factors that may affect CAP’s ability to support existing and emerging homeland security missions, including legal parameters, mission funding and reimbursement, existing capabilities, and capacity. While some of these factors were cited by the DHS components we contacted as issues that could affect CAP’s suitability for additional homeland security missions, neither DHS nor the components have assessed how CAP could be used to perform certain homeland security missions.",
"",
"As a volunteer auxiliary of the Air Force, CAP is subject to laws and regulations governing the use of the military in support of law enforcement and is thus limited in the types of support it can provide. Specifically, the Posse Comitatus Act prohibits the Air Force and Army from playing an active and direct role in civilian law enforcement except where authorized by the Constitution or an act of Congress. However, federal law authorizes the military—and by extension, CAP—to provide limited support to federal, state, and local law enforcement agencies. For example, Department of Defense and CAP personnel made available to a civilian law enforcement agency may conduct aerial reconnaissance, and detect, monitor, and communicate on the movement of certain air, sea, and surface traffic.\nIn providing support to civilian law enforcement agencies, CAP is precluded from participating in the interdiction of vehicles, vessels, or aircraft, or in search, seizure, arrest, apprehension, surveillance, pursuit, or similar activity. and law enforcement officers in direct support of an ongoing mission, or when hostilities are imminent. CBP officials told us that because of these restrictions, CAP is unable to provide the type of support that is necessary for some law enforcement activities. In addition, officials from the Coast Guard noted concerns with CAP’s access to classified information that may further limit the range of missions CAP can support. According to Air Force officials, the approval process for law enforcement support activities involving the monitoring of air, sea, or surface traffic is lengthy, requiring consent from the Office of the Secretary of Defense.standing agreements with law enforcement agencies could help enable CAP to support such requests on shorter notice.\nU.S. Air Force, Air Force Instruction 10-2701, Organization and Function of the Civil Air Patrol (Jul. 2005, Incorporating Change 1, September 2006).",
"CAP’s ability to provide support is often contingent on its customers’ ability and willingness to pay CAP for its services—making the availability of mission funding a key consideration in determining whether CAP can support additional homeland security missions. Per Air Force guidance, CAP ordinarily conducts missions on a cost-reimbursable basis. Typically, any federal agency requesting CAP assistance through the Air Force must certify that its request complies with the Economy Act, which requires that requesting agencies have available the monies necessary to cover the expense of the service being requested, among other things. CAP’s reimbursement rate as of October 2012 was $160 per flying hour, covering fuel and maintenance. According to CAP and Air Force officials, formal agreements between CAP and requesting organizations—such as those that exist between some CAP wings and state-level entities—can expedite the approval process by identifying funding mechanisms prior to CAP support.\nWhile CAP typically requires reimbursement for its support activities, some of CAP’s missions are financed through federally appropriated funds. Some of these missions were identified by officials from CAP or DHS components as areas in which CAP could provide further support. For example, CAP has received since 2004 in its annual operations and maintenance budget an allotment for counterdrug activities, and therefore conducts many of its counterdrug missions at no expense to the customer. Additionally, the Air Force funds through the CAP appropriation a range of activities deemed to be of interest to the Air Force, including inland search and rescue. According to CAP officials, CAP’s current funding levels are sufficient to support these activities. However, an increase in such unreimbursed activities could affect CAP’s ability to respond to other missions supported by appropriated funds. For example, CAP officials told us that, because of the counterdrug nexus, border reconnaissance missions in support of CBP are also typically funded by the CAP operations budget instead of reimbursed by the customer. Consequently, an increase in such unreimbursed border reconnaissance missions—which relate to the homeland security area of securing and managing our borders—could diminish CAP’s ability to support other unreimbursed activities, such as counterdrug activities for the Drug Enforcement Administration and others.\nAccording to CAP and DHS officials, CAP’s existing operational capabilities—aircraft and vehicles, personnel, and technology—have been sufficient to support certain homeland security missions, yet they may not be suitable for other types of missions. Recognizing this, officials from CAP headquarters told us that if DHS identified additional homeland security missions for CAP, it might be necessary to pursue additional resources or technologies.\nAccording to CAP officials, the number and locations of CAP’s assets— which include 550 aircraft and 960 vehicles across 52 wings—could be conducive to conducting additional homeland security missions, which can originate at the local, state, and federal levels. CAP’s aircraft, primarily consisting of Cessna 172s and 182s, are capable of performing aerial reconnaissance and damage assessment, search and rescue missions, and air intercept exercises. FEMA officials told us that because CAP’s assets are geographically dispersed across the country, it has proven to be a flexible and timely resource to capture imagery in the first hours or days of an event. As an example, FEMA officials cited CAP’s support of the agency’s operations in response to Hurricane Isaac in 2012, specifically stating that CAP’s imagery helped to establish situational awareness. CAP’s vehicles are capable of light transport of personnel and equipment, mobile communications, and ground damage assessment. Many vehicles are also equipped with radios that are able to communicate with CAP aircraft, which could enable a coordinated approach to air and land missions. CAP and Air Force officials stated that they would be open to repositioning aircraft and vehicles in order to meet demands associated with an increased homeland security workload and the needs of their customers.\nCAP’s standardized fleet does have functional limitations. For example, CAP’s single-engine aircraft have limited transport capacity. Additionally, CAP guidance prohibits sustained flight at an altitude of less than 1,000 feet during the day or 2,000 feet at night. This limitation was also cited by Coast Guard officials, who specifically stated that during the Deepwater Horizon incident, CAP was unable to fly certain oil tracking missions because of altitude restrictions. A Coast Guard official further noted that the range of CAP’s aircraft was limited over water—with aircraft being required to stay within gliding distance of shore. CAP officials told us, however, that CAP aircraft are able to operate up to 50 nautical miles from shore under normal conditions, and that this range can be extended for special missions.\nCAP officials stated that, since CAP is a volunteer organization, its membership—consisting of 61,000 volunteers, including approximately 35,000 senior members and 11,000 crew members—constitutes its most critical asset. According to CAP officials, CAP has standards and qualifications for its member pilots and maintains online systems that train, test, and track all aspects of crew qualifications. For example, CAP’s mission pilots must possess a private pilot’s license with 200 flight hours, and are required to complete training courses specific to search and rescue and disaster response. Those performing specialized missions are also subject to more stringent requirements. For example, counterdrug mission pilots must (1) be qualified for emergency services flights; (2) be current in a skill that has application to the counterdrug program; (3) complete a national counterdrug orientation course and, biennially, a refresher course; and (4) maintain a minimum of 20 hours of participation in the program yearly. Many of CAP’s members have also completed training in the National Incident Management System in order to allow CAP personnel to integrate operationally with local, state, and federal incident command structures. Officials from some of the customer organizations we spoke with cited the professionalism of CAP’s personnel as a factor contributing to their success during past operations. For example, the Coast Guard Director of Air Operations during the Deepwater Horizon oil spill told us that CAP personnel conducting high profile shoreline and oil boom patrols were well-organized.\nHowever, limitations in the quantity and expertise of mission pilots exist that may hinder CAP’s ability to support some activities. For example, CAP’s membership includes 3,000 mission pilots, representing approximately 5 percent of total membership. Although CAP has in the past demonstrated its ability to temporarily transfer pilots to support surge missions—such as during the Deepwater Horizon incident—it could face challenges in increasing its support to sustained, long-term homeland security missions, particularly if those missions were to occur in areas with few mission pilots. Officials from CAP headquarters pointed towards their past successes in supporting surge missions, but they also recognized that there could be challenges associated with frequently moving pilots to meet mission demands since the pilots are volunteers. Coast Guard officials we spoke with questioned whether CAP, because of its volunteer status, would consistently have pilots available to respond when needed and raised concerns that CAP pilots have limited expertise in maritime situations and do not have water survival training—both of which could be important requirements for many Coast Guard missions. According to CAP officials, however, 521 CAP crew members have completed water survival training consisting of classroom instruction and a swim test.\nCAP’s current technological capabilities in terms of imagery and communications may both enable and limit its ability to support additional homeland security operations. CAP currently has a variety of imagery and communications technologies that can be used during some homeland security operations to provide ground and airborne communications relay and to capture geographically identifiable still-frame aerial imagery, and, in some cases, full-motion video. CAP’s nationwide communications capability includes high frequency and very high frequency AM and FM fixed, mobile, and repeater systems capable of providing connectivity during local, regional, and national events. CAP officials told us that these capabilities have in the past proved essential in maintaining communications during geographically dispersed operations. Table 2 depicts CAP’s imagery platforms.\nAccording to officials at the DHS components with whom we spoke, CAP’s existing technologies are sufficient to support some of the homeland security activities we have previously discussed, such as disaster assessment. Additionally, officials from CBP told us that CAP technologies could help further with detection and monitoring along the borders, providing radio relay in remote areas, and gaining situational awareness in areas not currently supported by other air platforms. However, officials from CBP and the Coast Guard also commented on CAP’s limitations in the border and marine environments, citing inadequate imagery capabilities, incompatible communications, and insufficient detection technology. Specifically, officials from CBP commented that CAP is incapable of providing a live video feed to its customers, capturing nighttime imagery, providing a video downlink of reconnaissance events, and transmitting information securely. These same officials emphasized that other technologies not possessed by CAP nationwide, including radar, forward-looking infrared cameras, and change detection capabilities, are critical in the border environment.Coast Guard officials cited CAP’s inability to relay imagery in near-real time and stated that its systems are not compatible with the Coast Guard’s imagery or communications systems. As a result, the Coast Guard has not coordinated with CAP regarding the expansion of CAP’s role. Air Force and CAP officials recognized that CAP’s current technology may not be suitable for certain missions and told us that if new capabilities are needed to support additional homeland security missions, requirements would be needed from DHS. CAP officials also noted that 1st Air Force has developed a requirement to modify or purchase 20 aircraft with capabilities including near-real time communications; video and imagery transfer that is interoperable with federal, state, and local responders; and sensors useful for locating distressed persons day or night.\nCAP’s daily operational tempo is the percentage of total possible missions being flown based on the number of available aircraft and pilot availability. CAP’s goal is to have five mission pilots per each available aircraft. CAP has not determined what level constitutes its maximum operating capacity. enabled cell phones and locator beacons—to receive other assistance. This shift has freed up additional time for CAP to conduct other missions.\nOfficials we spoke with from the Coast Guard expressed some concern over relying on a volunteer organization like CAP because it does not have the same readiness posture and response standards as the Coast Guard. However, our discussions with these officials and the CAP wings identified no instances in which CAP was unable to respond to a request, or in which CAP was delayed in responding to a request because of a shortage of pilots or other personnel. According to CAP officials, CAP has also demonstrated an ability to surge in support of other agencies and to perform continuous operations for a sustained period of time. For example, CAP provided continuous support over 118 days during the Deepwater Horizon incident. A Coast Guard official involved in this operation corroborated CAP’s account of this operation, speaking highly of its organization and ability to conduct missions. Also, while the Drug Enforcement Administration is not a DHS component, officials from this agency told us that they rely on CAP aerial communications and imagery for approximately 2,500 counterdrug sorties per year and that they have received positive feedback regarding CAP’s ability to conduct these operations from their field agents. CAP officials stated that large operations such as Deepwater Horizon do not necessarily affect CAP’s ability to provide support in other areas throughout the year, but do significantly reduce their operations and maintenance funds because reimbursement does not cover these expenses. Further, while many of CAP’s missions are preplanned, CAP and Air Force officials stated that wings are tested biennially in a no-notice exercise, such as the Department of Defense’s Ardent Sentry, to ensure that personnel can assemble and deploy quickly to no-notice events.",
"DHS has not assessed CAP’s capabilities and resources or determined the extent to which CAP could be used to support future homeland security activities. The DHS concept of homeland security, as articulated in the QHSR, is that of a national enterprise, requiring the collective efforts and shared responsibilities of federal, state, local, nongovernmental, and private sector partners, among others. As we have reported in the past, ensuring that capabilities are available for such efforts requires effective planning and coordination in which capabilities are realistically tested in order to identify and subsequently address problems in partnership with relevant stakeholders. Additionally, we have also reported that achieving results for the nation increasingly requires collaboration among many different entities, and that because of the nation’s long-range fiscal challenges, the federal government must identify ways to deliver results more efficiently and in a way that is consistent with its multiple demands and limited resources. However, according to an official in the DHS Office of Policy, DHS has not conducted a review to determine how CAP might be used by DHS or its components, and DHS does not have a position on the use of CAP for homeland security operations. Additionally, of the three DHS components we contacted, only FEMA had taken steps to consider CAP’s suitability for future homeland security activities and incorporate CAP in its operational planning. Specifically, FEMA officials told us that they are working with the DHS Science and Technology Directorate to develop requirements for CAP imagery and that they have included CAP in several of their disaster planning annexes. According to these officials, simple technological upgrades could improve FEMA’s ability to integrate CAP’s imagery into its operations. The other two components we contacted—CBP and the Coast Guard—had not assessed CAP’s ability to support their operations, but expressed reservations about using CAP for certain activities, as previously discussed.\nOfficials we spoke with from CAP and the Air Force expressed support for FEMA’s efforts to develop imagery requirements for CAP. CAP officials told us that they were optimistic that this effort would provide insight into how CAP could better support its DHS customers. Similarly, Air Force officials stated that, in order to determine whether CAP could support additional DHS missions, DHS would first need to provide them with requirements for missions and also obtain a good understanding of CAP’s limitations—particularly in the area of support to law enforcement. To that end, CAP and Air Force officials told us that they have performed outreach to DHS, CBP, and FEMA in an effort to inform these potential partners of their capabilities and establish formal agreements that would define CAP’s role in providing support to such entities. By establishing such relationships and assessing the ability of CAP to provide additional homeland security capabilities, DHS, in coordination with the Air Force, could position itself to better understand, and potentially utilize, another resource to accomplish its homeland security missions.",
"DHS faces the difficult challenge of securing our homeland through a wide range of missions from preventing terrorism, to securing our large borders and shorelines, and planning for and responding to natural and man-made disasters. Recognizing this challenge, DHS has emphasized the importance of partnering with other federal, state, local, and private entities to achieve its homeland security missions. Moreover, recent fiscal constraints may compel federal agencies, such as DHS, to partner with other organizations in order to accomplish their missions and achieve their goals. CAP is one such potential partner, having performed various missions since its inception in support of homeland security missions and components. Several factors affect CAP’s ability to conduct these and additional homeland security missions, including legal parameters, mission funding and reimbursement, existing capabilities, and capacity. At the same time, while some concerns exist among DHS components about partnering with CAP, a cost-effective assessment of CAP’s capabilities and resources, in coordination with the Air Force, could help DHS to better identify whether CAP can assist with its future homeland security missions.",
"To determine the extent to which CAP might be able to further assist DHS and its components in conducting homeland security missions, we recommend that the Secretary of Homeland Security, in coordination with the Secretary of the Air Force, cost-effectively assess how CAP could be used to accomplish certain homeland security missions based on the factors described in this report, including legal parameters, mission funding and reimbursement, capabilities, and operating capacity.",
"We provided a draft of this report to DHS, CAP, and the Department of Defense for review and comment. DHS concurred with our recommendation, citing some challenges and constraints to the expanded use of CAP for DHS missions as well as describing its plan to address our recommendation. Specifically, DHS stated that its Office of the Chief Financial Officer (Program Analysis and Evaluation Division), along with components such as the Coast Guard will consider how DHS can make efficient and effective use of CAP and other aviation capabilities. In implementing our recommendation, it will be important for DHS to consider all of the factors described in our report, including legal parameters, mission funding and reimbursement, capabilities, and operating capacity, as we recommended. This action would then address the intent of our recommendation. DHS’s comments are reprinted in their entirety in appendix I.\nCAP also concurred with our recommendation, noting that it is prepared to assist both DHS and the Air Force in assessing how it could be used to support certain homeland security missions. CAP’s comments are reprinted in their entirety in appendix II. The Department of Defense elected to not provide written comments, but did—along with DHS and CAP—provide technical comments that we incorporated into the report, as appropriate.\nWe are sending copies of this report to the Secretary of Homeland Security, the Secretary of Defense, CAP, appropriate congressional committees, and other interested parties. This report is also available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staffs have any questions about this report, please contact either Carol Cha at (202) 512-4456 or chac@gao.gov or Brian Lepore at (202) 512-4523 or leporeb@gao.gov. Contact points for our Office 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.",
"",
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"",
"In addition to the contacts named above, key contributors to this report were Chris Currie, Assistant Director; Kimberly Seay, Assistant Director; Chuck Bausell; Ryan D’Amore; Michele Fejfar; Mike Harmond; Tracey King; and Dan Klabunde."
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"question": [
"How is the CAP's flight time used?",
"To what extent are CAP mission areas considered to be homeland security?",
"How has the CAP helped other federal agencies?",
"How has the CAP helped the Air Force?",
"What does CAP do outside of participation in homeland security activities?",
"What factors affect CAP's ability to support homeland security missions?",
"What legal parameters affect the CAP?",
"How do CAP's current operational capabilities limit their suitability?",
"To what extent has DHS reviewed CAP's capabilities?",
"How could a review of CAP capabilities be beneficial?",
"How might the role of homeland security partnerships change in the near future?",
"What type of missions does CAP conduct?",
"What did this report examine?",
"How did GAO source their data for this report?"
],
"summary": [
"The Civil Air Patrol (CAP) has performed certain homeland security missions for federal, state, and local customers, but devotes the majority of its flying hours to training and youth programs.",
"Several of CAP's mission areas fit within the Department of Homeland Security's (DHS) definition of homeland security, as found in the Quadrennial Homeland Security Review Report (QHSR)--a strategic framework for homeland security.",
"For example, CAP has provided disaster imagery to FEMA, performed certain border reconnaissance for CBP, and assisted the Coast Guard in providing air support during the Deepwater Horizon oil spill. CAP has also performed homeland security-related activities for other customers, such as the U.S. Air Force.",
"For example, 9 of the 10 CAP wings GAO spoke with had participated in military readiness exercises where CAP aircraft provided mock targets for military interceptor aircraft or ground-based radar.",
"CAP's participation in homeland security activities accounted for approximately 9 percent of its fiscal year 2011 flying hours, but the majority of its flying hours (approximately 63 percent) were devoted to training and flying orientation, with the remaining devoted to other activities such as counterdrug and maintenance.",
"These factors--including legal parameters, mission funding, existing capabilities, and capacity--were issues cited by the DHS components and Air Force and CAP officials GAO contacted that could affect CAP's suitability for additional homeland security missions.",
"For example, as an Air Force auxiliary, CAP is subject to laws and regulations governing the use of the military in support of law enforcement, which, among other things, allow CAP to conduct aerial surveillance in certain situations, but preclude its participation in the interdiction of vehicles, vessels, or aircraft.",
"Similarly, while CAP's existing operational capabilities--aircraft and vehicles, personnel, and technology--position it well to support certain homeland security missions, they also limit its suitability for others. For example, FEMA officials cited the role of CAP imagery in providing useful situational awareness during the initial stages of some past natural disasters, while, in contrast, officials from CBP and the Coast Guard noted limitations such as inadequate imagery capabilities and insufficient detection technology.",
"Although the components we contacted provided varying opinions regarding CAP's suitability for certain homeland security activities, DHS has not assessed CAP's capabilities and resources or determined the extent to which CAP could be used to support future homeland security activities.",
"By assessing the ability of CAP to provide additional homeland security capabilities in a budget-constrained environment, DHS in coordination with the Air Force could position itself to better understand, and potentially utilize, another resource to accomplish its homeland security missions.",
"Homeland security partnerships may grow increasingly important as fiscal constraints provide impetus for federal agencies to look to partners for mission support.",
"CAP conducts missions throughout the United States, including counterdrug, disaster relief, and search and rescue, using mostly single-engine aircraft.",
"In response to the mandate, this report addresses (1) the extent to which CAP has been used to perform homeland security missions to date at the local, state, and federal levels, and (2) the factors that should be considered in determining CAP's ability to support additional homeland security missions and the extent to which DHS has assessed CAP's capabilities and resources to accomplish such missions.",
"GAO reviewed laws and guidance; analyzed fiscal year 2011 CAP flight data; and interviewed officials from DHS, the Air Force, CAP, and a nongeneralizable sample of 10 of 52 state-level CAP wings."
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GAO_GAO-13-602T
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{
"title": [
"DHS Continually Reviews Potential Overstay Records, but Unmatched Arrival Records Remain",
"DHS Reviewed a Backlog of 1.6 Million Potential Overstay Records",
"DHS Has More than 1 Million Unmatched Arrival Records",
"DHS Has Actions Completed and Under Way to Improve Data, but the Effect of These Changes Is Not Yet Known",
"DHS Has Begun Collecting Additional Data and Improved Sharing of Data among Its Databases to Help Identify Potential Overstays",
"DHS Continues to Face Challenges in Reporting Reliable Overstay Rates, and Recent Changes Have Not Yet Been Fully Implemented",
"DHS Faces Challenges Planning for a Biometric Exit System at Air and Sea Ports of Entry",
"GAO Contact and Staff Acknowledgments"
],
"paragraphs": [
"",
"DHS has taken action to address a backlog of potential overstay records we previously identified in April 2011. Specifically, in April 2011, we reported that, as of January 2011, ADIS contained a backlog of 1.6 million potential overstay records, which included prior nonpriority overstay leads that had not been reviewed, nonpriority leads that continued to accrue on a daily basis, and leads generated in error as a result of CBP system changes. DHS uses ADIS to match departure records to arrival records and subsequently close records for individuals with matching arrival and departure records because either (1) the individual departed prior to the end of his or her authorized period of admission and is therefore not an overstay or (2) the individual departed after the end of his or her authorized period of admission and is therefore an out-of-country overstay. Unmatched arrival records—those records in ADIS that do not have corresponding departure records—remain open and indicate that those individuals are potential in-country overstays.\nTo determine whether an unmatched arrival record is likely to be an in-country overstay, DHS agencies review multiple databases to determine if any information is available to document a departure or a change in immigration status. For example, the review process includes both automated searches, such as searching for immigration benefit application information through a U.S. Citizenship and Immigration Services database, and manual searches, such as determining whether the individual applied for refugee or asylum status. provided them to CTCEU for further review and consideration for enforcement action. Table 1 describes how CTCEU resolved these leads.\nSince completing this review of the backlog of potential overstay records in the summer of 2011, DHS has continued to review all potential overstay records through national security and law enforcement databases to identify potential threats, regardless of whether the subjects of the records meet ICE’s priorities for enforcement action. This occurs on an ongoing basis such that DHS may identify threats among individuals who were not previously identified as such when new information becomes available in various national security and law enforcement databases.",
"As of April 2013, DHS continues to maintain more than 1 million unmatched arrival records in ADIS (that is, arrival records for which ADIS does not have a record of departure or status change). Some of these individuals are overstays, while others have either departed or changed immigration status without an ADIS record of their departure or status change. For example, the individual may have departed via a land port of entry without providing a record of departure or the individual may have applied for immigration benefits using a different name. In addition, these records include those from the previous backlog of unmatched arrival records that were not prioritized for enforcement in the summer of 2011 and have not subsequently been matched against a departure or change of status record. As part of our ongoing work, we are analyzing these data to identify various trends among these unmatched arrival records. For example, our preliminary analysis shows that 44 percent of the unmatched arrival records are nonimmigrants traveling to the United States on a tourist visa, while 43 percent are also tourists but were admitted under the Visa Waiver Program. Figure 1 presents our preliminary analysis of the breakdown of unmatched arrival records by admission class.\nWe also analyzed the records to assess the amount of time that has elapsed since travelers were expected to depart the country, based on travelers’ “admit until” date. CBP assigns certain nonimmigrants an “admit until” date, by which they must leave the country to avoid overstaying. Figure 2 presents our preliminary analysis of the breakdown of the amount of time elapsed, as of November 2012, since the “admit until” date. The average amount of time elapsed for all unmatched arrival records was 2.7 years.\nAs of April 2013, DHS has not analyzed its unmatched arrival records to identify whether there are any trends in these data that could inform the department’s overstay enforcement efforts. We will continue to evaluate these data as part of our ongoing work.",
"",
"Since April 2011, DHS has taken various actions to improve its data on potential overstays. In April 2011, we reported that DHS’s efforts to identify and report on overstays were hindered by unreliable data, and we identified various challenges to DHS’s efforts to identify potential overstays, including the incomplete collection of departure data from nonimmigrants at ports of entry, particularly land ports of entry, and the lack of mechanisms for assessing the quality of leads sent to ICE field offices for investigations. Since that time, DHS has taken action to strengthen its processes for reviewing records to identify potential overstays, including (1) streamlining connections among DHS databases used to identify potential overstays and (2) collecting information from the Canadian government about those exiting the United States and entering Canada through northern land ports of entry.\nFirst, DHS has taken steps to enhance connections among its component agencies’ databases used to identify potential overstays and reduce the need for manual exchanges of data. For example: In August 2012, DHS enhanced data sharing between ADIS and IDENT. This improved connection provides additional data to ADIS to improve the matching process based on fingerprint identification. For example, when an individual provides fingerprints as part of an application for immigration benefits from U.S. Citizenship and Immigration Services or a visa from the State Department, or when apprehended by law enforcement, IDENT now sends identity information, including a fingerprint identification number, for that individual to ADIS. This additional source of data is intended to help allow ADIS to more effectively match the individual’s entry record with a change of status, thereby closing out more unmatched arrival records.\nBeginning in April 2013, ICE’s Student and Exchange Visitor Information System (SEVIS) began automatically sending data to ADIS on a daily basis, allowing ADIS to review SEVIS records against departure records and determine whether student visa holders who have ended their course of study departed in accordance with the terms of their stay. Prior to this date, DHS manually transferred data from SEVIS to ADIS on a weekly basis. According to DHS officials, these exchanges were unreliable because they did not consistently include all SEVIS data—particularly data on “no show” students who failed to begin their approved course of study within 30 days of being admitted into the United States.\nAlso in April 2013, DHS automated the exchange of potential overstay records between ADIS and CBP’s Automated Targeting System (ATS), which is intended to allow DHS to more efficiently (1) transfer data between the systems for the purpose of identifying national security and public safety concerns, and (2) use matching algorithms in ATS that differ from those in ADIS to close additional records for individuals who departed.\nThese changes have resulted in efficiencies in reviewing records for determining possible overstay leads; however, they do not address some of the underlying data quality issues we previously identified, such as incomplete data on departures through land ports of entry. Furthermore, because many of these changes were implemented in April 2013, it is too early to assess their effect on the quality of DHS’s overstay data.\nSecond, DHS is implementing the Beyond the Border initiative to collect additional data to strengthen the identification of potential overstays. In October 2012, DHS and the Canada Border Services Agency began exchanging entry data on travelers crossing the border at selected land ports of entry. Because an entry into Canada constitutes a departure from the United States, DHS will be able to use Canadian entry data as proxies for U.S. departure records. We have previously reported that DHS faces challenges in its ability to identify overstays because of unreliable collection of departure data at land ports of entry. This effort would help address that challenge by providing a new source of data on travelers departing the United States at land ports on the northern border. In the pilot phase, DHS exchanged data with the Canada Border Services Agency on third-country nationals at four of the five largest ports of entry on the northern border. These data covered entries from September 30, 2012, through January 15, 2013. DHS plans to expand this effort to collect data from additional ports of entry and to share data on additional types of travelers. According to DHS officials, after June 30, 2013, DHS plans to exchange data for third-country nationals at all automated ports of entry along the northern border. At that time, DHS also plans to begin using these data for operational purposes (e.g., taking enforcement action against overstays, such as revoking visas or imposing bars on readmission to the country based on the length of time they remained in the country unlawfully). After June 30, 2014, DHS plans to exchange data on all travelers, including U.S. and Canadian citizens, at all automated ports of entry along the northern border.",
"DHS has not reported overstay rates because of concerns about the reliability of its data on overstays. According to federal law, DHS is to submit an annual report to Congress providing numerical estimates of the number of aliens from each country in each nonimmigrant classification who overstayed an authorized period of admission that expired during the fiscal year prior to the year for which the report is made. Since 1994, DHS or its predecessors have not reported annual overstay rates regularly because of its concerns about the reliability of the department’s overstay data. In September 2008, we reported on limitations in overstay data, such as missing data for land departures, that affect the reliability of overstay rates. In April 2011, we reported that DHS officials stated that the department had not reported overstay rates because it had not had sufficient confidence in the quality of its overstay data. DHS officials stated at the time that, as a result, the department could not reliably report overstay estimates in accordance with the statute. Although the new departure data DHS is collecting as part of the Beyond the Border initiative may allow DHS to close out more potential overstay records in the future, these data are limited to land departure at northern border ports of entry, and as the initiative has not yet been fully implemented, it is too early to assess its effect on helping strengthen the reliability of DHS’s overstay data for reporting purposes. In February 2013, the Secretary of Homeland Security testified that DHS plans to report overstay rates by December 2013. As of April 2013, DHS was working to determine how it plans to calculate and report these overstay rates. As part of our ongoing review, we are assessing how the changes DHS has made to its processes for matching records to identify potential overstays may affect the reliability of overstay data and DHS’s ability to report reliable overstay rates.",
"Developing a biometric exit capability has been a long-standing challenge for DHS. Beginning in 1996, federal law has required the implementation of an integrated entry and exit data system for foreign nationals. The Intelligence Reform and Terrorism Prevention Act of 2004 required the Secretary of Homeland Security to develop a plan to accelerate full implementation of an automated biometric entry and exit data system that matches available information provided by foreign nationals upon their arrival in and departure from the United States. Since 2004, we have issued a number of reports on DHS’s efforts to implement a biometric entry and exit system. For example, in November 2009, we reported that DHS had not adopted an integrated approach to scheduling, executing, and tracking the work that needed to be accomplished to deliver a comprehensive exit solution. We concluded that without a master schedule that was integrated and derived in accordance with relevant guidance, DHS could not reliably commit to when and how it would deliver a comprehensive exit solution or adequately monitor and manage its progress toward this end. We have made recommendations to address these issues, including that DHS ensure that an integrated master schedule be developed and maintained. DHS has generally concurred with our recommendations and has reported taking action to address them. For example, in March 2012, DHS reported that the US-VISIT office was adopting procedures to comply with the nine scheduling practices we recommended in our November 2009 report and has conducted training on our scheduling methodology.\nDHS has not yet implemented a biometric exit capability, but has planning efforts under way to assess options for such a capability at airports and seaports. In 2009, DHS conducted pilots for biometric exit capabilities in airport scenarios, as called for in the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009. In August 2010, we reported on the results of our review of DHS’s evaluation of these pilot programs. Specifically, we reported that there were limitations with the pilot programs—for example, the pilot programs did not operationally test about 30 percent of the air exit requirements identified in the evaluation plan for the pilot programs—which hindered DHS’s ability to inform decision making for a long-term air exit solution and pointed to the need for additional sources of information on air exit’s operational impacts. According to DHS officials, the department’s approach to planning for biometric air exit has been partly in response to our recommendation that DHS identify additional sources for the operational impacts of air exit not addressed in the pilot programs’ evaluation and to incorporate these sources into its air exit decision making and planning. As of April 2013, the department’s planning efforts are focused on developing a biometric exit system for airports, with the potential for a similar solution to be rolled out at seaports, according to DHS officials. However, in October 2010, DHS identified three primary reasons why it has been unable to determine how and when to implement a biometric air exit solution: (1) the methods of collecting biometric data could disrupt the flow of travelers through air terminals; (2) air carriers and airport authorities had not allowed DHS to examine mechanisms through which DHS could incorporate biometric data collection into passenger processing at the departure gate; and (3) challenges existed in capturing biometric data at the point of departure, including determining what personnel should be responsible for the capture of biometric information at airports.\nAccording to DHS officials, these challenges have affected the department’s planning efforts. In 2011, DHS directed its Science and Technology Directorate (S&T), in coordination with other DHS component agencies, to research “long-term options” for biometric exit. In May 2012, DHS reported internally on the results of S&T’s analysis of previous air exit pilot programs and assessment of available technologies, and the report made recommendations to support the planning and development of a biometric air exit capability. In that report, DHS concluded that the building blocks to implement an effective biometric air exit system were available. However, DHS reported that significant questions remained regarding (1) the effectiveness of current biographic air exit processes and the error rates in collecting or matching data, (2) methods of cost- effectively integrating biometrics into the air departure processes (e.g., matching arrival and departure records based on biometric information like fingerprints rather than based on biographic information, such as names and dates of birth), (3) the additional value biometric air exit would provide compared with the current biographic air exit process, and (4) the overall value and cost of a biometric air exit capability. The report included nine recommendations to help inform DHS’s planning for biometric air exit, such as directing DHS to develop explicit goals and objectives for biometric air exit and an evaluation framework that would, among other things, assess the value of collecting biometric data in addition to biographic data and determine whether biometric air exit is economically justified.\nDHS reported that, by May 2014, it planned to take steps to address the recommendations in its report; however, according to DHS Office of Policy and S&T officials, the department has not yet completed actions in response to these recommendations, although DHS officials reported that DHS has plans to do so to help support development of a biometric air exit concept of operations. For example, DHS’s report recommended that DHS develop explicit goals and objectives for biometric air exit and use scenario-based testing rather than operational pilot programs to inform the concept of operations for biometric air exit. As of April 2013, DHS officials stated that they expect to finalize goals and objectives in the near future and are making plans for future scenario-based testing. In addition, DHS’s report stated that new traveler facilitation tools and technologies— for example, online check-in, self-service, and paperless technology— could support more cost-effective ways to screen travelers, and that these improvements should be leveraged when developing plans for biometric air exit. However, DHS officials stated that there may be challenges to leveraging new technologies to the extent that U.S. airports and airlines rely on older, proprietary systems that may be difficult to update to incorporate new technologies. Furthermore, DHS officials stated they face challenges in coordinating with airlines and airports, which have expressed significant reluctance about biometric exit because of concerns over its effect on operations and potential costs. To address these concerns, DHS is conducting outreach and soliciting information from airlines and airports regarding their operations.\nDHS officials stated that the goal of its current efforts is to develop information about options for biometric exit and to report to Congress in time for the fiscal year 2016 budget cycle regarding (1) the additional benefits that biometric exit provides beyond enhanced biographic exit and (2) costs associated with biometric exit. As part of our ongoing work, we are assessing DHS’s progress in meeting its goals for addressing the recommendations in its biometric exit report by May 2014. We plan to report on the results of our analysis in July 2013.\nChairman Miller, Ranking Member Jackson Lee, and members of the subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time.",
"For information about this statement please contact Rebecca Gambler at (202) 512-8777 or gamblerr@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 included Kathryn Bernet, Assistant Director; Susan Baker; Frances A. Cook; Alana Finley; Lara Miklozek; Amanda Miller; and Ashley D. Vaughan."
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"question": [
"How has the DHS addressed the issues raised in GAO's report on overstays?",
"How large is the backlog of overstay records?",
"How does DHS process arrival and departure records?",
"According to GAO, how do most \"overstays\" enter the United States?",
"How have the DHS's changes affected overstays?",
"How has the DHS changed their overstay databases?",
"Why are the effects of these changes unknown?",
"How does the quality of data affect reported overstay rates?",
"What plans does DHS have to report overstay rates?",
"How easy will the implementation of biometric exit systems be for DHS?",
"Why is DHS implementing an exit data system?",
"What type of exit systems is the DHS focusing on?",
"Why hasn't the DHS been able to properly assess potential exit systems?",
"What are overstays?",
"What federal agency monitors overstays?",
"What federal agency inspects applicants for entry to the United States?",
"What did GAO report on?",
"How did the DHS react to GAO's recommendations?",
"What does this testimony discuss?",
"What is this testimony based on?",
"How did GAO source its data for their review?"
],
"summary": [
"Since GAO reported on overstays in April 2011, the Department of Homeland Security (DHS) has taken action to address a backlog of potential overstay records by reviewing such records to identify national security and public safety threats, but unmatched arrival records remain in DHS's system.",
"In April 2011, GAO reported that, as of January 2011, DHS's Arrival and Departure Information System (ADIS) contained a backlog of 1.6 million potential overstay records.",
"DHS uses ADIS to match departure records to arrival records and subsequently close records for individuals with matching arrival and departure records. Unmatched arrival records--those that do not have corresponding departure records--remain open and indicate that the individual is a potential overstay.",
"GAO's preliminary analysis identified nonimmigrants traveling to the United States on a tourist visa constitute 44 percent of unmatched arrival records, while tourists admitted under a visa waiver constitute 43 percent. The remaining records include various types of other nonimmigrants, such as those traveling on temporary worker visas.",
"DHS has actions completed and under way to improve data on potential overstays and report overstay rates, but the impact of these changes is not yet known.",
"DHS has streamlined connections among databases used to identify potential overstays, among other things.",
"Further, because many of these changes were implemented in April 2013, it is too early to assess their effect on the quality of DHS's overstay data.",
"In April 2011, GAO reported that DHS officials said that they have not reported overstay rates because DHS has not had sufficient confidence in the quality of its overstay data and that, as a result, DHS could not reliably report overstay rates.",
"In February 2013, the Secretary of Homeland Security testified that DHS plans to report overstay rates by December 2013.",
"DHS faces challenges planning for a biometric exit system at air and sea ports of entry.",
"Beginning in 1996, federal law has required the implementation of an integrated entry and exit data system for foreign nationals.",
"As of April 2013, DHS's planning efforts are focused on developing a biometric exit system for airports, with the potential for a similar solution at sea ports.",
"However, in October 2010, DHS identified key challenges as to why it has been unable to determine how and when to implement a biometric air exit capability, including challenges in determining what personnel should be responsible for the capture of biometric information.",
"Overstays are individuals who were admitted into the country legally on a temporary basis but then overstayed their authorized periods of admission.",
"DHS has primary responsibility for identifying and taking enforcement action to address overstays.",
"Within DHS, U.S. Customs and Border Protection is tasked with inspecting all people applying for entry to the United States.",
"In April 2011, GAO reported on DHS's actions to identify and address overstays and made recommendations to strengthen these processes.",
"DHS concurred and has taken or is taking steps to address them. Since April 2011, DHS has reported taking further actions to strengthen its processes for addressing overstays.",
"This testimony discusses GAO's preliminary observations on DHS's efforts since April 2011 to (1) review potential overstay records for national security and public safety concerns, (2) improve data on potential overstays and report overstay rates, and (3) plan for a biometric exit system.",
"This statement is based on preliminary analyses from GAO's ongoing review of overstay enforcement for this subcommittee and other congressional requesters.",
"GAO analyzed DHS documents and data related to overstays and interviewed relevant DHS officials. GAO expects to issue a final report on this work in July 2013. DHS provided technical comments, which were incorporated as appropriate."
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GAO_GAO-14-633
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{
"title": [
"Background",
"IRS Tools to Combat Identity Theft Refund Fraud",
"During Tax Return Processing",
"After Issuing Refunds (Post-Refund)",
"Performance Management Information and Controls Help Agencies Assure Results and Best Use of Federal Resources",
"In Filing Season 2013, IRS Estimates Paying $5.2 Billion in Fraudulent IDT Refunds While Preventing $24.2 Billion; However, the Full Extent of IDT Refund Fraud Is Unknown",
"Stronger Pre-refund and Post-refund Strategies Can Help Combat IDT Refund Fraud",
"Earlier, Pre-refund W-2 Matching May Prevent Billions of Dollars in Estimated IDT Refund Fraud but Would Involve Costs",
"Treasury’s Proposal for Accelerated W-2 Deadlines is Intended to Benefit IRS and Taxpayers",
"Accelerated W-2 Deadlines Could Create Other Challenges that Would Need to be Addressed",
"The Costs and Benefits of Accelerated W-2 Deadlines and Pre-refund Matching Have Not Been Assessed Fully",
"Other Policy Changes May Be Needed to Implement Earlier, Pre-refund W-2 Matching",
"Weaknesses in Third- Party Partnership Programs Limit Post- Refund Fraud Detection",
"Conclusions",
"Matters for Congressional Consideration",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: IRS Identity Theft Taxonomy Limitations",
"Appendix II: Objectives, Scope, and Methodology",
"Appendix III: Comments from the Internal Revenue Service",
"Appendix IV: Comments from the Social Security Administration",
"Appendix V: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"IRS has reported a substantial increase in IDT refund fraud; however, it is unclear whether this reported increase is due to an overall increase in IDT refund fraud, to an improvement in IRS’s ability to detect IDT refund fraud, or to a combination of the two. For example, IRS instituted IDT filters in 2012, which helped IRS find additional IDT incidents, but it is not known how much of the reported increase can be attributed to filters or to an increase in IDT refund fraud.\nThere are two types of tax-related IDT fraud: (1) refund fraud and (2) employment fraud. IDT refund fraud occurs when a refund-seeking identity thief files a fraudulent tax return using the legitimate taxpayer’s identifying information. Employment fraud occurs when an identity thief uses a taxpayer’s name and Social Security number (SSN) to obtain a job. This report’s discussion focuses on IDT refund fraud and not employment fraud.\nIDT refund fraud takes advantage of the typical process of filing a tax return. Taxpayers receive information returns from third parties, such as the Form W-2, Wage and Tax Statement (W-2), and use this information to complete their tax returns. As shown in figure 1, taxpayers with wage income typically receive a Form W-2 from their employer by late January. Taxpayers copy the information from the W-2 to prepare their returns. Taxpayers filing paper returns are required to attach a copy of the W-2 to the return. Taxpayers filing electronically (e-file), as most do, are not required to send W-2s to the IRS. Most taxpayers entitled to a refund, along with many identity thieves attempting refund fraud, file early in the filing season—many in February. During return processing, IRS performs some compliance checks and issues refunds, but at this time it cannot verify the W-2 information for all returns (paper W-2s can be forged and fictitious wage information can be entered on a tax return). By the end of March, employers are also required to send a copy of the W-2 to SSA, which performs verification checks before sending the information to IRS. However, IRS only begins matching W-2 information from employers to tax returns in July. This gap between when IRS issues refunds and when IRS matches W-2s to tax returns creates the opportunity for fraudsters to file returns using a stolen identity and to receive a tax refund.\nIssuing refunds before fully verifying the information on tax returns is an example of what IRS officials refer to as a “look-back” compliance model: rather than holding refunds until all compliance checks can be completed, IRS issues refunds after doing some selected, automated reviews of the information the taxpayer submits to verify identity (e.g., name and SSN matching); filtering out returns with indicators of fraud such as a mismatched name and SSN; and correcting obvious errors, such as calculation mistakes and claims for credits and deductions exceeding statutory limits. IRS’s intent is to issue refunds quickly.\nAfter refunds are issued, IRS does further checks. Two of these checks enable IRS to detect significant amounts of IDT refund fraud after the fact. One, shown at the top of figure 2, is checking for duplicate returns. If an identity thief and a legitimate taxpayer file returns using the same name and SSN, IRS will have duplicate returns. The other is matching tax returns to third-party information provided to IRS by employers, financial institutions, and others (bottom of figure 2). Matching tax returns to W-2s is an example of these checks. As we have reported, these post-refund compliance checks can take a year or more to complete.",
"Recognizing the limitations of the look-back compliance model, IRS’s efforts to combat IDT refund fraud occur at three different stages of the refund process: (1) before accepting a tax return, (2) during tax return processing, and (3) after issuing tax refunds. At each stage of the process, IRS uses specific tools to detect IDT refund fraud (see figure 3 for examples of IRS tools at each stage).\nIdentity Protection Personal Identification Number (IP PIN). IP PINs are single-use identification numbers sent to IDT victims who have validated their identities with IRS. Tax returns with IP PINs pass through IRS’s IDT fraud filters, avoiding false positives—where a legitimate taxpayer is identified as an identity thief—and a delayed tax refund. Taxpayers who were issued an IP PIN but e-filed without using it or entered it incorrectly are prompted to enter the IP PIN on their tax return or to file on paper, according to IRS officials. Paper returns filed with the SSN of these taxpayers and without an IP PIN are subject to additional checks. (In January 2014, IRS offered a limited IP PIN pilot program to eligible taxpayers in Florida, Georgia, and the District of Columbia.)\nDuplicate return rejects. Once IRS receives an e-filed return for a given SSN, it automatically rejects subsequent returns filed using that SSN and sends a notice of duplicate filing, as shown at the top of figure 2.",
"IDT and other fraud filters. IDT filters screen returns, using characteristics that IRS has identified in previous IDT refund fraud schemes. characteristics, such as the same bank account or address, which could indicate potential fraud. If an IDT filter flags a return, IRS stops processing the return and sends a letter asking the taxpayer to validate his or her identity.\nThe filters also search for clusters of returns with similar IDT indicators. Indicators—account flags that are visible to all IRS personnel with account access—are a key tool IRS uses to resolve and detect IDT. IRS uses different indicators (e.g., to denote whether the incident was identified by the IRS or a taxpayer), depending on the circumstances in which IRS learns of an identity theft-related problem.",
"Third-party leads. IRS receives third-party leads regarding suspected IDT refund fraud and other types of refund fraud through efforts including the External Leads Program and the Opt-In Program. The External Leads Program involves third parties providing lead information to IRS. If a questionable refund is confirmed as fraudulent, IRS requests that the financial institution return the refund. The Opt-In Program allows financial institutions to electronically reject suspicious refunds and return them to IRS, indicating why the institution is rejecting the refunds.\nTwo of the tax-administration systems employing filters are the Dependent Database (DDb) and Electronic Fraud Detection System (EFDS). DDb incorporates IRS, Health & Human Services, and Social Security Administration data to identify compliance issues involving IDT, refundable credits, and prisoners. EFDS is a legacy system built in the mid- 1990s. To replace EFDS, IRS is developing the Return Review Program.\nIRS has income and/or payment information that does not match the information reported by the taxpayer on his return.",
"A key practice in results-oriented management of federal agencies is the establishment of agency-wide, long-term strategic goals. IRS’s strategic plan for fiscal years 2014-2017 identifies two strategic goals: (1) deliver high quality and timely service to reduce taxpayer burden and encourage voluntary compliance and (2) effectively enforce the law to ensure compliance with tax responsibilities and combat fraud. The strategic plan also outlines several objectives relevant to its efforts to combat identity theft, including strengthening refund fraud prevention by balancing the speed of refund delivery with the assurance of taxpayer identity, using analysis of third-party and historical taxpayer data, and educating taxpayers and tax professionals on fraud risk factors and fraud prevention methods; implementing enterprise-wide analytics and research capabilities to make timely, informed decisions; and implementing and maintaining a robust enterprise risk management program, which includes establishing routine reporting procedures to external stakeholders on operational risks.\nAs a complement to the potential benefits of strategic planning, internal control is a major part of managing an organization.comprises the plans, methods, and procedures used to meet missions, goals, and objectives: this supports performance-based management. Internal control helps agency program managers achieve desired results and provides reasonable assurance that program objectives are being achieved through—among other things—effective and efficient use of agency resources. Managers are to design internal controls based on related costs and benefits. In addition, internal control standards in the federal government call for agencies to record and communicate relevant, reliable, and timely information on internal and external events to agency managers and others who need it.",
"Based on IRS’s preliminary Identity Theft Taxonomy (Taxonomy), the agency estimated that $29.4 billion in IDT refund fraud was attempted in filing season 2013. IRS estimated it prevented or recovered about $24.2 billion (82 percent) of the estimated attempted refund fraud. However, IRS estimated it paid $5.2 billion (18 percent) in IDT refunds during the same timeframe (see figure 4). IRS officials noted that they are updating their analysis and anticipate revising the Taxonomy’s estimate of IDT refunds paid. The officials said the revised estimates could be somewhat higher (perhaps by $0.6 billion) but the analysis was not completed in time for us to include it in figure 4.\nIRS’s Taxonomy demonstrates a significant effort on the part of IRS and is an important first step in estimating how much identified IDT refund fraud IRS is stopping or failing to stop. IRS has made substantial progress in its efforts to estimate IDT refund fraud. For example, IRS developed an estimate of IDT refund fraud by identifying characteristics of fraudulent returns, matching and analyzing information returns and tax returns based on these characteristics, and researching other sources.\nHowever, the estimates will continue to evolve as IRS updates its methodology to better reflect new IDT refund fraud schemes and to improve the accuracy of its estimates, according to IRS officials.\nIRS’s Taxonomy is a valuable tool to help inventory, characterize, and analyze available IDT refund fraud data and to assess the performance of IRS’s IDT refund fraud defenses. For example, the Taxonomy may help IRS\nMonitor progress. Given the evolving, persistent nature of IDT refund fraud, IRS will constantly need to monitor and adapt its IDT defenses to protect against new and emerging schemes. The Taxonomy provides IRS with a methodology for monitoring IDT refund fraud and the progress of IRS defenses over time. However, IRS will continue to face challenges in evaluating its defenses. For example, it is difficult to differentiate whether an increase in returns detected by the IDT filters is due to improved filter performance or to an increase in the overall number of IDT refund fraud attempts. In addition, future methodology updates which reflect evolving schemes and improve accuracy could make comparisons between filing seasons difficult.\nIdentify schemes. The Taxonomy may help IRS develop a better understanding of taxpayer characteristics related to current, successful IDT refund fraud, including filing status, the size of the refund, filing method, and filing history. This could help IRS identify IDT refund fraud scheme trends and assist it in further developing and modifying its defenses.\nCommunicate the extent of the problem to stakeholders. While the Taxonomy has limitations, it may help improve IRS managers’ understanding of the problem, allowing them to better communicate with policymakers about schemes and resource needs. It may also improve the ability of Congress (and other decision makers) to oversee IRS’s efforts. In addition, the data collected could be of use to IRS partners, including tax preparers and financial institutions.\nAlthough IRS’s Taxonomy estimates are valuable in helping estimate IDT refund fraud, they are, by their nature, incomplete. This is in part because IRS’s estimate of IDT refunds paid (the $5.2 billion shown in figure 4) is based on duplicate returns, information return mismatches, and criminal investigations identified after the refunds are paid. However, for cases where there are no duplicate returns, information returns, or criminal investigations associated with a tax return, IRS has been unable to estimate the amount of IDT refund fraud (the unidentified IDT refund fraud shown in figure 4). Also, certain Taxonomy estimates are based on assumptions using the characteristics of past IDT refund fraud. While the assumptions are based on IRS’s research from known cases and appear reasonable, we could not verify the accuracy and comprehensiveness of these assumptions. This is because the accuracy of the Taxonomy estimates is largely based on whether the estimate includes all true IDT refund fraud returns and excludes all legitimate returns. IRS officials acknowledged their estimates for returns flagged during information return matching could include legitimate returns that are not actual IDT refund fraud. that we identified in the Taxonomy include the\nThe Taxonomy underestimates the number of IDT refund fraud returns and refund amounts for some IDT categories and overestimates others. The Taxonomy underestimates IDT refund fraud because, as previously discussed, IRS has been unable to estimate the amount of IDT refund fraud for cases where there are no criminal investigations, duplicate returns, or information returns—such as a W-2—associated with a tax return (the unidentified IDT refund fraud shown in figure 4). An example of an overestimated category is that of “refunds recovered,” which includes refunds returned to IRS as a result of external leads. However, IRS data on external leads do not distinguish whether the type of fraud was IDT refund fraud or some other type of fraud. Our analysis of the Taxonomy found that IRS did not adjust its estimate to account for other types of refund fraud.\nWhile IRS provided Taxonomy estimates for filing seasons 2012 and 2013, methodology changes make it difficult to compare these estimates over time. For example, the filing season 2013 estimate uses a different data source to estimate the number of IDT refunds paid and eventually detected after the filing season (when IRS matches tax returns to information return data, such as W-2s). In addition, it is unclear whether changes in the number of IDT refund fraud returns are due to overall changes in fraud patterns, such as an increase or decrease in fraud attempts; to improvements in IRS IDT defenses; or to identity thieves’ ability to file returns using schemes IRS has not yet learned to detect.",
"IRS has responded to the problem of IDT refund fraud with new ways to combat fraud. However, according to IRS officials, identity thieves are “adaptive adversaries” who are constantly learning and changing their tactics as IRS develops new IDT strategies. Therefore, IDT refund fraud remains a persistent, evolving threat that requires stronger pre-refund and post-refund strategies to combat.\nA robust pre-refund strategy is important because preventing fraudulent refunds is easier and more cost-effective than trying to recover them after they have been issued. We have previously reported that implementing strong preventive controls can help defend against invalid payments, increasing public confidence and avoiding the difficult “pay and chase” aspects of recovering invalid refunds. According to IRS, the agency’s Return Review Program (RRP) is one way that IRS is trying to improve its pre-refund detection efforts. As IRS processes tax returns, other strategies can assist in identifying and stopping suspicious refunds. Moreover, improving post-refund programs may help IRS work with financial institutions to stop refunds that earlier controls have missed. However, recapturing a fraudulent refund after it is issued can be challenging—if not impossible—because identity thieves often spend or transfer the funds immediately, making them very difficult to trace.\nAgency officials and third-party stakeholders we spoke to identified the following potential pre- and post-refund strategies that may help IRS combat IDT refund fraud:\nPre-refund. Improve W-2 matching by (1) adjusting W-2 deadlines, (2) lowering the threshold for e-filed W-2s,(4) delaying the filing season. (3) delaying refunds, and\nPost-refund. Improve external leads programs by providing timely, accurate, and actionable feedback to third parties.",
"Characteristics of the current tax processing system hamper IRS’s ability to effectively verify taxpayer information prior to issuing refunds. As part of a broader proposal, the Department of the Treasury (Treasury) has proposed accelerating W-2 deadlines. This proposal will help ensure that IRS has accurate, timely W-2 data to conduct pre-refund matching. IRS has also requested funding to support timelier processing of W-2s.\nIRS issues most refunds before it has access to employers’ W-2 data. IRS issues most refunds months before receiving and matching information returns, such as W-2s. For 2012, IRS received more than 148.3 million tax returns and issued more than $309.6 billion in refunds to 110.5 million taxpayers. By March 1, 2012 IRS had issued about 50 percent of all 2012 refunds, but did not have access to most of the 2012 W-2 data verified by the Social Security Administration (SSA) (see figure As previously noted, IRS’s look-back compliance model does not 5).allow it to match tax returns to information returns until early summer.\nIRS is under pressure to issue refunds promptly. IRS is required by law to pay interest if it takes longer than 45 days after the due date of the return to issue a refund.refunds generally within 21 days after filing and actively tries to meet this target. For tax year 2013, IRS reported that for tax returns filed through IRS informs taxpayers to anticipate their early March, taxpayers received refunds an average of 9.6 days after filing.",
"To facilitate the use of W-2 information in detection of noncompliance (which includes IDT refund fraud) earlier in the filing season, Treasury recently proposed to Congress that the W-2 deadlines be moved to January 31 (for both paper and e-filing). processing W-2s more quickly as part of its fiscal year 2015 budget request. The IRS Commissioner has also advocated for earlier deadlines, testifying that challenges with IDT refund fraud have led IRS to propose an accelerated W-2 filing deadline. Further, the National Taxpayer Advocate has repeatedly written about the need to develop an accelerated information reporting system to enable IRS to match third- party reports to return data before issuing refunds.\nTreasury, General Explanations of the Administration’s Fiscal Year 2015 Revenue Proposals, (Washington, D.C.: Mar. 2014). Each February, Treasury releases this publication in conjunction with the President’s budget. As part of its proposal to stagger tax return filing dates, Treasury proposed implementing an accelerated deadline for filing information returns and eliminating the extended due date for e-filed returns. Under the proposal, paper and e-filed W-2s would be due to SSA by January 31, the same date W- 2s are due to employees. of dollars of IDT refund fraud. Returns flagged during IRS’s information return matching make up a substantial portion of the $5.2 billion in IDT refunds that IRS estimated it paid in filing season 2013, according to IRS’s Taxonomy. With earlier access to W-2 data, IRS could validate information reported on a tax return (e.g., wages and compensation) with information reported by employers before issuing refunds. Even without automatic matching, IRS officials said that earlier W-2 data would speed up manual reviews of high-risk returns—such such as those flagged by the IDT filters—because the information they rely on to perform those checks would be readily available.\nBenefiting taxpayers and employers. In addition to protecting revenue, accelerated W-2 reporting and pre-refund matching could improve taxpayer service and reduce burden. IRS officials said that having W-2 data at the beginning of the filing season would reduce taxpayer burden by allowing IRS to verify income immediately and to release legitimate tax returns caught by the IDT filters (false positives). Earlier W-2 data could also help IRS reduce employer burden, as IRS would no longer have to contact employers of taxpayers whose returns are flagged by IDT and other fraud filters.\nProviding other benefits. Earlier W-2 matching could reduce IRS’s workload of collection cases and help taxpayers avoid penalties and interest on under-paid taxes, according to IRS officials.",
"Implementing accelerated W-2 deadlines could result in an increased number of corrected W-2s filed as well as other technical and logistical challenges. SSA officials and all three payroll and information reporting associations we interviewed told us that accelerating the W-2 deadline (These are W-2s that would increase the number of corrected W-2s.employers correct after sending the first incorrect version to SSA.) Corrected W-2s represent less than 1 percent of the 213.5 million W-2s IRS received from SSA in tax year 2011, according to IRS data. The correction rate is currently low because the deadlines for filing with SSA are well after the January 31 deadline for sending W-2s to employees, giving employers a window of time to make corrections before they file with SSA. Based on data tracking payroll submissions and subsequent adjustments, the National Payroll Reporting Consortium estimated that should the deadline be accelerated to before January 31, corrections may To increase from 1 percent of filed W-2s to greater than 6 percent.mitigate potential corrections, SSA officials and all three payroll and information reporting associations we interviewed recommended allowing a corrections window of time (e.g., 1 to 2 weeks) between submission to employees and to SSA.\nEmployers must submit W-2 forms to employees by January 31 and to SSA by February 29 (if filing on paper) and March 31 (if e-filing). during that timeframe; however, the computer experts are available to implement an accelerated W-2 filing date of February 29.",
"While Treasury and IRS officials have proposed moving up W-2 deadlines, the costs and benefits have not been identified, estimated, or documented. How IRS decides to implement pre-refund matching using W-2 data would affect the costs and benefits for itself and other stakeholders. Some of the stakeholder issues that we identified and that remain unaddressed include the following: IRS. IRS has not identified cost-effective options for updating the information technology systems or work processes (such as the process for correcting refund amounts if mismatches are detected) needed to implement pre-refund matching using W-2 data. IRS officials said that a lack of budgetary resources is the primary reason IRS has not conducted planning and analysis of the costs and benefits related to accelerating W-2 deadlines. The full costs will not be known until IRS analyzes details regarding how the agency would implement this change (e.g., the thresholds IRS uses to match W-2s will influence the number of W-2 mismatches due to IDT refund fraud or false positives, where legitimate returns are flagged during matching). Similarly, IRS does not have a well-developed estimate of the magnitude of the benefits of pre-refund W-2 matching. Treasury developed revenue projections for moving all information reporting deadlines, but did not develop projections specific to the W-2 deadline. While IRS has a basis for estimating the revenue protected from pre-refund matching (from its Taxonomy), other benefits—such as employer savings from fewer queries from IRS—may be harder to estimate.\nSSA. Moving the deadline to January 31 would create logistical and technical challenges for SSA. As previously discussed, SSA officials told us that moving the deadline to January 31 or earlier would require shifting its software development cycle because SSA’s computer experts are working on another system during that timeframe; however, the computer experts are available to implement an accelerated W-2 filing date of February 29. If concurrent changes in the e-file threshold are not made, SSA may also incur administrative costs, should the number of W-2 corrections increase or a processing backlog occur (see next section for details).\nThird parties. The costs and benefits to employers and payroll providers have not been quantified. SSA officials stated that moving any W-2 deadline (other than the current e-file deadline of March 31) involves a degree of risk that cannot be quantified at present. They recommended surveying employers and payroll providers to better understand the impact of shortening or eliminating the time gap between when W-2s must be provided to employees and when they must be provided to SSA.\nEstimating the costs and benefits of options to accelerate W-2 deadlines and to conduct earlier W-2 matching is consistent with IRS’s strategic plan, which includes objectives to strengthen refund fraud prevention through the use of third-party data and to use analytics for timely, informed decision making. It is also consistent with Standards for Internal Control in the Federal Government, which calls for IRS management to design and implement internal controls within its programs based on the related costs and benefits. However, without better analysis of the costs and benefits of options for implementing accelerated W-2 deadlines and pre-refund matching, Congress does not have the information needed to consider Treasury’s proposal and deliberate the merits of making such a significant change.",
"Agency officials and third-party stakeholders we spoke to noted that other policy changes may also be needed in concert with moving W-2 deadlines. This is because W-2 matching is part of a much larger tax- administration system that provides IRS with information needed to help verify the identity, employment, and earnings of taxpayers. These changes could include lowering the e-file threshold for employers, delaying refunds, or delaying the start of the filing season. IRS has not yet undertaken efforts to understand the full costs of implementing earlier, pre-refund W-2 matching, and the costs associated with these other changes.\nLowering the E-File Threshold for Employers Because of the additional time and resources associated with processing paper W-2s submitted by employers, SSA officials told us that a change in the e-file threshold would be needed to sufficiently increase the number of e-filed W-2s. Reducing the e-file threshold would allow IRS to obtain timely, accurate data from a significant number of employers and would enhance the benefits IRS could obtain from the accelerated W-2 deadline and pre-refund W-2 matching. Currently, employers who file 250 or more W-2s annually must e-file those forms. Low-volume filers (filing fewer than 250 information returns annually) can file on paper, and for tax year 2011 these employers sent about 27.6 million paper W-2s (13 percent of all W-2s filed), according to IRS data. Because of the additional time SSA needs to process paper W-2s before sending them to IRS, changes in the e-file threshold would be necessary for earlier W-2 deadlines to have the intended effect. Without a change in the e-file threshold, backlogs in paper W-2s could result in IRS receiving W-2 data after the end of the filing season. For example, SSA officials said they can have a large backlog of paper W-2s and can process some paper W-2s as late as August or September. Having more e-filed W-2s would speed processing time for SSA (as compared to paper W-2 processing time) and would enable IRS to receive a larger percentage of W-2 data earlier, according to SSA officials.\nMore than 4.5 million establishments have fewer than 10 employees, and SSA officials estimated that the e-file threshold would need to be reduced to 5 to 10 information returns for the change to result in a meaningful increase in the number of e-filed W-2s. Many states have already implemented lower e-file thresholds. According to the American Payroll Association, 19 states, the District of Columbia, and Puerto Rico have a W-2 e-file threshold that is lower than IRS’s information return requirement.\nAccording to 2011 U.S. Census Bureau data. implementing a gradual reduction in the threshold and/or allowing employers to file for hardship waivers. Additionally, small employers can e-file W-2s at no cost through SSA’s web application, Business Services Online.\nIn addition to contributing to the IRS’s ability to verify employment information on tax returns, lowering the e-file threshold could reduce administrative costs for SSA. Based on fiscal year 2013 data, SSA officials stated that an e-filed W-2 costs about $0.002 to process, while a paper W-2 costs about $0.53 to transcribe and process. officials said it is more difficult to ensure data quality with paper W-2s, as transcription errors can occur while processing paper W-2s.\nTreasury recently requested that Congress expand legal authority to allow a reduction of the 250-return e-filing threshold for a broad set of information returns, including W-2s. According to Treasury, benefits such as enhancing taxpayer compliance, improving IRS service to taxpayers, and modernizing tax administration make this change worthwhile. For example, expanding e-filing will help IRS focus its audit activities, as IRS will receive information in a useable form, according to Treasury. The cost savings described above, as well as compliance and other benefits, could be realized before Congress decides on whether to accelerate W-2 deadlines (as proposed by Treasury). The change would support IRS’s strategic objectives to encourage compliance while minimizing costs and taxpayer burden. In addition, increasing e-filing is consistent with internal controls, which require that information be recorded and communicated to management and others within the entity who need it and in a form and within a timeframe that enables them to carry out their internal control and other responsibilities. For an entity to run and control its operations, it must have relevant, reliable, and timely communications relating to internal as well as external events.\nWe did not verify SSA’s estimates.\nImplementing a lower e-filing threshold would have the ancillary benefit (described above) of supporting pre-refund matching.\nDelaying Refunds and Delaying the Start of the Filing Season In conjunction with other strategies such as earlier filing of W-2s, delaying the filing season or delaying refunds would provide more time for IRS to receive W-2s, conduct pre-refund matching, and identify IDT refund fraud, according to IRS and third-party officials. IRS could delay the start of the filing season—the date IRS begins to process tax returns—but changing IRS’s obligation to issue refunds within 45 days of the due date of the return would require a statutory amendment. Both changes would have costs associated with educating taxpayers about the changes and potential costs to taxpayers who receive refunds later (discussed below). In our discussions with third parties about ways to prevent IDT refund fraud, 10 of the 22 groups we interviewed—ranging from financial institution associations to software companies to payroll associations— specifically suggested the option of delaying refunds or delaying the filing season until IRS could match W-2 data to tax returns.\nNational Taxpayer Advocate, 2013 Annual Report to Congress, Vol. II. that interval may be increased by several months. This additional waiting time in the first year could be burdensome for some taxpayers; however, there should be no added burden in subsequent years (i.e. the interval between refunds will be approximately 12 months in those later years).",
"Through its external leads programs, IRS collaborates with financial institutions, software companies, prepaid card companies, and other third parties. These partnerships provide valuable information about emerging IDT trends and fraudulent returns that have passed through IRS’s prevention and detection systems. External leads help IRS identify fraudulent refunds and understand emerging trends in IDT refund fraud and other refund fraud. According to IRS officials, the agency has used third-party leads to improve detection of IDT refund fraud. Between January 1, 2014 and May 31, 2014, IRS reported that more than 350 sources sent IRS successful leads for nearly 94,000 taxpayer accounts: these leads were for all types of refund fraud including, but not limited to, IDT refund fraud.million in fraudulent refunds during this period.\nIRS reported that financial institutions returned $214.8 Communicating with third parties is consistent with IRS’s strategic plan objective to implement a robust enterprise risk management program by establishing routine reporting procedures to inform external stakeholders about operational risks. Also, it is consistent with internal controls, which require relevant, reliable, and timely communications relating to external events. As such, management should ensure there are adequate means of communicating with external stakeholders and of obtaining information from them that could help IRS achieve its goal of reducing IDT refund fraud.\nDisclosure constraints limit what IRS can share. Section 6103 of the Internal Revenue Code limits the types of information IRS can share with external parties, even for fraudulent returns. However, section 6103 does not limit IRS’s ability to share general information about how to manage IDT refund fraud or emerging fraud trends. Disclosure of individual taxpayer information could be prevented by aggregating information so that no individual taxpayers could be identified. IRS officials told us that aggregated feedback to third parties may be possible, as long as a sufficient number of leads are discussed.\nIRS feedback to third parties is limited. While IRS’s feedback differs by external leads program, third parties receive limited feedback across both programs.associations/companies we interviewed said that IRS provides little to no feedback in response to leads sent through the External Leads Program or the Opt-In Program, or they told us they requested additional feedback from IRS. Furthermore, IRS officials told us that the agency has received millions of leads from software companies, but while IRS makes an effort to examine and address the highest priority leads (e.g., high refund dollars), IRS has not analyzed or provided feedback about many of these leads because it does not have the resources to do so. Without accurate, timely, and actionable feedback, external parties do not know if the leads they provide to IRS are useful. Five of these eleven financial institution associations and tax software associations/companies volunteered that Eight of the eleven financial institution and tax software they are not able to assess their success in identifying IDT refund fraud, or to improve their own detection tools. Useful feedback may include aggregated information about the share of each institution’s leads that helped to identify suspicious returns and other information about IDT refund fraud trends. This type of aggregated information would also comply with section 6103 disclosure requirements.\nIRS’s general and aggregated feedback is limited to particular groups. IRS shares general information about high-level schemes and IDT refund fraud trends during meetings with BITS, the technology policy division of the Financial Services Roundtable. institutions that are not part of that organization may not have the opportunity to learn from these discussions.said they provide aggregated data about leads received to tax software companies that request the information, but companies that do not request the information may not receive this feedback.\nAccording to a BITS official, the Financial Services Roundtable represents the largest integrated financial services companies providing banking, insurance payment and investment products and services to the American consumer. BITS addresses emerging technology and operational opportunities for the financial services industry, helping members manage risk, particularly in cybersecurity, fraud reduction, vendor management, and critical infrastructure protection. BITS is not an acronym. At one time, BITS stood for “Banking Industry Technology Secretariat.” However, with financial modernization and the emergence of integrated financial services companies, that term is no longer used. that submitted them. In addition, IRS officials said while IRS provides some overall data for the Opt-In Program, it does not track this information by financial institution. Because IRS does not track external leads by institution, it cannot use this information to improve IDT refund fraud programs or to provide feedback to third parties about the effectiveness of their leads.\nStrengthening IRS’s partnerships with third parties would require IRS to expend resources analyzing leads and providing feedback to third parties. These costs could vary, depending on the systems involved and the level of feedback IRS provides. IRS has some of the information needed to track leads in this way. For example, spreadsheets submitted through the External Leads Program contain the institutions’ names, so entirely new data collection systems may not be needed. Our past work has shown that developing metrics to track external leads by submitting party is consistent with practices that enhance the use of performance information, such as communicating that information frequently and effectively. In addition, tracking external leads would support IRS’s strategic goal of supporting effective tax administration by providing timely information to external partners in the tax community.allow IRS to communicate information to specific third parties, who could then adapt their own IDT detection tools. Given the millions of dollars in refund fraud returned by financial institutions in the first five months of 2014, even a modest increase in IDT refunds returned due to institution- specific feedback may be worth the investment of tracking external leads.",
"IDT refund fraud is a large problem: IRS estimates it issued at least $5.2 billion in fraudulent IDT refunds in filing season 2013. Given the size and scope of IDT refund fraud, additional bold and innovative steps are needed from Congress and IRS. For IRS to successfully combat IDT refund fraud, it will need to develop heightened awareness in its understanding of emerging trends, and in its ability to leverage both internal and external resources. While there is no “silver bullet” available to resolve the problem, developing strategies that focus on both preventing IDT refund fraud and resolving it can help IRS respond to this evolving threat. These strategies are likely to include constantly adapting and strengthening present defenses while also developing new strategies for both electronic and paper returns that stop IDT refund fraud at all stages of return processing.\nGiven the billions in dollars of successful IDT refund fraud, IRS must strive to stay one or more steps ahead of identity thieves, or the risk of issuing fraudulent IDT refunds could grow. Staying ahead of identity thieves will require a significant resource investment from IRS as it strengthens and develops new tools. Accelerating the W-2 deadline to January 31—as proposed by Treasury—would provide a powerful tool for IRS to detect and prevent IDT refund fraud. At the same time, the full costs and benefits are not known because IRS has not considered how it would implement pre-refund matching using W-2 data. The burden this would impose on employers, the costs to IRS for systems changes, and the likely need for other changes (such as increased e-filing) means this step should not be taken without an informed discussion among all stakeholders, including Congress. Further, taxpayers’ expectations about the filing season and when they can anticipate receiving refunds may need to shift. Also, IRS has not fully leveraged third parties, having provided only limited feedback on the IDT refund leads third parties are submitting and offering limited general information on IDT refund fraud trends. However, to provide this information, IRS will need metrics to track external leads by the third party that submitted them, which it currently does not have. While the cost of providing third-party feedback could vary depending on the level of feedback IRS provides, third-party leads returned hundreds of millions of dollars in all refund fraud to the IRS in 2014, and are a valuable information resource about fraudulent returns that have bypassed IRS’s prevention and detection systems.",
"Congress should consider providing the Secretary of the Treasury with the regulatory authority to lower the threshold for electronic filing of W-2s from 250 returns annually to between 5 to 10 returns, as appropriate.",
"We recommend the Commissioner of Internal Revenue fully assess the costs and benefits of accelerating W-2 deadlines and provide information to Congress on the IRS systems and work processes that will need to be adjusted to accommodate earlier, pre-refund matching of W-2s and then identify timeframes for when these changes could be made; potential impacts on taxpayers, IRS, SSA, and third parties; and what other changes will be needed (such as delaying the start of the filing season or delaying refunds) to ensure IRS can match tax returns to W-2 data before issuing refunds.\nWe recommend that the Commissioner of Internal Revenue take the following two actions to provide timely, accurate, and actionable feedback to all relevant lead-generating third parties: provide aggregated information on (1) the success of external party leads in identifying suspicious returns and (2) emerging trends (pursuant to section 6103 restrictions); and develop a set of metrics to track external leads by the submitting third party.",
"We provided a draft of this product to IRS and SSA for review and comment. In its written comments, reproduced in appendix III, IRS neither agreed nor disagreed with our recommendations. IRS stated that it is determining how potential corrective actions align with available resources and IRS priorities before deciding whether to implement the recommendations. With regard to our first set of recommendations, IRS acknowledged that accelerating W-2 deadlines or delaying the tax filing season represents a significant change to tax administration. IRS stated that in order to determine the best course of action, Congress needs an understanding of the costs and benefits for IRS and other stakeholders. With regard to our second set of recommendations, IRS stated that information sharing, as permitted under the law—such as providing feedback to third parties—fosters good working relationships and promotes ongoing program improvements. IRS provided technical comments that we incorporated, as appropriate.\nWe recognize the need for IRS to assess its priorities given the fiscal constraints it faces. We previously reported that since fiscal year 2010, IRS has absorbed approximately $900 million in budget cuts while facing increasing workloads as a result of legislative mandates and priority programs, such as work related to the Patient Protection and Affordable Care Act. Even with these constraints and other potentially competing priorities, we believe the size of the IDT problem warrants additional action now. Pre-refund matching of W-2 data is one option that IRS agrees has the potential to prevent a substantial portion of the estimated $5.2 billion in IDT refunds paid in filing season 2013. However, such a change may require a significant resource investment by IRS as well as impact taxpayers and employers. Without better information about the benefits and costs of such a significant change, Congress cannot make an informed decision about implementing it. With respect to our recommendations regarding the External Leads Program, IRS highlighted the fact that the program has generated more than $2.3 billion in refunds returned to the U.S. Treasury from 2010 to 2014. Given that IRS already has some of the information needed to better track external lead results, IRS should be able to control the costs of implementing our recommendations.\nIn its written comments, reproduced in appendix IV, SSA stated that its implementation of a redesigned Annual Wage Reporting system for processing W-2s in January 2015 and W-2cs in January 2016 will position the agency to support an accelerated W-2 deadline as well as support lowering the threshold for e-filing W-2s. SSA also said that it transmits wage data to IRS immediately upon receiving electronic W-2s. Paper W- 2s require manual handling and therefore have a significantly longer processing time. SSA also recommended that IRS consider the impact of Form 1099 reporting in making decisions to accelerate the W-2 reporting and change IRS business processes. SSA also provided technical comments that we incorporated, as appropriate.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Commissioner of Internal Revenue. In addition, the report will be 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) 512-9910 or whitej@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 V.",
"IRS developed the Identity Theft Taxonomy (Taxonomy) to monitor the volume of identity theft (IDT) refund fraud attempts and assess the impact of its IDT defenses over time, among other reasons. The Taxonomy is a matrix of IDT refund fraud categories that estimate the amount of identified IDT refund fraud IRS prevented or recovered, as well as the identified IDT refund fraud IRS paid. The estimates are based on IRS’s administrative records of known IDT refund fraud (e.g., data on the number of duplicate returns or returns detected by identity theft filters). The Taxonomy also estimates likely identity theft by identifying returns with the characteristics of IDT refund fraud, which are found when IRS matches returns to W-2 and other information return data after the tax filing season. The Taxonomy is a valuable step toward inventorying available IDT refund fraud data and assessing the performance of IRS’s IDT refund fraud defenses. However, we identified limitations in the Taxonomy, specifically\nTaxonomy estimates are preliminary. After we provided a draft for comment, IRS officials stated that the Taxonomy estimates are preliminary, as they are updating their analysis using information return matching to identify likely returns where IRS paid IDT refunds. They anticipate their estimates for IDT refunds paid will increase somewhat (perhaps by $0.6 billion), but an updated Taxonomy estimate was not completed in time for us to include in this report.\nUsing administrative records could result in imprecise estimates.\nTaxonomy estimates could be imprecise because the returns identified may not accurately represent the true universe of IDT refund fraud. If only certain kinds of criminals (or fraudsters) are more likely to be detected by IRS defenses, IRS records on detected IDT refund fraud may not accurately represent all individuals attempting to commit IDT refund fraud.\nCertain Taxonomy estimates are based on assumptions using the characteristics of past IDT refund fraud. While the assumptions are based on IRS’s research from known cases and appear reasonable, we could not verify the accuracy and comprehensiveness of these assumptions. This is because the accuracy of the Taxonomy estimates is largely based on whether the estimate includes all true IDT refund fraud returns and excludes all legitimate returns. IRS officials acknowledged their estimates for returns flagged during information return matching could include legitimate returns that are not actual IDT refund fraud. For example, the estimate could include returns flagged due to taxpayer or employer error or other non-IDT fraud by taxpayers (e.g., the taxpayer deliberately enters false information on his tax return to obtain a larger refund). Changes in these assumptions can substantially affect the estimates, but this uncertainty is not reflected in IRS’s Taxonomy estimates for filing season 2013 (e.g., IRS does not present a range of estimates based on differing assumptions).\nIRS’s Taxonomy underestimates the number of IDT refund fraud returns and refund amounts for some IDT categories. IRS’s estimate of IDT refunds paid is based on duplicate returns, information return mismatches, and criminal investigations identified after the refunds are paid. However, for cases where there are no duplicate returns, information returns, or criminal investigations associated with a tax return, IRS has been unable to estimate the amount of IDT refund fraud. IRS officials have considered using surveys to estimate unidentified IDT refund fraud, but have not been able to come up with a survey method that would avoid significant taxpayer burden.\nIRS’s Taxonomy overestimates the number of IDT refund fraud returns and refund amounts for some IDT categories. For example, IRS’s estimates for “refunds protected” include refunds returned to IRS as a result of external leads. However, IRS data on external leads do not distinguish whether the type of fraud was IDT refund fraud or some other type of fraud. Our analysis of the Taxonomy found that IRS did not adjust its estimate to account for other types of refund fraud.\nMethodology changes and other factors prevent comparisons between filing seasons 2012 and 2013 estimates. For filing season 2012, IRS estimates it prevented or recovered about $21.6 billion (71 percent) of the estimated IDT refunds and paid $8.9 billion (29 percent). Comparing filing season 2012 and 2013 estimates is problematic because it is unclear whether the changes are due to methodological changes, such as using different data sources or changing the criteria for querying data. IRS officials said they update their methodology to better reflect evolving IDT refund fraud schemes and improve the accuracy of Taxonomy estimates, although they attempt to use consistent definitions to promote comparability of estimates across years. In addition, it is unclear whether changes are due to overall changes in fraud patterns, such as an increase or decrease in fraud attempts; improvements in IRS IDT defenses; or identity thieves’ ability to file returns using schemes IRS has not yet learned to detect.\nIt is likely that IRS’s estimates of the IDT refund fraud for filing seasons 2012 and 2013 will continue to evolve as IRS improves the Taxonomy methodology. For example, during the course of our audit, we found that IRS’s methodology for counting returns did not include two categories of duplicate returns that should have been included in the estimates. IRS officials estimated that including these returns would increase IRS’s original 2013 estimates of refunds paid out by $0.47 billion, from $4.75 billion to $5.22 billion in filing season 2013.",
"This report examines (1) what the Internal Revenue Service (IRS) knows about the extent of identity theft (IDT) refund fraud and (2) what additional actions IRS can take to combat IDT refund fraud using third-party information (for example, from employers and financial institutions). As described earlier, the report discusses IDT refund fraud and not employment fraud, unless otherwise noted.\nTo understand what IRS knows about the extent of IDT refund fraud, we reviewed IRS’s Identity Theft Taxonomy (Taxonomy), which estimates the amount of IDT refund fraud that IRS is, and is not, preventing. We conducted manual data testing for obvious errors and compared underlying data to IRS’s Refund Fraud & Identity Theft Global Report. We confirmed Taxonomy components where we had data available to cross check. We also interviewed IRS officials to better understand the methodology used to create the estimates and the changes in methodology, data sources, and assumptions across the years of data available. For details on our findings about the Taxonomy components we evaluated, see appendix I.\nTo identify opportunities to improve IRS’s IDT refund fraud efforts, we reviewed Internal Revenue Manual sections detailing IRS’s Identity Protection Program and IRS documentation for its External Leads Program, the Opt-In Program, and other third-party efforts. We also reviewed Treasury’s legislative proposals and Congressional testimony of IRS officials. We interviewed officials and reviewed documentation from the Social Security Administration (SSA) and several of the third parties shown in table 1 below, where applicable. We selected a nonprobability sample of 22 associations and stakeholders with differing positions and characteristics to help ensure our analysis covered a variety of viewpoints, based on IRS documentation and suggestions, our prior work, and other information. For example, to select associations representing financial institutions, we considered, among other factors, the size and type of institutions they represented (e.g., large or small banks, credit unions, and prepaid debit card companies). Because we used a nonprobability sample, the views of these associations are not generalizable to all potential third parties.\nWhen possible, we used a standard set of questions in interviewing these associations and summarized the results of the semistructured interviews. However, as needed, we also sought perspectives on additional questions tailored to these associations’ expertise and sought their opinions on key issues. We then discussed these options with officials from IRS offices, including (1) Privacy, Government Liaison, and Disclosure and (2) Return Integrity and Correspondence Services to determine the feasibility of various options and the challenges of pursuing them.\nTo describe the timing of refunds issued compared to W-2 submissions, we analyzed SSA data for filing season 2013 and IRS data for filing season 2012. SSA provided data on the cumulative number of W-2s it received for filing season 2013. We assessed the reliability of SSA data by performing electronic tests to identify obvious errors and discussing the data with SSA officials. We found the data were sufficiently reliable for the purposes of providing contextual information on when SSA receives W-2s.\nFor IRS data, we used analysis developed for of W-2s and tax returns. This analysis obtained data from IRS’s Compliance Data Warehouse (CDW) database, which provides a variety of tax return, enforcement, compliance, and other data.when tax returns were received by IRS, we used the cycle posting date (when IRS posts tax return data to the master file), as it represents when the tax return data are available for matching. Officials noted that IRS must refine the data prior to posting to IRS systems. This may include identifying and correcting incomplete or inaccurate data before posting the data to IRS systems. We assessed the reliability of CDW data by (1) performing electronic or manual testing of required data elements to identify obvious errors, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purposes of this report.\nWe conducted this performance audit from May 2014 to August 2014 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.",
"",
"",
"",
"James R. White, (202) 512-9110 or whitej@gao.gov.",
"In addition to the individual named above, Neil Pinney, Assistant Director; Shannon Finnegan, Analyst-in-Charge; Amy Bowser; Deirdre Duffy; Michele Fejfar; Timothy Guinane; Katharine Kairys; Donna Miller; Dae Park; and Ellen Rominger made key contributions to this report. Gary Bianchi, Nina Crocker, Mary Evans, Ron Jones, David Lewis, Paul Middleton, Susan E. Murphy, Sabine Paul, Sara Pelton, Julie Spetz, Jim Wozny, and John Zombro also provided assistance.",
"GAO. Financial Audit: IRS’s Fiscal Years 2013 and 2012 Financial Statements. GAO-14-169. Washington, D.C.: December 12, 2013.\nGAO. Internal Revenue Service: 2013 Tax Filing Season Performance to Date and Budget Data. GAO-13-541R. Washington, D.C.: April 15, 2013.\nGAO. Identity Theft: Total Extent of Refund Fraud Using Stolen Identities is Unknown. GAO-13-132T. Washington, D.C.: November 29, 2012.\nGAO. Financial Audit: IRS’s Fiscal Years 2012 and 2011 Financial Statements. GAO-13-120. Washington, D.C.: November 9, 2012.\nGAO. Taxes and Identity Theft: Status of IRS Initiatives to Help Victimized Taxpayers. GAO-11-721T. Washington, D.C.: June 2, 2011.\nGAO. Taxes and Identity Theft: Status of IRS Initiatives to Help Victimized Taxpayers. GAO-11-674T. Washington, D.C.: May 25, 2011.\nGAO. Tax Administration: IRS Has Implemented Initiatives to Prevent, Detect, and Resolve Identity Theft-Related Problems, but Needs to Assess Their Effectiveness. GAO-09-882. Washington, D.C.: September 8, 2009."
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{
"question": [
"How does IDT refund fraud work?",
"How can the model be changed to prevent IDT refund fraud?",
"Why can't the IRS currently do such matching?",
"What changes would allow the IRS to conduct such matching?",
"What has Treasury proposed regarding W-2 deadlines?",
"To what extent has IRS examined the effects of this proposal?",
"Why is this assessment important for a Congressional decision?",
"How does this assessment compare with the IRS's strategic plan?",
"How has Treasury proposed changing the return threshold for e-filing?",
"To what extent would the threshold need to change to increase e-filing?",
"How do e-filed W-2 forms affect administrative costs?",
"Why is a change in the e-filing threshold warranted?",
"How would these changes affect IRS matching?",
"What does GAO recommend regarding the W-2 deadline?",
"What does GAO recommend regarding IRS's role?",
"To what extent did IRS agree with GAO's recommendations?"
],
"summary": [
"IDT refund fraud takes advantage of IRS's “look-back” compliance model. Under this model, rather than holding refunds until completing all compliance checks, IRS issues refunds after conducting selected reviews.",
"While there are no simple solutions, one option is earlier matching of employer-reported wage information to taxpayers' returns before issuing refunds.",
"IRS currently cannot do such matching because employers' wage data (from Form W-2s) are not available until months after IRS issues most refunds.",
"If IRS had access to W-2 data earlier—through accelerated W-2 deadlines and increased electronic filing of W-2s—it could conduct pre-refund matching and identify discrepancies to prevent the issuance of billions in fraudulent refunds.",
"In 2014, the Department of the Treasury (Treasury) proposed that Congress accelerate W-2 deadlines to January 31.",
"However, IRS has not fully assessed the impacts of this proposal.",
"Without this assessment, Congress does not have the information needed to deliberate the merits of such a significant change to W-2 deadlines or the use of pre-refund W-2 matching.",
"Such an assessment is consistent with IRS's strategic plan that calls for analytics-based decisions, and would help IRS ensure effective use of resources.",
"Treasury has requested authority to reduce the 250-return threshold for electronically filing (e-filing) information returns.",
"The Social Security Administration (SSA) estimated that to meaningfully increase W-2 e-filing, the threshold would have to be lowered to include those filing 5 to 10 W-2s.",
"In addition, SSA estimated an administrative cost savings of about $0.50 per e-filed W-2.",
"Based on these cost savings and the ancillary benefits they provide in supporting IRS's efforts to conduct more pre-refund matching, a change in the e-filing threshold is warranted.",
"Without this change, some employers' paper W-2s could not be available for IRS matching until much later in the year, due to the additional time needed to process paper forms.",
"GAO recommends that Congress should consider providing Treasury with authority to lower the annual threshold for e-filing W-2s.",
"In addition, IRS should fully assess the costs and benefits of shifting W-2 deadlines, and provide this information to Congress.",
"IRS neither agreed nor disagreed with GAO's recommendations, and it stated it is determining how these potential corrective actions align with available resources and IRS priorities."
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CRS_R45488
|
{
"title": [
"",
"Introduction",
"IMO Emissions Standards and LNG",
"U.S. Obligations Under the IMO",
"Emission Control Areas",
"Emissions Control Options for Ship Owners",
"Low-Sulfur Fuel Oils",
"Scrubbers",
"LNG-Fueled Engines",
"Jones Act Fleet Choosing LNG-Fueled Engines",
"LNG vs. Petroleum-Based Fuel Costs",
"Building an LNG-Fueled Fleet",
"LNG Engines and Greenhouse Gas Emissions",
"Global Developments in LNG Bunkering",
"LNG Bunkering Overseas",
"LNG Bunkering in the United States",
"Jacksonville, FL",
"Port Fourchon, LA",
"Tacoma, WA",
"Port Canaveral, FL",
"Other U.S. Ports with Potential for LNG Bunkering",
"U.S. Regulation of LNG Bunkering",
"Coast Guard Port Regulations",
"FERC Siting Regulations",
"Other Federal Agencies",
"Global Development of LNG Supply",
"Domestic Considerations",
"U.S. Natural Gas Producers Seek New Markets",
"Safety of LNG Bunkering in Ports",
"Security Risks of LNG Bunkering",
"Policy Implications",
"U.S. Opportunities and Challenges",
"Considerations for Congress"
],
"paragraphs": [
"",
"The combination of growing supplies of liquefied natural gas (LNG) and new requirements for less polluting fuels in the international maritime shipping industry has heightened interest in LNG as a maritime fuel. For decades, LNG tanker ships have been capable of burning boil-off gas from their LNG cargoes as a secondary fuel. However, using LNG as a primary fuel is a relatively new endeavor; the first LNG-powered vessel—a Norwegian ferry—began service in 2000.\nSeveral aspects of LNG use in shipping may be of congressional interest. LNG as an engine, or \"bunker,\" fuel potentially could help the United States reduce harmful air emissions, it could create a new market for domestic natural gas, and it could create economic opportunities in domestic shipbuilding. However, U.S. ports would need specialized vessels and land-based infrastructure for LNG \"bunkering\" (vessel refueling) as well as appropriate regulatory oversight of the associated shipping and fueling operations. The storage, delivery, and use of LNG in shipping also has safety implications. These and other aspects of LNG bunkering may become legislative or oversight issues for Congress. One bill in the 115 th Congress, the Waterway LNG Parity Act of 2017 ( S. 505 ), would have imposed excise taxes on LNG used by marine vessels on inland waterways.\nThis report discusses impending International Maritime Organization (IMO) standards limiting the maximum sulfur content in shipping fuels, the market conditions in which LNG may compete to become a common bunker fuel for vessel operators, and the current status of LNG bunkering globally and in the United States. A broader discussion of oil market implications is outside the scope of this report.",
"The IMO is the United Nations organization that negotiates standards for international shipping. Its standards limiting sulfur emissions from ships, adopted in 2008, have led vessel operators to consider alternatives to petroleum-based fuels to power their ships.\nIn 1973, the IMO adopted the International Convention for the Prevention of Pollution from Ships (MARPOL). Annex VI of the convention, which came into force in 2005, deals with air pollution from ships. The annex established limits on nitrogen oxide (NO x ) emissions and set a 4.5% limit on the allowable sulfur content in vessel fuels. In 2008, the IMO announced a timeline to reduce the maximum sulfur content in vessel fuels from 4.5% to 0.5% by January 1, 2020. Annex VI requires vessel operators to either use fuels containing less than 0.5% sulfur or install exhaust gas-cleaning systems (\"scrubbers\") to limit a vessel's sulfur oxide (SO x ) emissions to a level equivalent to the required sulfur limit.",
"MARPOL is implemented in the United States through the Act to Prevent Pollution from Ships (). The United States effectively ratified MARPOL Annex VI in 2008 when President Bush signed the Maritime Pollution Prevention Act ( P.L. 110-280 ). The act requires that the U.S. Coast Guard and the Environmental Protection Agency (EPA) jointly enforce the Annex VI emissions standards. MARPOL's Annex VI requirements are codified at 40 C.F.R. §1043. They apply to U.S.-flagged ships wherever located and to foreign-flagged ships operating in U.S. waters.",
"In addition to its global sulfur standards, MARPOL Annex VI provides for the establishment of Emissions Control Areas (ECAs), which are waters close to coastlines where more stringent emissions controls may be imposed. The North American ECA limits the sulfur content of bunker fuel to 0.1% of total fuel weight, an even lower bar than that set by the IMO 2020 standards. This standard is enforced by Coast Guard and EPA in waters up to 200 miles from shore. Currently, most ships operating in the North American ECA meet the emissions requirements by switching to low-sulfur fuels once they enter ECA waters. The European Union also has an ECA with a 0.1% limit on sulfur in bunker fuels, and the Chinese government is considering putting the same standard in place.",
"The IMO 2020 emissions requirement applies to vessels of 400 gross tons and over, which is estimated to cover about 110,000 vessels worldwide. However, analysts indicate that many of the smaller vessels in this group already burn low-sulfur fuel. Accounting for these smaller vessels, one estimate is that about 55,000 vessels currently burn high-sulfur fuel. Ship owners have two main options for meeting the emission requirements with existing engines: burn low-sulfur conventional fuel (or biofuels) or install scrubbers to clean their exhaust gases. Alternatively, ship owners may opt to install new LNG-fueled engines to comply with the IMO standard.",
"The simplest option for vessel owners to comply with the IMO sulfur standards, and the one that appears most popular, is switching to low-sulfur fuel oils or distillate fuels. Although switching to low-sulfur fuels would increase fuel costs compared to conventional, high-sulfur fuels, it would require little or no upfront capital cost and would allow ocean carriers to use existing infrastructure to bunker ships at ports. Anticipating widespread adoption of this approach, many analysts predict that the implementation of the IMO 2020 regulations will drive up demand for low-sulfur fuel and, therefore, significantly increase its price above current levels. Such a trend could also reduce demand for high-sulfur fuels, increasing the price spread between low- and high-sulfur bunkers fuels. Switching to lower-sulfur fuel could increase fuel cost across the industry by up to $60 billion in 2020 for full compliance with the IMO standards. Moreover, while it may allow vessels to meet the existing IMO sulfur standards, low-sulfur fuel does not necessarily support compliance with potential future IMO emissions standards, especially with respect to greenhouse gases (GHGs) such as carbon dioxide (CO 2 ) discussed later in this report.",
"Scrubbers are systems which remove sulfur from a vessel's engine exhaust emissions. A ship with a scrubber would be capable of meeting the IMO 2020 standard while using conventional high-sulfur fuel. Retrofitting a scrubber on an existing engine can cost several million dollars, however, before factoring in the lost revenue from taking the ship out of service for a month for the installation. Therefore, while using a scrubber will allow a ship to continue using (currently) cheaper high-sulfur fuel, it may take years to recover the initial investment. For example, one industry study estimates that, in the case of a typical tanker, a scrubber installation could cost $4.2 million with a payback time of approximately 4.8 years. Furthermore, scrubbers installed to capture sulfur emissions might have to be further refitted or replaced to comply with any future IMO standards for GHG emissions.\nThe rate of scrubber adoption could affect the financial impacts of installing them in terms of fuel costs. Scrubbers ultimately offset some or all of their initial costs because they allow vessel operators to continue using relatively inexpensive high-sulfur fuel. However, the return on investment for scrubbers depends on the relative prices of high- and low-sulfur bunker fuels. The demand—and therefore, prices—for low-sulfur and high-sulfur fuels will be affected by how many vessels use the respective fuels under the IMO standards that take effect in 2020. For example, limited scrubber adoption could result in more vessels demanding more low-sulfur fuel oil, creating upward pressure on low-sulfur fuel prices. Under such a scenario, scrubbers would provide greater fuel cost savings for vessels that installed them. Alternatively, high-sulfur fuel could become more costly due to refinery production cutbacks (because shippers will not be allowed to burn it without scrubbers). In this case, the economic benefits of scrubbers would be diminished.\nGiven the uncertain fuel supply and demand dynamics, it is difficult for vessel operators to know how big the market distortions from scrubber installation could be or how many other operators may choose to install scrubbers. As of September 2018, there were approximately 660 ships retrofitted with scrubbers and over 600 ships under construction with plans to install scrubbers. By 2020, projecting additional construction orders, some analysts predict about 2,000 vessels could have scrubbers installed. However, even with higher demand for the technology, the ability of vessel owners to install scrubbers is constrained; analysts estimate that current maximum capacity for installing scrubbers is be between 300 to 500 ships per year.",
"Another option for ship owners to comply with the IMO 2020 sulfur standards is to switch to engines that burn LNG as a bunker fuel. LNG-fueled vessels emit only trace amounts of sulfur oxides in their exhaust gases—well below even the 0.1% fuel-equivalent threshold in some of the ECA zones—so they would be fully compliant with the IMO standards. As a secondary benefit, using LNG as an engine fuel also would reduce particulate matter (PM) emissions relative to both high- and low-sulfur marine fuel oils. Furthermore, LNG vessels have the potential to emit less CO 2 than vessels running on conventional, petroleum-based fuels. However, LNG vessels would have the potential to result in more fugitive emissions of methane, another GHG, because methane is the primary component of natural gas, further discussed below.\nInstalling an LNG-fueled engine can add around $5 million to the cost of a new ship. Retrofitting existing ships appears to be less desirable because of the extra space required for the larger fuel tanks (new ships can be designed with the larger fuel tanks). The costs of retraining crews to work with LNG engines could also factor into a vessel operator's decision about switching to LNG. However, apart from their lower emissions, LNG-fueled engines may offset their capital costs with fuel cost advantages over engines burning petroleum-derived fuels. These savings would depend on the price spread between natural gas and fuel oil—which has been volatile in recent years. The likelihood that switching to LNG will produce long-term fuel costs savings relative to conventional fuels is, therefore, a critical consideration for many vessel owners.",
"The 1920 Merchant Marine Act (known colloquially as the Jones Act) requires that vessels engaged in U.S. domestic transport be built domestically. Many newly built domestic ships receive a federal loan guarantee under the Maritime Administration's so-called \"Title XI\" program. In 2014, the program was modified to include the use of \"alternative energy technologies\" to power ships as part of the relevant criteria in evaluating a loan application. The Maritime Administration counts LNG-fueled engines as an \"alternative energy technology\" and may be more likely to approve loan applications for ships with LNG-capable engines.\nSince the North American ECA was established in 2015, Jones Act coastal ship operators have taken steps to transition their fleets to use cleaner burning fuels, including LNG. The three Jones Act operators that ship dry goods to Alaska, Hawaii, and Puerto Rico have taken delivery or have ordered LNG-fueled and LNG-capable vessels from U.S. shipyards in Philadelphia, PA, and Brownsville, TX. Harvey Gulf International has put into service five LNG-powered offshore supply vessels that service offshore oil rigs. Some Jones Act tanker operators that have recently built or ordered vessels have chosen to install LNG-ready engines while other operators have chosen to install scrubbers on their existing fleet. Ship engines and scrubbers for the Jones Act fleet do not have to be manufactured in the United States because they are not considered an integral part of the hull or superstructure of a ship.\nSeagoing barges, known as articulated tug barges, are also a significant portion of the domestic coastal fleet, especially for moving liquid cargoes. However, these vessels traditionally have burned lower-sulfur fuels and thus the ECA has not prompted fleet conversions. IMO fuel requirements do not apply to river barges operating on the nation's inland waterway system, although this fleet potentially could be a market for LNG as fuel.\nBunkering vessels (small tankers with hoses for refueling ships) in U.S. waters must also be Jones Act compliant. Barges are the predominant method for bunkering ships in U.S. ports. An LNG bunkering vessel for the Port of Jacksonville—the first Jones Act-compliant LNG bunkering vessel to enter service in the United States—was built in 2017 by Conrad Shipyards in Orange, TX.",
"Recent energy sector trends suggest that LNG may be cheaper in the long-run than petroleum-based, low-sulfur fuels. However, these price movements are correlated to some extent. Many existing long-term LNG contracts link LNG prices to oil prices (although such contract terms are on the decline), even in the spot market.\nStarting in 2008, the advent of shale natural gas production dramatically decreased natural gas prices in the United States. Natural gas spot prices in the United States at the Henry Hub—the largest U.S. trading hub for natural gas—averaged around $3/MMBtu (million British Thermal Units) in 2018, about a quarter of the peak in average price a decade before, just prior to the shale gas boom ( Figure 1 ).\nLiquefying natural gas into LNG adds around $2/MMBtu to the production cost. Including additional producer charges and service costs would bring the total cost of LNG available at a U.S. port (based on the 2018 average price in Figure 1 ) to approximately $6/MMBtu.\nShipping of LNG from the United States to Asia or Europe adds from $1 to $2/MMBtu, so, based on the 2018 average cost in Figure 1 , LNG delivered to a port overseas would cost on the order of $7 to $8/MMbtu under long-term contracts, depending upon timing and location. Higher or lower prices could occur for specific long-term contracts and in the LNG spot market (i.e., for individual cargoes), based on the location and the supply and demand balance at the time. In general, the U.S. market will have the lowest-priced LNG. Northern Asia will have the highest LNG prices due to the region's comparative lack of pipeline gas supplies and its distance from LNG suppliers.\nFigure 2 compares LNG spot market prices in the Japan LNG market—the highest-priced LNG market—to spot prices for two common petroleum-based bunker fuels, low-sulfur gas oil and high-sulfur fuel oil. As the figure shows, over the last five years, Japan LNG generally has been cheaper than low-sulfur fuel and more expensive than high-sulfur fuel on an energy-equivalent basis (i.e., per MMbtu). However, Japan LNG and high-sulfur fuel prices converged in 2018. As the figure shows, spot prices for LNG deliveries to the Japan market fell below $6/MMBtu in 2016 from a high above $16/MMBtu in 2013. Likewise, low-sulfur gas oil prices have doubled, and high-sulfur fuel oil prices have tripled, since 2016.\nThe volatility of the bunker fuel markets and the global LNG market lead to considerable unpredictability about the relative prices among fuels going forward. LNG may become increasingly price-competitive versus low-sulfur fuel as the 2020 IMO sulfur standards take effect. As discussed above, many analysts predict prices for low-sulfur gas oil, which are already higher than those for high-sulfur fuel oil, to increase significantly after 2020 due to a standards-driven rise in demand.\nAlthough fuel prices as shown in Figure 2 indicate favorable economics for LNG versus low-sulfur fuel, if prices for high-sulfur fuel oils collapse as some expect after the 2020 IMO regulations enter into force, it is possible that LNG could lose its price advantage over residual fuel oils. Likewise, the price spread between low-sulfur gasoil and high-sulfur fuel oil would increase, incentivizing more carriers to install scrubbers to capitalize on the savings in fuel costs by continuing to burn high-sulfur fuel. An additional complication is the variability of LNG prices by region. Many shipping lines are global operators seeking low-priced fuel worldwide, but unlike the global oil market, natural gas markets are regional. Because the price of LNG can vary significantly by region, the relative economics of LNG versus other bunker fuels would also vary by region.\nAnother uncertainty in the market for LNG bunkering is the discrepancy between the spot price for traded LNG and the price for LNG sold as bunker fuel in ports. Added costs associated with marketing, storing and transporting LNG in bunkering operations (discussed below) would likely require ports to charge a rate for LNG bunker fuel above spot market prices. These additional overhead costs are likely to vary among ports.",
"Before factoring in any effect of IMO standards on fuel prices, and assuming a favorable LNG-fuel oil price spread, it still could take years for the savings generated by using LNG to pay back the capital costs of switching fuels. Through May 2018, there were 122 LNG-powered vessels in operation and another 135 ordered or under construction. Many of the first LNG vessels delivered and ordered were Norwegian-flagged vessels, as the Norwegian government has subsidized LNG-fueled vessels with a \"NO x Fund.\" The fund provides LNG-operated ships with an exemption from the country's tax on NO x emissions. As an alternative to committing to LNG as a fuel, some vessel owners may hedge their bets by opting to install \"LNG-ready\" engines, which can burn low-sulfur fuel oil currently, but are designed to make future LNG conversion easier.\nThe number of LNG ships that may be in operation by 2030 is difficult to predict. First, as noted above, growth in LNG powered vessels is likely to be driven primarily by new builds rather than retrofits. However, the shipping industry has experienced nearly a decade of vessel overcapacity and slow growth. Weak growth in the shipping industry could result in slower growth in vessel orders overall and, therefore, fewer orders for LNG-powered vessels. Of new vessels ordered, or set to be delivered, in 2018 or after, 13.5% (by tonnage) are LNG-fueled—up from 1.4% in 2010. If this trend continues, demand for LNG from the shipping industry could still be relatively high, even if overall growth in the shipping industry remains slow.\nBecause LNG bunkering infrastructure among global ports is currently limited, vessels that use large amounts of fuel and travel predictable routes—along which LNG is available—are the most suitable for LNG fuel. For this reason, cruise ships, vehicle ferries, and container ships initially may be the most likely vessel types to adopt LNG as bunker fuel. Order books have reflected this assessment: one quarter of all cruise ships on order by tonnage at the end of 2017 were LNG-powered. Likewise, a major container ship line, CMA CGM, recently announced that it was ordering nine extra-large container ships powered by LNG. The carrier stated that the fuel tanks will displace space for \"just a few containers\" and said it intends to refuel these ships just once on their round trip voyages between Asia and Europe.\nConversely, LNG fuel adoption may be less likely for oil tankers. Half the global oil tanker fleet operates on the shipping spot market (also known as the \"tramp\" market), meaning that ship owners enter into contracts with cargo owners only for a single voyage. In this kind of trade, many oil tankers lack a consistent route. Having to limit spot contracts only to ports that may bunker LNG could reduce the arbitrage opportunities of tankers. Dry bulk cargo vessels (carrying grain, coal, and other commodities) also typically operate in the tramp market.",
"LNG-powered vessels have lower direct exhaust emissions than comparable vessels using petroleum-derived fuels. However, the lifecycle—or \"well-to-wake\"—GHG emissions (especially of methane) and of volatile organic compound emissions from natural gas production, transportation, and liquefaction complicates the comparison. One study in 2015 concluded, \"performing a ['well-to-wake'] GHG study on LNG used as a marine fuel is more complex than previously thought. Further studies are needed ... to investigate this subject.\" A 2016 study found that the relative GHG emissions benefits of LNG versus conventional fuel oil on a \"well-to-wake\" basis was highly dependent upon fugitive methane emissions in the LNG supply chain. A 2017 study funded by NGVA Europe, an association which promotes the use of natural gas in vehicles and ships, concluded that LNG as a bunker fuel provides a 21% well-to-wake reduction in GHG emissions compared to convention fuel oil. Evaluating such studies is beyond the scope of this report, although they indicate uncertainty about environmental benefits of LNG fuel, which may require further examination.\nDespite concerns over lifecycle emissions from the natural gas supply chain, in the short term, ships that pair LNG engines with newer vessel designs could reduce onboard GHG emissions. However, whether these GHG emission reductions would be sufficient to meet the future standards could become another issue for ship owners. The IMO has set a provisional goal of reducing GHG emissions from ships by 50% by 2050. Depending upon the state of engine technology, LNG-fueled ships might become less viable if GHG limits were to be established well before 2050. Concerns about such GHG limits might lead to a decrease in orders of LNG-powered ships over time. Commercial vessels have a typical lifespan of over 20 years, so firms ordering new ships have to take into account compliance with potential standards issued decades in the future. If renewable fuels, such as biodiesel, become more available and cheaper in the coming decades, renewable fuel-powered ships may take over part of the market that LNG-powered ships could occupy.",
"A key requirement for ocean carriers to adopt LNG as an engine fuel is the availability of LNG bunkering facilities. Because LNG is extremely cold (-260 °F) and volatile, LNG bunkering requires specialized infrastructure for supply, storage, and fuel delivery to vessels. Depending upon the specific circumstances, LNG bunkering could require transporting LNG to a port from an offsite liquefaction facility for temporary storage at the port, or building an LNG liquefaction terminal on site. Alternatively, LNG could be delivered from offsite facilities directly to vessels in port via truck or supply vessel ( Figure 3 ). Truck-to-vessel LNG bunkering, in particular, provides some fueling capabilities without large upfront capital investments. LNG tanker trucks could also bring LNG to a storage tank built on site at the port, which could then bunker the LNG to arriving ships via pipeline. Supplying LNG using tanker trucks in this way may face capacity limitations due to truck size, road limitations, or other logistical constraints, but it has been demonstrated as a viable approach to LNG bunkering at smaller scales. The predominant method of bunkering today with high-sulfur fuel is vessel to vessel, either by a tank barge or smaller tanker.\nThe type of infrastructure needed to temporarily store (if needed) and deliver LNG within a given port would depend on the size and location of the port, as well as the types of vessels expected to bunker LNG. Truck to ship bunkering is best suited for supporting smaller and mid-sized vessels, such as ferries or offshore supply vessels (OSVs) that support offshore oil platforms. Liquefaction facilities built on site can provide the greatest capacity of any LNG bunkering option, for example, to provide fuel for large vessels in transoceanic trade. However, constructing small-scale liquefaction facilities to produce and deliver LNG on site requires considerable planning and significant capital investment, in one case on the order of $70 million for a mid-sized port.\nEach LNG bunkering option in Figure 3 may be a viable means to begin LNG bunkering service in a given port. However, ports may face practical constraints as bunkering increases in scale. For example, a container port of significant size typically has multiple terminals, so even with an on-site liquefaction facility, it may need additional infrastructure or supply vessels for moving LNG to other port locations where a cargo ship might be berthed. There may also be port capacity and timing constraints upon the movement of LNG bunkering barges trying to refuel multiple large vessels in various locations around a crowded port. To date, the LNG bunkering operations already in place or in development are comparatively small, but scale constraints could become a factor as LNG bunkering grows and might require additional bunkering-related port investments.",
"Early adoption of LNG bunkering occurred in Europe, where the first sulfur ECAs were created in 2006 and 2007. Through Directive 2014/94/EU, the European Union requires that a core network of marine ports be able to provide LNG bunkering by December 2025 and that a core network of inland ports provide LNG bunkering by 2030. This mandate has been promoted, in part, with European Commission funds to support LNG bunkering infrastructure development. In addition, the European Maritime Safety Agency published regulatory guidance for LNG bunkering in 2018. Over 40 European coastal ports have LNG bunkering capability currently in operation—primarily at locations on the North Sea and the Baltic Sea, and in Spain, France, and Turkey. These locations include major port cities such as Rotterdam, Barcelona, Marseilles, and London. Another 50 LNG bunkering facilities at European ports are in development.\nLNG bunkering is also advancing in Asia, led by Singapore, the world's largest bunkering port. Singapore has agreed to provide $4.5 million to subsidize the construction of two LNG bunkering vessels. The Port of Singapore plans to source imported LNG at the adjacent Jurong Island LNG terminal, loading it into the bunkering vessels for ship-to-ship fueling of vessels in port. Singapore also has signed a memorandum of understanding with 10 other partners—including a Japanese Ministry and the Chinese Port of Ningbo-Zhoushan—to create a focus group aimed at promoting the adoption of LNG bunkering at ports around the world. In Japan, one consortium is implementing plans to begin vessel-to-vessel LNG bunkering at the Port of Keihin in Tokyo Bay by 2020. Japan's NYK line, a large ship owner, recently announced that it had reached an agreement with three Japanese utilities to add LNG bunkering to ports in Western Japan. Asian countries, together with Australia and the United Arab Emirates, currently have around 10 coastal ports offering LNG bunkering, with another 15 projects in development.\nSome LNG bunkering operations in Europe and Asia are associated with existing LNG marine terminals, which already have LNG storage and port infrastructure in place. However, many smaller operations—including most of the projects in development—employ trucking, dedicated bunkering vessels, on-site liquefaction, and other means to extend LNG availability beyond the ports with major LNG terminals. LNG bunkering is not so advanced in South America, although with nine operating LNG marine terminals (one for export), and another six in development, South America also could support significant LNG bunkering operations in the near future.",
"LNG bunkering in the United States currently takes place in two locations—Jacksonville, FL, and Port Fourchon, LA—with a third bunkering facility under development in Tacoma, WA. The LNG facilities in these ports serve the relatively small U.S.-flag domestic market. Bunkering of LNG-fueled cruise ships also is planned for Port Canaveral, FL. However, ports in North America have significant potential to expand the nation's LNG bunkering capability.",
"Jacksonville is the largest LNG bunkering operation at a U.S. port. One bunkering facility at the port, developed by JAX LNG, initially began truck-to-ship refueling operations in 2016 for two LNG-capable container ships. (The LNG is sourced from a liquefaction plant in Macon, GA. ) In August 2018, upon delivery of the Clean Jacksonville bunker barge, the facility began to replace truck-to-ship bunkering with ship-to-ship bunkering. In the future, the barge plans to source LNG from a new, small-scale liquefaction plant which JAX LNG is currently constructing at the port. A second facility at Jacksonville's port, operated by Eagle LNG, provides LNG bunkering sourced from a liquefaction plant in West Jacksonville. Eagle LNG also is constructing an on-site liquefaction and vessel bunkering facility in another part of the port, expected to begin service in 2019. Taken together, the JAX LNG and Eagle LNG facilities is expected to establish Jacksonville as a significant LNG-bunkering location with the capability to serve not only the domestic fleet but larger international vessels as well.",
"In 2015, Harvey Gulf International Marine (Harvey) began LNG bunkering operations in the Gulf of Mexico to fuel its small fleet of LNG-powered offshore supply vessels serving offshore oil rigs. Harvey has since constructed a $25 million facility at its existing terminal in Port Fourchon to store and bunker LNG sourced from liquefaction plants in Alabama and Texas. The facility can provide truck-to-ship bunkering services for LNG-fueled offshore supply vessels, tank barges, and other vessels. A Harvey subsidiary has ordered two LNG bunkering barges to enable ship-to-ship fueling in the future.",
"Puget Sound Energy has proposed an LNG liquefaction and bunkering facility at the Port of Tacoma, WA. Vessels traveling between Washington and Alaska typically spend the entire journey within the 200-mile North America ECA. Consequently, vessel owners operating along these routes have been interested in LNG as bunker fuel. TOTE Maritime, for example, a ship owner involved in trade between Alaska and the lower 48 states, has begun the process of retrofitting the engines of two of its container ships to be LNG-compatible.\nThe proposed Tacoma LNG facility would be capable of producing up to 500,000 gallons of LNG per day and would include an 8 million gallon storage tank. The facility would serve the dual purposes of providing fuel for LNG-powered vessels and providing peak-period natural gas supplies for the local gas utility system. Its total construction cost reportedly is expected to be $310 million. Community and environmental concerns have slowed the progress of the proposal, which is still under regulatory review. Puget Sound Energy originally planned to put the LNG facility into service in late 2019; however, permitting issues appear likely to delay its opening until 2020 or later—if it is eventually approved.",
"Q-LNG Transport, a company 30% owned by Harvey, has placed orders for two LNG bunkering barges to provide ship-to-ship LNG fueling as well as \"ship-to-shore transfers to small scale marine distribution infrastructure in the U.S. Gulf of Mexico and abroad.\" Q-LNG's first barge initially is expected to provide fuel to new LNG-fueled cruise ships based in Port Canaveral (and, potentially, Miami), while service from its second barge is still uncommitted. Initial plans are for the LNG to be sourced from the Elba Island LNG import/export terminal near Savannah, GA—approximately 230 nautical miles away—although the company may seek to develop an on-site LNG storage facility in the future.",
"As noted above, U.S. LNG bunkering activities thus far have been limited to a handful of vessels in domestic trade and tourism. LNG bunkering for the much larger fleet of foreign-flag ships carrying U.S. imports and exports is still to be developed. As in Europe and Asia, domestic ports located near major LNG import or export terminals may serve as anchors for expanded LNG bunkering operations. Figure 4 shows existing LNG import and export terminals in North America. LNG can be liquefied from pipeline natural gas (or imported natural gas) and stored in large quantities at these facilities. The LNG can then be bunkered on site or transported to bunkering facilities elsewhere in the region by truck, rail, or barge.\nAs discussed above, the distance between Port Canaveral and Elba Island in Q-LNG's bunker sourcing plan is 230 nautical miles. Taking this distance as a measure of how far away LNG can be sourced and barged economically, it is possible to extrapolate which U.S. ports are within reach of a potential supply of LNG for vessel bunkering. Table 1 lists the top 20 U.S. container shipment ports in the United States and their proximity to existing LNG import/export terminals. Of these top 20 ports, 12 are less than 230 nautical miles from an operating LNG terminal. Distances between LNG terminals and the other East Coast ports are not much greater, suggesting that LNG for vessel bunkering could be within reach of every U.S. port along the Eastern Seaboard and in the Gulf of Mexico.\nOn the West Coast, the ports of Los Angeles and Long Beach—the two largest U.S. ports—are relatively close to the Costa Azul LNG import terminal in Ensenada, MX. Seattle and Tacoma are far from Ensenada, but would be served by the proposed Tacoma LNG bunkering project, if constructed. LNG bunkering for Seattle and Tacoma alternatively could be sourced from an existing LNG port facility around 100 nautical miles north in Vancouver, BC, which is expanding to provide LNG bunkering services to international carriers. Alaska's existing LNG export terminal currently is inactive, but potentially could supply LNG bunker fuel in the Pacific Northwest as well. Although existing LNG import or export terminals in North America could supply LNG for regional bunkering operations, such activities would require additional investment for infrastructure such as LNG transfer facilities and bunker barges. CRS is not aware of any public announcements among the LNG terminals above to develop bunkering operations. However, at least one LNG terminal owner, Cheniere Energy, which operates LNG terminals in Louisiana and Texas, identifies vessel bunkering as one source of future LNG demand growth worldwide.",
"The IMO adopted safety standards for ships using natural gas as a bunker fuel in 2015. The standards, which took effect in 2017, apply to all new ships and conversions of ships (except LNG tankers, which have their own standards). The IMO standards address engine design, LNG storage tanks, distribution systems, and electrical systems. They also establish new training requirements for crews handling LNG and other low flashpoint fuels. As is the case for the sulfur standards, the IMO LNG safety standards apply to all IMO member nations, including the United States. In addition, a number of U.S. federal agencies, especially the Coast Guard and the Federal Energy Regulatory Commission, have jurisdiction over specific aspects of domestic LNG storage infrastructure and bunkering operations.",
"The Coast Guard has the most prominent role in LNG bunkering, given its general authority over port operations and waterborne shipping. In 2015, the Coast Guard issued two guidelines for the handling of LNG fuel and for waterfront facilities conducting bunkering operations. In 2017, the Coast Guard issued additional guidelines to Captains of the Port, the local Coast Guard officials responsible for port areas, for conducting safe LNG bunkering simultaneously with other port operations. The guidelines advise on quantitative risk assessment of facilities bunkering LNG, which allows Captains of the Port to assess the risks posed to crews and facilities.",
"The Federal Energy Regulatory Commission (FERC) plays a role in LNG bunkering due to its jurisdiction over the siting of LNG import and export terminals under the Natural Gas Act of 1938. Specifically, FERC asserts approval authority over the place of entry and exit, siting, construction, and operation of new LNG terminals as well as modifications or extensions of existing LNG terminals. Notwithstanding this siting authority, FERC reportedly does not intend to assert jurisdiction over the permitting of LNG bunkering facilities, but it may require amendment of permits it has issued for LNG import or export terminals to account for bunkering operations added afterwards.",
"In addition to the Coast Guard and FERC, other federal agencies may have jurisdiction over specific aspects of LNG bunkering operations in U.S. ports under a range of statutory authorities. For example, the Pipeline and Hazardous Materials Safety Administration within the Department of Transportation regulates the safety of natural gas pipelines and certain associated LNG storage facilities (e.g., peak-shaving plants). LNG facilities also may need to comply with the Occupational Safety and Health Administration's regulations for Process Safety Management of Highly Hazardous Chemicals. Other federal agencies, including the Environmental Protection Agency, the U.S. Army Corps of Engineers, and the Transportation Security Administration, may regulate other aspects of LNG bunkering projects. CRS is not aware of new regulations to date among these agencies specifically addressing LNG bunkering.",
"World production of LNG has been rising rapidly over the last few years, driven by growth in the natural gas sector in new regions—especially Australia and the United States. According to one industry analysis ( Figure 5 ), global LNG supply is expected to increase from 300 to 400 million metric tons per annum (MMtpa) from 2017 to 2021 based on new LNG liquefaction projects already operating or under development. An additional 150 MMtpa appears likely to come online after that. Collectively, LNG supply from these new liquefaction projects could exceed projections of demand, which would put downward pressure on LNG prices. While increases in the global supply of LNG do not necessarily translate directly into an increase in LNG available for bunkering, such increases could provide options for LNG bunkering in more ports.\nEstimating potential demand for LNG in the maritime sector is complicated and uncertain. One study of future LNG demand for bunkering, specifically, projects that LNG-powered vessels in operation and under construction as of June 2018 will require between 1.2 and 3.0 MMt of LNG per year. The study's review of several LNG consumption forecasts in the maritime sector shows a consensus projection between 20 to 30 MMt per year by 2030. This level of demand growth implies an increase in LNG-powered vessel construction from the current rate of around 120 ships per year to between 400 and 600 new builds per year.\nIf these levels were reached, they could create a significant new market for LNG suppliers. Assuming a Henry Hub spot market price of $4/MMBtu in 2030, the annual market for LNG in shipping could be worth $2.9 billion to $5.8 billion, before accounting for liquefaction and transportation charges. Some studies have projected the LNG bunkering market to be even larger and to grow more quickly. However, key variables—such as the prices of Henry Hub natural gas and crude oil, the number of new vessel orders, and the future costs of emissions technology—are notoriously hard to predict with accuracy. Thus, it is not assured that natural gas consumption in the maritime sector will absorb more than a small amount of the global liquefaction capacity in development.",
"The IMO sulfur standards apply to ship owners globally, as does the development of new LNG supply and bunkering infrastructure. In addition to these factors, domestic LNG bunkering also may be influenced by considerations more specific to the United States. These considerations include growth of the U.S. natural gas supply, domestic shipbuilding opportunities, and LNG safety and security.",
"Because of its leading role in global natural gas production, the United States has a particular interest in any new source of natural gas demand. According to the Energy Information Administration, the United States has been the world's top producer of natural gas since 2009, when it surpassed Russia. In 2017, increases in production outstripped increases in domestic gas consumption, leading to the United States becoming a net exporter of natural gas for the first time in nearly 60 years.\nAs discussed above, North America (primarily the United States) is expected to add the most new LNG production capacity through 2030 when including projects that are operating, under construction, and likely (according to investment analysts). Past increases in U.S. LNG exports were driven by greater throughput at the Sabine Pass LNG export terminal—the only operating U.S. LNG export terminal in 2017. In March 2018, the Cove Point terminal in Maryland became the second operating U.S. LNG export terminal. Four additional projects under construction or commissioning are set to nearly triple U.S. liquefaction by the end of 2019. This increase in liquefaction capacity likely will motivate LNG producers to secure new buyers.\nFigure 6 shows estimated LNG prices for various locations around the world as of October 2018. As the figure shows, LNG prices are substantially lower in North America than in Asia, Europe, and South America. Even after adding $1.00 to $2.00/MMBtu to transport the LNG to overseas ports, LNG produced in the United States is globally competitive at these prices. If LNG from the new liquefaction capacity coming online can be produced and delivered with similar economics, the cost advantage may create an opportunity for U.S. LNG in bunker supply. There are over 400 petroleum fuel bunkering ports in the world, but 60% of bunkering in recent years has happened in six countries: Singapore, the United States, China, the United Arab Emirates, South Korea, and the Netherlands. Of these countries, only the United States is a significant LNG producer. Therefore, the United States could be a favorable source of LNG for domestic bunkering and for bunkering at the other major ports.",
"While the LNG industry historically has had a good safety record, there are unique safety risks associated with LNG in vessel operations. Leakage of LNG during LNG shipping or bunkering can pose several hazards. LNG is stored at temperatures below -162 °C (-260 °F), far below the -20°C at which the carbon steels typically used in shipbuilding become brittle. Consequently, extreme care must be taken to ensure that LNG does not drip or spill onto ship hulls or decking because it could lead to brittle fracture, seriously damaging a ship or bunkering barge.\nLNG spilled onto water can pose a more serious hazard as it will rapidly and continuously vaporize into natural gas, which could ignite. The resulting \"pool fire\" would spread as the LNG spill expands away from its source and continues evaporating. A pool fire is intense, far hotter and burning far more rapidly than oil or gasoline fires, and it cannot be extinguished; all the LNG must be consumed before it goes out. Because an LNG pool fire is so hot, its thermal radiation may injure people and damage vessels or property a considerable distance from the fire itself. Many experts agree that a large pool fire, especially on water, is the most serious LNG hazard. Leaks of boil-off gas (the small amount of LNG that vaporizes in storage) can also release natural gas into a port area and cause fires or explosions. Major releases of LNG from large LNG carriers would be most dangerous within 500 meters of the spill and would pose some risk at distances up to 1,600 meters from the spill. While a bunkering barge or a vessel using LNG for fuel contains far less LNG than large LNG carriers, LNG spills in bunkering operations could still be a significant concern.\nRisks associated with bunkering LNG are complicated in ports seeking to engage in \"simultaneous operations\" during the bunkering process. Simultaneous operations entail loading and unloading cargo and personnel from a ship, maintenance, and other logistical operations performed while a ship is bunkering. Accidents that occur during such operations (for example, the operation of heavy machinery near pipes transporting LNG) can result in a spill of LNG which can threaten workers positioned near the site of operations.",
"LNG tankers, bunkering vessels, and land-based facilities could be vulnerable to terrorism. Bunkering tanks or vessels might be physically attacked to destroy the LNG they hold—and vessels might be commandeered for use as weapons against port or coastal targets. Potential terrorist attacks on LNG terminals or tankers in the United States have long been a key concern of the public and policymakers in the context of large scale LNG imports or exports because such attacks could cause catastrophic fires in ports and nearby populated areas. For example, a 2007 report by the Government Accountability Office stated that, \"the ship-based supply chain for energy commodities,\" specifically including LNG, \"remains threatened and vulnerable, and appropriate security throughout the chain is essential to ensure safe and efficient delivery.\" Affected communities and federal officials continue to express concern about the security risks of LNG. The potential risks from terrorism to LNG bunkering infrastructure may be different than those of larger LNG import or export operations due to smaller quantities of LNG involved, but the risks may become more widespread if LNG bunkering operations are established in more locations.\nThe Maritime Transportation Security Act (MTSA, P.L. 107-295 ) and the International Ship and Port Facility Security Code give the Coast Guard far-ranging authority over the security of hazardous materials in maritime shipping. The Coast Guard has developed port security plans addressing how to deploy federal, state, and local resources to prevent terrorist attacks. Under the MTSA, the Coast Guard has assessed the overall vulnerability of marine vessels, their potential to transport terrorists or terror materials, and their use as potential weapons. The Coast Guard has employed these assessments to augment port security as necessary and to develop maritime security standards for LNG port facilities.",
"The IMO's overall framework for controlling vessels emissions (MARPOL Annex VI) has been in place since 2005. While the United States, as an IMO member, is subject to the IMO's 2020 sulfur standards, the international standards apply equally to all parties and all vessels. The impacts of sulfur standards on bunker fuel have been an important consideration, but IMO member nations have agreed to the standards independent of any particular energy policies. Moreover, MARPOL Annex VI preceded the U.S. shale gas boom, so commitment to that initial IMO framework could not have anticipated United States' current role as a dominant energy producer. Any changes within the international shipping fleet to install sulfur scrubbers, fuel engines with LNG, or switch to other low sulfur fuels, are being driven primarily by market forces in fuel supply, shipbuilding, and shipping—not by any particular push to favor one fuel over another. Nonetheless, given its particular status, the question arises whether the standards may create an economic opportunity for the United States, in energy or otherwise. More specifically, could international adoption of LNG as a bunker fuel create an important new market for U.S. natural gas producers, shipbuilders, or infrastructure developers?",
"As discussed above, depending upon the adoption of LNG bunkering in the global fleet, the LNG bunker fuel market could grow to several billion dollars by 2030. If U.S. LNG producers were to supply a significant share of this market—on the strength of comparatively low LNG production costs—LNG bunkering could increase demand for U.S. natural gas production, transportation, and liquefaction. Opportunities in LNG-related shipbuilding might be more limited, as most of this occurs overseas, with the exception of Jones Act vessels. In the latter case, demand for domestically-constructed LNG bunkering barges could be one significant area of economic growth. Engineering and construction firms could benefit from new opportunities to develop new port infrastructure for LNG storage and transfer. While likely limited in number, such port facilities could be complex, high value projects costing tens or hundreds of millions of dollars to complete. Such projects could create jobs in engineering, construction, and operation, which could be important to local communities.\nAlthough LNG bunkering could present the United States with new economic opportunities, it may pose challenges as well. Rising demand for LNG in the maritime sector could increase natural gas prices for domestic consumers. In addition to being the world's largest natural gas producer, as of 2018, the United States is also the world's largest producer of crude oil and the second largest bunkering hub. Consequently, while vessel conversion to LNG bunkering may increase demand for U.S.-produced natural gas, it could be partially offset by reduced demand for U.S.-produced crude oil or refined products. Exactly how changing demand in one sector could affect the other is unclear. Furthermore, while LNG can reduce pollutant emissions from vessels, emissions and environmental impacts from increased natural gas production and transportation could increase overall emissions. Much of the net environmental impact depends upon practices in the natural gas industry, which are the subject of ongoing study and debate. Although new LNG bunkering infrastructure can create jobs, as the Tacoma LNG projects shows, the construction of such port facilities can be controversial for reasons of safety, security, and environmental impact.\nOverarching the considerations above is uncertainty about how the global shipping fleet will adapt to the IMO sulfur standards over time. This uncertainty complicates decisions related to both private investment and public policy. LNG-fueled ships still account for only a fraction of the U.S. and global fleets, and it may take several decades for significant benefits of LNG-powered vessels to be realized. It is also possible that alternative ship fuels, including biofuels, electric engines, and hybrid engines, will become more economically viable in coming years. Given the uncertainty surrounding the future of LNG as a ship fuel, it is hard to predict the potential benefits or costs that LNG bunkering may provide to the United States.",
"Until now, the private sector has added LNG-fueled vessels to fleets in the United States in a piecemeal manner under existing federal statutes and regulation. Congress could encourage the growth of LNG bunkering by various means, such as providing tax incentives to support the construction of LNG bunkering facilities and vessels, addressing any statutory or regulatory barriers to bunkering facility siting or operations, and providing funding for technical support to domestic carriers seeking to adopt LNG technology. Alternatively, Congress could seek to encourage competing bunker fuel options, such as biofuels, by incentivizing them in similar ways. In addition, Congress could also affect growth in LNG bunkering through policies affecting the LNG industry or domestic shipping industry as a whole. Changes in federal regulation related to natural gas production, or changes to the Jones Act, for example, while not directed at LNG bunkering, could nonetheless affect its economics. Therefore, evaluating the potential implications on LNG bunkering of broader energy, environmental, or economic objectives may become an additional consideration in congressional oversight and legislative initiatives. If LNG bunkering expands significantly in U.S. ports, Congress also may examine the adequacy of existing measures to ensure the safety and security of LNG vessels, storage, and related facilities."
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"question": [
"How does the IMO plan to change maximum sulfur content in vessel fuels?",
"What does Annex VI require regarding sulfur emissions?",
"How might vessel operators meet the IMO 2020 standards?",
"How do LNG engines compare to scrubbers?",
"What does LNG bunkering require?",
"How prevalent is the necessary infrastructure among worldwide ports?",
"How widespread are LNG bunkering-capable ports in Europe?",
"How widespread are LNG bunkering-capable ports in Asia?",
"How is LNG bunkered in the United States?",
"To what extent is LNG bunkering geographically limited?",
"What West Coast ports are near LNG terminals?",
"Why has demand for LNG increased?",
"How have coastal ship operators transitioned to LNG?",
"How might the LNG bunker fuel market change by 2030?",
"How could this potentially affect U.S. LNG-related areas?",
"How might this affect U.S. crude oil and refined products?",
"What safety issues must the Coast Guard consider?",
"Why is the future of LNG bunkering in the United States uncertain?",
"How does this uncertainty affect policy?",
"What additional considerations might Congress face?",
"What considerations might Congress face if LNG bunkering expands?"
],
"summary": [
"In 2008, the International Maritime Organization (IMO) announced a timeline to reduce the maximum sulfur content in vessel fuels to 0.5% by January 1, 2020.",
"Annex VI of the International Convention for the Prevention of Pollution from Ships requires vessels to either use fuels containing less than 0.5% sulfur or install exhaust-cleaning systems (\"scrubbers\") to limit a vessel's airborne emissions of sulfur oxides to an equivalent level.",
"An option for vessel operators to meet the IMO 2020 standards is to install LNG-fueled engines, which emit only trace amounts of sulfur.",
"Adopting LNG engines requires more investment than installing scrubbers, but LNG-fueled engines may offset their capital costs with operating cost advantages over conventional fuels. Savings would depend on the price spread between LNG and fuel oil. Recent trends suggest that LNG may be cheaper in the long run than conventional fuels.",
"LNG bunkering requires specialized infrastructure for supply, storage, and delivery to vessels.",
"To date, the number of ports worldwide that have developed such infrastructure is limited, although growth in this area has accelerated.",
"Early adoption of LNG bunkering is occurring in Europe where the European Union requires a core network of ports to provide LNG bunkering by 2030.",
"LNG bunkering is also advancing in Asia, led by Singapore, the world's largest bunkering port. Asian countries, together with Australia and the United Arab Emirates, have about 10 coastal ports offering LNG bunkering, with another 15 projects in development.",
"LNG bunkering in the United States currently takes place in Jacksonville, FL, and Port Fourchon, LA—with a third facility under development in Tacoma, WA. Bunkering of LNG-fueled cruise ships using barges also is planned for Port Canaveral, FL.",
"The relative locations of other U.S. ports and operating LNG terminals suggest that LNG bunkering could be within reach of every port along the Eastern Seaboard and in the Gulf of Mexico.",
"On the West Coast, the ports of Los Angeles and Long Beach, CA, are near the Costa Azul LNG terminal in Ensenada, MX. Seattle and Tacoma are adjacent to the proposed Tacoma LNG project.",
"Since 2015, Jones Act coastal ship operators have taken steps to transition their fleets to use cleaner burning fuels, including LNG.",
"Shippers of dry goods to Alaska, Hawaii, and Puerto Rico have taken delivery or have ordered LNG-fueled and LNG-capable vessels from U.S. shipyards in Philadelphia, PA, and Brownsville, TX. Another company operates five LNG-powered offshore supply vessels built in Gulfport, MS.",
"Depending upon LNG conversions, the global LNG bunker fuel market could grow to several billion dollars by 2030.",
"If U.S. LNG producers were to supply a significant share of this market—on the strength of comparatively low LNG production costs—LNG bunkering could increase demand for U.S. natural gas production, transportation, and liquefaction. Opportunities in LNG-related shipbuilding might be more limited, as most shipbuilding occurs overseas, although domestically-constructed LNG bunkering barges could be one area of economic growth. Finally, engineering and construction firms could benefit from new opportunities to develop port infrastructure for LNG storage and transfer.",
"However, while vessel conversion to LNG fuel may increase demand for U.S.-produced natural gas, it partially could be offset by reduced demand for U.S.-produced crude oil or refined products.",
"While the LNG industry has experienced few accidents, the Coast Guard has been developing new standards to address unique safety and security risks associated with LNG in vessel operations.",
"The overarching consideration about LNG bunkering in the United States is uncertainty about how the global shipping fleet will adapt to the IMO sulfur standards over time.",
"This uncertainty complicates decisions related to both private investment and public policy. Although Congress has limited ability to influence global shipping, it could influence the growth of LNG bunkering through the tax code and regulation, or through policies affecting the LNG industry or domestic shipping industry as a whole.",
"Evaluating the potential implications of LNG bunkering within the context of broader energy and environmental policies may become an additional consideration for Congress.",
"If LNG bunkering expands significantly, Congress also may examine the adequacy of existing measures to ensure the safety and security of LNG vessels, storage, and related facilities."
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CRS_R43929
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{
"title": [
"",
"Introduction",
"Overview of the Determination of Title I-A Grants Under Current Law",
"LEA Grant Determinations",
"School Grant Determinations",
"State Option: Overview and Possible Issues",
"LEA Grant Determinations",
"School Grant Determinations",
"Analysis of the State Option",
"Methodology",
"Targeting of Assistance",
"Estimated LEA Grants Under the State Option for Selected States",
"Estimated LEA Grants Under the State Option for LEAs with High Numbers or Percentages of Formula Children",
"Additional Considerations",
"Appendix. Estimated FY2015 Title I-A Grants to the Largest LEAs Based on the Number or Percentage of Formula Children"
],
"paragraphs": [
"",
"The Elementary and Secondary Education Act (ESEA) was last amended by the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110 ). The authorization of appropriations for most programs authorized by the ESEA extended through FY2007. As Congress has not reauthorized the ESEA, there is currently no explicit authorization of appropriations for ESEA programs. However, because the programs continue to receive annual appropriations, appropriations are considered implicitly authorized.\nDuring the 114 th Congress, the House Education and the Workforce Committee considered and on February 20, 2015, reported the Student Success Act ( H.R. 5 ), a bill that would reauthorize the ESEA. H.R. 5 would make several changes to current law, but one issue that has attracted substantial congressional interest is a new option that would be available to states for distributing funds available under Title I-A of the ESEA to local educational agencies (LEAs) and schools. In H.R. 5 , this option is referred to as \"Title I Portability\" and \"Title I Funds Follow the Low-Income Child State Option.\" Hereinafter, this option will be referred to as the \"state option.\"",
"Under current law, Title I, Part A, of the ESEA authorizes federal aid to LEAs for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other students attending pre-kindergarten through grade 12 schools with relatively high concentrations of students from low-income families. Title I-A has also become a vehicle to which a number of requirements affecting broad aspects of public K-12 education for all students have been attached as a condition for receiving Title I-A grants. It is the largest program authorized under the ESEA, and is funded at $14.4 billion for FY2015.",
"Annual Title I-A funds are allocated under four different formulas—Basic, Concentration, Targeted, and Education Finance Incentive Grants (EFIG.). For each formula, a maximum grant is calculated by multiplying a \"population factor,\" consisting primarily of estimated numbers of school-age children in poor families, by an \"expenditure factor\" based on state average per pupil expenditures (APPE) for public K-12 education. In some of the formulas, additional factors are multiplied by the population and expenditure factors. These maximum grants are subsequently reduced to equal the level of available appropriations for each formula, taking into account a variety of state and LEA minimum grant or \"hold harmless\" provisions. Only LEAs meeting minimum numbers and/or percentages of children counted in the population factor may receive grants.\nAlthough the allocation formulas have several distinctive elements, the primary factors used in all four formulas are the population factor (i.e., an eligible child count) and expenditure factor. The population factor, commonly referred to as the number of \"formula children,\" includes children ages 5-17 (1) in poor families, (2) in institutions for neglected or delinquent children or in foster homes, and (3) in families above the poverty level receiving Temporary Assistance for Needy Families payments. Each element of the population factor is updated annually. Children in poor families account for about 97% of the total formula child count. The estimated number of children ages 5-17 living in families with an income below the poverty level (i.e., children in poor families) is determined using data from the Small Area Income and Poverty Estimates (SAIPE) data set maintained and updated annually by the U.S. Census Bureau.\nTo receive funding under Basic Grants, an LEA must have at least 10 formula children, and these children must account for more than 2% of those ages 5-17 in the LEA. For Concentration Grants, an LEA must be eligible for a Basic Grant and must have more than 6,500 formula children or formula children must account for more than 15% of those ages 5-17 in the LEA. For both Targeted Grants and EFIG, an LEA must have at least 10 formula children, and these children must account for at least 5% of those ages 5-17 in the LEA. The percentage of formula children in a given LEA is determined by dividing the number of formula children by the total number of children ages 5 to 17 living in the LEA based on SAIPE program estimates.\nThe expenditure factor for the Basic, Concentration, and Targeted formulas is the state APPE for public K-12 education (subject to a minimum of 80% and maximum of 120% of the national APPE for public K-12 education, further multiplied by 0.40), and is the same for all LEAs in that state. For the EFIG formula, the state APPE is subject to more narrow bounds (a minimum of 85% and maximum of 115%). The expenditure factor is included in the Title I-A formulas, in part, to compensate for the cost of education in different parts of the nation and to incentivize states to spend more on public K-12 education, as states that have higher expenditure factors get more Title I-A funding.\nBoth the Targeted and EFIG formulas include weighting schemes to increase aid to LEAs with the highest numbers or concentrations of eligible children. Under both formulas, the poor and other children counted in the formula are assigned weights on the basis of each LEA's school-age child poverty rate and number of school-age children in poor families. As a result, the LEAs with the highest poverty rates and/or number of children in poor families receive the highest grants per child counted in the formula. The EFIG formula also includes an effort factor, based on average per pupil expenditure for public K-12 education compared to personal income per capita for each state compared to the nation as a whole, and an equity factor, based on variations in average per pupil expenditures among the LEAs in each state.\nEach formula has a hold-harmless provision—no LEA may receive less than 85%-95% of its previous-year grant, depending on the LEA's poverty level and whether the LEA continues to meet the formula's eligibility threshold. All four formulas have state minimum grant provisions.\nAfter ED calculates LEA grants, it provides each state education agency (SEA) with information on the calculated grant amount for each LEA. SEAs then make a number of adjustments before determining the final amount that each LEA will actually receive. These adjustments are made to the total amount of Title I-A grants to LEAs under all four formulas combined. The adjustments include (1) reservation of 4% of state total allocations to be used for school improvement grants; (2) reservation of 1% of state total allocations under all formulas for ESEA Title I, Part A, plus Title I, Parts C and D (discussed below), or $400,000, whichever is greater, for state administration; (3) optional reservation of up to 5% of any statewide increase in total Part A grants over the previous year for academic achievement awards to participating schools that significantly reduce achievement gaps between disadvantaged and other pupil groups and/or exceed adequate yearly progress standards for two consecutive years or more; (4) adjustment of LEA grants to provide funds to eligible charter schools or to account for recent LEA boundary changes; and (5) optional use by states of alternative methods to reallocate all of the grants as calculated by ED among the state's small LEAs (defined as those serving an area with a total population of 20,000 or fewer).",
"Unlike other federal elementary and secondary education program funds, most Title I-A funds are allocated to individual schools, although LEAs retain substantial discretion to control the use of a significant share of Title I-A grants at a central district level. While there are several rules related to school selection, LEAs must generally rank public schools by their percentage of students from low-income families, and serve them in rank order. All participating schools must generally have a percentage or number of children from low-income families that is higher than the LEA's average, or a minimum of 35%, whichever of these two figures is lower, although LEAs have the option of setting school eligibility thresholds higher than the minimum in order to concentrate available funds on a smaller number of schools.\nOnce schools are selected, Title I-A funds are allocated among them (and reserved for services to private school students) in proportion to their number of students from low-income families. In a large majority of cases, the data used to determine which students are from low-income families for the distribution of funds to schools are not the same as those used to identify school-age children in poor families for purposes of calculating allocations to states and LEAs. As previously discussed, this is because data are not typically available on the number of school-age children enrolled in a school, or living in a residential school attendance zone, with income below the standard federal poverty threshold. Such \"population in poverty\" estimates, as used in the standard formulas for allocation of funds to states and LEAs (discussed above), are usually available only for LEAs, counties, and states.\nThus, LEAs must use available proxies for low-income status. The Title I-A statute allows LEAs to use the following low-income measures: (1) eligibility for free and reduced-price school lunches; (2) eligibility for Temporary Assistance to Needy Families (TANF); or (3) eligibility for Medicaid. At the level of individual schools, the most commonly used criterion for determining whether students are from low-income families is eligibility for free and reduced-price school lunches. LEAs receiving Title I-A funds use free/reduced-price school lunch data—sometimes alone, sometimes in combination with other authorized criteria—to select Title I-A schools and allocate funds among them. The income eligibility thresholds for free and reduced-price lunches are higher than the poverty levels used in the allocation formulas to states and LEAs: 130% of poverty for free lunches, 185% for reduced-price lunches.\nAfter data have been compiled on the percentage or number of students from low-income families who are either enrolled in an LEA's public schools or residing in the attendance areas served by such schools, available Title I-A funds are allocated among these schools in rank order, beginning with the highest-poverty schools, until no further funds are available. LEAs may choose to consider only schools of selected grade levels (e.g., only elementary schools) in determining eligibility for grants, as long as all schools with 75% or more of students from low-income families receive grants.\nFunds are allocated among schools in proportion to their number of students from low-income families, although grants to eligible schools per student from a low-income family need not be equal for all schools. LEAs may choose to provide higher grants per child from a low-income family to schools with higher percentages of such students (e.g., higher grants per child to a school where 70% of students are from low-income families than to a school where 40% of students are from low-income families). If an LEA provides Title I-A funds to schools with low-income student percentages below 35%, then it must provide a minimum amount of funds per child from a low-income family—equal to at least 125% of the LEA's Title I-A grant per child from a low-income family—to each participating school.\nAt the school level, there are two basic types of Title I-A programs. Schoolwide programs are authorized if the percentage of low-income students served by a school is 40% or higher. In schoolwide programs, Title I-A funds may be used to improve the performance of all students in a school. For example, funds might be used to provide professional development services to all of a school's teachers, upgrade instructional technology, or implement new curricula. The other major type of Title I-A school service model is the targeted assistance program (TAP). This was the original type of Title I-A program, under which Title I-A-funded services are generally limited to the lowest-achieving students in the school. For example, students may receive such instruction in an after-school program or funds may be used to hire a teacher's aide who provides additional assistance to low-achieving students in their regular classroom.",
"Under the state option, Title I-A LEA grants would be calculated by ED using the four formulas prescribed by current statute. However, once the grants were calculated, each state would have the option to reallocate the total amount of Title I-A funds that were \"earned\" by the LEAs in the state using a new formula. States would be permitted to redistribute all of the Title I-A funds received to LEAs based on each LEA's share of enrolled eligible children. An eligible child would be defined as a child from a family with an income below 100% of the poverty level based on the most recent data available from the Department of Commerce. LEAs would, in turn, distribute the funds received to individual public schools in the LEA based on each school's share of enrolled eligible children.\nThus, under the state option Title I-A funding would follow a low-income child to any public school he or she attended. However, the state option's reliance on only a child poverty count to distribute grants to LEAs/schools eliminates a variety of factors used under current law to determine LEA grants. Particularly, it eliminates provisions focused on targeting funds to LEAs where there are concentrations of formula children and hold harmless provisions that cap the amount of funds an LEA can lose from one year to the next, assuming the LEA remains eligible to receive a grant.",
"The data needed to estimate the number of eligible children to calculate LEA grants under the state option are not readily available. The SAIPE estimates used to determine LEA grants under current law do not provide school-level estimates of poverty. As previously discussed, most LEAs use eligibility for free and reduced-price school lunches to allocate funds to schools within LEAs, which has thresholds above 100% of the federal poverty level. Collecting the data needed to implement the state option as described in H.R. 5 may create additional administrative burdens on SEAs, LEAs, and schools to count eligible children.\nIt should be noted that under the state option equitable participation requirements for serving private school students with Title I-A funds would not appear to apply (i.e., it does not appear that private school students would continue to benefit from Title I-A funds as they have since the original enactment of the ESEA).",
"Under the state option, LEAs would no longer make decisions about which schools would receive Title I-A funds or whether to provide a higher grant per child from a low-income family to schools with higher percentages of low-income families. In addition, there would no longer be any criteria for a school to receive Title I-A funds beyond enrolling a single child from a low-income family. That is, all of the current law requirements for providing funds to schools with relatively high concentrations of poverty would no longer apply.\nUnder current law, once Title I-A funds reach the school level schools have the option of running a schoolwide program or targeted assistance program depending on the percentage of children from low-income families served by the school. Under H.R. 5 , all schools would be eligible to operate a schoolwide program. While Title I-A funds would be provided to schools based on a measure of poverty, similar to current law, schools would not be required to use the funds specifically to serve the students who \"earned\" them. For example, a school would receive Title I-A funds if it enrolled a student from a low-income family. This student may not have the greatest academic need, however, so the funds may be used to serve other students. Also, if a student from a low-income family who currently receives Title I-A services changes schools, the student may or may not continue to receive Title I-A services at his or her new school, even though Title I-A funds would now follow the child to any school. It would depend on how the new school chooses to use the funds and the academic need within the school.\nUnder the state option, schools that do not currently receive Title I-A funds could begin to receive grants, as they would no longer have to meet the eligibility requirements under current law to qualify for aid. Some of these schools may have little or no experience with operating a Title I-A program at the school level and may be subject to new requirements. There is currently no explicit option under the state option for a school with relatively few children or a relatively low percentage of low-income children to opt out of participating in the Title I-A program. As the state option is drafted, all schools with even one student from a low-income family would receive Title I-A funds.",
"This section of the report examines estimated grants under the state option. It begins with a discussion of the methodology used to conduct this analysis. This is followed by an examination of how grants would be concentrated by poverty under the state option compared with current law. Next, estimated grant amounts per child in poverty under current law and the state option are examined for selected states. The section concludes with an examination of estimated LEA grants for LEAs with either a high number or percentage of formula children under both current law and the state option.",
"For the purposes of analyzing the possible effects of implementing the state option, estimated LEA grants were determined using SAIPE data. As previously discussed, SAIPE data are produced on an annual basis by the U.S. Census Bureau and provide an estimate of the number of children ages 5-17 living in families with an income below the poverty line. The analysis examining the effects of the state option presented here is based on the SAIPE data for calendar year 2013 that will be used to determine FY2015 Title I-A grants. Thus, these data are not as current as data may be if they are obtained directly from LEAs, as required under the state option. For Part D-2 LEAs, data on the number of delinquent students in the LEA provided by ED used to determine LEA Title I-A grants under the four funding formulas under current law were used in the analysis of the state option as a proxy for a poverty number for these LEAs. It is unclear how these LEAs would actually be treated under the state option, but they have been included in this analysis.\nThe use of SAIPE data to estimate LEA grants under the state option is similar to the formula child count used to make LEA grants under current law. However, the state option's reliance on only a child poverty count to provide grants to LEAs eliminates a variety of factors used under current law to determine LEA grants, particularly provisions focused on targeting funds to LEAs where there are concentrations of formula children and hold harmless provisions that cap the amount of funds an LEA can lose from one year to the next, assuming the LEA remains eligible to receive a grant. As previously discussed, LEAs must meet specific eligibility requirements with respect to their number and percentage of formula children to receive funding under the various Title I-A formulas. Under the state option, an LEA with even one student that meets the definition of an eligible child would receive Title I-A funding.\nThe estimated FY2015 Title I-A grant amounts under current law were calculated by ED and all other estimated grant amounts were calculated by CRS using the most current data available. In instances where data needed to calculate FY2015 Title I-A grants were not available yet, data used to calculate FY2014 Title I-A grant amounts were used instead.\nThis analysis assumes that all states would choose to implement the state option; if a state did not, grants to LEAs would be made based on the provisions of current law. No analysis of Title I-A state grants is provided, as the state option would not alter the amount of funds provided to states. Rather, the state option would change how funds received by a given state based on the provisions of current law were subsequently allocated to LEAs and schools in that state.",
"As previously discussed, the state option essentially nullifies provisions in current law designed to help target Title I-A funds to LEAs where there are concentrations of formula children. Figure 1 shows five quintiles, each containing roughly 20% of the national total of formula children based on the most recent data available to estimate FY2015 grants. As shown in the figure, a higher percentage of Title I-A funds would be provided to LEAs with relatively higher concentrations of formula children (i.e., those in the top two quintiles with concentrations of formula children of 29.09% and higher) under current law (45.19%) than under the state option (40.17%). The state option has the effect of increasing the percentage of funds that would be provided to LEAs with lower concentrations of formula children.\nOne reason for the difference in the targeting of funds between current law and the state option is that both the Targeted and EFIG formulas are designed to provide a higher level of funding per formula child to LEAs with higher numbers or higher percentages of formula children relative to the total number of children ages 5-17 in the LEA. Under the state option, funds \"earned\" by LEAs under the Targeted and EFIG formulas would continue to be awarded to the state in which the LEA was located; the individual LEAs that \"earned\" the funds would no longer benefit from a targeting of funds. Rather, the state would award the total amount of Title I-A funding it received proportionally to LEAs based on their number of eligible children without regard to whether an LEA had a relatively high concentration of eligible children. The amount of funding provided would be the same for every eligible child in the state under the state option.",
"Figure 2 , Figure 3 , and Figure 4 show estimated FY2015 grants per child in poverty for LEAs under current law and the state option in Ohio, Washington, and New Jersey, respectively. Unlike previous comparisons in this report, these comparisons are based on the number and percentage of children in poverty in each LEA based on SAIPE data under both options. As previously discussed, under current law the formula child count used to determine grants to LEAs includes more than just children living in families in poverty, but these children account for about 97% of all formula children. In each graph, each diamond represents an LEA's estimated grant per child in poverty under current law. The solid line represents the estimated grant per child in poverty that an LEA would receive under the state option—all LEAs would receive the same grant amount per child in poverty. Thus, LEAs that are above the line based on current law would receive smaller grant amounts per child in poverty under the state option and vice versa.\nIn each figure, the top graph shows the estimated grants per child based on the percentage of children in poverty. There is a general trend in these graphs showing that the higher the LEA's level of poverty, the higher the grant per child in poverty it would receive under current law. This is due to the targeting included in the formulas under current law. The bottom graph shows estimated grants per child in poverty based on the number of children in poverty in each LEA.",
"Table A-1 and Table A-2 detail the estimated LEA grants under the state option compared with current law for the 25 LEAs with the highest number and highest percentage of formula children, respectively. Each LEA included in these tables is estimated to lose funding under the state option relative to its estimated FY2015 grant under current law.\nMost LEAs with a formula child total of 36% or higher would lose funding under the state option. The exception to this tends to be LEAs that previously had not received Title I-A grants because they did not meet the current law eligibility requirement under any of the four formulas of having at least 10 formula children.\nA gradually increasing number of LEAs with formula children totals below 36% receive higher grants under the state option as the percentage of formula children decreases. There are still LEAs, however, with relatively low percentages of formula children that would lose funds under the state option.\nWith respect to changes in grant amounts based on the number of formula children, the results are more mixed, but there would still be many LEAs with relatively high numbers of formula children losing funds. The pattern may not be as clear as funds under the state option were allocated based on SAIPE data, so LEAs with a higher number of children living in families in poverty would get a higher grant than an LEA with a lower number of such children in the same state. Depending on the particular LEA, though, this may or may not result in a grant amount that is higher than what would have been provided under current law.\nUnder the state option, an LEA's final grant would be calculated without the hold harmless provisions included in each of the four Title I-A formulas. The hold harmless provisions have the effect of preventing a given LEA from losing more than a certain percentage of funding each year. But at the same time, they limit the amount of funding that can shift from LEA to LEA, even if a given LEA has experienced a large increase in the number of children living in poverty. It should be noted that under the state option, a given state would not receive fewer overall Title I-A dollars, as the hold harmless provisions would only be eliminated for the final distribution of funds to LEAs. For example, the Los Angeles Unified School District (CA) would lose an estimated $79 million, a 22.91% decrease from their grant under current law, but these funds would be redistributed to other LEAs in California.\nIn addition, LEAs that would otherwise fail to meet the threshold eligibility requirements under various Title I-A formulas (e.g., 10 or more formula children and formula children must account for 5% or more of children ages 5-17 in the LEA) could benefit from funds that were intended for other LEAs based on statutory language in effect under current law. For example, Loudon County Public Schools (VA) has about 2,812 formula children, and these children account for 3.68% of those ages 5-17 in the LEA. Thus, under current law, Loudon County Public Schools would only meet the eligibility requirements to receive a Basic Grant. However, the school district would gain about $2 million due, in part, to the elimination of the threshold eligibility requirements under the state option.",
"If a state chose to implement the state option, there would be substantial changes in grant amounts at the LEA level for the reasons previously discussed. However, if the state continued to use the state option in subsequent years, the changes in LEA grant amounts would probably not be as substantial across-the-board. There could still be more fluctuations than are currently possible, as the hold harmless provisions under current law prevent an LEA from losing more than 15% of its prior-year grant amount, assuming the LEA remains eligible to receive Title I-A funds under a given formula.\nHowever, if a state implemented the state option one year and then decided not to use it in a subsequent year, there could be substantial changes in LEA grant amounts as a result of changing back to the current law provisions. This could be disruptive to the budgeting processes used by LEAs, especially if a state goes back and forth between current law and the state option multiple times.\nUnlike current law, as long as an LEA or school continued to enroll at least one eligible child, the LEA or school would continue to receive Title I-A funds under the state option. Under current law, it is possible for an LEA to meet the eligibility requirements for a specific Title I-A grant one year and then not meet the requirements the next year, creating some uncertainty from year-to-year. Schools may also meet the requirements for receiving Title I-A funding one year but not the next. In this instance, an LEA has the discretion to provide Title I-A funding to the school for one additional fiscal year.\nAs there are no provisions to indicate that ED should do differently, presumably it would continue to calculate grants as it does under current law and not take into account the actual grant amounts received by LEAs. Under current law, ED uses the prior-year grant amount it calculated to determine the current-year grants without taking into account adjustments to the grant amount made by the states.",
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"question": [
"How are Title I-A grants to LEAs calculated?",
"What requirements must LEAs meet?",
"How is grant information used?",
"How are the funds provided to LEAs?",
"How would the state option alter Title I-A LEA grants?",
"How could states reallocate Title I-A funds?",
"What children would be eligible?",
"How would LEAs distribute funds?",
"How would this affect funding distributions among LEAs?"
],
"summary": [
"Under current law, Title I-A grants to LEAs are calculated based on four formulas specified in statutory language.",
"In order to receive funds under each grant, an LEA must meet certain eligibility requirements related to the number and percentage of children (primarily those living in families in poverty) in the LEA. That is, only LEAs meeting specific thresholds are eligible to receive Title I-A funds.",
"Once the U.S. Department of Education (ED) calculates these grants, the grant information is shared with states, which subsequently make adjustments to these grant amounts based on provisions included in current law.",
"After states make the grant adjustments, funds are provided to LEAs, which subsequently make grants primarily to schools with relatively high concentrations of poverty.",
"Under the state option, Title I-A LEA grants would be calculated at the LEA level by ED using the four formulas prescribed by current statute and the grant allocation information would be provided to the states.",
"However, once the grants were calculated, each state would have the option to reallocate the total amount of Title I-A funds that were \"earned\" by the LEAs in the state using a new formula. States would be permitted to redistribute all of the Title I-A funds received to LEAs based on each LEA's share of enrolled eligible children.",
"An eligible child would be defined as a child from a family with an income below 100% of the poverty level based on the most recent data available from the Department of Commerce.",
"LEAs would, in turn, distribute the funds received to individual public schools in the LEA based on each school's share of enrolled eligible children.",
"This would result in millions of dollars moving among LEAs in a given state: LEAs with the highest numbers or percentages of eligible children would receive lower grants per child in poverty under the state option than under current law so that LEAs with lower numbers or percentages of children in poverty could receive the standard state amount per child in poverty, which would exceed their grant amount per child in poverty under current law."
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CRS_RL31657
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{
"title": [
"",
"Introduction",
"Economic Factors Opposing Parity8",
"Impact of Managed Behavioral Health Care",
"State Mental Health Parity Laws19",
"Mental Health Parity Act of 1996",
"Enforcement of MHPA",
"Enforcement Provisions",
"Tax Code",
"ERISA",
"PHSA",
"Existing Enforcement",
"Federal Employees Health Benefits Program",
"Mental Health Parity Legislation",
"110th Congress",
"Legislative History",
"Impact of Mental Health Parity on Health Care Costs",
"Coverage of DSM-IV Mental Disorders",
"Issues for Congress",
"Persistent Mental Health Benefit Limitations",
"Financial Protection and Access to Quality Care"
],
"paragraphs": [
"",
"In the 110 th Congress, there is a renewed push to expand existing federal mental health parity law. Legislation introduced in the House ( H.R. 1424 ) by Representatives Kennedy and Ramstad, and in the Senate ( S. 558 ) by Senators Domenici and Kennedy, have passed in the respective chambers. On March 5, 2008, the House passed H.R. 1424 by a roll call vote. On September 18, 2007, the Senate passed S. 558 with an amendment, by a voice vote. The Congressional Budget Office (CBO) scored S. 558 and H.R. 1424 and estimated that, if enacted, both bills would increase health insurance premiums by 0.4%.\nOn April 29, 2002, in a speech on mental health care during which he announced the formation of the New Freedom Commission on Mental Health, President Bush urged Congress to enact legislation that would provide full parity in the health insurance coverage of mental and physical illnesses. The President identified unfair treatment limitations placed on mental health benefits as a major barrier to mental health care. Historically, private health insurers have provided less coverage of mental illnesses compared to other medical conditions. For example, health plans have imposed lower annual or lifetime dollar limits on mental health coverage, limited treatment of mental health illnesses by covering fewer hospital days and outpatient office visits, and increased cost sharing for mental health care services. Under full parity, a plan must use the same treatment limitations and financial requirements in its mental health coverage as it does in its medical and surgical coverage.\nThe New Freedom Commission endorsed mental health parity in its final report, issued on July 22, 2003. \"The commission strongly supports the President's call for federal legislation to provide full parity between insurance coverage for mental health care and physical health care,\" the report said, in reference to the President's April 2002 address.\nIn 1996, Congress enacted the Mental Health Parity Act (MHPA), which established new federal standards for mental health coverage offered by group health plans. However, the MHPA is limited in scope and does not compel health plans to offer full-parity mental health coverage. It requires group health plans that choose to provide mental health benefits to adopt the same annual and lifetime dollar limits on their coverage of mental and physical illnesses. Plans may still impose more restrictive treatment limitations or cost sharing requirements on their mental health coverage. Lawmakers recently reauthorized the MHPA through December 31, 2008.\nSenators Domenici and Wellstone introduced full-parity legislation ( S. 543 ) in the 107 th Congress; the measure saw some action but failed to pass. The legislation ( S. 486 ) was reintroduced at the beginning of the 108 th Congress by Senators Domenici and Kennedy. An identical House bill ( H.R. 953 ) was introduced by Representatives Kennedy and Ramstad. No legislative action was taken on either bill. In the 109 th Congress, the MHPA was introduced in the House ( H.R. 1402 ) by Representatives Kennedy and Ramstad. No legislative action was taken on this bill, and no corresponding legislation was introduced in the Senate. For an analysis of the legislative history of federal parity legislation, see CRS Report RL33820, The Mental Health Parity Act: A Legislative History , by [author name scrubbed] and [author name scrubbed].\nPatient advocacy groups and health care provider organizations that support mental health parity argue that there is no longer any scientific justification for discrimination in mental health coverage, which they believe only reinforces the stigma that many in society attach to mental illness. Their efforts to combat discrimination received a boost with the release of the 1999 Surgeon General's Report on Mental Health. The report reviewed the extensive scientific literature on mental health and concluded that mental illnesses were largely biologically based disorders like many other medical conditions. It also found that the efficacy of mental health treatments is well documented, and that effective treatments exist for most mental disorders. Proponents of mental health parity highlight the high costs to society of untreated and undertreated mental illness. The Substance Abuse and Mental Health Services Administration estimated that the direct treatment costs of mental illness in 2001 totaled $85 billion. This does not include the economic costs of lost productivity due to illness, lifetime lost productivity, and other indirect costs.\nEmployer and health insurance associations oppose parity legislation because of concerns that it will drive up costs. Parity supporters refute those claims, pointing to recent studies that indicate that full parity can be implemented without substantial cost increases within the context of comprehensively managed behavioral health care.\nTwenty-eight states have passed laws mandating full-parity mental health coverage. Except Wyoming, all other states have enacted legislation that requires health plans to provide certain specified mental health benefits, but not necessarily full parity. However, employers who have self-insured plans (i.e., the employers pay physicians and hospitals directly) are not bound by state insurance regulations.\nThis report briefly summarizes the economic forces that help explain the persistent limitations on mental health coverage in conventional, fee-for-service (indemnity) health plans. It also discusses issues relating to the feasibility of parity under managed care. In the past decade managed care has transformed the delivery of mental health care services. Employers and health plans now frequently contract out administration of their mental health benefits to specialty managed behavioral health care organizations. The report then reviews state mental health parity legislation and compares the Senate and House versions of the latest full-parity legislation ( S. 558 and H.R. 1424 ) in the 110 th Congress. It concludes with a discussion of some of the key issues in the ongoing congressional debate on mental health parity and discusses why parity may not be enough to provide equivalent financial protection and access to quality care for persons with mental disorders.\nAppendix A provides a side-by-side comparison of the key provisions in the engrossed versions of S. 558 and H.R. 1424 . Appendix B summarizes state mental health parity laws. Appendix C lists, by committee, the mental health parity hearings since the 106 th Congress. Finally, Appendix D provides websites and annotations of various patient advocacy groups and professional associations that have taken a position on mental health parity.",
"Most mental health care used to be delivered and financed by state-run institutions that provided medical treatment, room and board, and vocational activities for individuals with severe psychiatric disorders. In the 1960s, the role of state governments in mental health began to diminish as alternative forms of outpatient and community-based care gradually replaced institutional care. The mental health system over time started to resemble the general health care system, financed by a combination of private and public insurance. However, private insurance coverage for mental health care no longer included some of the nonmedical services provided by state institutions, such as accommodation and employment. In addition, mental health coverage tended to be more restrictive than the coverage for physical illnesses and surgery and include a higher level of cost sharing. The lack of parity in insurance coverage in part reflected insurers' concerns that the costs of mental health care were high and unpredictable. Insurers argued that mental disorders were difficult to define, and that treatments involving long-term, intensive psychotherapy and extended hospital stays were expensive and often ineffective.\nAlthough stigma has played and continues to play an important role in the mental health care debate, differences in insurance coverage of mental illnesses and other medical conditions are also the result of important economic factors. Studies of indemnity insurance have found that the moral hazard problem is more pronounced for mental health care than it is for general medical care. Moral hazard refers to the tendency for patients to demand more services as the price they pay for those services declines. While health insurance, in general, creates incentives for overuse by insulating patients from the total costs of care, research shows that the demand response to reduced cost sharing in mental health care is approximately twice as large as that observed in general medical care. The result has been for insurers to impose higher cost sharing for mental health care.\nInsurers have also restricted their mental health coverage to protect themselves from adverse selection. Adverse selection refers to the tendency for health plans with generous coverage provisions to attract sick (i.e., high-cost) enrollees. The evidence suggests that adverse selection may be an especially powerful force in mental health care. Studies indicate that individuals with mental illness select health plans that offer more generous mental health coverage. Such behavior can create a strong economic incentive for health plans to reduce their attractiveness to users of mental health care.\nWhile competition among plans to avoid enrolling high-risk individuals may represent a good strategy for an individual plan, health economists argue that it is wasteful and inefficient for the health insurance system as a whole. Competition among indemnity insurance plans is seen as an important factor in reducing the level of coverage for mental health care. During the 1970s and 1980s, this argument was used to justify federal and state mandated benefit laws that required insurers to cover minimum levels of mental health care (see below). Some health economists claim that parity can improve the efficiency of insurance markets by reducing wasteful forms of competition that are the result of adverse selection. These commenters note that requiring parity for mental health benefits establishes a uniform \"floor\" of mental health coverage across all plans. Supporters of parity maintain that studies show that implementing parity through managed mental health care will not lead to a significant increase in costs to the insurers.",
"The movement to establish parity for mental health care has been fueled by changes in the scientific understanding of mental illness and the rapid increase in managed behavioral health care (i.e., mental health and substance abuse treatment). Recently revised estimates suggest that about 15% of the adult U.S. population (approximately 30 million individuals) are affected by a clinically significant mental disorder in any given year. Clinicians are often able to diagnose mental illness with precision, and effective treatments now exist for many psychiatric conditions. Some studies show that the effectiveness of treatments for major mental disorders, which typically involve a combination of medication and psychotherapy, often match or exceed the effectiveness of common treatments for physical illness. As noted earlier, proponents of parity argue that untreated and undertreated mental illness has a major impact on the economy and costs employers tens of billions of dollars annually in lost productivity.\nHealth plans frequently subcontract, or carve out, to managed behavioral health care organizations (MBHOs) the management of the mental health (and substance abuse) component of their benefits package. Over the past few years, behavioral carve-outs have become central to the delivery and payment of mental health care. Nearly three-quarters of Americans with health insurance are covered by managed health benefits. SAMHSA has published a report that explores the current design and administration of mental health coverage. The report lays out the necessary components of an adequate mental health benefit by examining the evidence-base for particular benefits; effect on access, utilization, and costs; the components of a cost-effective mental health benefit package; and the effects of benefits administration on effectiveness.\nManaged care is changing the way in which mental health services are provided. Whereas conventional fee-for-service insurance controls the demand for services primarily through cost sharing (e.g., deductibles, co-payments) and treatment limitations, MBHOs influence the treatment decisions of mental health care providers through a variety of techniques, including financial incentives, greater emphasis on preventive medicine, development of treatment protocols, and prior authorization of certain services. Cost sharing and coverage limits assume less importance under managed care, which seeks to control moral hazard by internal rationing methods, rather than having to rely on demand-side cost sharing.\nThe introduction of managed mental health care can reduce spending and in some cases increase plan usage. For example, Pacific Bell lowered its mental health expenditures by 13% when it implemented managed behavioral health care in the early 1990s. The cost reduction was not attributable to decreased initial access to care. The number of persons using any mental health care actually increased following the change. Instead, the cost reduction was the result of fewer outpatient sessions per patient, a reduced likelihood of inpatient admission, a reduction in the length of stay for those admitted as inpatients, and significantly lower costs per unit of service delivered. Massachusetts saw a 25% decline in behavioral health care costs for state employees as a result of introducing managed care in 1993.\nStudies also suggest that MBHOs are able to control the costs associated with mental health parity. In 1996, estimates of the cost of implementing full parity ranged as high as 11% of the total health care premium, which led Congress to limit parity-level benefits in the MHPA. But those estimates did not adequately reflect the impact of managed care and increased use of psychotropic drugs and short-term psychotherapeutics on controlling costs. More recent studies in states that have enacted full-parity laws for mental health coverage provided by managed care plans found that premium increases have been modest. Magellan Health Services, the nation's largest MBHO covering nearly 70 million individuals, reported that it had yet to see a premium cost increase of more than 1% as a result of implementing state mental health parity legislation.\nAt a 2001 Robert Wood Johnson Foundation workshop on the costs of mental health parity, actuaries, economists, and government officials discussed the assumptions and methods used in calculating parity cost estimates. There was broad agreement among the workshop participants that the baseline level of mental health spending has decreased significantly as a result of changes in clinical practice (e.g., use of psychotropic drugs and short-term psychotherapies) and the growth of managed care. Baseline mental health spending is often represented by the share of the total health insurance premium spent on mental health services without parity. Changes in premium costs that result from parity are then expressed as a percentage change in baseline. Workshop participants were also in agreement that managed care has had an important affect on the impact of parity laws. Managed care plans have responded to the expansion of benefits under parity by tightening their internal controls on the use of mental health services so as to dampen any increase in demand and premiums.",
"States began to address inequities in mental health coverage in the 1970s. More than a dozen states enacted laws requiring health plans operating within the state to offer a specific set of mental health benefits. While these mandated-benefit laws increased coverage, they had important limitations. They seldom provided catastrophic coverage against the financial risk of severe mental illness and they did not apply to self-insured employers, which are exempt from state regulation under the Employee Retirement Income Security Act (ERISA).\nIn 1991, Texas and North Carolina became the first states to enact mental health parity legislation. Both state laws were limited in their scope and applied only to insurers that covered state and local government employees. By 1996, when federal parity legislation was enacted (see below), a total of seven states had passed laws that required certain specified state-regulated health plans to provide full-parity mental health coverage. Since then, more than a dozen other states have passed similar legislation, bringing to 28 the total number of states that now mandate mental health coverage with full parity.\nState laws that mandate full-parity mental health benefits vary in the types of health plans covered and also in the types of mental illnesses they cover. In 15 states, the laws apply both to group health plans and to the individual health insurance market, whereas in another 9 of these states they apply only to group plans. In the remaining four states, the laws apply only to state-employee plans. In 12 of the states with full parity laws, the laws apply to the treatment of all the conditions listed in the Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition (DSM-IV). The other parity laws restrict coverage to specified \"serious\" or \"biologically based\" mental illness (e.g., schizophrenia, depression, bipolar disorder). About one-third of the state parity laws exempt small employers, typically those with 50 or fewer employees.\nIn addition to the 28 states that have enacted full parity legislation, 6 states have passed laws mandating a certain minimum level of mental health benefits (but not full parity). Fourteen other states have passed so-called mandated offering laws, under which covered plans that choose to offer mental health coverage must provide a specified minimum level of benefits. The bills currently introduced in the House and Senate are mandated offering laws. See Appendix B for a summary of state parity laws.\nNew Jersey, which in 1999 enacted a full parity law that covers both group plans and the individual market, recently passed legislation that requires individual carriers to offer a policy with minimum mandated mental health benefits. Those benefits include coverage for 90 days of inpatient treatment with a $500 copayment per inpatient stay, and 30 days of outpatient treatment with a 30% coinsurance. The new law does not replace the existing full parity mandate, but is intended to provide individuals with a less expensive alternative to a policy with full-parity coverage. The aim of the law is to allow individuals who might otherwise not be able to afford a policy with full parity to purchase insurance coverage. Texas has also enacted new legislation that allows for the sale of less expensive health insurance policies without state mandates for the treatment of mental illness. An insurer that offers such a policy must also provide at least one policy with state-mandated health benefits.",
"The Mental Health Parity Act (MHPA) amended ERISA and the Public Health Service Act (PHS Act) and established new federal standards for mental health coverage offered by group health plans, most of which are employment based. Identical provisions were later added to the Internal Revenue Code (IRC) by the Taxpayer Relief Act of 1997. The MHPA is not a full-parity law. It requires equivalence in only one area: catastrophic coverage. The MHPA prohibits group plans from imposing annual and lifetime dollar limits on mental health coverage that are more restrictive than those imposed on medical and surgical coverage. Group plans may still impose more restrictive treatment limitations or cost sharing requirements on their mental health coverage compared to their medical and surgical coverage.\nThe MHPA includes several other important limitations. Group plans that choose not to provide mental health benefits are not required to add them, and employers with 50 or fewer employees are exempt from the law. In addition, employers that experience an increase in claims costs of at least 1% as a result of MHPA compliance can apply to the Department of Labor for an exemption.\nThe MHPA standards apply to private-sector, employer-sponsored group health plans, including fully insured and self-insured plans, but not to the individual (nongroup) health insurance market. They also apply to the Federal Employees Health Benefits Program and to some state and local government health plans. Under provisions included in the 1997 Balanced Budget Act ( P.L. 105-33 ), Medicaid managed care plans and State Children's Health Insurance Programs also have to comply with the requirements of the MHPA. The MHPA does not apply to Medicare.\nIn 1999, the General Accounting Office (GAO) reviewed the extent to which employers were complying with the MHPA and how they had revised their health plans. GAO surveyed 863 employers in 26 states without full parity laws. While 86% of the employers reported compliance with the MHPA, a majority of these plans (87%) restricted their mental health coverage in other ways. For example, about two-thirds of MHPA-compliant plans covered fewer outpatient visits and hospital days for mental health treatment than for other medical treatment. Surveys by the Labor Department and the Centers for Medicare & Medicaid Services found similar results.\nMany plans that had to increase annual and lifetime dollar limits to comply with the MHPA reportedly introduced other more restrictive mental health design features to mitigate the financial impact of the law's more generous dollar limits. Despite concerns about the MHPA's effect on claims costs, only 3% of employers surveyed by GAO reported that their costs had increased, and less than 1% of surveyed employers dropped their mental health coverage altogether following the law's enactment. It is difficult to gauge the impact of the MHPA's increased dollar limits, however, because many plans took steps to counter increases in claims costs by restricting mental health coverage in other ways.\nThough limited in its scope, the MHPA nevertheless appears to have added momentum to the passage of state parity laws. All states, except Wyoming, have passed some form of parity legislation since the federal law was enacted in 1996. Some states passed parity laws that essentially mirrored the MHPA, and later strengthened the laws to exceed the provisions of the federal law.\nThe MHPA originally sunset on September 30, 2001. In three separate legislative actions, the 107 th Congress extended the MHPA through the end of 2003. Title VII of the FY2002 Labor-HHS-Education appropriations bill ( H.R. 3061 , P.L. 107-116 ) reauthorized the MHPA in all three federal statutes through December 31, 2002. Section 610 of the Job Creation and Worker Assistance Act of 2002 ( H.R. 3090 , P.L. 107-147 ) further amended the MHPA provisions in the IRC—but not in ERISA or the PHS Act—by extending the authorization an additional year through December 31, 2003. Finally, the Mental Health Parity Reauthorization Act of 2002 ( H.R. 5716 , P.L. 107-313 ) reauthorized the MHPA provisions in ERISA and the PHS Act through December 31, 2003.\nThe 108 th Congress extended the MPHA through the end of 2005. First, the Mental Health Parity Reauthorization Act of 2003 ( S. 1929 , P.L. 108-197 ) reauthorized the MHPA through December 31, 2004. The bill amended the MHPA provisions in ERISA and the PHS Act, but not the IRC. Section 302 of the Working Families Tax Relief Act of 2004 ( H.R. 1308 , P.L. 108-311 ) reauthorized the MHPA through December 31, 2005. P.L. 108-311 amended the MHPA provisions in all three statutes.\nThe 109 th Congress extended MPHA through the end of 2007. In the first session of the 109 th Congress, the Employee Retirement Preservation Act ( H.R. 4579 , P.L. 109-151 ) extended the provisions requiring mental health parity in ERISA, the PHS Act, and the IRC through 2006. In the second session, Section 115 of the Tax Relief and Health Care Act of 2006 ( H.R. 6111 , P.L. 109-432 ) extended the MPHA provisions in all three statutes through 2007.\nThe second session of the 110 th Congress extended MHPA through the end of 2008. On June 17, 2008, Sec. 401 of the Heroes Earnings Assistance and Relief Tax Act of 2008 ( P.L. 110-245 , H.R. 6081 ) passed an extension of MHPA through the end of 2008. The law amends ERISA, the PHS Act, and the IRC.",
"By amending all three federal statutes (i.e., ERISA, the PHS Act, and the IRC), the MHPA standards apply to a broad range of group health plans, as well as state-licensed health insurance organizations. The ERISA provisions apply to most group plans sponsored by private-sector employers and unions. The IRC provisions, which cover ERISA plans plus church-sponsored plans, permit the Internal Revenue Service to assess tax penalties on employers that do not comply with the MHPA requirements. The PHS Act provisions apply to insurers and some public-sector group health plans. Self-insured state and local government health plans may elect exemption from the MHPA\nAlthough states have taken on primary responsibility for the enforcement of many of the mandates as they apply to health insurers, other enforcement actions are available to the Secretaries of the Department of Labor, Department of Health and Human Services, and the Internal Revenue Service. The enforcement provisions that apply through the MHPA (ERISA, Tax Code, and PHSA) are described more specifically below.",
"",
"Tax penalties for violations of federal health mandates take the form of excise taxes that are imposed on employers or, in the case of multiemployer plans, on the health plans. The excise tax for violations of certain group health plan requirements of the MHPA is specified in section 4980D of the Code. The taxes are payable to the U.S. Treasury.\nIn general, the excise taxes are $100 per day of noncompliance for every qualified beneficiary. When violations are discovered after notice of examination, the minimum tax is $2,500, or $15,000 if violations are more than de minimus. The minimum tax does not apply to church plans. When violations are due to reasonable cause and not willful neglect, the maximum tax during a taxable year cannot exceed the lesser of $500,000 or the employer's group health plan expenses for the prior year. In addition, when violations are due to reasonable cause and not willful neglect, the Secretary of the Treasury may waive part or all of the tax if payment would be excessive relative to the failure involved. No taxes apply if failures were not discovered when exercising reasonable diligence or if failures are corrected within certain periods.\nGovernmental plans are not subject to the excise taxes. In addition, with respect to violations of HIPAA's prohibition against discrimination based on health status, certain small church-sponsored plans are not subject to penalties.",
"Section 502 of ERISA establishes a civil enforcement scheme for violations of the statute. In general, ERISA provides only for the recovery of benefits due to a participant or beneficiary under the terms of a plan, or for declaratory or injunctive relief. Courts have uniformly held that other monetary or damage remedies are not available.",
"Enforcement of group health provisions is described in Section 2722 of the PHSA as established by Section 102 of HIPAA. In cases in which HHS is required, because states have not taken on this responsibility, to enforce group market rules regarding preexisting condition exclusion periods, discrimination, guaranteed availability and renewability, and information disclosure, the Secretary may impose civil money penalties on non-conforming health insurance plans. The penalties available include $100 per day for each day and for each individual when such a failure occurs. In imposing the penalty, the Secretary may consider the previous record of compliance of the entity being assessed. There are limitations on this penalty as well. Penalties cannot be applied for failures that are corrected within 30 days of discovery and under other limited circumstances. In addition, the entity assessed may request an administrative review consisting of an initial hearing and judicial review and appeal.",
"Little information is available on enforcement actions related to MHPA by the three agencies.\nA 2003 publication available from the Pension and Welfare Benefits Administration (PWBA) of the Department of Labor, however, summarizes some of the enforcement activity as part of a 2001 compliance project. The project was undertaken to give the Agency a baseline for assessing compliance with the health mandates. PWBA conducted 1,267 investigations of group health plans during 2000-2001 for compliance with 42 specific requirements of the health laws. At that time, just over one-third of plans were out of compliance with at least 1 of 36 substantive provisions of the new laws. Compliance rates dropped further when six provisions requiring plan sponsors to provide notice to enrollees for various reasons were calculated into the rates. As a result of this work, the department initiated a program to help employer plans come into compliance with the laws. The program included additional publications and educational materials, a Web page devoted to compliance assistance, and live workshops around the country.\nThe HHS Centers for Medicare and Medicaid Services were unable to provide information on the use of the civil enforcement penalties under the PHSA. A spokesman for the agency pointed out that such information has not been made publically available to date.\nSimilarly, a contact at the Internal Revenue Service informed CRS that tax penalties are not tracked in a manner that would allow the separate identification of amounts assessed or collected only under sections 4980B and 4980D of the tax code.",
"At the White House Conference on Mental Health in June 1999, President Clinton directed the federal Office of Personnel Management (OPM) to implement full parity for both mental health and substance abuse benefits in health plans offered under the Federal Employees Health Benefits Program (FEHBP) beginning in 2001. The FEHBP parity requirement covers medically necessary treatment for all categories of mental illness listed in the DSM-IV. According to the OPM, parity implementation resulted in an average premium increase of 1.64% for fee-for-service plans and 0.3% for HMOs. FEHBP health plans are providing mental health coverage in a variety of ways. Some plans are using the services of managed behavioral health care organizations, while others are managing their own provider networks. Under FEHBP, mental health parity is required only for services provided on an in-network basis. In-network generally refers to a contracted group of providers established by a managed health care organization and/or an insurance carrier. OPM and the Department of Health and Human Services are conducting a three-year evaluation of the FEHBP parity initiative.\nA recently published study comparing FEHB plans with health plans outside FEHBP that did not mandate parity concluded that implementation of parity in insurance benefits for mental health and substance abuse, when coupled with management of care, resulted in little or no significant adverse impact on access, spending, or quality, while providing users of behavioral health care with improved financial protection in most instances. The researchers analyzed plan benefits data for seven FEHB plans both before (1999 and 2000) and after (2001 and 2002) the introduction of parity. Changes in access, utilization, and cost were compared to changes over the same time period in a matched set of non-FEHB comparison plans (mostly large, self-insured employers). The analysis indicated that the observed increase in the rate of use of mental health and substance abuse services in FEHB plans after implementation of the parity policy was due almost entirely to a general trend in increased use that was observed in the comparison plans. Furthermore, compared to spending trends observed in the non-FEHB plans, the implementation of parity was associated with significant reductions in out-of-pocket spending in five of the seven FEHB plans.",
"",
"On February 12, 2007, Senators Domenici and Kennedy introduced the Mental Health Parity Act of 2007 ( S. 558 ) to amend and expand the MHPA by requiring employer-sponsored group health plans to impose the same treatment limitations and financial requirements on their mental health coverage as they do on their medical and surgical coverage. This bill would amend ERISA and the PHS Act. The bill was referred to the Senate Health, Education, Labor, and Pensions Committee, where it was marked up on February 14, 2007 ( S.Rept. 110-53 ). The Senate passed S. 558 , with an amendment, by voice vote on September 18, 2007. On March 7, 2007, Representatives Kennedy and Ramstad introduced the Paul Wellstone Mental Health and Addiction Equity Act ( H.R. 1424 ), which would amend ERISA, the PHS Act, and the IRC. On July 18, 2007, the House Education and Labor Committee approved H.R. 1424 , with an amendment. The measure, as amended, was approved by the House Ways and Means Committee on September 26, 2007, and by the House Energy and Commerce Committee on October 16, 2007 ( H.Rept. 110-374 ). The House passed H.R. 1424 by a roll call vote of 268-148 on March 5, 2008.\nH.R. 1424 and S. 558 do not mandate full parity. Like the MHPA, they apply only to group plans that choose to offer mental health coverage. H.R. 1424 , which is modeled on the parity requirements in the FEHBP, covers the treatment of all psychiatric conditions listed in the DSM-IV. On the other hand, S. 558 's parity provisions apply only to conditions that the health plan chooses to cover. Both bills would extend parity to in-network and out-of-network mental health benefits. Both bills also exempt small employers with 50 or fewer employees. In an effort to address some of the concerns of the health insurance industry, H.R. 1424 includes language permitting employers and health plans to manage mental health benefits and cover only those treatment services that are medically necessary. Finally, the bills require GAO, within two years, to evaluate the impact of the new federal parity standards on access to insurance coverage and on insurance costs.\nThere are two key differences between the House and Senate parity bills. The first difference is that the Senate version would allow insurance companies to determine which mental illnesses they cover, whereas the House version would require coverage for all mental illnesses (see discussion below). The second key difference is that the Senate version does not explicitly address preemption of state mental health parity laws, whereas the House version explicitly states that it does not preempt state mental health parity laws. For an analysis of the differences between the House and Senate parity bills, see Appendix A . Unlike previous versions of expanded parity legislation, the House and Senate versions in the 110 th Congress include parity for substance abuse treatment services. Another difference between the Senate bill and the previous parity bills is that S. 558 has the support of insurance companies and employers.\nBills that would amend Title XXI of the Social Security Act to provide for equal coverage of mental health services under the State Children's Health Insurance Program passed in the House on August 1, 2007 ( H.R. 3162 ), and in the Senate on August 3, 2007 ( H.R. 976 ).",
"Senators Domenici and Wellstone first introduced the Mental Health Equitable Treatment Act ( S. 543 ) on March 15, 2001. In its June 2000 report to Congress, the National Advisory Mental Health Council (NAMHC) estimated that full parity similar to that provided by S. 543 would raise premium costs by 1.4%, adding that this figure may overestimate the true cost of parity because the forecasting models did not reflect the most recent changes in managed care. Pricewaterhouse Coopers concluded that S. 543 would result in a 1% increase in costs, or $1.32 per enrollee per month. CBO estimated that, on average, S. 543 would increase premiums for group health plans by 0.9%.\nOn August 1, 2001, the Senate Health, Education, Labor, and Pensions (HELP) Committee approved a substitute version of S. 543 ( S.Rept. 107-61 ), which retained most of the major components of the original bill including the full-parity requirement. On October 30, 2001, the Senate added S. 543 as an amendment to the FY2002 Labor-HHS-Education appropriations bill ( H.R. 3061 ). The House version of the Labor-HHS-Education appropriations bill did not include any parity language. During the conference on H.R. 3061 , House conferees rejected the Senate amendment on a party-line vote. Unable to agree on new federal parity standards, the conference voted to reauthorize the MHPA through December 31, 2002. Conferees added language to the conference report ( H.Rept. 107-350 ) \"strongly urging the committees of jurisdiction in the House and Senate to convene early hearings and undertake swift consideration of legislation to extend and improve mental health parity protections during the second session of the 107 th Congress.\"\nThe House Education and the Workforce Subcommittee on Employer-Employee Relations held a hearing on mental health parity on March 13, 2002, followed by a House Energy and Commerce Health Subcommittee hearing on July 23, 2002. On March 20, 2002, Representative Roukema introduced the Senate parity legislation in the House ( H.R. 4066 ), but there was no further legislation action taken before the 107 th Congress adjourned.\nRepresentatives Patrick Kennedy and Jim Ramstad, and Senators Domenici and Kennedy introduced full parity legislation on February 27, 2003, which included the same language as S. 543 , as reported by committee, in the 107 th Congress. During the second session, Senator Daschle introduced the Paul Wellstone Mental Health Equitable Treatment Act of 2003 on November 6, 2003. This bill bears the name of the late Senator Paul Wellstone, who was killed in a small plane crash on October 25, 2002. No further legislative action was taken on this bill in the 108 th Congress.\nThe Paul Wellstone Mental Health Equitable Treatment Act of 2005 was again introduced by Representatives Patrick Kennedy and Jim Ramstad on March 17, 2005. No legislative action was taken on this bill during the 109 th Congress, and no corresponding legislation was introduced in the Senate.\nFor a more detailed legislative history of these bills, see CRS Report RL33820, The Mental Health Parity Act: A Legislative History , by [author name scrubbed] and [author name scrubbed].",
"Federal full-parity legislation has staunch support among patient advocates and mental health provider organizations, who see it as an important step in eliminating what they characterize as inappropriate discrimination in private health insurance coverage of mental illness. But groups representing employers and the health insurance industry strongly oppose the legislation on the grounds that it will add significantly to the dramatically rising costs of health care. They argue that employers cannot afford to spend more money on health insurance coverage for their employees in the current economic climate. They contend that parity costs would likely take the form of increased cost sharing for all covered benefits, reductions in other health care coverage, and/or the elimination of health coverage entirely, which would lead to an increase in the number of uninsured.\nProponents of parity legislation counter that full parity does not significantly increase costs under managed care. They argue that parity can in fact reduce costs to employers by improving productivity and reducing absenteeism. Furthermore, they claim that full-parity coverage lowers overall health care expenditures by eliminating the need for medical care and emergency room visits that result if mental illnesses are left untreated. Some large employers have reported that parity in mental health benefits has had a net positive financial impact. As an example, they cite Delta Airlines. Delta increased mental health benefits for its 69,000 employees in 1994, when it switched to managed care. Use of mental health services increased but costs remained flat. Spending in other areas of health care declined and employees missed less work.\nThe Congressional Budget Office (CBO) scored S. 558 and H.R. 1424 and estimated that, if enacted, both bills would increase health insurance premiums by 0.4%.",
"Employers and health insurers are especially concerned about the broad definition of mental illness in H.R. 1424 . They believe that federal parity legislation should cover only serious mental illnesses or illnesses that have been shown to be related to the biological functioning of the brain (e.g., schizophrenia, bipolar disorder), as do many state laws. S. 558 , which covers only mental illnesses that are specifically included by the health plan, has the support of employers and health insurers. Critics of H.R. 1424 claim that extending coverage to all the mental disorders listed in the DSM-IV opens the door to dubious complaints of less serious problems by the \"worried well.\" They object to providing coverage for many of the conditions that are classified as mental disorders in the DSM-IV (e.g., academic skills disorders, sexual desire disorders) because they are not seen as medically significant.\nParity supporters view opposition to providing coverage of all DSM-IV disorders as stemming, in part, from stigma and the mistaken belief that mental illness does not have a physiological basis. They claim that restricting mental health coverage to a few specified psychiatric conditions is no different than having medical benefits that cover only serious physical disease such as cancer and heart disease. They argue that covering all the DSM-IV disorders is unlikely to lead to abuse or inflated costs for two reasons. First, H.R. 1424 does not prevent plans from managing mental health benefits through such practices as utilization review, preauthorization, the application of medical necessity and other appropriateness criteria, and through the use of provider networks. Second, the DSM-IV establishes a threshold for diagnosis by requiring evidence of \"clinically significant impairment or distress.\" Any claims for treatment of a patient with a mental health condition that was not serious enough to meet that threshold could be excluded on the basis of medical necessity. Advocates of mental health parity also assert that restricting coverage to a few major mental illnesses is penny-wise and pound-foolish. They point out that milder forms of emotional illness often worsen into more serious psychiatric disorders, if left untreated.",
"",
"National employer survey data indicate that despite the passage of state parity laws and changes in the delivery of mental health services, mental health coverage is still not offered at a level comparable to coverage for other medical conditions. A recent analysis of the 2002 Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) Employer Health Benefits Survey found that overall 98% of workers with employer-sponsored health insurance had coverage for mental health care. However, 74% of those covered workers were subject to an annual outpatient visit limit, and 64% were subject to an annual inpatient day limit. The proportion of covered workers subject to annual mental health day and visit limits appears to have increased over the past few years. In contrast, the survey found only 22% of covered workers had higher cost sharing (i.e., copayment or coinsurance) for mental health benefits. This suggests that health plans are relying less on higher cost sharing as a means of limiting the use of mental health services.\nThe 2002 KFF/HRET survey data indicate that about one-third of workers with employer-sponsored health insurance receive their mental health care through carve-outs. Surprisingly, the investigators found relatively little difference in the nominal mental health benefits (i.e., the treatment limitations and cost sharing requirements spelled out in the insurance contract) under carve-outs versus integrated health plans. Carve-outs and integrated plans had similar limitations on the number of inpatient days and outpatient visits. There was also no significant difference in the percentage of covered workers with higher cost sharing for outpatient mental health services in carve-outs compared to integrated plans.\nGiven that MBHOs incorporate supply-side utilization controls rather than relying solely on cost sharing and benefit limits to lower demand, one might expect them to expand mental health benefits while maintaining control over costs. But the KFF/HRET survey data indicate that carve-outs continue to impose special limits and substantial cost sharing on mental health. Some researchers hypothesize that a lack of employer education about the cost advantages of behavioral mental health care management, minimal risk sharing under many carve-out contracts, or a single-minded focus on cost containment could explain why mental health benefit limitations persist. Lingering concerns about adverse selection could also play a role in the persistence of benefit limits.\nOverall, the 2002 KFF/HRET survey findings suggest that mental health parity may be difficult to establish without broader (i.e., federal) parity laws. State parity laws have a limited impact because they do not cover self-insured plans. ERISA exempts self-insured plans from state regulation. About 52% of covered workers are in a self-insured plan, according to the KFF/HRET survey.",
"Mental health analysts often argue that parity laws are an important step in improving the efficiency and fairness of insurance coverage for mental illness. But many are concerned that parity in nominal benefits for mental health care, by itself, is not sufficient to guarantee equal access to high-quality care and equal levels of financial protection for people with mental disorders. For one thing, many mental health services do not have any counterpart in general medical care and are, therefore, unaffected by parity legislation because they do not have to be included in covered benefits. Private insurance usually does not cover day-hospital care, psychosocial rehabilitation, or residential treatment programs, all of which are seen as effective components of mental health care. Moreover, health plans do not cover supervised housing or employment for patients with chronic mental health conditions. Proponents of parity maintain that taking a broader view of access to quality mental health care means encompassing a variety of social-welfare services.\nAdvocates for the mentally ill worry that behavioral health carve-outs may not provide patients with all the appropriate and medically necessary care. While managed behavioral health care has proved effective at controlling the costs of full parity, patient advocates are concerned about management decisions that may result in across-the-board reductions in treatment without regard to clinical circumstances. MBHOs are under pressure to contain costs. The internal management processes that they use to ration treatment are difficult to regulate. Even under federal and state parity laws, MBHOs still retain wide latitude to manage coverage and control access to mental health care in order to achieve cost-control goals. Managed care contacts, with their complex internal rationing devices, are more remote from regulation than the traditional fee-for-service contracts.\nMBHOs maintain that by lowering costs and offering parity-level benefits, patients have greater access to treatment at an earlier point in the development of their illness. This, in turn, they hold, results in less suffering and lower costs associated with that treatment. Moreover, they point to studies that have shown that early, effective treatment of mental illness leads to lower medical costs generally, lower disability costs, and less absenteeism in the workplace. But critics of behavioral carve-outs contend that the managed care tools employed by MBHOs are widening the gap between a plan's nominal benefits and the care actually received by patients. In contrast to using a primary care physician as the gatekeeper to more specialized care, which is a model commonly employed in managed care, MBHOs use a larger range of techniques to manage mental health care (e.g., concurrent utilization review by clinical care managers) and use a different mix of providers and services.\nThe American Psychiatric Association and the American Medical Association (AMA) have criticized carve-outs as discriminatory because they separate behavioral health care from \"mainstream\" health care rather than integrating the two, thus reinforcing the notion that behavioral health is somehow different from other medical conditions.\nResults of the 1996-1998 Health Care for Communities (HCC) national survey relate to analysts' concerns about the impact of parity on access to quality mental health care. The HCC survey concluded that state parity laws have had no discernible impact on the overall use of mental health services. The survey suggested that utilization of mental health care was no higher in parity states than in states without such laws. HCC researchers said their survey supports the view that the insurance market has responded to parity laws by increasing the management of care in order to control costs. They analyzed the self-reported unmet needs among respondents seeking treatment for mental health and substance abuse problems. When unmet needs was defined as delays in receiving treatment or receiving less treatment than desired, significantly more respondents in managed care reported unmet needs than those enrolled in indemnity insurance. However, when unmet needs was defined as obtaining no care, those in managed care reported unmet needs less often. According to the HCC researchers, results of the survey reinforce concerns about the impact of parity on access to quality health care.\nA recent study of the implementation of Vermont's 1998 parity law also found that the increased use of managed care, while helping make health care more affordable, may have reduced access and utilization for some services and beneficiaries. The study examined the experiences of the state's two largest health insurers—Kaiser/Community Health Plan (Kaiser/CHP) and Blue Cross Blue Shield of Vermont (BCBSVT)—which together covered nearly 80% of Vermont's privately insured population at the time the parity law was implemented. Vermont's parity law, one of the nation's most comprehensive, covers both mental health and substance abuse treatment services.\nAs a result of the law, both plans made changes to their management of mental health and substance abuse (MH/SA) services. Managed care was an important factor in controlling costs following implementation of parity. Before the parity law took effect, BCBSVT provided MH/SA services mainly through indemnity contracts. After parity, most BCBSVT members received those services through a managed care carve-out and reported a decline both in the likelihood of obtaining mental health treatment and in the average number of outpatient visits. Kaiser/CHP, which had managed care prior to the parity law, increased the use of partial hospitalization treatment and group therapy and reduced the use of inpatient treatment. Overall, MH/SA spending fell by 8-18% after parity was implemented, despite lower consumer out-of-pocket costs and higher limits on the use of MH/SA care.\nFinally, parity helps only people who have health insurance. It does not address the larger questions concerning the 17.5% of the U.S. population with no health insurance.\nAppendix A. Comparison of Key Provisions in the Mental Health Parity Act of 2007 (S. 558) and the Paul Wellstone Mental Health and Addiction Equity Act of 2007 (H.R. 1424)\nAppendix A.\nAppendix B. State Mental Health Parity Laws\nAppendix C. Mental Health Parity Hearings\nAppendix D. Mental Health Parity Websites\nPatient Advocacy\nNational Alliance for the Mentally Ill http://www.nami.org National Mental Health Association http://www.nmha.org Bazelon Center for Mental Health Law http://www.bazelon.org Suicide Prevention Action Network USA http://www.spanusa.org\nProfessional Associations: Health Care Providers\nAmerican Psychiatric Association http://www.psych.org American Psychological Association http://www.apa.org American Medical Association http://www.ama-assn.org American Managed Behavioral Healthcare Association http://www.ambha.org\nProfessional Associations: Employers and Health Plans\nAmerican Health Insurance Plans http://www.ahip.org ERISA Industry Committee http://www.eric.org"
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"question": [
"What mental health parity legislation has the 110th Congress passed?",
"To what extent have these bills found support?",
"To what extent do health insurance groups support the legislation?",
"How have past attempts at mental health parity legislation fared?",
"How does private coverage for mental illnesses compare to that of other medical conditions?",
"How have health plans limited coverage for mental illnesses?",
"What does this disparity indicate?",
"How do these concerns compare to the 1999 Surgeon General's report?",
"How do economic factors affect insurance coverage?",
"How does the possibility of adverse selection affect mental health coverage?",
"How do health plans commonly subcontract mental health benefits?",
"To what extent does managed care increase mental health costs?",
"To what extent is parity sufficient to provide equal access to quality care?",
"To what extent is full-parity mental health coverage mandated in the United States?",
"How does the MHPA compare to the state laws?",
"How does MHPA affect group plans which offer mental health benefits?",
"How was MHPA extended?"
],
"summary": [
"In the 110th Congress, the Senate and House have passed different versions of expanded mental health parity legislation (S. 558 and H.R. 1424).",
"These bills have always been strongly supported by advocates for the mentally ill and have had broad, bipartisan support in Congress.",
"Although employers and health insurance groups opposed the legislation in the past because of concern that it would drive up costs, the provisions in S. 558 now have their support.",
"Expanded parity legislation was introduced in the 107th, 108th, and 109th Congresses, but each time it failed to pass.",
"Private health insurers often provide less coverage for mental illnesses than for other medical conditions.",
"Historically, health plans have imposed lower annual or lifetime dollar limits on mental health coverage, limited treatment of mental health illnesses by covering fewer hospital days and outpatient office visits, and increased cost sharing for mental health care by raising deductibles and copayments.",
"The lack of parity (i.e., equivalence) in part reflects insurers' concerns that mental disorders are difficult to diagnose, and that mental health care is expensive and often ineffective.",
"However, the 1999 Surgeon General's report on mental health concluded that mental illnesses are largely biologically based disorders, like many other medical conditions.",
"Differences in insurance coverage of mental illnesses and other medical conditions are also the result of economic factors. Studies indicate that demand response of mental health patients to reduced cost sharing is approximately twice as large as that observed in general medical care. Partly as a consequence, insurers impose higher cost sharing for mental health.",
"Insurers have also restricted mental health coverage to protect themselves against adverse selection (i.e., the tendency for plans with generous mental health coverage to attract patients with mental illnesses that are costly to treat).",
"Health plans frequently subcontract management of the mental health component of their benefits to specialized managed behavioral health care organizations (MBHOs).",
"Recent studies have shown that there is no significant increase in mental health costs to the insurer when parity is implemented in the context of managed care.",
"Some analysts argue that parity alone is not sufficient to guarantee equal access to quality care and equal financial protection for people with mental disorders.",
"Twenty-eight states have laws that mandate full-parity mental health coverage, though these laws do not apply to self-insured group plans.",
"In 1996, Congress enacted the Mental Health Parity Act (MHPA), which is more limited in scope and does not compel insurers to provide full-parity coverage.",
"For group plans that choose to offer mental health benefits, the MHPA requires parity only for annual and lifetime dollar limits on coverage. Group plans may still impose more restrictive treatment limitations and cost sharing requirements on their mental health coverage.",
"On June 17, 2008, the President signed into law (P.L. 110-245) the extension of MHPA through 2008."
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GAO_GAO-18-226
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{
"title": [
"Background",
"DOD Included Information on the Six Required Reporting Elements but Additional Information May Benefit the Commission’s Ongoing Review",
"DOD Included Information on the Six Required Reporting Elements in Its Report",
"Additional Information May Be Useful for the Commission’s Ongoing Review of the Military Selective Service Process",
"Agency Comments",
"Appendix I: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"The Military Selective Service Act established the Selective Service System whose mission is to be prepared to provide trained and untrained manpower to DOD in the event of a national emergency when directed by the President and the Congress. Additionally, the Selective Service System is to be prepared to implement an alternative service program within the civilian community for registrants classified as conscientious objectors during a draft. The Selective Service System is an independent agency, and it maintains a database that includes the names, birthdates, social security numbers, and mailing addresses of men ages 18 through 25 who could be drafted into the service of our nation, if needed, in the event of a national emergency. Further, the Selective Service System also is to conduct peacetime activities, such as public registration awareness and outreach; responding to public inquiries about registration requirements; and providing training and support to its workforce of career, non-career, full-time and part-time employees, uncompensated employees, and selected military personnel.\nThe Military Selective Service Act does not currently authorize the use of a draft for the induction of persons into the armed forces. In order to meet a national emergency requiring a mass mobilization, Congress and the President would be required to enact a law authorizing a draft to supplement the existing force with additional military manpower. In the event of a draft, the regulation governing the Military Entrance Processing Stations would have the Under Secretary of Defense for Personnel and Readiness, with input from the military services, provide the Director of the Selective Service System with the number of personnel needed to be drafted. The Selective Service System would then conduct a lottery and send induction notices to selected draftees to supply the personnel requested by the Secretary of Defense. Each draftee would be required to report to one of DOD’s 65 Military Entrance Processing Stations throughout the country at a specific time and date to undergo assessments of their aptitude, character, and medical qualifications in order to determine whether they are fit for military service based on standards set by each military service. Fully qualified draftees would receive induction orders and would be transported from one of the Military Entrance Processing Stations to the appropriate military service’s entry- level training location. According to DOD, the Selective Service System must deliver the first inductees within 193 days from when the President and the Congress authorize a draft, and the military services then are to train, equip, and accommodate in other ways the new inductees.\nThe military services are generally smaller today than they have been in many years. In fiscal year 2003, for example, DOD’s total active military end strength was approximately 1.5 million, while in fiscal year 2017 the number was 1.38 million. Additionally, DOD’s total workforce mix has also changed. For example, in late 2003 DOD directed the military services to convert certain military positions to federal civilian or contract positions based on evaluations that showed that many military personnel were being used to accomplish work that was not military essential and that civilians could often perform these tasks in a more efficient and cost- effective manner than military personnel. In May 2013, we reported that DOD officials stated that about 50,000 military positions were converted to DOD federal civilian positions or to contractors since fiscal year 2004 in order to devote more military positions to the support of ongoing military operations.\nUnder current law, women may serve voluntarily in the armed forces but are not required to register with the Selective Service System. In the 1981 case of Rostker v. Goldberg, the Supreme Court of the United States upheld the constitutionality of our nation’s practice of registering only men. Recognizing the purpose of registration was to prepare for a draft of combat troops and since women were excluded from combat, the Supreme Court ruled that Congress could exclude women from registration. DOD gradually began to eliminate prohibitions on the assignment of women to direct ground combat positions and on January 24, 2013, the Secretary of Defense and the Chairman of the Joint Chiefs of Staff rescinded a 1994 rule preventing women from serving in direct ground-combat positions and directed the military services to open all closed positions and occupations to women by January 1, 2016. In December 2015, the Secretary of Defense announced that all military occupational specialties were open to women and removed all final restrictions on the service of women in combat. As part of the congressional notification process when DOD decided to open previously- closed positions and occupations to women, the department was required to provide a detailed legal analysis of the implications of the proposed change with respect to the constitutionality of the Military Selective Service Act to men only. DOD’s July 2017 report on the purpose and utility of a registration system for military selective service stated that in December 2015, DOD advised Congress that the opening of all positions and occupations to women “further alters the factual backdrop” to the Supreme Court’s ruling on a challenge to the exemption of women from selective service registration. However, the report stated that DOD took no further stance on the legal issues raised by the then-Secretary of Defense’s decision to open all military positions to women. Further, DOD stated that it would consult with the Department of Justice as appropriate regarding these issues.",
"",
"DOD included information on each of the six required reporting elements in its July 2017 report to Congress and the Commission on the purpose and utility of a registration system for military selective service, as shown in table 1. In preparing the report, officials within the Office of the Assistant Secretary of Defense for Manpower and Reserve Affairs stated that they coordinated and consulted with subject matter experts at the Selective Service System and the Joint Staff as well as with officials from selected organizations within the Office of the Secretary of Defense, including the U.S. Military Entrance Processing Command. Further, the DOD report references internal DOD documents, a policy publication from the Congressional Research Service regarding Selective Service issues, statements from former DOD executives, and publications from contributing authors on web-based foreign policy and national security discussion sites for additional support.",
"While DOD included information on the six required reporting elements in its report, we identified additional information that may be useful in supporting the ongoing review of the military selective service process by the Commission. Specifically, based on our review of DOD’s report and our prior work, the Commission could benefit from additional information on (1) DOD’s requirements and timelines for the induction of individuals into the military services who are selected through a draft, and (2) the perspectives of the military services on the military selective service processes.\nFirst, one of the six required reporting elements in the NDAA for FY 2017 required DOD to provide a detailed analysis of its personnel needs in the event of an emergency requiring a mass mobilization, along with a timeline for obtaining these inductees. In response, DOD provided the personnel requirements and a timeline that was developed in 1994 and that have not been updated since. These requirements state that, in the event of a draft, the first inductees are to report to a Military Entrance Processing Station in 193 days and the first 100,000 inductees would report for service in 210 days. DOD’s report states that the all-volunteer force is of adequate size and composition to meet DOD’s personnel needs and it has no operational plans that envision mobilization at a level that would require a draft. Officials stated that the personnel requirements and timeline developed in 1994 are still considered realistic. Thus, they did not conduct any additional analysis to update the plans, personnel requirements, or timelines for responding to an emergency requiring mass mobilization. Further, they said that they were limited in the amount of time that they were given to respond to the congressional mandate and that they believed it would be most helpful to produce a report that provided basic information that could serve as a starting point for the Commission to begin a more in-depth review of the military selective service process. As previously discussed, in 2012, we reported that changes in the national security environment require DOD and the services to reassess their force structure requirements, including how many and what types of units are necessary to carry out the national defense strategy. We reported that these changes represented junctures at which DOD could systematically reevaluate service personnel levels to determine whether they are consistent with strategic objectives. As such, we recommended that DOD establish a process of periodically reevaluating DOD’s requirements for the Selective Service System in light of changing operating environments, threats, and strategic guidance. Since DOD did not perform additional analysis to reevaluate its requirements or timelines for obtaining inductees to respond to this mandate and the most recent requirements were determined based on assumptions developed in 1994, we continue to believe our 2012 recommendation is valid. An updated analysis would also benefit the Commission by informing their study and recommendations.\nSecond, the military service officials that we met with told us that their perspectives on the selective service processes that would affect them had not been solicited in the preparation of DOD’s report. For example, while the military services are responsible for training inductees upon their mobilization and integrating them into the force, service officials expressed concerns to us regarding whether, for example, they would have the training facilities, uniforms or funding to receive, train, equip, and integrate a large influx of inductees in the event of a draft. Additionally, the services are expected to provide support to the Selective Service System during a national emergency. A 1997 memorandum of understanding between the Selective Service System and DOD indicates, among other things, that the Department of the Army will provide 1,500 enlisted Army retirees to augment the Selective Service System within 72 hours after a draft is initiated. According to officials within the Office of the Under Secretary of Defense for Personnel and Readiness-Military Personnel Policy, this memorandum of understanding was reviewed and revalidated in 2014. However, Army officials told us that they believed some of their service-specific procedures might require updates identifying individuals to augment the Selective Service System’s staff, especially the retired personnel that would need to be recalled to duty. They thought it would be beneficial for officials within the Office of the Secretary of Defense to conduct a thorough, top-down review, and lead an update of service instructions related to supporting a draft to ensure the services are prepared to provide their share of personnel if needed. These Army officials said, however, that their higher Army headquarters saw no operational reason to review their policies and procedures related to mass mobilization given that DOD has no operational plans that envision mobilization at a level that would require a draft.\nAs discussed previously in this report, DOD’s workforce mix has been changing. For example, over the last decade, the use of unmanned aerial systems has emerged as an integral part of warfighting operations and the demand for their use has outpaced the Air Force’s ability to produce pilots to operate them. Additionally, each of the services has reported critical skill gaps in such areas as various military medical specialties. Further, challenges exist in identifying cyber capabilities of all National Guard units, as required by law, which could be used for the support of a cyber-related emergency. Officials from the Office of the Under Secretary of Defense for Personnel and Readiness-Military Personnel Policy stated that critical skills identified as necessary today may not be the critical skills needed in future crises. Additionally, they said that creating and maintaining tools, such as databases of individuals with these needed critical skills, is costly and may become outdated quickly. We agree that the requirements for critical skills will evolve over time; however, any discussion of a draft using the selective service process— as presented in DOD’s July 2017 report—that focuses on specific military occupational specialties would benefit from the perspectives and input of officials from the military services and the impact a draft may have on meeting those demands. Specifically, these officials would be helpful in identifying the needed critical skill sets for their emerging mission demands and the impact a draft may have on meeting those demands.\nDOD officials within the Office of the Assistant Secretary of Defense for Manpower and Reserve Affairs stated that they are currently collecting the perspectives of the military services on the selective service process and plan to provide this information to the Commission. DOD officials explained that they did not incorporate information from the military services into their report because DOD’s involvement in any potential decision to initiate and implement a draft is mostly centralized within the Office of the Secretary of Defense, not within the individual military services. They further stated that information regarding the level of additional personnel that would be needed using a draft in the event of a national emergency comes from the war plans that are developed and maintained by the Joint Staff. Additionally, they said that they primarily produced a report that characterized the overall processes and was a factual account of how DOD interacts with various aspects of the Selective Service System.\nAnother provision within the NDAA for FY 2017 required the Secretary of Defense and other Cabinet-level government officials, along with any experts designated by the President, to submit to the Commission and Congress recommendations for the reform of the military selective service process not later than 7 months after the Commission’s establishment date. To accomplish this, officials from the Office of the Assistant Secretary of Defense for Manpower and Reserve Affairs said that they initially developed a questionnaire on which the Commission provided feedback. These officials stated that they sent it to 18 organizations, including the Cabinet positions listed in the act and to additional organizations that were recommended by the National Security Council or that had some role or responsibility in the event of a draft. In order to produce the Secretary of Defense’s submission, these officials further stated that they requested each of the military services and the Joint Staff to complete the questionnaire by November 2017. Further, these officials viewed the questionnaire as an opportunity for the respondents—the military services in the case of DOD—to provide their ideas regarding military selective service processes, both current and future.",
"We provided a draft of this report to DOD for review and comment. In an email, the Director of Accession Policy within the Office of the Deputy Assistant Secretary of Defense for Military Personnel Policy stated that the military services concurred with the report and DOD had no additional comments.\nWe are sending copies of this report to the appropriate congressional committees; the National Commission on Military, National, and Public Service; the Secretary of Defense; the Acting Assistant Secretary of Defense for Manpower and Reserve Affairs; the Commander, U.S. Military Entrance Processing Command; the Secretaries of the Army, the Navy, and the Air Force; the Commandant of the Marine Corps; and the Director, Selective Service System. 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) 512-3604 or farrellb@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 I.",
"",
"",
"In addition to the contact named above, Kimberly Seay, Assistant Director; Rebecca Beale; Vincent Buquicchio; Mae Jones; Kevin Keith; Jordan Mettica; and Amber Sinclair made key contributions to this report."
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"question": [
"What did the fifth required reporting element require from DOD?",
"How did DOD respond to this requirement?",
"Why did DOD not conduct additional analysis?",
"What did GAO recommend regarding DOD's requirements for selective service?",
"How did DOD respond to the recommendation?",
"To what extent did DOD review the perspectives of military service officials in their report?",
"Why are the perspectives of military service officials important?",
"How is DOD planning to make use of this information in the future?",
"Why was the Selective Service System established?",
"How did the NDAA for FY2017 affect the Military Selective Service Act?",
"How did the act ensure the selective service process would be reviewed?"
],
"summary": [
"The fifth required reporting element required DOD to analyze its personnel needs in the event of an emergency requiring mass mobilization and a timeline for obtaining these inductees.",
"In response, DOD provided the personnel requirements and timeline that were developed in 1994 and that have not been updated since.",
"DOD officials stated that they did not conduct additional analysis to update these requirements because the all-volunteer force is of adequate size and composition to meet DOD's personnel needs.",
"In 2012, GAO recommended that DOD establish a process to periodically reevaluate DOD's requirements for the Selective Service System.",
"Although DOD concurred with this recommendation, it has not yet implemented it. GAO believes this recommendation is still valid. Having updated DOD Selective Service System requirements and timelines for a potential draft may be useful in supporting the ongoing evaluation of the military selective service process by the Commission.",
"Further, military service officials told GAO that their perspectives on how selective service processes that could affect them had not been solicited in the preparation of DOD's report.",
"Since the military services are to receive, train and integrate the inductees; provide support to the Selective Service System during a national emergency; and could help identify critical skill sets needed to meet emerging demands and the impact a draft could have on meeting those demands, the military service officials' perspectives could be useful to the Commission.",
"DOD officials stated that they are currently collecting these perspectives and plan to provide this information to the Commission.",
"The Military Selective Service Act established the Selective Service System whose mission, among other things, is to be prepared to provide trained and untrained manpower to DOD in the event of a national emergency when directed by the President and the Congress.",
"In the NDAA for FY 2017, Congress included a provision requiring that DOD submit a report on the current and future need for a centralized registration system under the Military Selective Service Act.",
"In addition, the act established a Commission to review, among other things, the military selective service process and report on it."
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{
"title": [
"",
"Introduction1",
"Franked Calls Versus Campaign Calls",
"Federal Disclaimer and Disclosure Requirements",
"Federal Election Commission Requirements",
"Federal Communications Commission Requirements",
"Automated Political Calls: Uses and Industry",
"The Automated Political Calls Industry",
"Spending Estimates",
"Lack of Clear Spending Data: A Brief Case Study",
"Frequency of Calls and Voter Reaction",
"Effect on Voter Turnout",
"Campaign Enforcement Issues",
"FEC Activity",
"Professional Enforcement",
"Recent Legislation",
"Policy Options",
"Maintain the Status Quo",
"Gather Additional Data",
"Encourage Voluntary Changes by Practitioners",
"Revise Disclosure Requirements",
"Revise Disclaimer Requirements",
"Revise the Do Not Call Framework",
"Restrict the Timing or Number of Calls",
"First Amendment Considerations",
"Conclusion",
"Appendix. Research Methodology"
],
"paragraphs": [
"",
"Automated political calls generally include prerecorded messages that provide information about candidates or urge voters to go to the polls. They are also used to announce events and solicit campaign volunteers. The calls are an inexpensive way to reach large numbers of voters quickly. The calls can therefore play an important role in get-out-the-vote (GOTV) and voter-education activities. Those who oppose the calls generally argue that they are intrusive, that too many calls are placed to individual voters, or that they are too often used to convey negative information. Identifying those responsible for calls is also a concern.\nThe Federal Election Campaign Act (FECA) does not require detailed reporting about automated political calls. Political committees also have few incentives to make information about automated calls public. In addition to this lack of data from regulators and practitioners, campaign tactics and political consulting receive limited scholarly attention. Academic research that does exist tends to focus on campaign strategists, especially political consultants such as pollsters and media specialists. By contrast, those providing automated political calls (so-called \"vendors\") often receive limited attention.\nAutomated calls remain a prominent campaign tactic and continue to appear on the congressional agenda. Thus far, however, legislative developments on the issue have been quieter in the 111 th Congress than during the 110 th Congress. Several bills introduced in the 110 th Congress would have imposed additional regulations on automated political calls, but would not necessarily apply to all circumstances in which the calls are used. Legislation on the topic has also been introduced in the 111 th Congress. Many of the concerns surrounding automated political calls are not about the calls themselves, but about how those calls are used. Congress, therefore, has various options for addressing automated political calls, if it chooses to do so at all. Aside from maintaining the status quo, one relatively cautious option would be gathering additional data before choosing a policy approach. Federal agencies and the oversight process could provide such information. Another relatively limited approach would be to encourage voluntary changes by practitioners. By contrast, if Congress chose to require policy changes, it could add political calls to the do not call list or restrict the timing or number of calls. Finally, Congress could place additional disclosure or disclaimer requirements on political calls. Some of those options would likely involve difficult questions about which groups and messages are devoted to campaign activities versus policy advocacy.",
"This report focuses on how automated calls are used during campaigns. From the outset, however, it is important to remember that not all automated calls containing political information are campaign-related. Although automated campaign calls can be controversial, many Members reportedly find official (franked) automated calls useful. According to one political consultant, official automated calls have been used to announce \"town hall\" meetings, solicit constituent input on votes, and provide information about federal programs (e.g., student loans). House Commission on Congressional Mailing Standards staff reported similar uses for franked calls, which have become increasingly common. Discussion at a December 2007 hearing held by the Committee on House Administration, Subcommittee on Elections, suggested a desire among some Members to curtail unwanted campaign calls while preserving official calls.",
"Automated political calls are subject to relatively little federal regulation, although approximately 20 states reportedly restrict or ban such calls, or are attempting to do so. FCC and FEC regulations each place different restrictions on automated political calls. The FEC regulations apply only to political committees or individuals engaged in express advocacy, which proposes election or defeat of federal candidates. By contrast, the FCC regulations appear to apply to all prerecorded or automated calls, regardless of whether they are political or commercial. Regulations promulgated by both agencies require that automated political calls provide certain identifying information. Finally, the Federal Trade Commission's (FTC) National Do Not Call Registry exempts political calls. Therefore, even individuals whose telephone numbers appear on the registry may still receive automated political calls.",
"FECA does not specifically address automated political calls. However, the FEC has determined that various requirements related to political advertising apply to automated calls. In particular, \"telephone banks\" are included in the definition of \"public communications,\" a form of political advertising that must contain certain information.\nMessages from telephone banks (and other sources) paid for by authorized political committees (i.e., candidates' principal campaign committees), must contain what FEC regulations refer to as a \"disclaimer\" clearly stating that the committee paid for the communication. Similarly, messages not authorized by candidate committees (e.g., by party committees) must clearly state that a candidate committee is not responsible for the call and must provide the \"full name and permanent street address, telephone number, or World Wide Web address of the person who paid for the communication.\" The latter requirement also appears to apply to \"general public political advertising\" (including telephone banks) paid for by \"any person\" that expressly advocates the election or defeat of a clearly identified federal candidate or solicits funds.\nThe requirements discussed above suggest that automated political calls paid for by political committees (i.e., candidate committees, political action committees (PACs), or party committees) must include disclaimers identifying the sponsor. The same is true for other \"persons\" engaging in express advocacy (advocating the election or defeat of particular candidates) or fundraising. However, it is possible that entities other than political committees could avoid disclaimer requirements as long as they did not engage in express advocacy or fundraising related to federal candidates. These entities or individuals also would not normally fall under FEC jurisdiction. To summarize, automated political calls that propose election or defeat of federal candidates, or solicit funds for those candidates, appear to require disclaimers identifying the sponsor. However, these requirements do not appear to apply to calls that are not sponsored by political committees or that do not engage in express advocacy or fundraising for federal candidates. Therefore, FEC disclaimer requirements do not necessarily apply to 527s, interest groups, or other entities that make automated political calls.\nFECA also requires political committees to report information about their spending—whether on political calls or any other good or service. Specifically, committees must itemize disbursements totaling more than $200 to a single source. Reports submitted to the FEC must include the name and address of the payee, date of payment, and a brief description of the purpose of disbursement. However, political committees are generally not required to use particular terminology when itemizing expenditures, as long as their descriptions are specific enough to determine the purpose. Policy guidance issued by the FEC in 2007 did not address how automated political calls should be described in expenditure reports. (This topic is discussed in more detail later in this report.) Therefore, although payments for automated calls must be disclosed, committees are largely free to determine how they wish to characterize their expenditures on reports submitted to the FEC. Unless a committee chooses to be particularly specific—which is unlikely because these disclosures are available to opponents and the media—FEC reports do not necessarily indicate how much committees spend on automated calls or whether they purchase automated calls at all.",
"The Telephone Consumer Protection Act of 1991 (TCPA) generally prohibits calls made by automated telephone dialing systems to cell phones, emergency lines, certain hospital lines, and other similar establishments. The TCPA also prohibits calls to residential telephone lines that use automated or prerecorded voices to deliver a message, except in an emergency or by order of the FCC exempting that call from the prohibition. When promulgating rules under the TCPA, the FCC was required by Congress to consider exempting calls made for non-commercial purposes. In its order implementing the TCPA, the FCC chose to exempt calls made for a non-commercial purpose from the prohibition on calls using prerecorded messages to residential telephone lines. Calls made by campaigns or other political organizations generally are considered to be calls made for a non-commercial purpose.\nThough automated or prerecorded telephone calls and calls using automated telephone dialing systems, including calls made to deliver political messages, to residential telephone lines are not prohibited by FCC regulation or the TCPA, these types of calls are subject to some regulation. Specifically, prerecorded calls must clearly state the identity of the business, individual or other entity responsible for initiating the call at the beginning of the message. Furthermore, prerecorded calls, including those placed with automatic dialers (\"autodialers\"), must also state the telephone number for the business, individual or entity responsible for initiating the call. Calling the number provided may not result in a fee other than normal local or long-distance charges (i.e., 900-numbers are prohibited). Although telephone solicitations such as product sales must occur during particular times of the day, those requirements do not apply to calls made by, or on behalf of, tax exempt non-profit organizations, including political committees. Other technical requirements also apply. However, some of those requirements do not apply to calls sponsored by nonprofit organizations.",
"Automated calls can be used offensively or defensively, as when criticizing an opponent or responding to criticism. The calls are often employed in the final days before elections to mobilize (or discourage) voters, when it is too late to purchase other services with last-minute campaign contributions. According to one political consultant, political committees are increasingly also turning to automated calls earlier during election cycles to solicit voter input (through automated responses) or to coincide with mailings and other messages. Another consultant noted that automated calls can encourage event-attendance and other grassroots engagement.\nAutomated calls are inexpensive (a few cents per call) and can be quickly produced and implemented. They also provide public officials or other activists with an ability to reach hundreds or thousands of voters in a matter of hours. However, some campaigns reportedly are beginning to fear a \"diminished impact\" on voters because of a \"flood of auto calls\" just before elections.",
"Various campaign strategists might be involved in the decision to make automated political calls, but implementation typically rests with telemarketing firms. Some professional political consultants also specialize in automated calls. Data about the political consulting profession are frequently limited because consultants identify themselves by various titles, are often self-employed, and frequently do both political and non-political work. All these factors make tracking the profession difficult, particularly in terms of specialized groups such as those providing automated calls. A legislative working group of the American Association of Political Consultants (AAPC) recently identified 129 firms claiming to provide automated political calls. The group's research suggested that no more than 10-20 of the 129 firms are professional political consulting firms, with the remainder primarily engaged in other business ventures. The AAPC figure is roughly consistent with a 2006-2007 estimate compiled by Dennis Johnson, professor of political management at George Washington University and a former political consultant. Johnson identified 28 \"telephone and direct voter contact\" firms operating in 2006-2007, but did not differentiate between firms offering automated calls versus other services. Johnson found, however, that voter contact is a small subset of the political consulting industry, particularly compared with more common specializations such as direct mail (126 firms), media consulting (78 firms), and polling/research (76 firms).\nAlthough few firms specialize in automated political calls, computer technology is reportedly making it easier for those without specialized knowledge to pursue political telemarketing. One consultant asserted that a \"bifurcation\" exists between professional political consultants and other firms or individuals offering automated calls. He also suggested that limited knowledge among the latter group could account for technical problems associated with some calls, such as late-night or truncated calls, and that an ability to place automated calls does not necessarily imply professional knowledge of how to use those calls effectively in campaigns. (Of course, consultants have incentives to suggest that their services are unique compared with competitors. This report takes no position on that viewpoint.)",
"Comprehensive data about the total cost of, or spending on, automated political calls is publicly unavailable. However, some estimates, based on anecdotal information, are available. For example, a 2007 Campaigns & Elections (C&E, now Politics ) magazine report estimated that the two major parties' congressional campaign committees \"spent over $600,000 on robocalls in nearly 50 congressional districts\" in the final week of the 2006 general election campaign.",
"Even when working from FEC data, spending on automated political calls is often unclear. Because of their prominent roles in mobilizing voters, congressional campaign committee are possible sources for examining spending on automated political calls. None of the four committees—the Democratic Congressional Campaign Committee (DCCC), Democratic Senatorial Campaign Committee (DSCC), National Republican Congressional Committee (NRCC), and National Republican Senatorial Committee (NRSC)—appear to publicize information about their spending on automated political calls. Required information provided on their FEC reports also provides little detail about how much the committees spent on automated political calls.\nIn fact, of 467 \"purpose of disbursement\" descriptions listed by the four party committees in 2005-2006, none used the terms \"automated calls,\" \"robo calls,\" \"prerecorded calls,\" or other language clearly indicating automated political calls. The committees spent approximately $8.6 million on activities itemized with some variation of the term \"telemarketing,\" but it is unclear what proportion of those expenses, if any, were for automated calls. In addition, a large proportion of the \"telemarketing\" expenses were from one committee (the DCCC), suggesting that others simply chose not to use the term frequently in their reports. The $8.6 million figure also does not include other large disbursements that could represent automated calls, including expenditures itemized as \"generic phone banks\" or using variations of the word \"telephone.\" Without additional information, however, the exact purpose of those disbursements is unclear.\nSome caveats are important to consider when interpreting the party-spending information. First, as noted above, the party committees are not required to provide detailed information about automated political calls, or any other expense, in their FEC reports. Indeed, examples of acceptable itemized disbursements provided by the FEC do not include references to automated political calls. Second, analyzing data from four party committees is simpler than doing so for hundreds or thousands of candidate committees, PACs, etc. Therefore, the party committees provide a snapshot of possible automated calls spending. Importantly, however, various other political committees also contract for automated political calls. Despite these limitations, this brief case study reinforces the point that data on automated-calls spending are elusive—even when examining FEC reports.",
"Despite the lack of firm data on the number of calls placed or the amount of money spent, it is clear that many voters receive automated political calls. Use of automated calls also appears to be on the rise as a campaign tactic.\nComprehensive data from the 2008 cycle appear to be publicly unavailable, but the limited data that are available show that automated calls played a substantial role during the primary election. According to March 2008 survey data, \"[i]n states that have already held a primary or caucus, fully 44% of voters have received robo-calls.\" As Table 1 shows, use of the calls also increased notably as the primary election cycle unfolded between November 2007 and March 2008. Nonetheless, some voters remain wary of automated calls. Data from Iowa and New Hampshire, for example, show that more than 40% of those who reported receiving automated calls during the 2008 primary (or caucus) usually hung up.\nSixty-four percent of registered voters received automated political calls during the \"final stages\" of the 2006 campaign. As Table 2 below shows, automated calls were the second-most-commonly reported form of voter contact late in the 2006 elections. (However, the poll did not include television or radio advertising.) Only a slightly higher proportion of respondents reported receiving direct mail than automated calls, but more than twice as many respondents reported receiving automated calls compared with live calls, home visits, or e-mail. According to the Pew data, Republicans were slightly more likely than Democrats to report receiving automated calls. Half of the surveyed Independents reported receiving calls.\nAlthough the data discussed above indicate what proportion of voters received automated political calls, it is important to note that they provide little additional detail. For example, the data do not indicate what portion of the automated calls were aimed at increasing or decreasing turnout, reinforcing loyalty among decided voters versus swaying undecided ones, etc. Therefore, it is unclear how many calls were used for allegedly positive, negative, offensive, or defensive purposes.\nAs with other data about automated political calls, little or no systematic information about voter reaction to automated calls is available. However, anecdotal accounts typically suggest strong public disdain for such calls, particularly in states featuring several competitive elections. In some districts during the 2006 elections, some voters reportedly received 20 calls in a single day. Some sources cited far lower numbers (e.g., 5-10, or fewer, calls per day), but reports indicated that these calls were nonetheless frustrating to recipients. In Missouri, the state Attorney General received more than 600 consumer complaints regarding automated political calls in the weeks leading up to the 2006 elections. In response to public aggravation over automated political calls, Citizens for Civil Discourse, which describes itself as \"a non-partisan and non-profit group of ordinary citizens,\" recently established a free National Political Do Not Contact Registry. Such services depend on voluntary compliance by those making automated political calls.",
"Scholarly research on the effectiveness of telephone voter contact, particularly through automated calls, is limited. Available data, however, suggest that automated calls have a minimal effect on turnout. Political scientists Donald P. Green and Alan S. Gerber concluded have that, despite anecdotal examples of small effects on turnout:\nThus far, none of the experiments using robo calls has been able to distinguish their effects from zero. Our best guess, based on experiments involving more than 1 million voters [in a variety of settings], places the vote production rate somewhere in the neighborhood of one vote per 1,000 contacts, but given the shaky state of the evidence, robo calls may have no effect at all.\nIn the absence of additional research on automated calls, much remains unknown—including what effect, if any, calls containing negative information have on depressing turnout, and what impact the calls might have on encouraging other forms of campaign engagement, such as volunteering.",
"",
"The FEC is responsible for enforcing the FECA requirements discussed at the beginning of this report. Even so, campaigns often respond to perceived misconduct by opponents through political advertising or by encouraging media scrutiny rather than by pursuing formal enforcement of FEC regulations. In addition, although the commission in the past has received telephone or mail complaints from the public regarding automated calls, these individuals rarely followed-up by filing formal complaints. Therefore, although FEC enforcement activity provides one measure of automated political calls, it is not a comprehensive indicator of all potentially objectionable behavior associated with those calls.\nOverall, the FEC appears to receive few complaints about automated political calls. For example, in response to a CRS request, the FEC identified eight enforcement cases concerning automated political calls that were closed between October 2003 and February 2008. During the same period, the FEC closed a total of 476 enforcement actions known as Matters Under Review (MURs). Therefore, just 1.7% (8 of 476) of MURs closed between October 2003 and February 2008 concerned automated political calls. CRS research using the commission's Enforcement Query System (EQS) suggests that MURs potentially related to automated calls did not notably increase during the 2008 election cycle.",
"In addition to federal enforcement, a professional trade association could take enforcement action related to automated political calls. When they join or renew their membership, American Association of Political Consultants (AAPC) members agree to follow the organization's code of ethics. The code does not explicitly address automated political calls but condemns \"false or misleading attacks\" on opponents or family members and encourages campaigns to document criticisms of opponents. A separate AAPC policy statement, adopted by the organization's board of directors in 1995, condemns push polling. Although AAPC members are subject to limited sanctions (if the organization chooses to pursue internal enforcement) the code does not apply to non-members. Former AAPC ethics committee member James A. Thurber, an American University political scientist, reported that ethics-enforcement cases are rare and minimally effective. However, details about AAPC enforcement cases are publicly unavailable.",
"Four bills introduced in the 111 th Congress would affect automated political calls, as would have 10 bills introduced in the 110 th Congress. None of the legislation introduced in the 110 th Congress received a floor vote. See Table 3 and Table 4 for additional details.\nBills on the topic generally fall into three categories. Specifically, the bills would: (1) add political calls to the FTC do not call list; (2) revise disclosure or disclaimer requirements or otherwise restrict automated political calls; or (3) regulate political calls generally, which could include automated calls. The \" Policy Options \" section below discusses potential ramifications associated with these and other approaches.\nThe Committee on House Administration, Subcommittee on Elections, held an oversight hearing on automated political calls on December 6, 2007. In addition to providing background information about campaign practices, Members and witnesses considered whether, or if, automated calls could be constitutionally restricted. Some Members also emphasized the value of official (franked) automated calls to arrange telephone-based town hall meetings. The Senate Rules and Administration Committee also held a hearing on the calls, and S. 2624 , on February 27, 2008. Discussion at that hearing emphasized voter and candidate frustration with the calls, and whether the calls could be constitutionally restricted.\nAs of this writing, no hearings have substantially addressed automated calls during the 111 th Congress.",
"Congress could choose several approaches to regulating automated political calls—or not to do so at all. This section provides comments on various options. It also discusses broader issues that are likely to affect whatever policy options Congress chooses.",
"Congress could choose not to pursue additional regulation of automated political calls. This option would likely be appealing to those who believe that the benefits of automated calls outweigh their negative consequences. As noted previously, those who favor automated political calls believe that they provide important information to voters. Automated calls can also be valuable for responding quickly to last-minute attacks. Some Members also rely on automated calls for official (franked) communications. If Congress chose to maintain the status quo, existing federal requirements would remain in place. The states would be free to consider additional regulation as they choose. Campaign committees and others would likely continue their current campaign practices.",
"Congress might also choose to gather additional information before deciding on a policy solution. Although automated political calls are believed to be unpopular, little is known about how many calls are made, how much money is spent on the calls, how the calls affect voters, and whether the calls are used illegally or unethically. Substantial information about the use of automated calls during the 2008 election cycle also remains illusive. Without such information, it could be difficult to define the full extent of policy problems, if any, and to develop appropriate solutions.\nFederal agencies and the oversight process could provide useful additional data. For example, as noted elsewhere in this report, because the FCC has not been directed to do so, the agency reportedly does not maintain statistics on consumer complaints about automated political calls. Similarly, although the FEC can compile data about relevant complaints upon request, it does not routinely release information about automated political calls. Congress could request or direct both agencies to maintain and release data about automated-calls complaints. Through the oversight process or by making requests to academics or other researchers, Congress could also encourage more polling attention to automated political calls. Empirical data on public reaction to automated political calls, and the effect of those calls on voter turnout, is especially lacking.\nGathering additional information through federal agencies or researchers could clarify whether automated political calls are merely annoying or whether they represent a substantial public policy concern. Such research might also find that the issue is not as prominent as media accounts often suggest. Regardless of the findings, defining the scope of the problem by gathering more information could make the policy response more precise. On the other hand, because of their personal involvement in campaigns and automated political calls, lawmakers might feel that additional research is unnecessary. Gathering additional information could also be a lengthy process, particularly if Congress requests data over a long time period.",
"If Congress determines that concerns surrounding automated calls are primarily about how the calls are used rather than the calls per se, it could choose to encourage different behavior. Voluntary change would not necessarily require any legislative or regulatory action. For example, Congress could use the oversight process, or decisions by individual Members regarding their own campaigns, to encourage practitioners to release more information about how and when they make automated political calls, to limit the number or timing of the calls, or to curtail automated calls that criticize opponents.\nA voluntary approach could be attractive to those who believe that governmental intervention in campaigns is unnecessary. Perhaps more importantly, despite anecdotal impressions, there is no clear standard for what constitutes objectionable content, how many calls are too many, etc. It could be difficult to translate these subjective concerns into precise legislative proposals. Therefore, Congress might avoid legislation altogether by encouraging, but not requiring, practitioners to change their behavior. However, without legislative or regulatory action, or strong public pressure, those who make automated political calls would have few incentives to change their practices. As the preceding discussion of the AAPC code of ethics suggests, existing norms among political consultants do not necessarily address automated political calls. Professional enforcement cases are reportedly rare. There is also no guarantee that political consultants are responsible for allegedly negative consequences stemming from automated calls. Therefore, if Congress chose to encourage voluntary changes, it would need to carefully consider which behaviors, and by whom, it wanted to address.",
"Congress could require political committees or others to report to the FEC (or another agency) more information about how automated political calls are used in campaigns. As explained previously, FECA requires political committees to report spending exceeding $200, including on political calls. However, although expenses must be itemized, FEC regulations do not require substantial detail about those expenses. As the brief case study highlighting the party committees' spending shows, automated calls (or any other expense) are not always clearly identifiable in FEC reports—even when those reports are filed consistent with FECA and FEC regulations.\nLegislative action or an FEC rulemaking would be necessary to require political committees to provide more information about how they use automated political calls. Such efforts might include requiring use of more specific terms or categories on FEC reports than are currently required. In 2006, the FEC reconsidered its requirements regarding filing terminology. After receiving only two public comments on the issue, the agency largely declined to require additional detail. At that time, the commission noted that the term \"phone banks\" provided sufficient detail to itemize \"a disbursement to a vendor providing phone bank services.\" The FEC did not address other telephone expenses, including automated political calls. If Congress wanted to require more specificity regarding reporting about automated political calls, it could encourage the FEC to reconsider its regulations on itemized disbursements. Congress could also amend FECA. In particular, additional requirements about expenses could be added to the section of the law detailing itemized reports.\nAdditional information about spending on automated calls, or other details, such as when the calls were made and why, would provide greater transparency about what role automated calls play in campaigns. On the other hand, requiring detailed information about automated political calls would be largely at odds with current regulations. Campaign finance reporting emphasizes providing information about the source and amount of campaign money, not how that money is used to execute campaign strategy. Perhaps most importantly, unless Congress chose to extend disclosure requirements to non-political committees (e.g., 527 organizations that are not registered as political committees), new disclosure requirements would not necessarily apply to all organizations responsible for the calls.",
"Congress could also require those making calls to provide more information to recipients. As noted previously, some disclaimer requirements already apply to automated political calls, which raises the question of whether additional enforcement measures, or increased oversight surrounding enforcement, is necessary. Even attempted enforcement can be difficult. For example, as the FEC has noted in some enforcement cases, field investigations do not necessarily reveal the identities of those responsible for launching \"anonymous\" automated calls. Therefore, just as regulations do not necessarily address moral issues related to campaign ethics, additional disclaimer requirements will not necessarily ensure that those intent on breaking the law provide truthful information when making automated calls.\nThere is, however, room for requiring additional disclaimers if Congress chose to do so. In particular, existing disclaimer requirements do not necessarily apply to \"outside groups\" or individuals sponsoring calls that do not explicitly call for election or defeat of federal candidates or engage in fundraising. If Congress wanted disclaimer requirements to apply more broadly, it could amend the definition of \"political committee\" in FECA—a topic that is frequently controversial—or place additional requirements on all entities using automated calls, regardless of whether or not they are political committees. Doing so, however, potentially raises contentious issues that extend well beyond automated political calls. These include questions about which groups and individuals should be regulated by campaign finance law and which political messages constitute campaign speech versus policy-oriented speech.",
"As noted previously, several bills introduced in the 111 th and 110 th Congresses propose (or proposed) to add automated political calls to the national do not call list. The do not call bills would provide consumers with a way of opting out of political calls. This approach would not necessarily affect the content of automated political calls.\nAdding political calls to the do not calls registry could occur relatively quickly while avoiding some of the complications of other policy options. For example, if \"political calls\" were defined broadly, questions about which organizations were making the calls (e.g., political committees versus outside groups) would presumably be inconsequential. By contrast, questions about political-committee status would likely affect some other policy options. Nonetheless, any effort to restrict political calls, including adding them to the do not call list, could raise constitutional questions (discussed below). This option would also not address concerns about the content of automated political calls.",
"Congress could also limit automated political calls to certain hours of the day or restrict the number of calls made to a single recipient. Several states have reportedly placed time or other restrictions on automated calls. The AAPC recommendations also include limiting the number of calls political committees could make in one day to the same number.\nThis policy option could reduce the number of calls voters receive, which appears to be a significant concern in the debate over automated political calls. However, one challenge associated with this approach would be determining how many calls are \"too many\" and what hours are acceptable. In addition, although this policy option could decrease the volume of calls voters receive (e.g., if a single entity could place only a certain number of calls to the same person per day), it would not necessarily reduce the frequency of calls for those voters who live in states that produce competitive campaigns. In fact, if groups were limited to a certain number of calls, it is possible that other organizations could emerge solely for the purpose of placing multiple calls to the same voters. Constitutional considerations (speech issues) that could affect this policy option are discussed below.",
"Political calls to potential voters are political speech and entitled to the highest degree of protection under the First Amendment. Laws or regulations that would burden or prohibit such calls if they use automated dialers or prerecorded messages, therefore, must withstand so-called strict scrutiny in order to be considered constitutional. Under a strict scrutiny analysis, if a governmental restriction is challenged in court, the government must demonstrate that the restriction on automated political calls serves a compelling government interest and is the least restrictive alternative to serve that interest.\nA regulation that would ban the use of automated telephone dialing systems or prerecorded messages in political calls may place too high a burden on core political speech to withstand such exacting scrutiny. The First Amendment \"protects [a speaker's] right not only to advocate their cause but also to select what they believe to be the most effective means for so doing.\" The Supreme Court announced this principle in the context of invalidating a state law that prohibited the use of paid workers to obtain signatures on voter-initiative petitions as an impermissible burden on political speech. The Court found that the law restricted \"access to the most effective, fundamental, and perhaps economical avenue of political discourse.\" The Supreme Court also has noted that \"[i]t is of no moment that [a statute] does not impose a complete prohibition. The distinction between laws burdening and laws banning speech is but a matter of degree.\" Accordingly, though a ban on the use of prerecorded messages or automated dialing systems would not prohibit all political calls, if a court finds that prohibiting the use of such technology would limit such calls to a lesser degree, such a restriction could be considered an impermissible burden on the First Amendment free speech rights of those placing political calls.\nGovernments, however, are permitted to place reasonable restrictions on the time, place, and manner of speech so long as they are content-neutral, narrowly tailored (though not necessarily the least restrictive means), and serve a significant government interest (though not necessarily a compelling interest), and leave open ample alternative channels for communication of the information. Laws that \"do not foreclose an entire medium of expression, but merely shift the time, place or manner of its use\" likely will be upheld so long as \"ample alternative channels for communication\" are left open. In order to qualify for the less exacting \"reasonable time, place, and manner\" restriction analysis, the law must be content-neutral. It is important to note that a restriction on the use of automated telephone dialers or prerecorded messages that applied only to political calls would likely be characterized as a content-based restriction on speech, which would require strict scrutiny, as described above. Content-based discrimination could be avoided if the restriction encompassed all speech that utilized these technologies.\nThere is little case law on this question; however, at least one federal court has addressed the issue in a decision that was subsequently reversed on unrelated grounds. The United States District Court for the Southern District of Indiana upheld the constitutionality of an Indiana statute that bans the use of automated dialing systems, unless the called party has given prior consent or the message is immediately preceded by a live operator who requests consent to play the message. The court found that the statute did not violate the First Amendment, because it was content-neutral and a reasonable time, place, and manner restriction that left open ample alternative modes of communication. The court distinguished the provisions at issue from other Supreme Court decisions that applied strict scrutiny to restrictions on the modes of delivery for speech because the statute applied to all speech regardless of content and did not single out political speech.\nThe decision of the district court was reversed by the U.S. Court of Appeals for the Seventh Circuit. The Seventh Circuit held that the district court should have abstained from deciding the case, because the related state court action had been filed first, important state interests were implicated, and state courts were able to afford ample opportunity to address the federal questions raised by the case. The case now awaits decision in Brown County Circuit Court, an Indiana state trial court.\nA related case was argued before the Indiana Supreme Court. The case concerned whether Indiana's Auto-Dialer Law applies to all calls (including political calls) or only to commercial calls. On December 23, 2008, the court issued its decision holding that the statute applies to all calls placed using autodialers. The court did not, however, analyze whether the statute is valid under the First Amendment.",
"Much remains unknown about automated political calls. Although empirical data are limited, estimates suggest that the calls reach at least a majority of American voters, occur frequently during federal campaigns, and could represent millions of dollars in spending by various political committees. Despite media accounts of strong public disdain for automated political calls, the FEC has received few formal complaints on the issue since 2003. Several bills introduced in the 111 th and 110 th Congresses would (or would have) impose additional regulations on automated political calls, but would not necessarily apply to all circumstances in which the calls are used.\nCongress has several policy options for restricting automated political calls, if it chooses to do so. Aside from maintaining the status quo, a relatively cautious option might be gathering additional data before choosing a policy approach. Federal agencies and the oversight process could provide additional information. Another relatively limited approach would be to encourage voluntary changes by practitioners. By contrast, if Congress chooses to require policy changes, it could add political calls to the do not call framework or restrict the timing or number of calls. Finally, Congress could place additional disclosure or disclaimer requirements on political calls. Some of those options would likely involve sensitive questions about which groups and messages should be covered by campaign finance law. Constitutional considerations could also be a factor.",
"As this report discusses, publicly available data about automated political calls are virtually nonexistent. FECA does not require detailed reporting about automated political calls. Political committees also have few incentives to make information about automated calls public because doing so potentially alerts opposing candidates, groups, and the media to campaign strategy. In addition to this lack of data from regulators and practitioners, scholarly literature is limited. Academic research that does exist tends to focus on campaign strategists, such as media consultants and pollsters, but not on vendors who provide technical services such as automated calls. Automated calls as a campaign tactic have also received limited scholarly attention.\nGiven the limited publicly available information about automated political calls, CRS employed a broad research strategy designed to gather as much information as possible. This included consultations with staff at the FCC, FEC, prominent political scientists, staff from the four national congressional campaign committees, the American Association of Political Consultants (AAPC), individual political consultants, and a political journalist. CRS also conducted keyword searches in databases that provide archives of news sources, scholarly journals, dissertations, and polling data (e.g., LexisNexis, Proquest, JSTOR, Polling the Nations, etc.). The primary author also conducted telephone interviews with three political consultants and analyzed disclosure and enforcement data provided by the FEC. Use of individual data sources is documented in the text of this report.\nFinally, Internet research revealed many political web log (\"blog\") references to automated political calls in recent elections. Many of these entries contained claims about allegedly unethical or illegal campaign practices. Because CRS cannot verify the information contained in these blogs, it is not included in this analysis."
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"question": [
"How are prerecorded messages used in political campaigns?",
"How are these automated calls received by the general public?",
"How do these negative factors measure up against the positive ones?",
"Why are automated calls a versatile and agile tool?",
"What data exists regarding automated political calls?",
"How widespread is the usage of automated political calls?",
"What complaints has the FEC received regarding automated political calls?",
"To what extent is this a reliable indicator of the general public's sentiment?",
"What data does the FCC track about automated political calls?",
"What does this report address?",
"What policy options does the report address?",
"Why might these policies be contentious?",
"How might these policies be legally challenged?"
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"summary": [
"Prerecorded telephone messages that provide information about political candidates or urge voters to go to the polls are a common campaign tactic.",
"Anecdotal accounts suggest that the public often objects to the volume and frequency of these automated political calls (also called \"auto calls\" or \"robo calls\").",
"Despite often negative anecdotal information about automated political calls, they remain an inexpensive, effective way to reach hundreds or thousands of voters quickly.",
"Campaigns and groups often rely on automated political calls to respond to last-minute campaign developments.",
"Empirical research and data about automated political calls are limited.",
"Existing research suggests that the calls are an increasingly common campaign tactic and that various political committees spent millions of dollars on those efforts.",
"Despite media reports of strong public disdain for automated political calls, the FEC has received few recent formal complaints on the issue.",
"However, FEC enforcement data are not necessarily a reliable indicator of public sentiment toward automated political calls.",
"The Federal Communications Commission (FCC) reportedly does not track data about complaints it receives on automated political calls.",
"This report provides an overview of how automated political calls are used in federal campaigns.",
"Policy options discussed in the report include maintaining the status quo, gathering additional data, revising federal disclosure or disclaimer requirements, adding the calls to the federal do not call list, or restricting the number and timing of calls.",
"Some of those options would likely involve contentious questions about which organizations and messages should be regulated by campaign finance law.",
"Constitutional issues could also affect some of those policy options. The \"First Amendment Considerations\" section provides a legal analysis."
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GAO_GAO-16-245
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{
"title": [
"Background",
"BSEE’s Ongoing Restructuring Has Made Limited Progress Enhancing Its Investigative Capabilities",
"BSEE’s Investigative Policies and Procedures Have Not Changed Since the Deepwater Horizon Incident, and the Bureau Does Not Have the Capability to Analyze Incident Data",
"The IRU’s Value to BSEE’s Investigative Capabilities Is Unclear",
"BSEE’s Ongoing Restructuring Risks Weakening Its Environmental Compliance Capabilities",
"Restructuring of Environmental Compliance Reverses Actions Taken to Address Post-Deepwater Horizon Concerns",
"BSEE Has Made Limited Progress Developing and Updating Its Environmental Compliance Policy and Procedures",
"BSEE’s Restructuring Has Not Addressed Staffing Shortfalls That Prevent It from Meeting Environmental Oversight Goals",
"BSEE’s Ongoing Restructuring Has Made Limited Progress Addressing Long-Standing Deficiencies in Its Enforcement Capabilities",
"BSEE Has Not Developed Procedures, Including Criteria for Using Its Enforcement Tools",
"BSEE Does Not Have a Mechanism to Ensure It Reviews Its Maximum Daily Civil Penalty within the Statutory Time Frame",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Comments from the Department of the Interior",
"Appendix III: Comments from the Environmental Protection Agency",
"Appendix IV: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"The Outer Continental Shelf Lands Act of 1953, as amended, requires that the Secretary of the Interior conduct an investigation and issue a report on deaths, serious injuries, fires, and pollution events that occur as a result of offshore oil and gas operations. BSEE carries out these investigations on behalf of the Secretary throughout America’s 1.7 billion acres of the OCS. Specifically, BSEE’s mission is to promote safety, protect the environment, and conserve resources offshore through vigorous regulatory oversight and enforcement. It is responsible for overseeing offshore operations, which includes the authority to investigate incidents that occur on the OCS, monitor operator compliance with environmental stipulations, and take enforcement actions against operators that violate safety or environmental standards. BSEE has agreements with other federal agencies, including EPA, regarding the division of offshore oversight responsibilities in overlapping jurisdictions. BSEE includes headquarters offices in the Washington, D.C., area, as well as three regional offices—the Gulf of Mexico regional office in New Orleans, Louisiana; the Pacific regional office in Camarillo, California; and the Alaska regional office in Anchorage, Alaska—responsible for oversight of oil and gas activities in the field.\nBSEE’s primary investigations responsibility is to determine the causes of incidents related to oil and gas activities that occur on the OCS and prepare reports that inform the public and industry on how to prevent incidents and improve safety and environmental protection. BSEE regulations require that operators report certain incidents to BSEE and include stipulations regarding when and how these reports are made, depending on the severity of the incident. In turn, BSEE can initiate a district or panel investigation depending on the type of incident reported. BSEE conducts district investigations in response to incidents such as injuries, fires, or loss of well control. BSEE conducts panel investigations when a more in-depth investigation is warranted due to the severity or technical complexity of an incident, such as a fatality or well blowout. Panel investigations are typically conducted by a team of individuals including investigators from BSEE’s Investigations and Review Unit (IRU) and regional offices, and may include other BSEE and non-BSEE technical personnel. Interior established the IRU in June 2010 in the aftermath of the Deepwater Horizon incident to (1) promptly and credibly respond to allegations or evidence of misconduct, unethical behavior, and unlawful activities by bureau employees, as well as by members of industries they regulate; (2) oversee and coordinate the bureau’s internal auditing, regulatory oversight, and enforcement systems and programs; and (3) ensure the bureau responds swiftly to emerging issues and crises on a bureau-wide level and assesses significant incidents, including spills, accidents, and other crises.\nRegarding environmental compliance, in response to post-Deepwater Horizon incident investigation findings that BOEMRE’s emphasis on promoting development of federal offshore oil and gas resources might have preempted its responsibility to protect the environment, BSEE established an Environmental Enforcement Division. The role of the new division was to centralize all environmental compliance duties within a single independent office in headquarters, while maintaining a presence in each of the three OCS regions. The Environmental Enforcement Division’s directive is to monitor, verify, enforce, and improve industry’s compliance with environmental standards during OCS operations. To do so, it conducts monitoring of ongoing OCS operations, office compliance verification, field verification, and any necessary inspections, compliance data collection, impact-determinations, and support of BSEE investigations.\nBSEE’s enforcement capability is composed of an array of tools it can use to compel operator compliance with safety and environmental standards including: Incident of noncompliance (INC): BSEE can issue a notice of an incident of noncompliance in response to operator violations of safety or environmental standards. There are three categories of INCs:\nWarning INC: BSEE can issue a warning INC in response to an area of noncompliance that does not pose an immediate danger to personnel, the environment, or equipment, but requires the violator to correct the noncompliance within a reasonable period of time, usually 14 days.\nComponent shut-in INC: BSEE can issue a component shut-in INC in response to a specific violation of a statute, regulation, lease, plan, permit, or order that is determined to be part of an unsafe situation that poses an immediate danger to personnel, the environment, and/or equipment. Component shut-in INCs include an operational restriction for a specific piece of equipment or location when it can be shut in without affecting the overall safety of the facility or operations.\nFacility shut-in INC: BSEE can issue a facility shut-in INC in response to a specific violation of a statute, regulation, lease, plan, permit, or order that is determined to be part of an unsafe situation that poses an immediate danger to personnel, the environment, and/or equipment. Facility shut-in INCs include an operational restriction for an entire facility when individual pieces of equipment or locations cannot be shut in without affecting the overall safety of the facility.\nCivil penalty: BSEE can assess civil penalties in response to (1) violations uncorrected within the time period granted by BSEE; (2) violations that may constitute a threat of serious, irreparable, or immediate harm or damage to life, property, any mineral deposit, or the marine, coastal, or human environment; (3) violations that cause serious, irreparable, or immediate harm or damage to life, property, any mineral deposit, or the marine, coastal, or human environment; and (4) violations of oil spill financial responsibility requirements. The daily civil penalty amount ranges from $5,000 to $40,000 per violation, depending on its severity.\nDirected Safety and Environmental Management System audit: BSEE can direct an audit of an operator’s Safety and Environmental Management System program in response to any safety or noncompliance concerns identified during an inspection and evaluation, or as a result of an incident. Operators must submit the audit findings, observations, deficiencies identified, any conclusions, and a corrective action plan to BSEE within 60 days of the audit completion date. BSEE can also conduct an audit to determine if the corrective action plan was implemented as reported, as well as if those corrective actions were effective in closing identified management system gaps.\nPerformance improvement plan: BSEE can place an operator on a performance improvement plan due to serious incidents, poor performance data, uncorrected deficiencies resulting in a probationary status, criminal referral, or civil penalties assessed. A performance improvement plan may result in more inspections or more frequent inspections, which may result in an increase in INCs issued and civil penalties assessed. Operators may also be required to provide increased information, and have operator employees working during certain activities such as construction and simultaneous operations to facilitate communications. A performance improvement plan may also result in a requirement for the operator to improve its Safety and Environmental Management System program.\nDirected suspension: BSEE can direct a suspension for all or any part of a lease or unit area. This determination may be made in cases of gross negligence or willful violation of a provision of the lease or governing statutes and regulations. Based on the level of severity of the situation, this action may result in suspension of operations, suspension of production, or loss of permit.\nDisqualification referral: BSEE can refer a determination of unacceptable performance to BOEM—a disqualification referral— which may disapprove or revoke the designation as operator on a single facility or multiple facilities.\nReferral to another agency: BSEE can forward information associated with potential violations of the Outer Continental Shelf Lands Act and its regulations, to take enforcement action as appropriate. This tool includes direct referrals to the Department of Justice for civil enforcement and to Interior’s IG for consideration of suspension or debarment or further referral to the Department of Justice for criminal enforcement.\nFrom 2011 through 2013, BSEE took several actions to reform aspects of its investigations, environmental compliance, and enforcement capabilities. In February 2012, BSEE announced that it planned to issue a regulation to strengthen its investigations and enforcement authority. The proposed changes would have substantially altered regulations pertaining to the conduct of incident investigations, as well as provided the bureau with new enforcement tools, among other things. In May 2013, BSEE management determined that other regulatory changes were higher priorities. Prior to this decision, in April 2012, the BSEE contracted with a consultant to assess its oversight capabilities and make recommendations within its existing regulatory framework. The consultant issued a report in October 2012 that recommended BSEE develop a comprehensive enforcement strategy, define its complement of enforcement tools, and establish investigation objectives, among other things. In April 2013, BSEE contracted with the same consultant to produce several templated enforcement tool documents—including a performance improvement plan for low-performing operators, a civil penalty settlement agreement, and an order compelling an operator to take specific actions on the authority of the BSEE Director. In 2013, as part of strategic planning efforts, BSEE developed a number of “next- generation” enforcement tools to enhance its ability to compel compliance with safety and environmental regulations. These tools included proposals regarding streamlining the collection of civil penalties and use of “Director’s Orders” to compel specific operator performance. BSEE did not take any specific actions in response to the consultant’s assessment or implement the tools it developed for BSEE’s adoption.\nIn recognition of continued risks to the effectiveness of its oversight of offshore oil and gas development, BSEE initiated an organizational restructuring in October 2013 that encompasses its investigations, environmental compliance, and enforcement capabilities. According to restructuring planning documents, the guiding principles of this restructuring are to enhance the consistency, transparency, predictability, and accountability of BSEE’s oversight activities. Specific goals of this restructuring include establishing national programs for each of these capability areas to develop policies and procedures for each of these programs. Implementation of the restructuring is ongoing.",
"BSEE’s ongoing restructuring has made limited progress since October 2013 in enhancing the bureau’s investigative capabilities. As a result, BSEE continues to rely on pre-Deepwater Horizon incident policies and guidance for managing its investigative capabilities and does not have the capability for analyzing data on incidents that occur on the OCS. Additionally, the extent to which the bureau’s IRU has enhanced BSEE’s investigative capability is unclear due to poor information management, confusion regarding its role, and inconsistent guidance.",
"BSEE has not completed a policy identifying investigative responsibilities under the October 2013 restructuring or updated its existing policies or procedures for investigating incidents that occur on the OCS since the Deepwater Horizon incident. Developing policies and procedures are among the goals of BSEE’s restructuring, according to restructuring planning documents, and consistent with federal standards for internal control. Under federal standards for internal control, agencies are to clearly document internal controls, and the documentation is to appear in management directives, administrative policies, or operating manuals. BSEE documents indicate that the bureau planned to complete policies and procedures in the summer of 2015, but the time frame for establishing its policy framework has slipped to 2016. As a result, BSEE continues to rely on pre-Deepwater Horizon incident investigation guidance—including the 2009 MMS Policy on Accident Investigations, the 2010 MMS Gulf of Mexico Region’s Regional Policy on Accident Investigations and Offshore Incident Reports, the 2003 Department Manual Chapter 3 on Incident Investigation and Information Management, and the 2010 MMS National Accident Investigation Handbook—to manage district and panel investigations—its primary investigative responsibility. As part of the restructuring that began in 2013, in October 2015, Interior approved BSEE’s establishment of the Safety and Incident Investigations Division (SIID)—which according to a memorandum by BSEE’s Associate Director for Administration will assume the external review functions of the IRU and be staffed by IRU investigators—to develop new procedures for conducting investigations. However, BSEE has not completed a policy outlining what the SIID’s responsibilities will be or updated procedures to guide its activities.\nThe use of outdated investigative policies and procedures is a long- standing deficiency in the bureau’s investigative capabilities. For example, following the Deepwater Horizon incident, Interior’s IG and OCS Safety Oversight Board reports identified flaws in Interior’s investigation guidance documents—specifically, that the guidance documents did not include detailed requirements for planning investigations, gathering and documenting evidence, and ensuring quality control. Additionally, the IG report determined that continued use of the guidance posed a risk to the effectiveness of district and panel investigations. BSEE documentation defining goals for its ongoing restructuring effort again identified continued risks to the bureau’s investigative capability, citing inconsistent investigation practices between district offices, as well as the need for developing bureau-wide investigative policy, among other things. Without updating its existing, pre-Deepwater Horizon investigative policies and procedures, BSEE continues to face risks to the effectiveness of its investigative capabilities.\nCurrently, BSEE follows the 2010 MMS Gulf of Mexico Region’s Regional Policy on Accident Investigations and Offshore Incident Reports to determine whether and how to investigate offshore incidents. According to the 2010 MMS National Accident Investigation Handbook, after BSEE receives a report of an incident occurring on the OCS, the bureau is to determine the type of investigation, if any, to conduct. However, BSEE officials told us that the Regional Policy on Accident Investigations and Offshore Incident Reports provides district officials with broad discretion to determine the extent to which they investigate many types of incidents, which can result in inconsistent practices and information collected across districts. A senior BSEE official also stated that the bureau plans to refine its policy to include a tiered approach to allocating investigative resources based on incident severity. Specifically, this official told us that BSEE wants to increase the level of investigative scrutiny conducted in response to minor incidents that previously did not trigger BSEE action. In doing so, BSEE hopes to gain a more complete understanding of the type, frequency, and causes of incidents occurring on the OCS. However, this official said that disagreements between headquarters and regional officials over what the severity thresholds should be have delayed completion of this policy. In an October 2015 management advisory on BSEE’s restructuring, Interior’s IG recommended that the bureau should promptly develop an action plan for the restructuring’s implementation that should include timelines and responsible officials for major milestones, such as policy and procedure development and staffing and training plans.\nEven when BSEE has updated its policies and procedures on investigations, it does not have the capability to aggregate and analyze the results of those investigations to identify trends in safety and environmental hazards. In 2009, prior to the Deepwater Horizon incident, Interior established an Accident Investigation Board (AIB) to review investigation policies and collect and analyze incident and investigation information to target safety and environmental compliance efforts. However, according to BSEE officials, the AIB produced no reports and ceased to operate after the Deepwater Horizon incident. BSEE officials told us AIB’s responsibilities were not reinstated following the Deepwater Horizon incident because management at the time determined the AIB’s function was unnecessary. However, according to the IG report, the AIB was a tool to address risks to BSEE investigative capabilities. Additionally, the 2009 MMS policy establishing the AIB—the Policy on Accident Investigations—has not been updated. As a result, responsibility for reviewing investigation policies and collecting and analyzing incident and investigation information to target safety and environmental compliance efforts continues to be assigned to the defunct AIB. Senior BSEE officials told us that management at the time believed it was sufficient to collect and archive the incident reports without further synthesis or evaluation. They also stated that they intend to incorporate this capability into BSEE’s SIID but do not have a plan or time frames for doing so. A 2013 internal BSEE evaluation determined that the absence of a central data base for national trend analysis was a lost opportunity to focus on OCS safety trends. Without a dedicated capability to review investigation policy and collect and analyze incident and investigative data, BSEE does not have reasonable assurance that it can identify trends in safety and environmental hazards that could inform bureau decisions and enhance safety and environmental oversight.",
"The extent to which the IRU has enhanced BSEE’s investigative capabilities is unclear due to (1) not using an electronic case management system, (2) confusion regarding its role, and (3) inconsistent guidance.\nFirst, the IRU does not store its investigative case files in an electronic case management system as called for in the 2013 IRU Policies and Procedures. According to the IRU Policies and Procedures, the Chief of the IRU is responsible for establishing and maintaining an effective case management system. In January 2013, BSEE began efforts to identify criteria for a case management system and issued a contract to acquire one in July 2014. However, according to BSEE officials, BSEE has not implemented this system to manage investigations. BSEE officials told us that the bureau has yet to do so because Interior has not approved its use, as well as the need to solicit a new contract for technical support. The Chief of the IRU said that BSEE does not have a time frame or a plan for resolving these issues and implementing its case management system. Because it does not have an operational case management system, the IRU records investigative case numbers in a spreadsheet that does not contain supporting information on investigative activities—such as case files documenting interviews and photographic evidence—or outcomes. Rather, BSEE officials said that individual investigators maintain hard-copy case files, which the Chief of the IRU also told us are not always reviewed for completeness or errors as called for by the IRU Policies and Procedures. Hard-copy case files make it difficult for BSEE to systematically monitor, review, or evaluate the results of IRU investigations. Without a plan with milestones for implementing the case management system for investigations, BSEE will continue to have difficulty systematically monitoring, reviewing, or evaluating the results of IRU investigations in a timely manner.\nMoreover, confusion regarding the role of the IRU can hamper the effectiveness of BSEE’s investigative efforts and has raised questions about whether BSEE has clearly communicated the IRU’s role to the offshore oil and gas industry. Industry representatives we interviewed said that BSEE had not clarified the role of the IRU. Under federal standards for internal control, in addition to internal communications, agency management should ensure that there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving its goals. According to BSEE regulations, the purpose of an investigation is to prepare a public report that determines the cause or causes of the incident. However, representatives of industry and an internal BSEE analysis informed us that the law enforcement backgrounds of IRU investigators and their apparent focus on potential criminal wrongdoing rather than the cause or causes of the incident has led to an industry perception that the IRU is a criminal law enforcement program. A March 2013 congressional inquiry letter into the extent to which the IRU functioned as a criminal law enforcement program further highlights the confusion regarding the IRU’s role in supporting BSEE’s investigative capability. Further, a 2013 internal BSEE evaluation noted that industry confusion regarding the IRU and how it could inhibit free and open communication with BSEE due to a perceived need to consult attorneys prior to answering IRU questions. Some BSEE officials noted that, because the perceived criminal focus represents a shift from safety enhancement and root cause analysis toward an enforcement model, free and open communication to determine the causes of incidents is adversely affected, potentially undermining the effectiveness of the IRU’s investigative capacity. By clearly communicating the purpose of the IRU across the bureau, as well as to industry operators, BSEE could help increase the effectiveness of its investigations.\nFurthermore, the IRU Policies and Procedures contradict BSEE investigative policies regarding the assignment of personnel to panel investigations and coordination with the IG. Specifically, the IRU Policies and Procedures conflicts with the 2003 Department Manual Chapter 3 on Incident Investigation and Information Management and the 2010 MMS National Accident Investigation Handbook regarding which BSEE official is responsible for assigning panel investigation membership. The Department Manual Chapter 3 on Incident Investigation and Information Management and the MMS National Accident Investigation Handbook indicate that the director of the region in which an incident occurred assigns panel membership, and the IRU Policies and Procedures indicates that this is the responsibility of the Chief of the IRU. Under the federal standards of internal control, agencies are to clearly document internal controls. While BSEE has documented its policies, they are not clear, because the IRU Policies and Procedures is not consistent with the Regional Policy on Accident Investigations and Offshore Incident Reports and the MMS National Accident Investigation Handbook regarding which BSEE official is responsible for assigning panel investigation membership. BSEE officials told us that this inconsistency has resulted in management disagreements regarding what skillset—technical or investigative—is more appropriate for managing panel investigations. According to BSEE officials, continued uncertainty over how panel leadership is determined—and by extent, managed—could undermine the effectiveness of ongoing and future panel investigation outcomes. For example, BSEE officials told us that the IRU has participated in five panel investigations since August 2013, though all lasted longer than the 8- month target time frame set by the Regional Policy on Accident Investigations and Offshore Incident Reports. Additionally, the IRU Policies and Procedures conflicts with the Regional Policy on Accident Investigations and Offshore Incident Reports regarding the coordination of referrals of potential criminal wrongdoing. Specifically, the IRU Policies and Procedures states that the IRU is responsible for coordinating investigative efforts with the IG, and the Regional Policy on Accident Investigations and Offshore Incident Reports states that its Office of Safety Management is responsible for referring cases of suspected criminal wrongdoing to the IG. Without clear policies and procedures for assigning panel investigation membership and referring cases of suspected criminal wrongdoing to the IG, BSEE’s ability to coordinate its investigative activities and monitor their results is hampered.",
"BSEE’s ongoing restructuring of its environmental compliance program reverses actions taken to address post-Deepwater Horizon concerns, weakening its oversight of operator compliance with environmental standards. In addition, the bureau has made limited progress developing and updating guidance, which are among the goals of the restructuring. Additionally, BSEE’s restructuring has not addressed staffing shortfalls that are preventing it from meeting its environmental oversight targets.",
"BSEE’s ongoing restructuring of its Environmental Compliance Division could undermine one of the primary purposes for which its predecessor— the Environmental Enforcement Division—was established. The predecessor division was established as a national program in 2011 in response to the findings of the post-Deepwater Horizon incident investigations. Specifically, in September 2010, the OCS Safety Oversight Board reported that the focus of BOEMRE—BSEE’s predecessor bureau—on oil and gas development might have been at the expense of protecting the environment. The board reported that, according to some environmental staff, several BOEMRE managers changed or minimized potential environmental impact findings to expedite offshore oil and gas development, and that managers believed environmental assessments should always result in the authorization for development.\nThe IG and OCS Safety Oversight Board made recommendations to ensure that environmental concerns were given appropriate weight and consideration. In response, BOEMRE produced an internal report in October 2011 to serve as the basis for developing BSEE’s environmental compliance capabilities. Based on the recommendations of this report and the OCS Safety Oversight Board, BSEE established an Environmental Enforcement Division with region-based environmental staff reporting directly to the headquarters-based division chief instead of regional management, as had been done prior to the establishment of the Environmental Enforcement Division, to ensure that the environmental component of BSEE operated under a separate reporting structure from the regional BSEE offshore operations. According to this report, the purpose of the Environmental Enforcement Division’s reporting structure was to (1) elevate the level of environmental compliance decision making to that of other bureau programs; (2) strengthen the bureau’s environmental function; (3) allow for constructive and efficient dialogue concerning the balancing of leasing and development goals with those of the bureau’s environmental responsibilities; (4) ensure the environmental functions had an adequate and appropriate level of decision-making influence; and (5) improve the bureau’s ability to verify industry compliance with all environmental laws, regulations, mitigations, and reporting requirements.\nThe field-to-headquarters reporting structure of the Environmental Enforcement Division changed in February 2015, when BSEE’s Deputy Director issued a memorandum altering it. Under the program’s new structure, environmental compliance personnel in the field again report to their regional director, as they did prior to the establishment of the Environmental Enforcement Division, rather than to the program manager in headquarters. The rationale for this change is unclear, as it is not discussed in the bureau’s documentation of key restructuring planning efforts and decisions. BSEE leadership told us that the bureau delegated management of field-based environmental compliance personnel to the regions to be consistent with its proposed national programs for investigations and enforcement.\nBecause consideration of this change was not included in the bureau’s documentation of key restructuring planning efforts and decisions, it is unclear whether BSEE analyzed why or how to restructure its environmental compliance capability. For example, BSEE’s September 2014 Implementation Plan—which describes restructuring courses of action developed during the summer of 2014—does not discuss any potential changes to the Environmental Enforcement Division. Additionally, the November 2014 Management Council Action Plan— which documents BSEE leadership agreements regarding how to implement the restructuring—states that environmental compliance will be a new program—although the Environmental Enforcement Division already existed—but also states that the Environmental Enforcement Division is not part of the restructuring effort and that any improvements to it will be made within its existing structure. Rather, both plans focus on the development of three other new national programs— investigations, enforcement, and data stewardship. No analysis or options for restructuring the Environmental Enforcement Division or creating a new environmental compliance program—including how to ensure that BSEE’s environmental compliance capability retains the appropriate weight and consideration called for by the IG and OCS Safety Oversight Board—were discussed in either plan. Further, the Chief of the Environmental Compliance Division—who previously managed the Environmental Enforcement Division—told us that he did not know why the program was restructured and that he was unaware of any analysis being conducted regarding why or how to do so.\nBSEE’s decision to return to a region-based model, similar to the pre- Deepwater Horizon incident organization, risks undermining (1) one of the primary purposes for establishing the division as a national program in 2011 and (2) the actions the bureau took to better ensure that its responsibility to protect the environment was given appropriate weight and consideration within the bureau. Some BSEE environmental compliance officials told us that they believe the new program could adversely affect the ability of regional environmental compliance personnel in the Alaska and Pacific regions to leverage the expertise of subject matter experts—such as ecologists, biologists, and environmental engineers—located in the Gulf of Mexico region. Specifically, some BSEE officials said that regional management control over these functions could inhibit the interregion dialogue that existed when field environmental compliance program personnel reported directly to headquarters, rather than to regional leadership.\nOne of the federal standards for internal control—risk assessment— states that management should assess the risks faced entity-wide and, at the activity level, from both external and internal sources, and that once risks have been identified, management should decide what actions should be taken to mitigate them. Risk identification methods may include, among other things, consideration of findings from audits and other assessments. Given the findings and recommendations of the 2010 IG, 2010 OCS Safety Oversight Board, and 2011 BOEMRE reports and the extent of the environmental effects of the Deepwater Horizon incident, it is inconsistent with these standards that BSEE did not conduct and document an analysis of the risks it faces from returning its environmental compliance capability to a regional-based reporting structure. Without conducting and documenting a risk analysis of this reporting structure, including actions to mitigate any risk, it is not clear that BSEE will have reasonable assurance that environmental issues are receiving the appropriate weight and consideration as called for by the IG and OCS Safety Oversight Board reports.",
"BSEE has not completed an environmental compliance policy or developed procedures for environmental compliance—which are among the goals of BSEE’s restructuring effort, according to restructuring planning documents, and consistent with federal standards for internal control. BSEE documents indicate that the bureau planned to complete its environmental compliance policy and procedures in the summer of 2015, but that the time frame for completing its policy framework has slipped to 2016. As part of the ongoing restructuring that began in 2013, in October 2015, Interior approved BSEE’s establishment of an Environmental Compliance Division to develop national policies and procedures for the enforcement of environmental rules and promote the consistency of the bureau’s environmental compliance activities. However, BSEE has not completed a policy outlining what the Environmental Compliance Division’s responsibilities will be or updated procedures to guide its activities.\nThe absence of standard operating procedures is a long-standing deficiency in the bureau’s environmental compliance capabilities. In particular, BSEE’s 2013 and 2014 annual environmental compliance activity reports note the importance of developing standard operating procedures to help ensure consistency, future performance comparisons, and eventual succession planning. BSEE officials told us that many of their environmental oversight practices are not documented in guidance but rather reside within the institutional knowledge of environmental oversight staff and risk being lost if those staff leave the bureau, which would hamper its ability to effectively conduct environmental oversight. They also noted that, while BSEE has established some environmental compliance standard operating procedures for certain activities—such as agreements with BOEM and draft Endangered Species Act Consultation Requirements and Marine Mammal Protection Act information sheets— they are not all sufficient, comprehensive, or consistent. In March 2015, BSEE requested price quotes from consultants for a contract to establish environmental compliance standard operating procedures that address lessons learned from the Deepwater Horizon incident, incorporate regional best practices, and align with regulatory authorities. BSEE contracted with a consultant in August 2015 to establish these standard operating procedures and stipulated that they be completed within 12 months of contract issuance. In an October 2015 management advisory on BSEE’s restructuring, Interior’s IG recommended that the bureau should promptly develop an action plan for the restructuring’s implementation that should include timelines and responsible officials for major milestones, such as policy and procedure development and staffing and training plans. Until it completes a policy outlining the responsibilities of the Environmental Compliance Division and standard operating procedures to guide its activities, BSEE will continue to face a long-standing deficiency in its environmental compliance capabilities.\nFurthermore, BSEE’s policy on monitoring water quality might be outdated. Specifically, BSEE’s interagency agreements with EPA regarding the coordination of National Pollutant Discharge Elimination System permit compliance monitoring date to the 1980s and, according to BSEE’s annual environmental compliance activity reports, might not reflect current resources and agency needs. For example, a 1989 agreement between MMS and EPA for the coordination of National Pollutant Discharge Elimination System permit compliance monitoring in the Gulf of Mexico stipulates that MMS inspect no more than 50 facilities per year for EPA and that MMS not conduct water sampling on behalf of EPA. However, it is unclear whether this level of monitoring is appropriate 30 years later due to changes in drilling practices and technologies. According to Standards for Internal Control in the Federal Government, as programs change and as agencies strive to improve operational processes and implement new technological developments, management must continually assess and evaluate its internal control to ensure that the control activities being used are effective and updated when necessary. By coordinating with EPA to consider the relevance of existing interagency agreements for monitoring operator compliance with National Pollutant Discharge Elimination System permits on the OCS and updating them if necessary to reflect current oversight needs, BSEE would have better assurance that these agreements reflect current resources and agency needs. Senior BSEE officials told us that the bureau has no plans to update its existing interagency agreements with EPA, and some officials said that a previous headquarters-led effort to update the agreements was not completed because it did not sufficiently describe BOEM’s responsibilities for offshore oil and gas development. Additionally, EPA officials told us that they have discussed updating these agreements but do not have a plan or timetable for taking action because of disagreements with BSEE regarding the credentials needed for BSEE inspectors to conduct water sampling on behalf of EPA.",
"BSEE’s restructuring has not addressed documented staffing shortfalls that prevent the bureau from meeting its environmental compliance oversight goals. According to its annual environmental compliance activity reports, BSEE has not met its goals for monitoring operator compliance with environmental standards primarily because BSEE does not have enough staff to accomplish its workload. For example, according to its fiscal year 2014 annual environmental compliance activity report, the Gulf of Mexico Region met less than 33 percent of its 100 percent target for office verification oversight—which includes assessing industry-submitted documentation—and less than 1 percent of its 10 percent target for facility verification oversight—which includes conducting on-site inspections of operator compliance with environmental stipulations.\nBSEE’s fiscal year 2014 annual environmental compliance activity report states that funding was available for additional environmental compliance positions in the field but that BSEE leadership did not authorize hiring. Specifically, of 22 funded positions, 8 were not filled at the end of fiscal year 2014 in the Gulf of Mexico region because the Deputy Director did not authorize hiring. The need for staff was documented in BSEE’s fiscal year 2013 and 2014 annual environmental compliance activity reports as well as in the October 2011 BOEMRE report on which BSEE’s environmental compliance program is based. All advocate for a higher staffing level—30, 30, and 27, respectively—than funded. Senior BSEE officials told us that they did not believe the October 2011 BOEMRE report was approved by bureau leadership at the time and is, therefore, not representative of BSEE’s environmental compliance needs. However, BSEE’s fiscal year 2013 and fiscal year 2014 annual environmental compliance activity reports indicate that the establishment of the Environmental Enforcement Division was based on the findings of the 2011 BOEMRE report.\nBureau-wide, BSEE’s Environmental Compliance Division has been funded for 30 positions since fiscal year 2014, but 9 remained unfilled as of November 2015. Specifically, in addition to the 8 vacancies in the Gulf of Mexico region, the Pacific region has been without a permanent Regional Environmental Officer since 2014. According to BSEE leadership, the bureau began fiscal year 2013 with $2.8 million in unspent environmental compliance funds from 2012 and that cumulative excess funds roll over to each subsequent year. Specifically, they told us that the bureau had unspent environmental compliance appropriations totaling approximately $3.8 million at the end of fiscal year 2013 (from a $3.9 million appropriation), $5.5 million at the end of fiscal year 2014 (from an $8.3 million appropriation), and $7.1 million at the end of fiscal year 2015 (from an $8.3 million appropriation).\nAccording to senior BSEE officials, the bureau has no plans to fill any vacant environmental compliance positions in the field. Additionally, these officials told us that BSEE intends to transfer most of its environmental compliance personnel to headquarters within the next 5 years. In September 2015, BSEE advertised for a new environmental compliance position in headquarters. Without developing a plan to address documented environmental oversight staffing needs, BSEE does not have reasonable assurance that it could meet its goals for monitoring operator compliance with environmental standards.",
"BSEE’s restructuring of its enforcement capabilities has made limited progress addressing long-standing deficiencies in its effectiveness. Specifically, BSEE has not completed policies or developed procedures— including defined criteria for the use of its existing enforcement tools—to guide its enforcement actions. Additionally, BSEE did not comply with a statutory requirement to review its maximum daily civil penalty.",
"BSEE has not completed an enforcement policy or developed procedures consistent with federal standards for internal control—including criteria for enforcement actions against operators that violate safety and environmental regulations—which are among the goals of BSEE’s restructuring effort, for all its enforcement tools, according to restructuring planning documents. BSEE documents indicate that the bureau planned to complete its policies and procedures in the summer of 2015, but that the time frame for establishing its policy framework has slipped to 2016. As part of the ongoing restructuring that began in 2013, in October 2015, Interior approved the establishment of a Safety Enforcement Division to develop national enforcement policies and procedures and monitor the execution and effectiveness of the bureau’s enforcement activities. However, BSEE has not completed a policy outlining the Safety Enforcement Division’s responsibilities or developed procedures that contain criteria for using enforcement tools to guide its enforcement activities.\nThe absence of enforcement criteria is a long-standing deficiency in the bureau’s enforcement capabilities. For example, in 2010, IG and OCS Safety Oversight Board investigations following the Deepwater Horizon incident recommended that BSEE—then BOEMRE—assess its enforcement tools and how to employ them to deter safety and environmental violations. In October 2012, a consultant BSEE hired to assess its enforcement strategy found that some BSEE enforcement tools lacked clear procedures and criteria and, in turn, recommended that BSEE define its full complement of enforcement tools. BSEE restructuring planning documents describe the need for consistently applied enforcement tools so that offshore operators understand the performance expected, as well as the consequences for violating safety and environmental standards. These documents also state that the current lack of criteria results in inconsistent enforcement actions and creates uncertainty for operators regarding BSEE’s oversight approach and expectations. Likewise, BSEE officials told us that the absence of criteria can result in inconsistent enforcement actions taken for similar infractions across or within regional offices.\nAmong the enforcement tools BSEE can use to compel operator compliance with safety and environmental standards are performance improvement plans. BSEE enforcement officials told us that the use of performance improvement plans—an enforcement tool to establish performance targets for low-performing operators—could be a powerful tool to compel operators to comply with safety and environmental regulations. BSEE developed a draft standard operating procedure for implementing performance improvement plans, but the extent to which it has been implemented is unclear. BSEE leadership told us that the bureau had implemented the procedure, but did not provide documentation of its use for developing or executing a performance improvement plan. Further, the draft standard operating procedure does not contain specific criteria for the level of performance that would result in an operator being placed on a performance improvement plan. BSEE enforcement officials told us that the bureau’s Office of Safety Management had drafted a policy for using performance improvement plans but said they were not aware of any final guidance or criteria for implementing them. They also stated that, without criteria in procedures for how to use performance improvement plans, they can face challenges obtaining management approval to implement them.\nAccording to BSEE enforcement officials, recommending that BOEM disqualify operators from participating in offshore oil and gas development is the most powerful tool available to remove consistently low-performing operators from the OCS. However, BSEE has not developed procedures, including criteria for recommending the disqualification of operators beyond what is broadly defined in its regulations. For BSEE to make disqualification recommendations to BOEM, the regulations cite the following: (1) accidents and their nature; (2) pollution events, environmental damages, and their nature; (3) incidents of noncompliance; (4) civil penalties; (5) failure to adhere to OCS lease obligations; or (6) any other relevant factors as criteria. By providing more detailed guidance outlining comprehensive criteria for responding to regulatory violations on the OCS, BSEE could address uncertainty regarding its approach to enforcing compliance with safety and environmental standards. The regulations, however, do not specify the conditions that would trigger disqualification recommendations, and BSEE officials told us that the bureau has not developed procedures with criteria identifying the types of accidents or pollution events, for example, that would merit disqualification. As a result, operators do not know the circumstances under which BSEE could recommend their disqualification from participating in offshore oil and gas development. Without procedures and criteria for all of its enforcement tools, BSEE does not have reasonable assurance that it can take consistent enforcement actions for operators who commit similar violations. In an October 2015 management advisory on BSEE’s restructuring, Interior’s IG recommended that the bureau should promptly develop an action plan for the restructuring’s implementation that should include timelines and responsible officials for major milestones, such as policy and procedure development and staffing and training plans.",
"BSEE does not have a mechanism to ensure that it reviews its maximum daily civil penalty every 3 years, as required by the Outer Continental Shelf Lands Act. If a violation causes injury, death, or environmental damage, or poses a threat to human life or the environment, BSEE is to consider the violation for civil penalty assessment review. BSEE is to review the maximum daily civil penalty amount every 3 years and adjust it to reflect increases in the Consumer Price Index (CPI). As stated by the Deputy Secretary, Department of the Interior in his May 2010 testimony before the Senate Committee on Energy and Natural Resources, the original penalty authority came from the 1978 Lands Act amendments, and the original maximum fine was $10,000 per day, per violation. In the 1990 Oil Pollution Act, there was an amendment to the Outer Continental Shelf Lands Act that increased that maximum fine for civil penalties to $20,000 per day, per violation, and it established the ability to adjust that penalty upward under the CPI. In 1997, MMS increased the maximum penalty amount up, under the CPI, to $25,000 a day. In 2003, it was again increased, because of the CPI, to $30,000 a day. In 2007, it was again increased to $35,000 per day. In August 2009, MMS did a CPI analysis, and the CPI had not gone over the threshold—rounding to the nearest $5,000 increment—to raise the penalty further. BOEMRE again reviewed the maximum daily civil penalty in October 2010 and increased the maximum fine from $35,000 to $40,000 in August 2011.\nBSEE then did not review the maximum daily civil penalty for nearly 5 years. In February 2015, BSEE’s Deputy Director told us that the bureau had not reviewed the maximum daily civil penalty since 2010 because BSEE’s ongoing restructuring effort is a higher priority, but that the bureau would consider doing so once the restructuring is complete. In June 2015, we requested documentation of the last time that BSEE reviewed its maximum daily civil penalty. Subsequently, in June 2015, the Deputy Director requested that BSEE staff conduct such a review in response to GAO, according to a December 2015 BSEE memorandum. Interior’s Office of the Solicitor conducted an analysis in September 2015, nearly 5 years after the previous analysis was conducted in October 2010. Interior’s Office of the Solicitor compared the 2011 CPI—the time of the last adjustment—to the 2014 CPI—the time at which BSEE was to conduct the review based on statutory time frames—and recommended that BSEE not raise its maximum daily civil penalty because the new penalty would not exceed the threshold to round up to $45,000. By not having a mechanism, however, to ensure that it reviews its maximum daily civil penalty and adjusting it to reflect increases in the CPI within the statutory time frame, BSEE risks collecting smaller fines from operators that violated safety and environmental standards than it otherwise could have, potentially diminishing the effectiveness of issuing civil penalties as an enforcement tool.",
"Since its inception in 2011, BSEE has undertaken several efforts to reform its oversight capabilities. More than 2 years into its restructuring effort—and more than 5 years after the Deepwater Horizon incident—the bureau has not completed the underlying policies and procedures to facilitate the implementation of its new Safety and Incident Investigation, Environmental Compliance, and Safety Enforcement Divisions. Without completing policies and procedures for these capabilities, BSEE continues to face risks to their effectiveness. Moreover, BSEE continues to face deficiencies in each of these capabilities that undermine its ability to effectively oversee offshore oil and gas development.\nWith regard to investigations, because it does not have a capability to review investigation policy and collect and analyze incident and investigative data, BSEE does not have reasonable assurance that it can identify trends in safety and environmental hazards that could inform bureau decisions and enhance safety and environmental oversight. Additionally, without a plan with milestones for implementing the case management system for investigations, BSEE will continue to have difficulty systematically monitoring, reviewing, or evaluating the results of IRU investigations in a timely manner. Further, without clearly communicating the purpose of the IRU to industry operators, BSEE might continue to hamper the effectiveness of its investigations. Moreover, without clear policies and procedures for assigning panel investigation membership and referring cases of suspected criminal wrongdoing to the IG, BSEE’s ability to coordinate its investigative activities and monitor results is hampered.\nWith regard to environmental compliance, a key post-Deepwater Horizon incident reform was the establishment of a headquarters-based program specifically responsible for managing environmental compliance issues. However, BSEE reverted to a region-based reporting structure without conducting and documenting a risk analysis, including actions to mitigate any risk and, thus, it is not clear that BSEE will have reasonable assurance that environmental issues are receiving the appropriate weight and consideration as called for by the OCS Safety Oversight Board report. Additionally, BSEE would have better assurance that its existing interagency agreements with EPA for monitoring operator compliance with National Pollutant Discharge Elimination System permits reflect current resources if it coordinated with the EPA to consider their relevance and updating them, if necessary, to reflect current oversight needs. The success of BSEE’s Environmental Compliance Division is predicated on its ability to conduct oversight of operator activities. However, without developing a plan to address documented environmental oversight staffing needs, BSEE does not have reasonable assurance that it could meet its goals for monitoring operator compliance with environmental standards.\nWith regard to enforcement, BSEE’s ability to assess civil penalties is a key tool for compelling operator compliance with safety and environmental standards. Without a mechanism to ensure the review of its maximum daily civil penalty, and adjusting it to reflect increases in the CPI within the statutory time frame, BSEE risks collecting smaller fines from operators that violate safety and environmental standards, potentially diminishing the effectiveness of civil penalties as an enforcement tool.",
"To enhance its ability to effectively oversee offshore oil and gas development, we recommend that the Secretary of the Interior direct the Director of the Bureau of Safety and Environmental Enforcement to take the following nine actions as it continues to implement its restructuring effort.\nTo address risks to the effectiveness of its investigations, environmental compliance, and enforcement capabilities, we recommend that BSEE complete policies outlining the responsibilities of its SIID, Environmental Compliance Division, and Safety Enforcement Division and update and develop procedures to guide them.\nTo enhance its investigative capabilities, we recommend that BSEE establish a capability to review investigation policy and collect and analyze incidents to identify trends in safety and environmental hazards; develop a plan with milestones for implementing the case management system for investigations; clearly communicate the purpose of the IRU, as it will be assumed by the SIID, to industry operators; and clarify policies and procedures for assigning panel investigation membership and referring cases of suspected criminal wrongdoing to the IG.\nTo enhance its environmental compliance capabilities, we recommend conduct and document a risk analysis of the regional-based reporting structure of the Environmental Compliance Division, including actions to mitigate any identified risk; coordinate with the Administrator of the Environmental Protection Agency to consider the relevance of existing interagency agreements for monitoring operator compliance with National Pollutant Discharge Elimination System permits on the OCS and, if necessary, update them to reflect current oversight needs; and develop a plan to address documented environmental oversight staffing needs.\nTo enhance its enforcement capabilities, we recommend that BSEE develop a mechanism to ensure that it reviews the maximum daily civil penalty and adjust it to reflect increases in the CPI within the time frame as directed by statute.",
"We provided a draft of this report to the Department of the Interior and the Environmental Protection Agency for review and comment, and both agencies provided written comments. In its written comments, reproduced in appendix II, Interior agreed that additional reforms—such as documented policies and procedures—are needed to address offshore oil and gas oversight deficiencies, but Interior neither agreed nor disagreed with our recommendations. Interior states that BSEE’s current realignment employs a national program model and that the designated lead for a national program establishes program strategy, identifies priorities for resource allocation, and develops and tracks accountability measures. However, more than 2 years into the restructuring effort, BSEE did not provide us with evidence that the bureau has made significant progress toward these functions for its new divisions. We agree that it is a significant cultural shift to move from a largely decentralized field organization to one with national-level direction, monitoring, and accountability. However, Interior’s characterization of BSEE’s environmental compliance restructuring—which Interior highlights as the most evident aspect of the cultural shift occurring within BSEE—is of particular concern. Specifically, Interior states that its initial efforts to move away from a decentralized field organization responsible for environmental compliance issues to a reporting chain with regionally- based staff reporting to headquarters-based managers—a step we viewed as a key post-Deepwater Horizon incident reform—presented BSEE with challenges that slowed resolution of some oversight deficiencies. However, BSEE did not provide us with evidence of any such challenges during our review. Moreover, BSEE has reverted to a region-based environmental oversight reporting structure, which runs counter to the recommendations of the 2010 Inspector General and OCS Safety Oversights Board reports. Further, because of this action— particularly because the bureau did no provide us with documentation of its analysis justifying the reason for doing so—it is not clear that BSEE will have reasonable assurance that environmental issues are receiving the appropriate weight and consideration as called for in those reports. As a result, we continue to believe that BSEE should conduct and document a risk analysis of the regional-based reporting structure of the Environmental Compliance Division, including actions to mitigate any identified risk.\nIn its written comments, reproduced in appendix III, EPA agreed to coordinate with BSEE and update existing interagency agreements for compliance monitoring as appropriate. Interior also provided technical comments that we incorporated into the report, as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Interior, the Administrator of the Environmental Protection Agency, and other interested parties. In addition, the report will be 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) 512-3841 or ruscof@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 major contributions to this report are listed in appendix IV.",
"To examine the extent to which the Department of the Interior’s Bureau of Safety and Environmental Enforcement’s (BSEE) ongoing restructuring has enhanced its capabilities for (1) investigations, (2) environmental compliance, and (3) enforcement, we reviewed laws, regulations, policies, and guidance related to BSEE’s authority regarding these capabilities, as well as its activities in implementing them since the bureau’s inception in 2011. For these capabilities, we reviewed documentation related to BSEE’s ongoing restructuring, including plans, analyses of restructuring options, development and implementation schedules, department manual updates, consultant contracts, and draft policies to determine the intent and history of restructuring actions leading to BSEE’s current organizational state. We interviewed BSEE officials representing the bureau’s headquarters leadership to determine the purpose of the ongoing restructuring and how they have managed it. We also interviewed officials responsible for conducting oversight activities in each of the bureau’s three regions—the Gulf of Mexico, Pacific, and Alaska—to understand their roles in executing BSEE’s investigative, environmental compliance, and enforcement missions, as well as their perspectives on how the restructuring has affected the bureau’s oversight activities to date.\nWe reviewed interagency agreements between BSEE and other federal agencies with responsibilities on the outer continental shelf (OCS) to determine the frameworks for how they coordinate activities with regards to their jurisdictional boundaries. Specifically, we reviewed BSEE agreements with (1) the U.S. Coast Guard regarding incident investigations, (2) Interior’s Bureau of Ocean Energy Management regarding environmental oversight, and (3) the Environmental Protection Agency regarding water quality monitoring. We also interviewed officials representing these agencies to determine how the agencies coordinate their oversight activities and the effect, in any, that the restructuring has had on that coordination. Additionally, we met with representatives from the American Petroleum Institute—which represents all segments of the domestic oil and gas industry—and the Center for Offshore Safety— which develops safety and environmental standards for the offshore oil and gas industry—to obtain their perspectives on how BSEE’s ongoing restructuring affected its oversight of offshore oil and gas development. Their views are not generalizable but provide illustrative examples.\nWe also compared BSEE’s current state, based on information gathered from bureau documents and interviews with bureau officials, to BSEE’s regulations and policies, post-Deepwater Horizon incident investigation reports, and Standards for Internal Control in the Federal Government.\nWe conducted this performance audit from January 2015 to February 2016 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.",
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"In addition to the individual named above, Christine Kehr (Assistant Director), Cindy Gilbert, Alison O’Neill, Matthew D. Tabbert, Kiki Theodoropoulos, Barbara Timmerman, and Daniel R. Will made significant contributions to this report."
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{
"question": [
"To what extent has the restructuring of BSEE enhanced the bureau's investigative capabilities?",
"What progress has BSEE made towards updating its policies?",
"How are Interior's policies lacking?",
"Why must the policies be updated as soon as possible?",
"How does BSEE's restructuring affect its oversight capabilities?",
"Why was the BSSE environmental oversight division created?",
"Why was this reporting structure chosen?",
"How would the restructuring affect the reporting structure?",
"Why was the reporting structure changed?",
"To what extent has BSEE's restructuring enhanced its enforcement capabilities?",
"How does the lack of criteria decrease BSEE's effectiveness?",
"To what extent is this a new issue?",
"Why is it critical to develop new procedures as soon as possible?",
"What happened with the Deepwater Horizon drilling rig?",
"How did Interior respond to this catastrophe?",
"What actions has BSEE taken since then?",
"How has BSEE addressed its oversight deficiencies?",
"What was GAO asked to review?"
],
"summary": [
"The Department of the Interior's (Interior) Bureau of Safety and Environmental Enforcement's (BSEE) ongoing restructuring has made limited progress in enhancing the bureau's investigative capabilities.",
"Specifically, BSEE has not completed a policy outlining investigative responsibilities or updated procedures for investigating incidents—among the goals of BSEE's restructuring, according to restructuring planning documents, and consistent with federal standards for internal control.",
"Post- Deepwater Horizon incident investigations found that Interior's policies and procedures did not include requirements for planning investigations, gathering and documenting evidence, and ensuring quality control and determined that their continued use posed a risk to the effectiveness of bureau investigations.",
"Without completing and updating its investigative policies and procedures, BSEE continues to face this risk.",
"BSEE's ongoing restructuring of its environmental compliance program reverses actions taken to address post- Deepwater Horizon incident concerns, and risks weakening the bureau's environmental compliance oversight capabilities.",
"In 2011, in response to two post- Deepwater Horizon incident investigations that found that BSEE's predecessor's focus on oil and gas development might have been at the expense of protecting the environment, BSEE created an environmental oversight division with region-based staff reporting directly to the headquarters-based division chief instead of regional management.",
"This reporting structure was to help ensure that environmental issues received appropriate weight and consideration within the bureau.",
"Under the restructuring, since February 2015, field-based environmental compliance staff again report to their regional director.",
"BSEE's rationale for this action is unclear, as it was not included in the bureau's restructuring planning documentation or analysis as part of restructuring planning.",
"BSEE's ongoing restructuring has made limited progress in enhancing its enforcement capabilities.",
"BSEE restructuring plans state that the current lack of criteria results in inconsistent actions and creates uncertainty for operators regarding BSEE's oversight approach and expectations.",
"The absence of enforcement criteria is a long-standing deficiency.",
"Without developing procedures with defined criteria for taking enforcement actions, BSEE continues to face risks to the effectiveness of its enforcement capabilities.",
"On April 20, 2010, the Deepwater Horizon drilling rig exploded in the Gulf of Mexico resulting in 11 deaths, serious injuries, and the largest marine oil spill in U.S. history.",
"In response, in May 2010, Interior reorganized offshore oil and gas management activities—energy development, revenue collection, and regulatory oversight—into separate bureaus. In October 2011, Interior created BSEE to manage regulatory oversight.",
"Since then, BSEE has undertaken reform efforts but has not fully addressed deficiencies in its investigative, environmental compliance, and enforcement capabilities identified by investigations after the Deepwater Horizon incident.",
"In October 2013, BSEE initiated an organizational restructuring to address continuing oversight deficiencies.",
"GAO was asked to review BSEE's efforts to enhance its oversight capabilities."
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GAO_GAO-12-809
|
{
"title": [
"Background",
"Overview of DHS Roles and Responsibilities and the Information Sharing Environment",
"Federal Statutes and Strategies Governing Information Sharing",
"DHS Has Made Progress in Advancing Key Information- Sharing Initiatives, but Additional Steps Could Help Sustain Such Efforts",
"The Governance Board Demonstrates Leadership Commitment to Improving Information Sharing",
"DHS Has Identified Key Information-Sharing Initiatives to Fill Gaps, but Additional Steps Could Help Sustain this Process",
"Key Information-Sharing Initiatives",
"DHS Has Advanced Key Information-Sharing Initiatives, but Progress Has Slowed for Half of Them in Part because of Funding Constraints",
"DHS Has Made Important Progress, but Has Yet to Fully Implement Its Information-Sharing Architecture",
"Upcoming Information Sharing Strategy and Implementation Plan Will Be Important in Managing Information-Sharing Efforts",
"DHS Has Taken Steps to Track Information- Sharing Efforts, but Has Not Yet Fully Assessed How They Have Improved Sharing",
"DHS Is Tracking Progress of Key Initiatives but Does Not Track Completion Dates or Assess Impacts on Information Sharing",
"DHS Is Assessing Technology and Fusion Center Capabilities Needed to Share Information, but Could Better Determine How Technology Capabilities Are Helping Achieve 2015 Vision",
"Customer Feedback Can Provide Perspectives on the Usefulness of Information Shared",
"Carrying Through on Plans to Develop More Meaningful Ways to Assess the Impacts of Information-Sharing Efforts Will Be Important",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Comments from the Department of Homeland Security",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"Figure 1 shows DHS’s homeland security and information-sharing visions, missions, and goal.\nI&A is the lead DHS component with responsibilities for sharing terrorism- related information with all levels of government and the private sector. I&A performs a variety of functions related to information sharing, including gathering customer information needs, developing and distributing intelligence reports, and gathering customer feedback on the information I&A provides. I&A, along with the Office of the CIO, also has a key role in the overall governance structure DHS has created to manage information sharing throughout the department, which is discussed more fully later in this report. I&A is headed by the Under Secretary for Intelligence and Analysis who has responsibilities for, among other things, providing homeland security intelligence and information to the Secretary of Homeland Security; other federal officials and agencies, such as members of the intelligence community; Members of Congress; departmental component agencies; and the department’s state, local, tribal, territorial, and private sector partners, such as fusion centers. In addition to I&A, multiple other DHS components—such as ICE, U.S. Customs and Border Protection (CBP), and the Transportation Security Administration (TSA)—share information within and outside DHS on threats more specific to their mission areas, such as travel information. Among other things, these agencies develop and distribute intelligence reports about these areas to customers, such as the intelligence community.\nDHS is one of five key agencies responsible for establishing the ISE. Section 1016 of the Intelligence Reform Act, as amended by the 9/11 Commission Act, requires the President to take action to facilitate the sharing of terrorism-related information through the creation of the ISE.In April 2005, the President designated a Program Manager—within the Office of the Director of National Intelligence—to, among other things, plan for, oversee implementation of, and manage the ISE. In July 2011, we recommended that in defining a road map for the ISE, the Program Manager ensure that relevant initiatives individual agencies were implementing are leveraged across the government, among other things.recommendations and has actions under way to address them. DHS noted that the department remained committed to continuing its work with the Program Manager and relevant stakeholders to further define and implement a fully functioning ISE.\nThe Program Manager generally agreed with our DHS’s Office of the CIO is responsible for the department’s information technology management and is developing the department’s enterprise architecture (EA), which is designed to establish an agencywide road map to achieve its mission. An EA can be viewed as a reference or “blueprint” for guiding an organization’s transition to its future environment that includes maximizing information sharing within and across organizational boundaries. Along with I&A, the Office of the CIO is responsible for overseeing this transition.",
"integrate the information and standardize the format of the terrorism- related products of the department’s intelligence components.\nIn October 2007, the President issued the National Strategy for Information Sharing, which identifies the federal government’s information-sharing responsibilities. The strategy calls for authorities at all levels of government to work together to obtain a common understanding of the information needed to prevent, deter, and respond to terrorist attacks. On the basis of the National Strategy, DHS developed a strategy in 2008 to direct the department’s information-sharing efforts and is drafting a Fiscal Year 2012-2017 DHS Information Sharing and Safeguarding Strategy. DHS plans to finalize and release this new strategy after the Executive Office of the President issues a new National Strategy for Information Sharing and Safeguarding, and DHS then plans to release an implementation plan that is to describe in more detail how the department will implement its strategy along with related milestones. DHS’s new strategy is intended to update the 2008 strategy to reflect the department’s growing and increasingly complex mission and include information safeguarding—in response to the release of classified and diplomatic documents by the website Wikileaks in 2010—as well as information sharing.",
"DHS has established a decision-making body—the Information Sharing and Safeguarding Governance Board (the board)—that demonstrates senior executive-level commitment to improving information sharing. The board has identified information-sharing gaps and developed a list of key initiatives to help address those gaps, but additional steps could help DHS sustain these efforts. Board and department attention has helped achieve progress on many of the key initiatives, but funding challenges have slowed some efforts. DHS has also made progress in developing and implementing DHS’s Information Sharing Segment Architecture, but has not yet fully developed this architecture. The board plans to update the DHS Information Sharing Strategy and develop a related implementation plan, which will be important in managing information- sharing efforts.\nAs of early September 2012, the new National Strategy for Information Sharing and Safeguarding had not been released.",
"The Information Sharing and Safeguarding Governance Board serves as DHS’s senior executive-level decision-making body for information- sharing issues. According to the board’s charter, DHS established the board in 2007 to serve as the “arbiter of data access denials or delays that cannot be resolved at the component level” and to work with DHS operational components to monitor their information management processes and ensure respect for legal protections. In the aftermath of the release of classified and diplomatic documents by the website Wikileaks, in 2011 DHS revised the board’s charter to reflect its responsibility to govern both information sharing and safeguarding and expanded the board’s membership to incorporate components with information-safeguarding responsibilities. The board includes senior executive-level representation from almost every DHS component, as shown in figure 2.\nThe Under Secretary for Intelligence and Analysis serves as the board’s chair. According to DHS officials, as the DHS representative to the interagency policy committee for information sharing, the Under Secretary brings knowledge of governmentwide information-sharing efforts. The DHS Chief Information Officer serves as the board’s vice chair, also bringing knowledge as the authority over DHS’s technology-related information-sharing projects. Board minutes show that senior-level officials attend the board’s quarterly meetings, demonstrating DHS leadership commitment to the board’s work. The board is responsible for approving the department’s information-sharing and -safeguarding vision and strategy, establishing information-sharing goals and priorities, and overseeing implementation across DHS components. According to DHS officials, the board periodically reports its results to the Secretary of Homeland Security. The Information Sharing Coordinating Council serves as an advisory body to the board and supports it by recommending policies and procedures for information sharing, preparing for board meetings, and helping to track information-sharing initiatives.\nThe board has advanced DHS information sharing in several ways. First, the board has raised visibility—that is, has increased awareness of— information-sharing initiatives. Both the Office of the CIO and ICE officials noted that visibility improves stakeholder coordination across initiatives and facilitates access to high-level officials who can help initiatives overcome roadblocks. For example, ICE officials said that the board has increased the visibility of LEISI—DHS’s main initiative for sharing law enforcement information with state and local partners—and that other DHS components are now more likely to coordinate with LEISI in their law enforcement information-sharing activities. An official from the Office of the CIO also noted that the board provides information-sharing initiatives with organizational support at higher levels across DHS, which can remove roadblocks within or across components. For example, the official noted that one information-sharing initiative—the Homeland Security Information Network (HSIN), which DHS uses to share information with federal, state, and local partners—cannot succeed without this visibility and now has better stakeholder coordination than ever before.\nSecond, according to DHS officials, the board has helped to reduce redundancies across DHS components. For example, through board activities, members recognized that DHS components were independently developing over 20 systems to collect, share, and display the information that components and other stakeholders need to plan for and respond to threats and hazards, known as Common Operating Picture systems. The board worked with the components involved to examine each component’s Common Operating Picture systems and identify opportunities for cooperation, thereby reducing redundancies and saving funds.\nIn February 2012, the board also established an Information Sharing Environment Coordination Activity—with staff from I&A and the Office of the CIO—to facilitate decision making related to DHS’s Information Sharing Segment Architecture transition plans. The group’s responsibilities include developing recommendations and advising on policy development, resource allocation, acquisition management, and program management processes. In addition, the group is responsible for assessing whether departmental investments in new and existing technology programs include critical information-sharing capabilities, and whether investments present opportunities to deploy capabilities as enterprise services, such as computer-to-computer mechanisms to deliver information between systems. We discuss this group’s role in several information-sharing efforts later in this report. Because the group is relatively new, it was too early for us to determine its impact. DHS’s actions to establish an information-sharing governance structure and related activities demonstrate DHS leadership’s commitment to improving information sharing.",
"",
"DHS has identified a list of initiatives that it determined are key to advancing information sharing within the department and with its customers, which DHS refers to as its Information Sharing Roadmap. According to DHS officials, to develop this list, the board hosted a series of meetings from April 2010 through December 2011 with relevant components in each of its five mission areas. According to I&A officials, these meetings included in-depth conversations with DHS and component executives about their information-sharing activities and gaps, and presentations from subject matter experts on these issues. The board selected a list of 22 initiatives that it determined represented DHS’s greatest opportunities to improve information sharing. Some of these initiatives were information-sharing programs that components were already implementing as part of their mission activities, while others were new projects designed to address specific information-sharing gaps. According to DHS officials, the process of identifying departmental information-sharing gaps evolved progressively over the course of 2 years as the board continually sought to improve its methods.\nAccording to DHS officials, in July 2011, the board’s chair requested that board members prioritize the list of initiatives and select a smaller and more manageable list to receive additional support in the DHS budget process. Using a weighted scoring and voting system, each board member selected 5 top-priority initiatives based on four criteria: cross- departmental impact, linkage to mission areas, enterprisewide information-sharing enabler, and level of DHS component support. After compiling these rankings across members, the board determined that 8 initiatives were clustered near the top of the list and established these initiatives as its priority efforts, as shown in table 1.\nTo improve the process it used to select the priority initiatives, DHS formed the Criteria Working Group in 2011. According to the working group’s briefing materials, the group developed new criteria for selecting priority initiatives—such as mission criticality and feasibility—that it will use in future prioritization efforts and a new process for integrating component input on which initiatives to choose as priorities.\nAccording to DHS officials, the board also recognized the need to periodically add and remove initiatives from the broader list of key information-sharing initiatives and developed and documented processes to do so. Therefore, in December 2011, the board elected to begin reviewing the list of initiatives on a semiannual basis, evaluating the initiatives for continued relevancy and considering newly emerging requirements. According to I&A officials, the board could remove an initiative from the list because (1) the initiative has “graduated”—that is, it has achieved all of its information-sharing goals or (2) the initiative has languished because components have not provided needed funding or DHS did not have a lead component to manage the initiative. These latter initiatives would be removed from the list and set aside for potential reevaluation if a component agrees to lead the initiative at a later date. In May 2012, DHS issued the Information Sharing and Safeguarding Roadmap Implementation Guide to document and describe goals and elements of the list of key initiatives and provide guidance for development, management, and oversight of the list.\nIn 2012, the board added 5 new initiatives to the list in order to reflect the board’s new emphasis on information safeguarding. consolidated 3 initiatives into a single initiative, split 1 initiative into 2 separate initiatives, and removed 3 from the list because, according to I&A officials, they were better handled by other entities and no longer required board involvement. As of September 2012, DHS had 18 key information-sharing initiatives and 5 safeguarding initiatives on its list of key initiatives.\nDHS’s efforts to identify information-sharing gaps and select initiatives to address them have advanced information-sharing efforts, but additional steps could help DHS sustain these efforts. First, DHS has not documented its process for identifying information-sharing gaps in each of its mission areas or the list of gaps it identified. Documenting this process and its results could help DHS replicate and sustain this process in the future. Federal internal control standards require agencies to clearly DHS officials noted the board did not document significant activities. document the process because its efforts were in early stages and the process was revised as the board learned from experience. Processes for selecting key information-sharing initiatives are documented in DHS’s Roadmap Implementation Guide—the department’s policies and procedures for managing key initiatives. However, because DHS’s assessment of gaps drives the selection of key information-sharing initiatives, documenting the process for identifying gaps and the results of that process in the Roadmap Implementation Guide or other related policies and procedures would provide DHS with an institutional record to better replicate, and therefore sustain, a key step in its efforts to improve information sharing.\nDHS’s five safeguarding priorities in the 2012 list of initiatives are Address the Insider Threat, Improve Access Control, Improve Enterprise Audit, Reduce Removable Media Use, and Reduce User Anonymity.\nGAO/AIMD-00-21.3.1.\nSecond, DHS did not analyze the root causes of information-sharing gaps to ensure that its key initiatives target the correct problems. According to DHS officials, DHS did not do this because the root causes of DHS’s information-sharing problems—such as challenges in incorporating diverse agencies into a single department—are well known and have been discussed at high levels within the executive branch, in the context of the formation of DHS, in the 9/11 Commission Report, and through subsequently enacted laws. These broad, overarching issues help inform DHS’s efforts to improve information sharing, but documenting and implementing a process for analyzing the specific causes of DHS’s information-sharing gaps within each mission area would help DHS ensure that it invests in the correct information-sharing solutions. For example, diagnosing whether specific gaps are caused by DHS’s own funding decisions and constraints, by its organizational structure, or by technological limitations would allow DHS to better choose appropriate solutions. Furthermore, our work on high-risk programs has shown that analyzing root causes of program gaps or limitations can help in designing effective solutions to reduce risks.\nGAO/AIMD-00-21.3.1. managed by another entity within the department, which mitigated the risk of removal. Nevertheless, as we describe in the following section, funding and other constraints may require DHS to remove items from the list in the future, and establishing and documenting processes for potential future use could help guide these decisions. DHS officials stated that such processes could improve information-sharing efforts. By establishing and documenting processes for identifying and assessing the risks of removing an incomplete initiative from its list and working to mitigate that risk, DHS could be better positioned to identify the effects that removal may have on its information-sharing efforts and sustain these efforts.",
"Since DHS developed its list of key information-sharing initiatives, many of those initiatives have proceeded and met interim program milestones. As of June 2012, 15 of the 18 key information-sharing initiatives met at least one interim milestone, and DHS fully completed 1 initiative— developing a training course designed to improve and increase sharing of terrorism information by promoting a culture of awareness. However, as shown in figure 3, progress has slowed or stopped for 10 of the 18 key information-sharing initiatives presented to the board in June 2012.\nFunding constraints are a primary reason why progress has slowed or stopped for some initiatives. For example, among the 8 priority information-sharing initiatives, 5 faced risks as of June 2012 because of lack of funding, and DHS has had to delay or scale back at least 4 of them. More specifically, according to ICE documents, LEISI has met milestones related to several activities—including developing a strategic plan, implementing a performance metrics tracking system, and expanding information sharing with federal, state, and local partners—but inadequate funding threatens the ability of ICE to further expand the LEISI user base and share additional data, among other things. Also, DHS’s top information-sharing priority (CHISE)—an initiative to develop an integrated, searchable index to consolidate and streamline access to intelligence, law enforcement, and other information across DHS—has not been fully funded, but efforts to explore possible funding options continue, according to DHS officials. The officials noted that CHISE is intended to streamline access to terrorism-related information and help analysts synthesize this information. The officials added that until CHISE is developed, analysts will continue to separately access numerous data sets from across the department, which requires a larger number of analysts, is more time consuming, and may result in missing connections among data in different data sets.\nAccording to I&A officials, for the fiscal year 2012 budget, the board made a concerted effort to advocate for additional funding to support priority initiatives and emphasize information sharing during the DHS planning and budgeting process. According to I&A officials, the board was not able to obtain increased funding for the initiatives but plans to continue its efforts. The officials noted that the board does not have budget authority within the department, and therefore does not have the authority or resources to fund the priority initiatives. They explained that under the DHS budget process, the initiatives are considered integral to, and not separate from, an agency’s fundamental mission activities and are funded through the DHS components responsible for each initiative. Thus, according to the officials, in a constrained budget environment, components are faced with difficult decisions in deciding whether to fund mission activities or information-sharing activities. However, DHS officials stated that the board’s involvement has kept some of these initiatives from experiencing funding cuts. In addition, as we reported in July 2012, the board serves as the portfolio governance board for information sharing, which provides guidance and investment recommendations for future year planning, programming, and budgeting. According to DHS officials, as the department’s information technology governance process matures, the board will have a more formal role and processes for affecting funding decisions.\nMoving forward, DHS plans to collect and publish data on the annual and long-term funding the department budgets and spends on its information- sharing and -safeguarding programs and activities. According to DHS officials, the ability for the department to generate reliable cost estimates for these sharing and safeguarding programs and activities will lower the risk to the public and minimize overruns, missed deadlines, and performance shortfalls. The officials added that cost estimates will also allow decision makers to prioritize future investments and demonstrate a continued commitment to support the capability and capacity of DHS components to share and safeguard information. These cost estimates could also allow us to determine the extent to which DHS has the capacity to implement its plans. We will continue to monitor DHS’s implementation of these plans and its ability to address funding shortfalls for key initiatives, particularly in a challenging budget environment.",
"DHS has developed architecture guidance to support the implementation of its target DHS information sharing environment. Specifically, in May 2009, DHS published version 2.1 of its Information Sharing Segment Architecture. In July 2011, we reported that the Segment Architecture did not include key architecture content, such as a transition plan for moving to the target DHS information sharing environment and a conceptual solution architecture that provides an integrated view of proposed systems and services.in addressing the missing architecture content. For example, in January 2012, DHS updated its Segment Architecture to include a transition plan that provides a conceptual road map to implement the key capabilities needed to achieve the target DHS information sharing environment.\nIn response, DHS has made important progress DHS has also taken actions to identify and define its key business and information requirements, an initial important step in building an effective architecture to determine technology solutions it will need to achieve its information-sharing goals. According to guidance issued by the Program Manager for the ISE, agencies should create an inventory of assets to effectively share terrorism-related information. According to the executive director of the DHS Information Sharing Environment Office, DHS has completed an inventory of the data assets (e.g., databases containing terrorism-related information) that each of the components across the department owns, such as border-crossing records. More specifically, DHS has cataloged more than 800 data assets across the department and identified the basic information available in each asset. Also according to the executive director, the Information Sharing Environment Coordination Activity will then determine with what other stakeholders DHS needs to share these data assets. DHS has determined that 80 of the data assets contain information with potential value in counterterrorism efforts. Of those 80, DHS identified the top 20 most valuable data assets and included them in the CHISE initiative, which is to organize these data assets into searchable indices to facilitate fast information retrieval. Since 2008, we have reported on the importance of agencies taking an inventory of what information they own as the first step to then determining who needs to have this information and how agencies will share it with key partners. DHS’s inventory efforts should help it to more systematically determine where it has gaps in sharing or additional opportunities to use the information it owns to protect the homeland.\nDHS has also developed a conceptual solution architecture, which, according to the guidance issued by the Program Manager for the ISE, is to provide an integrated view of the combined systems, services, and technology for the target ISE, as well as the interfaces between them. This conceptual solution architecture provides an integrated view of systems, such as Homeland Secure Data Network, and services, such as Enterprise Service Bus message services, which allow information to flow among disparate applications across multiple hardware and software platforms. This is important since it defines specific technology resources for implementing DHS’s information sharing environment. In addition, DHS officials stated the department is using its shared space to share terrorism-related information with other agencies. For example, the officials stated DHS plans to use its Suspicious Activity Reporting (SAR) shared space to share SAR data with the Department of Justice.\nThe ISE Terrorist Watchlist mission business process is a component of the identification and screening mission process and encompasses the receiving and sharing of reported information and the nomination, export, screening, encounter, redress, and updates to the Terrorist Screening Database. The FBI’s Terrorist Screening Center maintains this database of known or suspected terrorists, which is used during security- related and other screening processes.\nProgram Manager for the ISE issues a national-level standard that describes business context and information exchanges for AWN. According to the Deputy Program Manager for the ISE, the Office of the Program Manager plans to work with DHS and other agencies on the development of standard information exchanges for AWN in fiscal year 2013. The alignment of DHS data assets with the ISE mission business processes is important because it would support better discovery and sharing of relevant terrorism-related information.\nIn addition, while DHS has developed a conceptual solution architecture, it has not yet determined how well its current systems and technology environment support target business and information requirements. According to guidance from the Program Manager for the ISE, ISE agencies should assess the systems and technology environment for alignment with business and information requirements. According to DHS officials, from April through July 2012, the DHS Information Sharing Environment Coordination Activity conducted an initial baseline assessment of major programs to determine whether current systems and technologies can satisfy target architecture requirements, such as business and data requirements. Also according to DHS, it will review other segment architectures (e.g., screening) being developed to assess alignment with information-sharing capabilities described in the information-sharing architecture. By taking these actions, DHS could achieve cost avoidance and cost savings in implementing the DHS information sharing environment.",
"DHS’s activities to assess gaps, select initiatives, and ensure that information-sharing programs have the capabilities needed to promote sharing are in the early development and implementation phases. As a result, DHS is taking steps to institutionalize some of its policies and practices, including developing key strategies and plans, that will be important in planning and managing its information-sharing efforts. In our September 2010 letter to DHS, we stated that DHS should develop a strategy and commensurate plans to achieve its information-sharing mission, among other things. According to DHS officials, the department is taking steps to update and develop other strategies and related plans in addition to its list of key information-sharing initiatives that could address steps we have identified for DHS to take in information sharing. For example, as discussed earlier in this report, DHS is working to update the DHS Information Sharing Strategy, in part to be consistent with governmentwide efforts to update the related National Strategy. DHS officials stated that they expect to issue the updated strategy after the National Strategy is released, although the date of this latter action is uncertain. In deliberating on the updates, DHS is working to ensure that the DHS strategy outlines its information-sharing vision and mission, and addresses important components, such as goals and objectives on sharing and safeguarding information, methods it plans to achieve key outcomes as well as manage any potential risks, and steps it plans to take to ensure efforts receive the resources they need. Subsequent to releasing its strategy, DHS plans to release the Information Sharing and Safeguarding Implementation Plan within 90 days that is to describe in more detail how DHS will implement its strategy and include related milestones for the efforts described in the plan. We will continue to monitor implementation of these strategies and plans for taking corrective actions to improve information sharing.",
"DHS is tracking the progress key information-sharing initiatives are making toward interim milestones but the department generally does not track when the initiatives will be completed, so as to make course corrections if completion dates are delayed, or assess what impact they are having on achieving needed sharing. DHS also has taken several steps to implement the information-sharing capabilities it needs to share information but has not yet defined the level of capabilities that initiatives and other programs must have in place to help it achieve the department’s information-sharing vision. Customer feedback can help assess information sharing by indicating how useful customers find the products DHS disseminates; DHS has taken steps to survey its customers to determine their satisfaction as well as assess their needs. DHS has not yet developed measures that determine the impact of sharing on its homeland security efforts, but plans to develop more meaningful ways to assess information-sharing results and progress toward achieving its vision.",
"Our work has shown that being able to track the progress of initiatives that address program barriers as well as assess the effectiveness of initiatives, or the results they achieve, can help agencies minimize the risks in key programs such as information sharing. DHS is tracking the implementation progress of key information-sharing initiatives, but the department does not track how close the initiatives are to completion and could better assess how the initiatives are improving information sharing or helping DHS achieve its 2015 vision, which includes ensuring that the right information gets to the right people at the right time.\nDHS has developed a tool to track implementation of key information- sharing initiatives, referred to as Roadmap Quad Charts, but it does not include information on how close the initiatives are to completion. According to I&A documents, the purpose of the charts is to report an initiative’s implementation progress to the board. Components are responsible for providing the information tracked in the charts and submitting monthly updates to I&A. The tool contains an overall health indicator, key milestones, risks, and other data, as shown in figure 4.\nThe left quadrants of the chart define interim activities and milestones, and track progress toward both. Components categorize the health of each initiative as having no impediments (green), or that its progress has slowed (yellow) or stopped (red). The right quadrants contain narrative information, including issues facing the initiative—such as inadequate funding or technological or legal difficulties encountered—and risks to progress, such as the impact of an initiative’s inability to meet time frames.\nThe board reviews the Quad Charts on a quarterly basis to track and oversee progress, and can question components on the initiatives and the status of milestones. For example, one initiative (Common Operating Picture/User-Defined Operating Picture Integrated Project Team) experienced challenges in setting milestones, which was reflected in its chart. Subsequently, the board pushed the relevant components to set more aggressive milestones, and, as a result, DHS expects to begin transitioning components from over 20 different common operating pictures to about 5 common operating pictures in March 2013, which, according to DHS officials, is earlier than would have been possible without the board’s involvement. When the transition has been completed, DHS will have streamlined the applications that collect, share, and display the information components need to plan for and respond to threats and hazards, which will increase efficiencies, according to DHS officials.\nThe Quad Charts track progress that initiatives are making toward interim activities and milestones, but do not include information regarding completion dates or what difference the initiatives are making in improving information sharing. For example, a LEISI program official said that LEISI identifies milestones for the charts that can be accomplished each year, but the LEISI chart does not show how much closer that year’s targets will advance the initiative toward completing its information- sharing functions. Including completion dates in the charts could help the board better understand the overall progress initiatives made, make more informed decisions on which initiatives it will advocate should receive additional funding, and generally provide better oversight by holding components accountable for these completion dates. In addition, the charts do not provide information on how effective initiatives have been. For example, the charts do not provide a sense of any improvements in how ICE shares law enforcement information with key stakeholders as a result of implementing LEISI, such as how many more data sets are available to share or the increase in the number of users with access to these data sets. Including such information in the Quad Chart could help the board assess how initiatives improve DHS information sharing, including the impact of any risks identified in the chart. According to DHS officials, the lower left quadrant of the chart is intended to show longer- term activities and milestones leading toward completion, but our review shows that 15 of the 18 initiatives did not have completion milestones as of June 2012. DHS officials stated that it will not be possible to identify completion dates for some initiatives, such as for CHISE, because they are in the early planning stages and responsible components cannot yet estimate their completion. Moreover, other initiatives, such as the Nationwide Suspicious Activity Reporting Initiative, are secretarial priorities that DHS will not remove from the list of key initiatives because they are ongoing initiatives with no date for completion.\nDHS officials recognize they need to better track the progress of key initiatives and assess how they affect sharing with customers, but related efforts are just beginning and DHS did not have further details on what changes they will make. Program management practices note the importance of establishing a timeline for program milestones and deliverables, including when a program is complete, which helps lay the groundwork for the program and position it for successful execution. These practices also note that it is important to track intermediate and final results of a program as well as the benefits a program delivers, which helps ensure the organization will realize and sustain the benefits from its investment. We recognize that completion dates cannot be provided in each case. However, determining and documenting initiative completion dates and assessing how initiatives affect sharing, where feasible, would help the board better track progress in implementing the initiatives, make any necessary course corrections if completion dates are delayed, and demonstrate how initiatives enhance information sharing and homeland security.",
"In addition to identifying and tracking key information-sharing initiatives it needs to implement, DHS has also taken several steps to assess the capabilities that programs need so that key partners can access and share information the department owns. First, DHS has begun to assess the extent to which its technology programs have implemented critical information-sharing capabilities. DHS officials stated that from April through July 2012, the Information Sharing Environment Coordination Activity conducted initial baseline assessments of approximately 160 technology programs, systems, and initiatives—which include the key information-sharing initiatives—to determine the extent to which they have critical information-sharing capabilities in place. Capabilities include, for example, ways to determine that a user who is trying to access DHS information is authorized to access it and the ability to subsequently audit or track who has accessed this information. DHS officials noted that the Office of the CIO and board plan to track the progress that individual information-sharing programs and initiatives achieve in implementing these capabilities, as applicable, and develop a mechanism to provide DHS better visibility over the capabilities that programs have implemented and still need to implement. DHS officials stated that they plan to introduce this capability-tracking mechanism in early 2013.\nDHS’s planned capability-tracking mechanism may not include an important step to help DHS determine its progress toward its 2015 information-sharing vision. The Information Sharing Segment Architecture Transition Plan discusses major milestones and time frames for implementing the critical capabilities in order for DHS to achieve its information-sharing vision by 2015. However, this plan does not detail— and DHS officials said that they have not determined—the specific capabilities each particular program must implement for DHS to conclude that it has improved information sharing enough to achieve the 2015 information-sharing vision. For example, the transition plan notes that DHS is to have begun developing the framework for establishing how to authorize user access by the end of fiscal year 2012, but it does not include which programs this capability is relevant for, and how many of them must implement this capability for DHS to be able to conclude that it has made meaningful progress in that capability by 2015. DHS officials recognize the importance of measuring progress toward the 2015 vision, but the department’s efforts to define critical capabilities are new and it has not yet taken this step. Including this step in the department’s efforts to develop its capability-tracking mechanism would help DHS better understand which programs to prioritize to improve information sharing.\nOur past work and the experience of leading organizations have demonstrated that measuring performance allows organizations to track progress they are making toward intended results—including goals, objectives, and targets they expect to achieve—and gives managers critical information on which to base decisions for improving their programs. The Information Sharing Environment Coordination Activity charter also notes that this group is to provide the board with the ability to prioritize and oversee steps DHS is taking to achieve its information- sharing vision. Determining the specific capabilities certain programs must implement in order for DHS to achieve its 2015 vision and subsequently tracking annual progress could help DHS prioritize programs and track and assess progress toward ensuring that the right information is getting to the right people at the right time to meet their homeland security responsibilities.\nSecond, in addition to tracking the capabilities of its own programs, DHS, in conjunction with the Department of Justice, is collecting information on the extent to which fusion centers are putting in place certain capabilities that the two agencies and other federal interagency partners have determined are critical for ensuring these centers can effectively operate in a national information-sharing network. States and major urban areas originally created fusion centers to provide information about threats within the centers’ jurisdictions. The federal government, particularly through DHS, has been leveraging such centers to further disseminate federal information on threats and to collect information on threats and pass it on to federal agencies, among other things. I&A collaborated with the fusion center directors and their interagency partners to design and implement the 2011 Fusion Center Assessment, which is to help DHS track the progress of fusion centers in achieving key capabilities. These include the capability to receive, analyze, and further disseminate information on terrorist threats and crimes that can be precursors to terrorism. DHS completed its initial assessment in October 2011 and issued a report on its results in June 2012. The assessment found that overall capability scores for the 72 fusion centers that participated ranged from 29 to 97 out of 100, with an average score of 77. The report stated that the national network is a long-term investment and made recommendations on how DHS and its federal interagency partners can help fusion centers fill gaps over the next 4 years. DHS officials said that they will look at trends in individual fusion center scores to identify what capability gaps exist across the National Network of Fusion Centers and work with centers to focus any federal resources they receive on filling these gaps. DHS plans to monitor the improvements that centers make over time in filling capability gaps as an indicator of the effectiveness of fusion centers.\nInformation-sharing and access agreements are vehicles used by DHS to exchange, receive, and share information from external (non-DHS) parties. outcomes of executing these agreements. Specifically, DHS plans to assess customer satisfaction of the recipients of multiple data sets received through these agreements beginning in October 2012.",
"DHS’s key initiatives and capabilities should help to increase the department’s ability to make components’ information available to important customers, and to disseminate components’ products and reports created for these customers. However, determining whether the right people have the right information at the right time requires obtaining views from customers about the accuracy, usefulness, and timeliness of information provided and shared. DHS components are in the process of implementing customer feedback mechanisms that should help to provide customers’ perspectives of how well DHS is meeting its 2015 vision.\nDHS has taken steps to survey customers to measure how satisfied they are with the information and intelligence products that DHS components disseminate, such as homeland security assessments and homeland information notes. measures that help to gauge the usefulness of the information provided. DHS recognizes that there is a potential for bias in survey results, but DHS is taking steps to obtain feedback in additional ways, such as meeting with its customers to assess their needs, as a means to improve intelligence products.\nHomeland security assessments provide in-depth analysis based on detailed research. Homeland security notes provide information or analysis on a recent or current event or development of interest to DHS customers. components are following suit. Component surveys include a common question that asks customers to rate satisfaction on a five-point scale— very satisfied, somewhat satisfied, neither satisfied nor dissatisfied, somewhat dissatisfied, or very dissatisfied—and DHS customer satisfaction performance measures report the percentage of intelligence products rated somewhat satisfied or very satisfied. DHS plans to aggregate survey results on this question from across the DHS Intelligence Enterprise components, use the data as a gauge on how the information provided contributed to success in achieving goals for missions areas—such as preventing terrorist attacks—and publish the results in the department’s Annual Performance Report as performance measures, beginning in 2013. For example, TSA disseminated about 11,000 incident reports that pertain to preventing terrorist attacks during the first two quarters of 2012 and received about 5,800 responses. Over the same time period, I&A distributed 41 reports pertaining to preventing terrorist attacks and received over 700 responses.that customers who responded to the surveys said that they were generally satisfied with the reports they reviewed during that time frame. I&A data for fiscal year 2011 also show that customers said they were generally satisfied with products disseminated that year. These customer feedback mechanisms should help to provide customers’ perspectives of how well DHS is meeting its 2015 vision.\nHowever, I&A recognizes that the survey results may not be representative of the entire population of customers that received those products because customers voluntarily choose whether or not to provide feedback. In internal documents and external reports on customer feedback, such as the I&A annual report to Congress, I&A cautions readers that survey results are subject to bias that prevents the organization from drawing conclusions about the entire I&A customer population.customer read a product in order to take the survey—meaning that the feedback of those who read the product and chose to provide feedback may not be representative of those customers that decided not to read an I&A product. Given this potential for bias in I&A data, any performance measures drawn from that data will carry that bias, providing DHS, Congress, and taxpayers with a potentially incomplete account of progress made in improving information sharing. According to DHS officials, because of technological limitations in tracking the dissemination of products, I&A does not know the number of recipients or readers of each product, which prevents I&A from knowing the full impact of this bias.\nFor example, a bias is created by the requirement that a I&A has taken a number of steps to obtain feedback in other ways and help ensure it provides customers with the right information at the right time. For example, according to I&A officials, I&A has initiated a core customer study designed to establish a common definition of core customers, allowing I&A to identify and directly survey representative samples of customers from across each segment on their satisfaction with I&A’s intelligence support. However, the study is in the beginning phases; thus I&A has not yet established a completion date and it is too early to evaluate the results. In addition, I&A has established a Customer Feedback Working Group to analyze feedback-related issues and devise ways to improve products. For example, on the basis of feedback that I&A products did not contain enough relevant local content, the group has begun a project to improve the regional content in intelligence products, according to I&A officials. Further, I&A conducts targeted surveys on high-interest topical issues to assess its performance on sharing terrorism-related intelligence and information.\nOur discussions with various DHS customers indicate varying levels of satisfaction with terrorism-related information from DHS and its components, including I&A and TSA. According to DHS officials, the department has prioritized its customers, and the department funds information-sharing initiatives according to these priorities. This, in turn, can affect how relevant some of the customers find DHS and its components’ information to their mission. For example, fusion centers are higher-priority customers than customers in the intelligence community, such as the FBI, according to the I&A Strategic Plan. As a result, DHS officials stated that the department focuses more of its funding and initiatives on fusion centers. We interviewed senior officials from 10 state and major urban area fusion centers, ICE, ODNI, and the FBI. We supplemented our discussions with additional information, such as the results of a 2012 fusion center survey about counterterrorism intelligence and our prior survey on TSA customers. The results of our analysis are summarized below.\nFusion centers: Directors and other senior officials in 8 of 10 fusion centers we spoke with generally found I&A information to be useful. For example, officials at 1 fusion center reported that I&A products keep officials up to date on national and global terrorism trends that may have an impact on their region. In addition, officials at another fusion center stated that reports, such as the Joint Intelligence Briefing from DHS and the FBI on the 10th anniversary of 9/11, and special assessments of security at sporting events, have helped the fusion center provide guidance to state and local law enforcement. Further, in response to an I&A report on radicalization of prison inmates, 1 fusion center’s detectives met with corrections department staff to enhance their awareness of prison radicalization and held trainings on suspicious activities and radicalization indicators. Moreover, officials at this center noted that the timely dissemination of reports has improved, that reports are more specific to regional needs than in the past, and that I&A has responded to fusion center feedback. However, officials at 2 other fusion centers we met with stated that I&A information was not always timely. These officials reported that sometimes, I&A information is already available through media outlets or other information sources. According to one official, although this practice can be considered a method to verify the recent news media information, the volume of information tends to flood the network and can lead to reduced attention being paid to I&A products. In addition, officials at 2 fusion centers we met with reported that I&A distributes too many reports that are not specific to their region. Further, results from a 2012 Homeland Security Policy Institute survey that asked fusion center staff to order their most important sources of information suggest that DHS may have opportunities to better meet customer needs. On the basis of the fusion center officials who responded—which, according to survey authors come from traditional law enforcement backgrounds that may influence their rankings—DHS ranked sixth after sources such as law enforcement and Joint Terrorism Task Forces. Other sources, such as the National Counterterrorism Center and other fusion centers, ranked lower than DHS.\nTSA customers: We previously reported on the extent to which TSA customers are satisfied with the security-related information products they receive and found that they were generally satisfied. Specifically, TSA has developed a series of products to share security-related information with transportation stakeholders, such as annual modal threat assessments that provide an overview of threats to each transportation mode—including aviation, rail, and highway— and related infrastructure. Fifty-seven percent of the customers we surveyed (155 of 275 who answered this question) indicated that they were satisfied with the products they receive.\nICE: ICE directors and analysts in the Homeland Security Intelligence Office did not comment on the information contained in I&A reports, but noted that they were generally dissatisfied with I&A reports primarily because they found it difficult to determine which reports are most relevant to their needs. For example, the officials stated that I&A is not proactive in informing ICE about the products it completes and would find useful. ICE officials stated that connectivity and access to I&A products have improved since 2010, but the ease of finding these products and understanding what is relevant to ICE remains problematic.\nODNI: ODNI officials stated that they were generally satisfied with the department’s responsiveness to information needs and that collaboration with DHS has improved since 2010. For example, if circumstances necessitate ODNI obtaining passenger manifest data, DHS provides such information more quickly than in the past. In addition, ODNI has successfully used DHS data to counter potential terrorist threats. For example, by cross-checking refugee application data from DHS with other data, ODNI has facilitated numerous arrests and removed over 500 people who posed a potential threat from the refugee stream prior to their arrival in the United States. However, ODNI officials stated that some DHS intelligence reports are not timely enough for their needs. Further, DHS’s finished intelligence products are generally not as valuable to the intelligence community because they are generally written for state and local customers.\nFBI: Two FBI headquarters divisions responsible for sharing terrorism- related information reported on their satisfaction with information from DHS. Specifically, officials from one of the two FBI divisions reported that, overall, the division was neither satisfied nor dissatisfied with I&A information, and officials from the other division reported their division was somewhat satisfied. These same officials also reported that they were very satisfied with the information received from CBP, ICE, and TSA. For example, the FBI officials reported that its Counterterrorism Division and ICE have enhanced the consistency with which information is shared and have worked toward a transparent and coordinated effort for developing, sharing, and distributing terrorism- related information. The FBI reported that DHS intelligence products are generally not produced for the FBI’s use specifically, and that the FBI collaborates with DHS to develop reports on a variety of topics, such as potential terrorist attacks.\nDHS also monitors the extent to which I&A finished intelligence products address issues that state, local, and tribal customers deemed as most critical to their needs, which could increase customer satisfaction with products. Customers articulate their critical needs based on 10 threat- based categories, such as Terrorism and Illicit Drug Operations. I&A tags its intelligence products and information reports with relevant “standing information needs” prior to distribution, which enables I&A to monitor the extent to which I&A is distributing products and reports that match customers’ needs. The 2011 annual performance report shows that I&A determined that 85 percent of finished intelligence products were directly responsive to its state, local, and tribal customers’ information needs, which met the performance target for this measure. I&A data show that the department reached similar conclusions during the first two quarters of 2012. According to DHS officials, additional components are beginning to tag their information reports and intelligence products with relevant standing information needs, which will enable DHS to assess departmentwide contributions to addressing crucial customer needs.\nI&A also provides customers with information based on specific requests and collects data on the extent to which I&A is timely in its responses and customers are satisfied with those responses. Customer satisfaction is based on three factors: quality of communication, the accuracy of the information provided, and satisfaction with the process. Specifically, customers request certain information from I&A—such as background information for a person of interest—and I&A officials are to respond to that request by an agreed-upon time frame. The 2011 annual performance report shows that I&A answered 85 percent of requests within the time frame I&A and the customer agreed upon to the customer’s satisfaction. Since I&A is currently updating this measure to include other DHS entities, 2012 is a baseline year that the department plans to use to evaluate the extent to which timeliness and satisfaction of information requests are improving over time. Therefore, this measure should help DHS determine to what extent customers are getting the right information at the right time.",
"DHS has plans that could help it better assess the impact of the department’s information sharing on homeland security. After DHS releases its new Information Sharing and Safeguarding Strategy, the department plans to develop and implement a new DHS sharing and safeguarding performance management program that is to include the development of performance measures that determine the outcomes its information sharing is to achieve. Our work has shown that DHS is evolving from utilizing process measures that are relatively easy to implement—for example, counting the number of issued reports—to more meaningful measures that determine customer satisfaction with the usefulness of the information provided. Demonstrating results is a standard practice in performance measurement. DHS continues to recognize that it must develop measures that demonstrate the results of its efforts, and department officials noted that such measures will be a crucial part of the Information Sharing and Safeguarding Implementation Plan the department is to develop. Specifically, the department’s draft planning documents note that the board is to develop information-sharing outcome measures to determine whether federal and nonfederal customers receive DHS information that is timely, accurate, trusted, and useful; meets their needs; and contributes to securing the homeland. For example, DHS could enhance its customer satisfaction performance measures by asking customers what difference the product they reviewed made on their ability to ensure a safe and secure homeland. The board is also to develop measures that assess the impact of information sharing on preventing terrorism and enhancing security, as well as other missions. Further, the board is to develop measures that assess the degree of budget and outcome alignment, and calculate the cost of achieving information-sharing outcomes and target levels of performance.\nWe will continue to monitor DHS’s efforts to assess the results and impact of its sharing efforts. Our work has shown that having the ability to monitor progress and demonstrate results helps to lower the risks posed from implementing programs critical to the nation, such as the sharing of information on terrorist threats. Executing its plans to develop better measures should help DHS assess the progress in sharing information and monitor the extent to which the department is achieving its 2015 vision to provide the right information to the right people at the right time.",
"Ensuring that terrorism-related information is shared in an efficient manner with stakeholders across all levels of government, the private sector, and foreign countries is a challenging and critical task. DHS has demonstrated a strong commitment to advance information-sharing efforts; its key information-sharing initiatives have made progress, and most have met interim milestones. The department has also taken steps to track its information-sharing efforts and developed information-sharing performance measures that monitor the effectiveness of some information-sharing efforts. However, additional steps could help DHS sustain these efforts. For example, in its Roadmap Implementation Guide or other policies and procedures, documenting processes for identifying information-sharing gaps and the results; documenting and implementing a process for analyzing the root causes of those gaps; and establishing and documenting a process for potential future use for identifying, assessing, and mitigating the risk of removing an incomplete initiative from the list would provide DHS with an institutional record to better replicate, and therefore sustain, its information-sharing efforts. Moreover, defining the milestones that initiatives must achieve in order to be considered complete and determining what difference the initiatives are making in information sharing could help the board better track progress in implementing the initiatives, make any necessary course corrections, and make future investment decisions. Further, determining the specific capabilities certain programs must implement in order for DHS to achieve its 2015 vision and subsequently tracking annual progress toward achieving these capabilities could help DHS prioritize programs and investments, and track and assess progress toward meeting homeland security responsibilities.",
"We recommend that the Secretary of Homeland Security take the following five actions.\nTo address information-sharing gaps and risks, direct the Information Sharing and Safeguarding Governance Board to, in either its Roadmap Implementation Guide or other related policies and procedures, document its processes for identifying information-sharing gaps document and implement a process for analyzing the root causes of those gaps; and establish and document processes for identifying and assessing risks of removing initiatives from the list, as well as determining whether other initiatives or alternative solutions are needed to mitigate any significant risks related to the relevant information- sharing gap.\nTo improve DHS’s ability to track and assess key information-sharing initiatives, direct the Information Sharing and Safeguarding Governance Board to incorporate into the board’s existing tracking process milestones with time frames that initiatives must achieve to be considered complete, where feasible, and information to show the impact initiatives are having on information sharing, and direct the Information Sharing and Safeguarding Governance Board and the Office of the CIO to include in the mechanism the board is developing to track programs’ achievement of key capabilities the specific capabilities certain programs must implement in order to achieve the department’s 2015 information- sharing vision.",
"We provided a draft of this report to DHS, ODNI, and the FBI on August 14, 2012, for review and comment. On September 5, 2012, DHS provided written comments, which are reprinted in appendix II. In commenting on the report, DHS stated that it concurred with all five recommendations and identified actions taken or planned to implement them.\nDHS concurred with the first recommendation, to direct the Information Sharing and Safeguarding Governance Board to document its processes for identifying information-sharing gaps and the results. DHS stated that the department, through the board, has recently initiated an effort to draft a DHS-wide Information Sharing and Safeguarding Implementation Plan. The implementation plan is to ensure that DHS’s sharing and safeguarding activities align with the forthcoming Fiscal Year 2012–2017 DHS Information Sharing and Safeguarding Strategy. DHS stated that the templates that the department will use to develop the implementation plan will identify information-sharing and -safeguarding gaps and the anticipated results. DHS also plans to update its Roadmap Implementation Guide to provide the department with an institutional record to better replicate, and therefore sustain, ongoing and future implementation efforts to improve information-sharing and -safeguarding. DHS also concurred with the second recommendation, to direct the Information Sharing and Safeguarding Governance Board to document and implement a process for analyzing the root causes of those gaps. DHS stated that the templates that the department will use to develop the implementation plan will identify the specific root causes of information- sharing and -safeguarding gaps for the initiatives contained in the implementation plan. DHS also plans to update its Roadmap Implementation Guide to document the processes by which it identifies the root causes of the gaps. DHS stated that this effort will better ensure that the department invests in the correct information-sharing solutions and effectively reduces risks. DHS concurred with the third recommendation, to direct the Information Sharing and Safeguarding Governance Board to establish and document processes for identifying and assessing risks of removing initiatives from the list, as well as determining whether other initiatives or alternative solutions are needed to mitigate any significant risks related to the relevant information-sharing gap. DHS stated that it plans to establish and document such processes, and also plans to update its Roadmap Implementation Guide to document the processes by which it identifies and assesses risks. DHS stated that preliminary planning to address this recommendation has begun.\nDHS concurred with the fourth recommendation, to direct the Information Sharing and Safeguarding Governance Board to incorporate into the board’s existing tracking process milestones with time frames that initiatives must achieve to be considered complete, where feasible, and information to show the impact initiatives are having on information sharing. DHS stated that the board will incorporate the recommended changes into its tracking process, and that preliminary planning to address this recommendation has begun. DHS also concurred with the fifth recommendation, to direct the Information Sharing and Safeguarding Governance Board and the Office of the CIO to include in the mechanism the board is developing to track programs’ achievement of key capabilities the specific capabilities certain programs must implement in order to achieve the department’s 2015 information-sharing vision. DHS stated that the board and the Office of the CIO will include the recommended changes in the mechanism, and stated that preliminary planning to address this recommendation has begun.\nIf fully implemented, DHS’s planned efforts will address the intent of the five recommendations.\nDHS and the FBI also provided us with technical comments, which we considered and incorporated in the report where appropriate. ODNI did not have comments on the draft report.\nWe are sending copies of this report to the Secretary of Homeland Security, the Director of National Intelligence, the Attorney General, and appropriate congressional committees. This report is also available at no charge on GAO’s web site at http://www.gao.gov.\nIf you or your staff have any questions, please contact me at (202) 512- 6510 or larencee@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff acknowledgments are provided in appendix III.",
"Our reporting objectives were to review the extent to which the Department of Homeland Security (DHS) (1) has made progress since 2010 in achieving its information-sharing mission, and what related challenges exist, if any, and (2) tracks and assesses information-sharing improvements. To determine the extent to which DHS has made progress in achieving its information-sharing mission, we analyzed relevant strategic planning documents, such as DHS’s January 2011 Integrated Strategy for High Risk Management, the DHS Information Sharing Strategy, the 2007 National Strategy for Information Sharing, and the Office of Intelligence & Analysis (I&A) Strategic Plan 2011-2018. In addition, to determine the extent of DHS leadership’s demonstrated commitment to information sharing, we analyzed documents related to DHS’s governance structure for information sharing, including charters that are current as of September 2012 and meeting minutes for relevant governing bodies from January 2011 through April 2012.\nTo determine the extent to which DHS has developed information-sharing plans and identified key efforts, we analyzed documents related to DHS’s plans and initiatives for sharing, such as DHS’s list of key information- sharing initiatives, and analyzed documents from one initiative—the Law Enforcement Information Sharing Initiative (LEISI)—which is led by DHS’s U.S. Immigration and Customs Enforcement (ICE). We selected this initiative as an example case study of DHS’s actions related to information-sharing initiatives because it is a priority initiative and an established program. To determine the extent to which DHS’s other key information-sharing initiatives have made progress, we analyzed DHS documents tracking those initiatives. To determine the extent to which DHS has the resources needed to achieve its information-sharing mission, we analyzed documents related to DHS’s budget, including the DHS fiscal year 2013 Budget in Brief, and the funding status of key information-sharing initiatives. To determine the extent to which DHS has the technology needed for information sharing, we analyzed documents related to DHS’s technology framework for information sharing, such as the Information Sharing Segment Architecture Transition Plan, among other things.\nIn addition, we interviewed program officials within DHS’s I&A to obtain information on the department’s information-sharing mission, goals, programs, activities, and funding; the Segment Architecture; efforts to improve terrorism-related information sharing; and related challenges. We interviewed ICE officials about LEISI’s progress and their experiences working with I&A on improving DHS’s information sharing. To determine the progress DHS has made on the technology framework for information sharing and on the funding of information-sharing programs, we interviewed officials from DHS’s Office of the Chief Information Officer (CIO). We assessed DHS’s plans and efforts against Standards for Internal Control in the Federal Government and criteria that we use in assessing high-risk issues. We also reviewed DHS’s efforts related to its Segment Architecture against our prior report and federal guidance on defining architecture content.\nTo determine the extent to which DHS tracks and assesses information- sharing improvements, we analyzed relevant strategic planning documents, such as the I&A Strategic Plan for fiscal years 2011-2018 and the February 2010 Quadrennial Homeland Security Review (QHSR). Furthermore, to determine how DHS tracks progress and results in its information-sharing initiatives, we analyzed documentation and examples of DHS’s tracking mechanisms for its information-sharing efforts. We analyzed documentation and data on DHS’s performance measures for fiscal years 2011 and 2012 to determine the extent to which DHS is monitoring the effectiveness of information sharing. We also used these DHS performance measurement data to determine if DHS could demonstrate progress in information sharing by analyzing data for customer feedback and customer information needs, among other areas. To assess the reliability of the data obtained from DHS, we analyzed performance measurement documentation and interviewed officials knowledgeable about the controls over the integrity of the data. On the basis of our assessments, we determined that the performance measurement data were sufficiently reliable for the purposes of this report. In addition, we interviewed program officials within I&A and from DHS’s Office of the CIO on I&A’s and DHS’s progress in sharing terrorism-related information, and on mechanisms they use to monitor effectiveness.\nTo supplement the steps we took to assess how DHS tracks and assesses information-sharing improvements, we also obtained information from various customers of DHS’s information sharing on the usefulness of I&A and other DHS components’ products. Specifically, we obtained information from 10 of 77 fusion center customers, 1 of 7 DHS operational components who participate in the DHS Intelligence Enterprise, and 2 of DHS’s 16 intelligence community customers. We interviewed or received written input from directors and other senior officials from 10 fusion centers—where states and major urban areas collaborate with federal agencies to improve information sharing— including the President of the National Fusion Center Association. The national network of fusion centers is the hub of much of the two-way intelligence and information flow between the federal government and state, local, tribal and territorial partners, making fusion centers key customers of I&A’s intelligence reports. Because we selected a nonprobability sample of fusion centers to contact, the information we obtained from these locations may not be generalized to all fusion centers nationwide. However, because we selected these centers based on, among other things, geographic dispersion and variation in risk based on the Department of Justice’s (DOJ) 25 Cities Project, the information we gathered from these locations provided us with an understanding of similarities and differences in fusion centers’ satisfaction with DHS’s information sharing across different centers. We interviewed ICE officials from the Homeland Security Investigations and Intelligence office and officials from the Office of the Director of National Intelligence’s (ODNI) National Counterterrorism Center (NCTC). Further, we received written input from two headquarters divisions of the Federal Bureau of Investigation (FBI) that are responsible for sharing terrorism-related information. We selected ICE, ODNI, and the FBI because they are key customers of DHS’s intelligence products or partner with I&A to create these products. ICE is a DHS component that shares terrorism-related information and leads two of DHS’s key information-sharing initiatives. ODNI and the FBI are federal agencies that have key roles in analyzing terrorism threats to the United States and jointly issue products with DHS. The FBI also has the primary role in carrying out investigations within the United States of threats to national security. The views of ICE, ODNI, and the FBI are not generalizable to all of DHS’s federal customers, but they provided us with a general understanding of the perspectives about DHS’s information sharing held by different customer types nationwide. To supplement these views, we reviewed our prior work on DHS customer satisfaction and analyzed a report from a survey on information sharing conducted by the George Washington University Homeland Security Policy Institute and discussed the report with a representative who conducted the survey. In January and February 2012, the institute administered a 78 question self-completion survey to individuals working in 72 state and major urban area fusion centers, and 71 individuals voluntarily took the survey. On average, 48 to 49 individuals answered each question. Our analysis included reviewing the methodology and assumptions of the study, and discussing the study’s scope and conclusions with the George Washington University Homeland Security Policy Institute. As a result of our review and analysis, we determined that the study and its results were appropriate for use in our report. We assessed DHS’s mechanisms to track and assess information-sharing improvements against criteria for practices in program management.\nWe conducted this performance audit from November 2011 through September 2012 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.",
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"In addition to the contact named above, David A. Powner (Director), Eric Erdman (Assistant Director), Anh Le (Assistant Director), Paul A. Hobart, Karl W. Seifert, Rebecca Kuhlmann Taylor, and Ashley D. Vaughan made significant contributions to the report. Also contributing to this report were Virginia A. Chanley, Tracy J. Harris, Eric D. Hauswirth, Kevin J. Heinz, Lisa Humphrey, Jeff R. Jensen, Justine C. Lazaro, Thomas Lombardi, Jan B. Montgomery, Jessica S. Orr, Anthony K. Pordes, and William M. Reinsberg."
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"question": [
"How has DHS made progress on its information sharing mission?",
"How has DHS shown leadership?",
"Why can't DHS share information as effectively as it should?",
"Why is DHS's progress slowing?",
"How does DHS plan to address the slowed progress?",
"How is DHS tracking information sharing efforts?",
"How could DHS better track information sharing efforts?",
"How is DHS using technology?",
"How could DHS better use technology?",
"How is DHS using customer feedback?",
"How could DHS better use customer feedback?",
"Why is the sharing of terrorism-related information important?",
"How is DHS involved in sharing terrorism-related information?",
"What was GAO asked to examine with regards to DHS?",
"How did GAO examine DHS?"
],
"summary": [
"Specifically, DHS has demonstrated leadership commitment by establishing a governance board to serve as the decision-making body for DHS information-sharing issues. The board has enhanced collaboration among DHS components and identified a list of key information-sharing initiatives. The board has also developed and documented a process to prioritize some of the initiatives for additional oversight and support.",
"Specifically, DHS has demonstrated leadership commitment by establishing a governance board to serve as the decision-making body for DHS information-sharing issues.",
"However, because DHS has not revised its policies and guidance to include processes for identifying information-sharing gaps and the results; analyzing root causes of those gaps; and identifying, assessing, and mitigating risks of removing incomplete initiatives from its list, it does not have an institutional record that would help it replicate and sustain those information-sharing efforts.",
"However, progress has slowed for half of the 18 key initiatives, in part because of funding constraints. For example, 5 of DHS’s top 8 priority information-sharing initiatives currently face funding shortfalls. The board has not been able to secure additional funds for these initiatives because they ultimately compete for funding within the budgets of individual components, but DHS officials noted that the board’s involvement has kept some initiatives from experiencing funding cuts.",
"DHS is also developing plans that will be important in managing its information-sharing efforts, such as a revised strategy for information sharing and a related implementation plan.",
"Specifically, DHS is tracking the implementation progress of key information-sharing initiatives, but the department does not maintain completion dates and does not fully assess the impact initiatives are having on sharing.",
"Specifically, DHS is tracking the implementation progress of key information-sharing initiatives, but the department does not maintain completion dates and does not fully assess the impact initiatives are having on sharing. Determining and documenting initiative completion dates and how initiatives affect sharing, where feasible, would help the board better track progress in implementing the initiatives and make any necessary course corrections if completion dates are delayed.",
"Further, DHS has begun to assess the extent to which its technology programs, systems, and initiatives—which include the key information-sharing initiatives—have implemented critical information-sharing capabilities, such as secure user access authorization.",
"However, DHS has not yet determined the specific capabilities each particular program must implement for DHS to conclude that it has improved information sharing enough to achieve its information-sharing vision for 2015.",
"In addition, DHS is in the process of implementing customer feedback measures on the usefulness of information provided and has taken steps to assess customers’ information needs.",
"DHS has not yet developed measures that determine the impact of its information-sharing efforts on homeland security, but plans to develop ways to assess information-sharing results toward achieving its 2015 vision.",
"Recent planned and attempted acts of terrorism on U.S. soil underscore the importance of the need to ensure that terrorism-related information is shared with stakeholders across all levels of government in an effective and timely manner.",
"DHS, through its Office of Intelligence and Analysis, has responsibility for sharing this information and has established an information-sharing vision for 2015—which includes ensuring that the right information gets to the right people at the right time.",
"GAO was asked to examine the extent to which DHS (1) has made progress in achieving its information-sharing mission, and (2) tracks and assesses information-sharing improvements.",
"GAO analyzed relevant DHS documents, such as strategic planning documents and those related to DHS’s governance structure, among others, and interviewed DHS officials."
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GAO_GAO-14-6
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{
"title": [
"Background",
"Assistance to GM",
"Assistance to Ally Financial",
"Financial Condition of GM and Ally Financial",
"General Motors’s Financial Results Have Been Increasingly Positive Since Receiving Federal Assistance, but Questions Remain",
"Treasury Is Working to Exit from Its Remaining Investments in GM and Ally Financial",
"Treasury Plans to Exit from GM by Early 2014 but Projects a Loss on its Investment",
"Agency and Third Party Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Comments from the Department of the Treasury",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"The decision to provide substantial amounts of funding to the auto industry—more than 12 percent of all authorized TARP funds—and to accept equity in the companies in return for some of the assistance reflects Treasury’s view of the automotive industry’s importance to the U.S. economy. According to Treasury officials, Treasury provided assistance not simply because of the industry’s importance, but because of the severity of the crisis and the desire to prevent significant disruption to the economy that would have resulted from uncontrolled liquidations of Chrysler and GM. To help stabilize the industry and avoid economic disruptions, Treasury disbursed $79.7 billion through AIFP from December 2008 through June 2009. The majority of the assistance was used to support two automakers, Chrysler and GM, during restructuring, along with their automotive finance companies, Chrysler Financial and GMAC. In July 2009, Treasury outlined guiding principles for the investments made to the auto industry, including: exiting its investments as soon as practicable in a timely and orderly manner that minimizes financial market and economic impact; protecting taxpayer investment and maximizing overall investment returns within competing constraints; improving the strength and viability of GM and Chrysler so that they can contribute to economic growth and jobs without government involvement; and managing its ownership stake in a hands-off, commercial manner, including voting its shares only on core governance issues, such as the selection of a company’s board of directors and major corporation events or transactions.",
"GM is one of the world’s largest automotive companies and does business in more than 120 countries worldwide. As of December 31, 2012, it employed 213,000 workers worldwide and marketed vehicles through a network of independent retailers totaling 20,754 dealers. In North America, GM manufactures and markets the following brands: Buick, Cadillac, Chevrolet, and GMC.\nTreasury provided a $13.4 billion loan in December 2008 to the Old GM to fund working capital.the purchase of additional ownership interests in a rights offering by GMAC. In April 2009, Treasury loaned an additional $6 billion to fund Old GM as it worked to submit a viable restructuring plan (working capital loan). These funds, along with loans from the Canadian government and concessions from nearly every stakeholder, including the company’s primary labor union—the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW)—were intended to give the companies time to restructure to improve their competitiveness and long-term viability.\nTreasury also lent $884 million to the Old GM for As a condition of receiving this assistance, Old GM was required to submit a plan to Treasury that would, among other things, identify how it intended to achieve and sustain long-term financial viability. GM’s initial viability plan submitted in February 2009 was rejected. The plan established targets for addressing some of the company’s key challenges to achieving viability, including reducing debt, numbers of brands and models, dealership networks, and production costs and capacity. In 2009, Old GM filed a voluntary petition for reorganization under Chapter 11 of the U.S. bankruptcy code. Subsequently, in June 2009, Treasury provided Old GM with $30.1 billion under a debtor-in-possession financing agreement to assist during the restructuring. The newly organized GM was able to purchase most of the operating assets of the former company through a sale under Section 363 of the bankruptcy code. When the sale was completed on July 10, 2009, Treasury converted most of its loans into 60.8 percent of the common equity in GM and $2.1 billion in preferred stock. In addition, $6.7 billion of the TARP loans remained outstanding after the bankruptcy. In spring 2011, the bankruptcy was completed, and Old GM’s remaining assets and liabilities were transferred to liquidating trusts. As we concluded in our past work, the federal assistance allowed GM to restructure its balance sheets and obligations through the bankruptcy code and tackle key challenges to achieving viability.",
"Ally Financial, previously known as GMAC, formerly served as GM’s captive auto finance company. The primary purpose of auto financing is to provide credit to consumers so that they can purchase automobiles. In determining how to finance their purchases, consumers have many financial institutions from which to choose, including banks, credit unions, and auto finance companies, all of which may offer loans or other credit accommodations for the purchase of new and used automobiles. In addition to consumer financing, auto dealers have also traditionally used manufacturers’ finance companies to finance their purchase of the automobile inventory that they sell (known as floor-plan financing).\nPrior to the financial crisis, GMAC’s subsidiaries expanded into other areas of financial services, such as auto insurance and residential mortgages, but GMAC remained a wholly owned subsidiary of the Old GM. In 2006, Cerberus Capital Management purchased 51 percent of the company. GM retained a 49 percent ownership stake. As the housing market declined in the late 2000s, the previously profitable GMAC mortgage business unit began producing significant losses. For example, the company’s Residential Capital LLC (ResCap) subsidiary—which by 2006 had grown to be the country’s sixth-largest mortgage originator and fifth-largest mortgage servicer—lost approximately $17 billion from 2007 through 2009. During the same time period, automobile sales in the U.S. dropped from 16.4 million to 10.4 million, negatively affecting the company’s core auto financing business.\nAccording to Treasury, Treasury determined that without government assistance GMAC would be forced to deny or suspend financing to creditworthy dealerships, leaving them unable to purchase automobile inventory for their lots. Without orders for automobiles from dealerships, GM would have been forced to slow or shut down its factories indefinitely to match the drop in demand. Given its significant overhead, a slow-down or stoppage of this magnitude would have caused GM to topple, according to Treasury.\nHowever, GMAC was not initially eligible for assistance under the TARP Capital Purchase Program (CPP). To become eligible for federal financial assistance, GMAC sought to convert GMAC Bank’s charter from an industrial loan company into a commercial bank in 2008 and applied to the Federal Reserve for bank holding company status. GMAC also submitted an application to participate in the Capital Purchase Program, conditional upon becoming a bank holding company. The Federal Reserve approved GMAC’s bank holding company application in December 2008. Although GMAC originally applied for participation in CPP, in late December 2008, as a part of AIFP, Treasury agreed to purchase $5 billion in senior preferred equity from GMAC and received an additional $250 million in preferred shares through warrants that Treasury exercised immediately.\nTreasury subsequently provided GMAC with additional assistance through TARP.\nIn May 2009, Treasury purchased $7.5 billion of mandatory convertible preferred shares from GMAC. In December 2009, Treasury purchased additional shares—$2.5 billion of trust preferred securities and approximately $1.3 billion of mandatory convertible preferred shares. Also, in December 2009, Treasury converted $3 billion of existing mandatory convertible preferred shares into common stock, increasing its common equity stake from 35 percent to 56.3 percent. In December 2010, Treasury converted preferred stock in Ally Financial that had a liquidation preference of $5.5 billion into common stock. This stock conversion resulted in Treasury’s owning approximately 74 percent of Ally Financial. In addition, as of September 2013, Treasury continues to hold $5.9 billion of Ally Financial’s mandatory convertible preferred shares. Ally Financial pays a 9.0 percent fixed dividend annually to Treasury on these preferred shares. As will be discussed later in this report, Ally Financial has entered into an agreement with Treasury to repurchase the mandatory convertible preferred shares with possible completion of the transaction sometime later this year.\nAs of June 2013, Ally Financial was the 20th largest U.S. bank holding company, with total assets of $150.6 billion. Its primary line of business is auto financing—both consumer financing and leasing and dealer floor- plan financing. As a bank holding company, Ally Financial is regulated and supervised by the Federal Reserve. Ally Bank, an Internet and-telephone-based, state-chartered nonmember bank that is supervised by the FDIC and the Utah Department of Financial Institutions. Ally Bank has over $92 billion in assets and $50.8 billion in total deposits, as of June 30, 2013.\n12 U.S.C. § 1844(b)-(c).",
"",
"Since receiving federal assistance, GM has shown increasingly positive financial results. For each of the last 3 years, GM has reported profits, a positive and growing operating cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM’s credit ratings, with each of the three largest credit rating agencies increasing GM’s long-term credit rating. Although Moody’s upgraded GM’s rating to investment grade on September 23, 2013, Standard and Poor’s and Fitch Ratings rate GM as below investment grade as of the same month. Furthermore, GM’s market share of vehicles sold in North America was smaller than in 2008, and it continued to carry large pension liabilities.\nBased on our analysis of GM’s reported financial data, the company’s financial performance has improved since 2008. We assessed GM’s financial performance by examining its reported net income, operating income, and operating cash flow.\nNet income (loss): Net income (net profit or loss) is the difference between total revenues and expenses and represents the company’s income after all expenses and taxes have been deducted. For 2010, 2011, and 2012, GM reported net income of $6.5 billion, $9.3 billion, and $6.1 billion, respectively (see table 1). In 2008, prior to the federal government’s assistance and Old GM’s bankruptcy, GM reported a net loss of $30.9 billion. As we found in our prior work, a key result of the restructuring was that GM lowered its fixed costs by reducing the number of employees, plants, and dealerships, among other things. Reduced fixed costs allow GM to be profitable with fewer sales, thereby lowering its “break-even” level.\nOperating income (loss): Operating income (loss) describes a company’s profit and loss from its core operations. It is the difference between the revenues of a business and the related costs and expenses, excluding income from sources other than its core business (e.g., income derived from investments). GM reported operating income of $5.1 billion and $5.7 billion in 2010 and 2011, respectively (see table 1). In 2012, GM took an approximate $27 billion goodwill impairment charge that significantly reduced its operating income, contributing to a $30.4 billion operating loss.\nOperating cash flow: Operating cash flow refers to the amount of cash generated by a company’s core business operations. Operating cash flow is important because it indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations, or requires external financing. In its 2010, 2011, and 2012 annual reports, GM reported operating cash flow of $6.6 billion, $7.4 billion, and $9.6 billion, respectively. Further, in 2010 GM reported total available liquidity from automotive operations of $32.5 billion, including $5.9 billion from credit facilities. This amount had increased slightly by 2012, when GM reported total available liquidity of $37.2 billion, including $11.1 billion from credit facilities. Finally, GM reported current assets greater than current liabilities from 2010 through 2012, indicating that it could meet all current liabilities without additional financing.\nThese improvements in GM’s financial performance have been reflected in its credit ratings. A credit rating is an assessment of the credit worthiness of an obligor as an entity or with respect to specific securities or money market instruments. Credit ratings are important because investors and financial institutions may consider them when making investment and lending decisions. The three largest credit rating agencies have each increased GM’s long-term credit rating two steps in the past 3 years. Fitch Ratings and Standard and Poor’s raised their long-term rating on GM from BB- to BB+. Moody’s raised its long-term corporate family rating on GM from Ba2 to Baa3, an investment grade rating (i.e., the issuer or bond has a relatively low risk of default). Comparatively, Standard and Poor’s also rates Ford Motor Company as one step below investment grade, with a positive outlook. Fitch and Moody’s upgraded Ford to an investment grade rating in April and May 2012, respectively. Toyota, another competitor of GM, maintains an investment grade rating with all three of these credit rating agencies.\nAlthough GM’s financial performance has improved significantly since the company initially received federal assistance, questions remain about competitiveness and costs. One of the factors in GM’s improved financial condition has been increased sales of automobiles generally, including GM’s, over the last 3 years. Overall, North American vehicle sales increased more than 23 percent from 2010 to 2012, rising from 14.4 million to 17.8 million. Over this same period, sales of GM automobiles in North America increased 15 percent, from 2.6 million to 3 million. However, GM’s North American market share generally has declined over the past 5 years (see fig. 1).percent of the North American market, compared with 16.9 percent in 2012. GM reported that its North American market share was 17.2 percent through the second quarter of 2013.",
"",
"Treasury invested over $51 billion in GM through AIFP. In exchange for this assistance, Treasury received 60.8 percent of the common equity in GM, $2.1 billion in preferred stock, and $7.1 billion in notes from GM. Through September 18, 2013, Treasury had recovered about $35.21 billion of its investments in GM and reduced its ownership stake to 7.32 percent through three major actions. As of September 18, 2013, Treasury has recouped $37.75 billion from its GM and Ally Financial investment.\nFirst, Treasury participated in GM’s IPO in November 2010, selling about 412.3 million shares at an average price per share of approximately $32.75. This sale generated $13.5 billion for Treasury and reduced its ownership share to 32 percent. As we found in our 2011 report, by participating in GM’s IPO, Treasury tried to fulfill two goals—to maximize taxpayers’ return and to exit the company as soon as practicable.\nSecond, GM and Treasury entered into an agreement that allowed GM to repurchase 200 million shares in December 2012. According to GM, as a general matter, GM was interested in reducing Treasury’s interest in GM and facilitating Treasury’s eventual complete exit from GM ownership. GM purchased the shares at $27.50 per share, about 7.8 percent over the market price of about $25.50. This generated about $5.5 billion in revenue for Treasury and further reduced its ownership interest to just over 22 percent. GM officials said that they determined the premium price based on an arms-length negotiation between GM and Treasury. According to GM officials, the decision to agree to a premium price reflected the benefits GM and other stakeholders received from the transaction, including increased knowledge as to when and how Treasury was going to exit its holdings thereby eliminating the perceived “overhang” on GM’s common stock price; mitigation of the stigma associated with the “Government Motors” moniker that negatively impacted customer perceptions; and the fact that the transaction was accretive to earnings. Furthermore, as part of the transaction, Treasury agreed to remove certain governance and reporting requirements. Treasury announced in December 2012 that it planned to divest fully of its GM common equity stake within 12-15 months, subject to market conditions.\nThird, to achieve its goal of fully divesting by 2014, Treasury has developed and is implementing an exit strategy to sell its shares in tranches. Similar to the process Treasury used to divest its ownership in Citigroup, Treasury began placing its GM shares on the market in tranches, or “dribbles,” for a specific time period, beginning in January 2013. Treasury reports these sales after the end of each period for selling a particular tranche. According to Treasury officials, in the case of GM, the dribble approach is a better divestment method than discrete large offerings given the remaining size of its equity holdings and time frame in which it is planning to exit. Furthermore, the dribble approach helps (1) secure the highest possible prevailing market price for taxpayers, (2) limit the impact of additional supply in the market, and (3) ensures that Treasury has flexibility to average the proceeds over time and make adjustments if necessary. As of September 2013, Treasury has sold over 811 million shares for more than $25 billion, leaving it with 101,336,666 shares which represent a 7.32 percent ownership stake in GM. On September 26, 2013, Treasury announced it was launching a third pre-defined written trading plan for its GM common stock.\nAlthough Treasury has implemented a plan to divest itself of its ownership stake in GM, it does not anticipate fully recouping its investments. In September 2013, Treasury projected approximately at least a 19 percent loss on its GM investment. The extent of the loss, however, will depend on GM’s stock price. As shown in figure 6, the price of GM’s stock is not at the level needed for Treasury to fully recoup its investment.\nNevertheless, according to Treasury officials, Treasury has continued to sell its shares in line with its guiding principle of exiting its TARP investments as soon as practicable while maximizing return to taxpayers. Doing so, however, has increased the break-even price—that is, the price the stock must reach for Treasury to fully recoup its investment—for its remaining shares. Based on our analysis, we estimate that GM’s stock price would have to reach $156 per share for Treasury to fully recoup its investment as of September 16, 2013. At the beginning of September 2013, GM’s stock was trading at around $36 per share.\nAlthough Treasury’s ownership stake in Ally Financial has remained unchanged for the last 3 years at about 74 percent, the company has recently announced planned actions that will facilitate Treasury’s exit, pending regulatory approval. As of September 2, 2013, Treasury has recovered about $2.5 billion of the $16.3 billion invested in Ally Financial from a sale of trust preferred shares. Treasury’s remaining investment in Ally Financial consists of common stock and $5.9 billion in mandatory convertible preferred shares. In August 2013, Ally Financial announced plans, discussed below, to repurchase the mandatory convertible preferred shares.\nTreasury has stated that it would like to divest itself of its ownership stake in Ally Financial in a manner that balances the speed of recovery with maximizing returns for taxpayers. Furthermore, Treasury has stated that it will unwind its remaining common stock investment through a sale of stock (either public or private sale) or through future sales of assets. As of September 2013, Treasury has announced the plan for unwinding its preferred stock investments in Ally Financial, though not for its common stock investment. According to Treasury officials, Treasury will announce its precise plans for the common stock investment once it is ready to take action.\nTo accelerate repayment of Treasury’s investment and strengthen its longer term financial profile, Ally Financial announced in May 2012 that it was undertaking two strategic initiatives. These initiatives were (1) the discontinuation of providing financial support to its subsidiary ResCap pursuant to the ResCap bankruptcy and (2) the sale of its international auto finance business. ResCap’s mortgage business created significant uncertainty for Ally Financial and thus an impediment to Ally Financial’s ability to repay Treasury’s investment. Also, Ally Financial sought to sell its international operations as a means to accelerate repayment plans to Treasury. At the same time as Ally Financial’s announcement last year, Treasury stated that the company’s two strategic initiatives would put taxpayers in a stronger position to continue recovering their investment in Ally Financial. As previously noted, Ally Financial achieved a settlement agreement with the ResCap creditors, which was approved by the bankruptcy court in June 2013. In addition, during the second quarter of 2013, Ally Financial completed the sale of its international auto finance business in Europe and the majority of its finance operations in Latin America. Ally Financial plans to complete the sale of its remaining international assets—its operations in Brazil and its joint venture in China—in late 2013 and 2014, respectively.\nHowever, in exiting its Ally Financial investment, Treasury faces challenges and considerations, including Ally Financial’s failure to meet Federal Reserve capital requirements and competition from other institutions, which may ultimately affect the price of Ally Financial stock once the company is publicly traded.\nIn contrast to GM, Ally Financial is a regulated bank holding company that must receive the Federal Reserve’s approval before it can repurchase its preferred shares from Treasury. However, Ally Financial’s initial plan to repurchase the mandatory convertible preferred shares stalled after the Federal Reserve objected to its proposed capital plan in the spring 2013 Comprehensive Capital Analysis and Review (CCAR). The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Federal Reserve to conduct an annual supervisory stress test of bank holding companies with $50 billion or more in total consolidated assets to evaluate whether the companies have sufficient capital to absorb losses resulting from adverse economic conditions. As part of the stress test for each company, the Federal Reserve projects revenue, expenses, losses, and resulting post-stress test capital levels, regulatory capital ratios, and the tier 1 common ratio under three scenarios (baseline, adverse, and severely adverse). In March 2013, the Federal Reserve reported the results of its most recent supervisory stress test and of the CCAR exercise. The Federal Reserve found that Ally Financial’s tier 1 common capital ratio fell below the required 5 percent under the severely adverse scenario. Ally Financial was the only one of the 18 bank holding companies tested that fell below this required level.\nFurther, as previously indicated, the Federal Reserve objected to Ally Financial’s capital plans during the 2013 CCAR. CCAR is an annual exercise the Federal Reserve conducts to help ensure that financial institutions have robust, forward-looking capital planning processes that take into account their unique risks and sufficient capital to continue operating during periods of economic and financial stress. As part of the CCAR process, the Federal Reserve evaluates institutions’ capital adequacy; internal processes for assessing capital adequacy; plans to make capital distributions, such as dividend payments or stock repurchases; and other actions that affect capital. The Federal Reserve may object to a capital plan because of significant deficiencies in the capital planning process or because one or more relevant capital ratios would fall below required levels under the assumption of stress and planned capital distributions. If the Federal Reserve objects to the proposed capital plan, the bank holding company is only permitted to make capital distributions if the Federal Reserve indicates in writing that it does not object and must resubmit the capital plan to the Federal Reserve following remediation of these deficiencies. Of the 18 bank holding companies reviewed in 2013, the Federal Reserve objected to Ally Financial’s and one other company’s capital plans.\nAccording to the Federal Reserve, Ally Financial’s capital ratios did not meet the required minimums under the proposed capital plan. Specifically, the Federal Reserve reported that under stress conditions Ally Financial’s plan resulted in a tier 1 ratio of common capital of 1.52 percent, which is below the required level of 5 percent under the capital plan rule. According to the Federal Reserve report, these results assumed that Ally Financial remained subject to contingent liabilities associated with ResCap. The Federal Reserve required Ally Financial to resubmit a capital plan. Ally Financial resubmitted its new capital plan to the Federal Reserve in September 2013, and in accordance with federal regulation, the Federal Reserve will have 75 days to review the plan.\nOn August 19, 2013, Ally Financial announced that it had entered into agreements with certain accredited investors to issue and to sell to them an aggregate of 166,667 shares of its common stock (private placement securities) for an aggregate purchase price of $1 billion. Ally Financial did not identify the investors. According to Ally Financial, the agreement would strengthen the company’s common equity base and support its capital plan resubmission to the Federal Reserve. The agreement requires that the private placement close no later than November 30, 2013. Also on August 19, Ally Financial and Treasury entered into an agreement under which Ally Financial is to repurchase all of the mandatory convertible preferred shares. The agreement is conditioned on Ally Financial receiving a non-objection by the Federal Reserve on its resubmitted CCAR capital plan and the closing of the private placement securities transaction.\nAlly Financial faces growing competition in both consumer lending and dealer financing from Chrysler Capital, GM Financial, and other large bank holding companies. This competition may affect the future profitability of Ally Financial, which could influence the share price of Ally Financial once the company becomes publicly traded and thus the timing of Treasury’s exit. Similar to its GM investment, the eventual amount of Treasury’s recoupment on its Ally Financial investment will be determined by the share price of Ally Financial stock.\nChrysler Capital: In February 2013, Chrysler announced that it had entered into an agreement with Santander Consumer USA Inc., a subsidiary of Banco Santander, S.A., that specializes in subprime auto lending, to provide a full spectrum of auto financing services to Chrysler Group customers and dealers under the name of Chrysler Capital. Under the 10-year, private-label agreement, Santander Consumer USA was to establish a separate lending operation dedicated to providing financial services under the Chrysler Capital name, including financing for retail loans and leases, new and used vehicle inventory, dealership construction, real estate, working capital, and revolving lines of credit. The agreement grants Santander Consumer USA the right to a minimum percentage of Chrysler’s subvention volume and the right to use the Chrysler Capital name for its auto loan and lease offerings. Santander Consumer USA will also provide loans to Chrysler dealers to finance inventory, working capital, and capital improvements. On May 1, 2013, Chrysler Capital started its lending operations.\nGM Financial: In 2009, GM acquired AmeriCredit Corporation (AmeriCredit), a subprime automobile finance company, to serve its subprime customers. AmeriCredit was renamed GM Financial and made a wholly owned subsidiary of GM. Its target lending market is lending to consumers who have difficulty securing auto financing from banks and credit unions. According to GM officials, the purpose of GM Financial is to drive incremental GM automobile sales by providing solid and stable funding for GM dealers and consumers. GM Financial would serve as a captive lender for GM, much as GMAC did. This year, GM Financial increased its overall assets by purchasing Ally Financial’s international assets in Europe and Latin America, including the dealer financing arrangements in these countries.\nOther bank holding companies: We compared the amount of Ally Financial consumer auto lending with four large bank holding companies (Bank of America Corporation, Capital One Financial Corporation, JPMorgan Chase & Company, and Wells Fargo & Company) that reported consumer automobile loans. These data do not include all types of automobile financing, such as automobile leasing and dealer financing, only retail consumer automobile loans for the time period. As shown in figure 7, the dollar amount of consumer auto loans Wells Fargo & Company and Capital One Financial Corporation made increased from March 2011 through June 2013. However, Ally Financial remained the leader among the four institutions for the same time period.\nTreasury officials noted that such competition could also be a benefit because Ally Financial’s assets could be viewed as valuable to the other competitors. Treasury officials noted that the value of Ally Financial can be demonstrated by the recent private placement agreement. Specifically, if Treasury sells its Ally Financial common stock at the share price agreed to in the private placement agreement—$6,000 per share—Treasury would receive a significant profit on its Ally Financial investment.",
"We provided a draft of this report to FDIC, the Federal Reserve and Treasury for their review and comment. In addition, we provided excerpts of the draft report to Ally Financial, GM, and Chrysler Capital to help ensure the accuracy of our report.\nTreasury provided written comments which are reprinted in appendix II. Treasury agreed with the report’s overall findings. In its written comments, Treasury describes the auto industry’s recovery and the progress Treasury has made in unwinding its investments in Ally Financial and GM. Treasury also noted that it expects to complete the exit from GM by the first quarter of 2014 and wind down the remaining Ally Financial investment either by selling stock in a public or private offering, or through future asset sales.\nThe Federal Reserve, Treasury, Ally Financial, GM, and Chrysler Capital provided technical comments that we incorporated as appropriate. In its technical comments, GM highlighted what third parties have suggested could have happened had Treasury not provided assistance to the auto industry, including the potential adverse effects on unemployment levels and tax receipts of all levels of government. FDIC did not provide any comments.\nWe are sending copies of this report to the appropriate congressional committees. This report will also be available at no charge on our website at http://www.gao.gov.\nIf you or your staffs have any questions about this report, please contact me at (202) 512-8678 or clowersa@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.",
"This report is based on our continuing analysis and monitoring of the U.S. Department of the Treasury’s (Treasury) activities in implementing the Emergency Economic Stabilization Act of 2008 (EESA), which provided GAO with broad oversight authorities for actions taken under the Troubled Asset Relief Program (TARP). Under TARP, Treasury established the Automotive Industry Financing Program, through which Treasury committed $51 billion to help General Motors Company (GM) and $16.3 billion to GMAC LLC, a financial services company that provides automotive financing and that later became Ally Financial, Inc. (Ally Financial).\nThis report examines (1) the financial condition of GM and Ally Financial and (2) the status of Treasury’s investments in the companies as well as its plans to wind down those investments.\nTo assess the financial conditions of GM, we analyzed net income, operating income, operating cash flow, operating income, sales of automobiles, GM’s share of the North American market, credit ratings, and pension obligations and pension plan funding for GM’s U.S. employees from 2008 through the second quarter (June 30) of 2013. For Ally Financial, we reviewed the institution’s capital ratios, net income, operating income, net interest spread, return on assets, nonperforming assets ratio, liquidity ratio, bank deposits, operating cash flow, and credit ratings, generally from 2008 through the second quarter (June 30) of 2013. To obtain information on the financial ratios and indicators used in their analyses of GM’s or Ally Financial’s financial condition, we interviewed staff from Treasury, the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), GM, Ally Financial, and analysts from the three largest credit rating agencies as well as investment firms. To select analysts from investment firms to interview, we identified analysts who covered GM. We identified them using GM’s investor relations webpage (http://www.gm.com/company/investors/analyst-coverage.html) and selected four to contact based on an electronic search for automotive equity analysts cited in reputable trade and business publications. We reached out to four analysts and interviewed two. We also interviewed analysts responsible for covering GM from one of the credit rating agencies and analysts responsible for covering Ally from all three of the credit rating agencies. The views of these analysts cannot be generalized to all analysts from investment firms and credit rating agencies.\nWe reviewed past GAO reports, information from GM’s and Ally Financial’s annual 10-K filings with the Securities and Exchange Commission, reports and documentation from Treasury and the companies, and data from SNL Financial from 2008 through the second quarter (June 30) of 2013. For both GM and Ally Financial, we collected information, generally from 2008 through the second quarter (June 30) of 2013, the most recent information that was publicly available. We have relied on SNL Financial data for past reports, and we reviewed past GAO data reliability assessments to ensure that we, in all material respects, used the data in a similar manner and for similar purposes. For each data source we reviewed the data for completeness and obvious errors, such as outliers, and determined that these data were sufficiently reliable for our purposes. We also reviewed the credit ratings from three rating agencies for each of these companies. Although we have reported on actions needed to improve the oversight of rating agencies, we included these ratings because they are widely used by GM, Ally Financial, Treasury, and market participants.\nTo examine the status of Treasury’s investments and its plans to wind down those investments, we reviewed Treasury’s TARP reports, which included monthly 105(a) and daily TARP updates on AIFP program data for the time period from 2008 through September 2013. We have used Treasury’s data on AIFP in previous GAO reports. We determined that the AIFP program data from Treasury were sufficiently reliable to assess the status of the program. For example, we tested the Office of Financial Stability’s internal controls over financial reporting as they related to our annual audit of the office’s financial statements and found the information to be sufficiently reliable based on the results of our audit of the TARP financial statements for fiscal years 2009, 2010, 2011, and 2012. AIFP was included in these financial audits. Using the AIFP program data, we analyzed Treasury’s equity ownership and recovery of funds in GM and Ally Financial for the time period from January 2009 to September 2013. We reviewed the data for completeness and obvious errors, such as outliers, and determined that these data were sufficiently reliable for our purposes. For the divestment of GM equity, we interviewed Treasury and GM officials on the December 2012 repurchase of GM shares and the “dribble” strategy developed by Treasury. For analyzing Treasury’s exit from Ally Financial, we reviewed Treasury and Federal Reserve documentation, such as Treasury’s monthly reports to Congress, Treasury’s contractual agreements for the mandatory convertible preferred shares, and the proposed capital plan that Ally submitted to the Federal Reserve. We also reviewed two publicly available reports from the Federal Reserve on the Dodd-Frank Wall Street Reform and Consumer Protection Act and capital plan analysis, Dodd-Frank Act Stress Test 2013: Supervisory Stress Test Methodology and Results and Comprehensive Capital Analysis and Review 2013: Assessment Framework and Results.Treasury’s Office of Financial Stability, Federal Reserve, Federal Reserve Bank of Chicago, FDIC, GM, and Ally Financial.\nIn addition, we interviewed officials from We conducted this performance audit from March 2013 to October 2013 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 based on our audit objectives.",
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"In addition to the individual named above, Raymond Sendejas (Assistant Director), Bethany Benitez, Emily Chalmers, Nancy Eibeck, Matthew Keeler, Risto Laboski, Sara Ann Moessbauer, Marc Molino, and Roberto Pinero made key contributions to this report."
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"question": [
"Why is GM showing increasingly positive financial results?",
"How is GM showing positive financial results?",
"What challenges is GM still facing despite positive financial results?",
"What effect did Treasury have on Ally Financial?",
"How has Ally Financial stabilized or improved?",
"What problem did Ally Financial have?",
"How do analysts feel about Ally Financial's future?",
"What is Treasury's involvement in GM?",
"What is Treasury's involvement in Ally Financial?",
"What problems is Treasury having with Ally Financial?",
"What will determine the extent of Treasury's recoupment on its Ally Financial investment?",
"How did GAO examine the financial conditions of GM and Ally Financial?",
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"How did GAO interact with others to examine financial conditions?"
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"summary": [
"Since receiving federal assistance, General Motors Company (GM) has shown increasingly positive financial results.",
"For each of the past 3 years, GM has reported profits, positive and growing operational cash flow, and a stable liquidity position. This improved financial performance has been reflected in GM's credit rating, as each of the three largest credit rating agencies has increased GM's long-term credit rating.",
"However, GM faces continued challenges to its competitiveness. For instance, its market share of vehicles sold in North America remains smaller today than in 2008. Furthermore, GM continues to carry large pension liabilities.",
"With Treasury's investments in Ally Financial, the company's condition has stabilized.",
"For example, Ally Financial's capital and liquidity positions have stabilized or improved over the last 4 years. Such improvements have been noted by the three largest credit rating agencies, each of which has upgraded Ally Financial's credit rating.",
"However, Ally Financial's credit rating remains below investment grade and its mortgage unit--Residential Capital LLC--impacted the company's financial performance.",
"Analysts with whom GAO spoke indicated that the resolution of its mortgage unit's bankruptcy will be a positive development for Ally Financial's future financial performance.",
"As of September 18, 2013, the Department of the Treasury (Treasury) has recovered about $35.21 billion of its $51 billion investment in GM and reduced its ownership stake from 60.8 percent to 7.32 percent. By early 2014, Treasury plans to fully divest its GM common shares through installments and estimates that it will lose at least 19 percent of its original investment.",
"Treasury is working to exit from Ally Financial with a recent agreement to sell all of its preferred stock to the company for approximately $6 billion, but Treasury faces challenges.",
"As a regulated bank holding company, Ally Financial must be well capitalized to receive its regulator's approval to repurchase shares from Treasury. Earlier this spring, Ally Financial's tier 1 common ratio fell below the required 5 percent in the Federal Reserve's \"stress test,\" and the Federal Reserve objected to the company's capital plan. Ally Financial also faces growing competition in the consumer lending and dealer financing sectors that could impact its financial performance in the future.",
"The extent of Treasury's recoupment on its Ally Financial investment will depend on the ongoing financial health of the company.",
"To examine the financial condition of GM and Ally Financial, GAO reviewed industry, financial, and regulatory data for the time period from the beginning of 2008 through the second quarter of 2013.",
"GAO also reviewed Treasury reports and documentation detailing Treasury's investments in GM and Ally Financial and its proposed strategies for divesting itself of the investments, as well as both companies' financial filings and reports.",
"In addition, GAO interviewed officials from Treasury, the Board of Governors of the Federal Reserve (Federal Reserve), GM, Ally Financial, and financial analysts who study GM and Ally Financial."
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GAO_GAO-12-42
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{
"title": [
"Background",
"Risk Assessment and Risk Management",
"The May 2009 IRIS Process",
"EPA’s Progress in Completing Assessments under Its Revised Process Has Been Limited",
"Improvements to the IRIS Process",
"Initial Gains in Productivity under the Revised Process Have Not Been Sustained",
"EPA Has Not Met Established Time Frames for IRIS Assessment Process Steps",
"EPA Faces Long- standing and New Challenges in Implementing the IRIS Program",
"The National Academies Has Identified Recurring Issues with How the IRIS Program Develops and Presents Its Assessments",
"EPA Has Not Consistently Provided Reliable Information on Planned and Ongoing IRIS Assessments to IRIS Users",
"Unresolved Discussions between EPA and OMB Could Contribute to Delays",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Scope and Methodology",
"Appendix II: Status of Chemicals in the IRIS Assessment Development Process, as of September 30, 2011",
"Step 1–Draft development (24 assessments in step)",
"Appendix III: Information on Chemicals of Key Concern",
"Appendix IV: Projected Completion Dates for IRIS Assessments Currently in the Assessment Development Process, as of September 30, 2011",
"Appendix V: Comments from the Environmental Protection Agency",
"Appendix VI: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"This section discusses EPA’s risk assessment and risk management practices and the May 2009 IRIS process.",
"EPA’s IRIS Program is an important source of information on health effects that may result from exposure to chemicals in the environment. As figure 1 shows, the toxicity assessments in the IRIS database fulfill the first two critical steps of the risk assessment process—providing qualitative hazard identification and dose-response assessment (see definitions below). IRIS information can then be used with the results of exposure assessments (typically conducted by EPA’s program or regional offices) to provide an overall characterization of the public health risks for a given chemical in a given situation. EPA defines a risk assessment, in the context of human health, as the evaluation of scientific information on the hazardous properties of environmental agents (hazard characterization), the dose-response relationship (dose-response assessment), and the extent of human exposure to those agents (exposure assessment). In final form, a risk assessment is a statement regarding the probability that populations or individuals so exposed will be harmed and to what degree (risk characterization). The development of risk assessments is directly dependent on the development of toxicity assessments such as those developed by the IRIS Program.\nA typical IRIS toxicity assessment is based on two sequential analyses: qualitative hazard identification and quantitative dose-response assessment. Among other things, a hazard identification identifies health hazards that may be caused by a given chemical at environmentally relevant concentrations; this identification describes the potential noncancer and cancer health effects of exposure to a chemical that research studies have suggested or determined. For cancer effects, EPA describes the carcinogenic potential of a chemical in a narrative which includes one of five weight-of-the-scientific-evidence descriptors, ranging from “carcinogenic to humans” to “not likely to be carcinogenic to humans.” The second analysis is the dose-response assessment, which characterizes the quantitative relationship between the exposure to a chemical and the resultant health effects; this assessment describes the magnitude of hazard for potential noncancer effects and increased cancer risk resulting from specific exposure levels to a chemical or substance. The quantitative dose-response analysis relies upon credible research data, primarily from either animal (toxicity) or human (epidemiology) studies. The noncancer dose-response assessments may include an oral reference dose (RfD)—an estimate of the daily oral exposure to a chemical that is likely to be without an appreciable risk of deleterious effects during a person’s lifetime—expressed in terms of milligrams per kilogram per day and an inhalation reference concentration (RfC)—an estimate of the daily inhalation exposure to a chemical that is likely to be without an appreciable risk of deleterious effects during a person’s lifetime— expressed in terms of milligrams per cubic meter.\nThe focus of IRIS toxicity assessments has been on the potential health effects of long-term (chronic) exposure to chemicals. According to OMB, EPA is the only federal agency that develops qualitative and quantitative assessments of both cancer and noncancer risks of exposure to chemicals, and EPA does so largely under the IRIS Program.\nThe risk characterization information, which is derived from toxicity and exposure assessments—exposure assessments identify the extent to which exposure actually occurs—can be used to make risk management decisions designed to protect public health. For example, IRIS assessments support scientifically sound decisions, policies, and regulations under such key statutes as the Clean Air Act, the Safe Drinking Water Act, and the Clean Water Act, as well as for setting Superfund cleanup standards of hazardous waste sites. Risk management, as opposed to risk assessment, involves integrating the risk characterization information with other information—such as economic information on the costs and benefits of mitigating the risk, technological information on the feasibility of managing the risk, and the concerns of various stakeholders—to decide when actions to protect public health are warranted. More specifically, an initial risk management decision would be to determine whether the health risks identified in a chemical risk assessment warrant regulatory or other actions. As a result, the development of IRIS assessments is of key interest to stakeholders, such as other federal agencies and their contractors, chemical companies, and others who could be affected if regulatory actions were taken. That is, stakeholders could face increased cleanup costs and other legal liabilities if EPA issued an IRIS assessment for a chemical that resulted in a risk management decision to regulate the chemical to protect the public.",
"EPA’s process for developing IRIS assessments—established in May 2009—consists of seven steps. In announcing its revised process in May 2009, EPA noted that the new process would ensure that the majority of assessments would be completed within 2 years (23 months)—a significantly shorter time than the estimated completion time frame of about 6 to 8 years under the previous process. We note that the seven steps are preceded by a literature search and data call-in, which is not included as part of the process or its time frames. Results of the literature search are posted on the IRIS website and announced in the Federal Register, along with a request for information—the data call-in—about any pertinent studies not listed. According to EPA officials, the literature search and data call-in are not part of the process because the agency does not dedicate full-time staff to them. EPA officials told us that after the literature search, they place IRIS assessments in one of three categories—standard, moderately complex, or exceptionally complex— on the basis of such factors as the number of available scientific studies on the chemical, the number of potential health effects identified in these studies, the staff resources required to complete the assessment, and the level of stakeholder interest. However, this process, as written, does not distinguish among different types of assessments with varying complexity. Table 1 outlines the steps in the IRIS assessment process, along with the planned time frames established by EPA.\nAll IRIS assessments undergo external peer review, but exceptionally complex assessments are generally peer reviewed by EPA’s Science Advisory Board panels and in some cases by National Academies panels. These peer reviews typically require more planning and take longer than the reviews for less complicated assessments. Peer reviews for all other assessments are typically conducted by expert panels that are independently assembled by an EPA contractor. All panel members, including Science Advisory Board and National Academies panels, are composed of individuals with expertise in various scientific and technical disciplines who retain their primary involvement in academia, industry, state government, and environmental organizations.\nAs we reported in 2008, an overarching factor that can affect EPA’s ability to complete IRIS assessments in a timely manner is the compounding effects of delays. Once a delay in the assessment process occurs—for example, suspending work on an assessment to wait for additional studies—work that has been completed can become outdated, necessitating rework of some or all of the steps in the assessment process. Even a single delay can have far-reaching, time-consuming consequences, in some cases requiring that the assessment process essentially start over.",
"EPA’s May 2009 IRIS assessment process addresses some of the problems we identified in our March 2008 report. However, progress in other areas has been limited. EPA’s initial gains in productivity under the revised process have not been sustained. EPA has not significantly reduced its workload of ongoing assessments, which would enable the agency to routinely start new assessments and keep existing assessments current. EPA has not met established time frames for IRIS assessment process steps.",
"EPA has addressed concerns we raised in our March 2008 report regarding the transparency of the IRIS process. Since May 2009, all federal agency and White House office comments from both the interagency science consultation and discussion (steps 3 and 6b of the IRIS process) are available to the public on EPA’s IRIS website. In addition, EPA has made publicly available documents that show EPA’s responses to selected “major” interagency comments for all draft IRIS assessments that have completed an interagency review step since June 2011. As we have previously reported, we believe that interagency coordination can enhance the quality of EPA’s IRIS assessments. Previously, OMB considered its comments and changes, and those of other federal agencies, to be “deliberative”—that is, they were not part of the public record. We believe the input from other federal agencies is now obtained in a manner that better ensures that EPA’s scientific analysis is given appropriate weight. As a result, stakeholders, including EPA regional and program offices, the public, and industry, can now see which other federal agencies comment and the nature of their comments, making IRIS assessments more transparent. Transparency is especially important because agencies providing input, such as DOD and NASA, may have a vested interest in the outcome of the assessment should it lead to regulatory or other actions. For example, these agencies may be affected by the potential for increased environmental cleanup costs and other legal liability if EPA issued an IRIS assessment that resulted in a decision to regulate a chemical to protect the public. Officials we spoke with from other federal agencies—including DOD, NASA, and the Department of Health and Human Services (HHS)—all agreed that making their comments publicly available was a good practice.\nIn addition, EPA now manages the interagency science consultation and discussion (steps 3 and 6b of the IRIS process, formerly OMB-managed interagency reviews). As we recommended in 2008, the process now includes time limits for all parties, including OMB and other federal agencies, to provide comments to EPA on draft assessments. Prior to May 2009, OMB managed these steps, and EPA was not allowed to proceed with assessments until OMB notified EPA that it had sufficiently responded to comments from OMB and other federal agencies. EPA has also streamlined its IRIS process, as we recommended in our 2008 report, by consolidating some process steps and eliminating others that had provided opportunities for other federal agencies to suspend IRIS assessments to conduct additional research.",
"Shortly after it implemented its revised IRIS assessment process in May 2009, EPA experienced a surge of productivity in terms of the number of IRIS assessments it issued. Specifically, from May 2009 through September 30, 2011, EPA completed 20 IRIS assessments—more than doubling the total productivity it achieved during fiscal years 2007 and 2008. However, 16 of these were completed in the first year and a half of implementing the revised process, and productivity fell sharply during fiscal year 2011, with EPA issuing 4 IRIS assessments (see fig. 2).\nIn completing 4 IRIS assessments in fiscal year 2011, EPA fell significantly short of its original plan to complete 20 assessments—a goal that it had revised to 9 as of August 2011. In addition, EPA is unlikely to meet its fiscal year 2012 goal of completing 40 assessments. As of September 30, 2011, 12 of the 40 assessments that EPA plans to complete in fiscal year 2012 are still being drafted (step 1 of the IRIS process). See appendix II for the status of chemicals in the IRIS assessment process as of September 30, 2011. On the basis of the planned time frames EPA established under its revised process, once these 12 IRIS assessments are drafted, EPA will require at least 345 days, or 11½ months, to complete the remaining IRIS process steps and issue the assessments—making it unlikely these will be completed in 2012.\nThe increased productivity occurring after May 2009 does not appear to be entirely attributable to the revised IRIS assessment process. According to our analysis of EPA data, the agency’s ability to complete more assessments was not due to a fundamental gain in how quickly assessments are completed, but rather to EPA’s ability to clear up the backlog of assessments that had undergone work under the previous IRIS process and had been delayed for multiple reasons. Most of the assessments completed from May 2009 through September 2011 had been in process 5 years or longer and thus had already passed through some key process steps prior to the implementation of the revised process. In addition, most of these completed IRIS assessments were for standard and moderately complex assessments—that is, they were less challenging to complete than those for more complex chemicals. Specifically, 17 of 20 assessments issued from May 2009 through September 30, 2011, were in process for 5 years or longer, and 2 of the 20 were for exceptionally complex assessments (see table 2). For example, 1 exceptionally complex assessment that EPA did complete was for trichloroethylene (TCE). For information on TCE, as well as on some other key chemicals for which EPA has not completed IRIS assessments, see appendix III.\nAs of September 30, 2011, EPA had 55 IRIS assessments ongoing and 14 on hold—down from the 88 assessments that were in various stages of development when it implemented its revised IRIS assessment process in May 2009. Since May 2009, EPA has undertaken 6 new assessments, dropped 5 assessments that it determined were no longer required, completed 20 assessments, and continued to have 14 assessments on hold (see table 3). According to EPA officials, assessments that have been put on hold will be resumed when the agency has resources available to staff them.\nHowever, this tally of IRIS assessments does not reflect the true extent of EPA’s workload or the backlog of demand for IRIS assessments. Beyond the 55 ongoing IRIS assessments and 14 on hold, the demand for additional IRIS assessments is unclear. With existing resources devoted to addressing its current workload of ongoing assessments, EPA has not been in a position to routinely start new assessments. In late 2010, for the first time since 2007, EPA solicited nominations for new IRIS assessments from EPA program and regional offices, as well as from the public and federal agencies that participate in IRIS interagency reviews. However, as of September 30, 2011, EPA officials had not decided which chemicals to include on the IRIS agenda and thus include in their workload. Moreover, instead of nominating new chemicals for assessment in 2010, one regional office requested that the IRIS Program focus its efforts on completing assessments currently under way. In addition, in 2007, the Office of Air and Radiation—which develops national programs, policies, and regulations for controlling air pollution and radiation exposure—requested that ongoing assessments be expedited for 28 chemicals that it identified as high-priority and required to fulfill its regulatory mandates. As of September 30, 2011, 17 of the 28 assessments the office identified are ongoing, and 3 are on hold. See appendix IV for EPA’s expected completion dates for IRIS assessments currently in the assessment process.\nIn addition, other assessments in the IRIS database may need to be updated. As we reported in March 2008, EPA data from 2001 through 2003 indicated that 287 of the assessments in the IRIS database at that time may need to be updated. In October 2009, EPA announced in the Federal Register the establishment of the IRIS Update Project. The stated purpose of the project was to update IRIS toxicity values, such as oral reference doses or inhalation reference concentrations, that are more than 10 years old. However, according to EPA officials, since the project was announced, little progress has been made toward updating these assessments. We note that even if EPA were to overcome the significant productivity difficulties it has experienced in recent years and meet its goal of completing 40 assessments in fiscal year 2012, it is not clear that this level of productivity would meet the needs of EPA program offices and other users.",
"IRIS assessments have taken longer than the time frames established under the revised IRIS process. Since implementing the revised process, most IRIS assessments have exceeded the established time frames for each step of the process. EPA officials, however, told us that the time frames established for the steps in the revised IRIS assessment process apply only to standard assessments—and not to moderately or exceptionally complex assessments. While EPA officials have said that they are trying to hold moderately complex assessments to the established time frames, EPA does not have a written policy that describes the applicability of these time frames or written criteria for designating IRIS assessments as standard, moderately complex, or exceptionally complex. Consequently, it is unclear how IRIS users will know which assessments are standard, moderately complex, or exceptionally complex and what time frames will be required to complete them.\nAccording to EPA officials, NCEA management, including IRIS Program management, is tracking the time it takes for each IRIS assessment to complete the various steps in the IRIS process. However, EPA has not yet analyzed these data to determine whether the time frames established for each step or the overall 23-month process are realistic. According to EPA officials, they do not yet have the data needed to draw conclusions regarding completion time frames.\nOn the basis of our analysis of EPA data, however, we determined how long each IRIS process step was taking on average compared with the time frames established for each step under the May 2009 revised process. We performed this analysis for the 55 assessments that were ongoing, as of September 30, 2011, and the 20 assessments that were completed after May 2009. Because none of the 20 IRIS assessments completed from May 2009 through September 2011 were initiated after the revised process was implemented, it was not possible to fully evaluate the extent to which EPA is adhering to the new 23-month time frame. Further, we combined our analysis of steps 4 and 5 because EPA data do not indicate when step 4 ends and when step 5 begins, and we combined steps 6 and 7 for the same reason. According to our analysis, on average, assessments of all types have taken longer than the established time frames for every step in the IRIS process (see table 4).\nSome other federal agencies that participate in interagency reviews expressed concern that in some cases time and resource constraints present challenges as they try to meet EPA’s time frames for the two interagency review steps. In addition to the time limits established under the revised process, in an effort to increase productivity and complete more IRIS assessments, EPA officials said that, beginning in April 2011, the agency began to accelerate the number of draft assessments sent through the interagency review steps. However, officials from other federal agencies— including HHS and DOD—told us that they have advised EPA that the accelerated pace of interagency reviews in the second half of fiscal year 2011 strained their resources. In addition, the official from NASA told us that not only are the increased pace of reviews straining the agency’s resources, but that it has also affected the ability to provide in-depth independent technical reviews and interagency comments. EPA officials also told us that the interagency reviewer at NASA is so concerned with the pace of the interagency reviews under the revised process that NASA officials have asked OMB to form an interagency work group to discuss the reviews.",
"EPA faces both long-standing and new challenges in implementing the IRIS Program. First, the National Academies has identified recurring issues with how the IRIS Program develops and presents its assessments and has suggested improvements. Second, EPA has not consistently provided reliable information on ongoing and planned IRIS assessments to IRIS users. Third, unresolved discussions with OMB regarding EPA’s responses to Data Quality Act challenges may impede EPA’s ability to issue completed IRIS assessments.",
"The National Academies and EPA’s Science Advisory Board have identified several recurring issues with how EPA develops and presents IRIS assessments. For example, in April 2011, the National Academies in its independent scientific review of EPA’s draft IRIS assessment of formaldehyde provided a critique of EPA’s development and presentation of draft IRIS assessments. Overall, the National Academies noted some recurring methodological problems in the draft IRIS assessment of formaldehyde. In addition, in the report the National Academies also identified recurring issues concerning clarity and transparency with EPA’s development and presentation of its draft IRIS assessments.\nThe National Academies and Science Advisory Board have identified similar clarity and transparency issues in peer review reports over the past 5 years. Some of these reports stated that EPA should more clearly explain its reasons for including or excluding the scientific studies supporting draft IRIS assessments. In addition, some reports stated that EPA should more transparently present its justifications for its methodological approaches. Independent of its review of the formaldehyde assessment, the National Academies also provided a “roadmap for revision” that made suggestions for improvements to the IRIS draft development process, during which EPA selects and evaluates evidence (the literature search) and drafts an assessment (step 1). The National Academies’ “roadmap for revision” suggested that EPA take the following steps, among others: use clear, standardized methods to identify and select study evidence; use a standardized approach to evaluate and describe study strengths and weaknesses and the weight of evidence, describe and justify the assumptions and models used, and adopt a standardized approach to characterizing uncertainty factors; and present methodology and findings more clearly and more concisely through better use of graphics and tables and use a template to facilitate a consistent description of the approach to study selection.\nThe National Academies’ report on the draft IRIS assessment of formaldehyde specifically noted that EPA should not delay the finalization of the assessment in order to implement any of the suggestions it made regarding the overall IRIS process. As of September 30, 2011, according to EPA officials, the agency is revising the assessment in response to the National Academies’ suggestions, but the status page on EPA’s website for formaldehyde lists “TBD”—to be determined—as the posting date for the final assessment.\nIn July 2011, EPA announced that it planned to respond to the National Academies’ suggestions by implementing changes to the way it develops draft IRIS assessments. In announcing the planned changes, EPA stated that it would take the following actions: enhance its approach to identifying and selecting scientific study provide more complete documentation of its approach to evaluating scientific study evidence and indicate which criteria were most influential in its evaluation of the weight of evidence; and concisely state the criteria used to include or exclude studies, continue to use existing IRIS guidelines to enhance the clarity and transparency of its data evaluation and presentation of findings and conclusions, eliminate the need for some report text using standardized tables, and portray toxicity values graphically.\nAccording to EPA officials, in implementing these changes, EPA will subject those assessments that are in earlier stages of development to more extensive changes than those in later stages of development. It will change the latter “as feasible” without repeating steps in the overall IRIS process. However, EPA has not provided a more detailed description of how the National Academies’ suggestions will apply to each of the assessments in its current inventory of IRIS assessments. Without a more precise description of which drafts would be considered “in the earlier stages of development” or what “more extensive changes” would entail, it is too soon to provide a comprehensive assessment of EPA’s approach. In addition, it is not transparent to stakeholders and other interested parties which assessments will be subject to these changes and which will not. EPA established the Board of Scientific Counselors (BOSC), an advisory committee composed of non-EPA technical experts from academia, industry, and environmental communities, to provide independent advice, information, and suggestions to the Office of Research and Development (ORD) research program—which houses the IRIS Program. Part of BOSC’s mission is to evaluate and provide advice concerning the utilization of peer review within ORD to sustain and enhance the quality of science in EPA. It is unclear if BOSC will have a role in reviewing EPA’s response to the National Academies’ suggestions.\nWe reviewed two IRIS assessments—one completed and one still in draft form—that reflect changes EPA has made in response to the National Academies’ suggestions. First, for its assessment of urea, finalized in July 2011, EPA streamlined the report by moving sections of text from the body to an appendix, which shortened the body of the assessment from 89 to 57 pages, making it more concise. In addition, we reviewed the draft IRIS assessment of diisobutyl phthalate (DIBP), which EPA provided to us, that was undergoing agency review (step 2) and reflects some of the National Academies’ suggestions regarding presentation. For example, it includes (1) descriptive and pictorial explanations of the study selection methods used; (2) tables that, among other things, give side-by-side comparisons of studies considered in determining the oral reference dose for the chemical; and (3) brief descriptions of the strengths and weaknesses of various studies considered. For these two assessments, it appears that EPA has begun to enhance the readability of its assessments by making changes that appear to be in line with the suggestions made by the National Academies.",
"EPA uses two primary mechanisms—the IRIS agenda and a website feature known as IRISTrack—to make information on the status of IRIS assessments available to EPA program and regional offices, other federal agencies, and the public. EPA has not effectively used these two mechanisms, or a third that we recommended in March 2008—that the agency provide a 2-year notice of its intent to assess specific chemicals— to consistently provide reliable information on IRIS assessments to stakeholders and other interested parties.\nFirst, EPA has not published an IRIS agenda in the Federal Register— identifying the chemicals that EPA plans to assess (both new and ongoing assessments)—since it announced its 2008 IRIS agenda in December of 2007. EPA started developing an annual IRIS agenda and providing it to the public in a notice in the Federal Register in 1997. In late 2010, EPA began to solicit nominations for its fiscal year 2011 IRIS agenda from its program and regional offices, as well as from the public and federal agencies that participate in IRIS interagency reviews. However, as of September 30, 2011, EPA had not published its fiscal year 2011 agenda. In addition, some of the information provided in the Federal Register notices about the IRIS agenda has been incomplete. For example, an October 2010 Federal Register notice contained a list of chemicals currently on the IRIS agenda but did not distinguish between chemicals the agency was actively assessing and those it had designated for future assessment. We reported on similar issues in March 2008— noting that EPA had identified some assessments that had been suspended as ongoing.\nSecond, EPA has not kept information on the status of the individual ongoing assessments up to date in IRISTrack—an issue we also reported on in 2008. EPA’s IRISTrack, a feature of its website, is intended to provide stakeholders and other interested parties with information on draft IRIS assessments—specifically, estimated start and end dates for steps in the IRIS process. For example, officials from the Office of Water indicated that that their office relies heavily on IRISTrack for information about the status of IRIS assessments. In addition to not updating IRISTrack, EPA recently removed some key information presented in IRISTrack. Now, in some cases, the IRISTrack date for the beginning of draft development (step 1) understates the actual duration of an assessment—sometimes by many years. For example, IRISTrack indicates that draft development for the dioxin assessment began in the first quarter of fiscal year 2009; in fact, as we have reported, EPA has been assessing dioxin since 1991. IRISTrack also understates the duration of assessments of other chemicals of key concern—for formaldehyde, naphthalene, and TCE. Therefore, current and accurate information regarding when an assessment will be started, which assessments are currently ongoing, and when an assessment is projected to be completed is presently not publicly available.\nThird, EPA does not provide at least 2 years’ notice of its intent to assess specific chemicals, as we recommended the agency should do in our March 2008 report to give agencies and other interested parties the opportunity to conduct research needed to fill any data gaps. In commenting on our report, EPA agreed to consider our recommendation, and EPA officials recently stated that they continue to agree with it, but as of September 30, 2011, the agency still had not taken steps to implement our recommendation.",
"Discussions between EPA and OMB officials regarding Data Quality Act challenges related to specific draft IRIS assessments have been ongoing for over a year without resolution. If these unresolved discussions continue, they could contribute to delays of IRIS assessments. According to EPA officials, OMB would like to return to its role in the prior assessment process, in which it managed interagency reviews and made the final determination as to whether EPA has satisfactorily responded to comments from OMB and officials in other federal agencies.\nThe Information Quality Act, commonly called the Data Quality Act, requires OMB to issue governmentwide guidelines to “ensure and maximize the quality, objectivity, utility, and integrity of information, including statistical information,” disseminated to the public. In addition, it required agencies to issue their own guidelines, set up administrative mechanisms to allow affected parties to seek the correction of information they considered erroneous, and report periodically to OMB information about Data Quality Act challenges (“requests for correction” of agency information) and how the agencies addressed them. Under its data quality guidelines, when EPA provides opportunities for public participation by seeking comments on information, such as during a rulemaking, the agency uses the public comment process rather than EPA guidelines to address concerns about EPA’s information. This is consistent with OMB’s data quality guidelines, which encourage agencies to incorporate data quality procedures into their existing administrative practices rather than create new and potentially duplicative or contradictory processes. According to EPA’s data quality guidelines, the public comment period serves the purposes of the guidelines, provides an opportunity for correction of information, and does not duplicate or interfere with the orderly progression of draft documents through an established process—in this case, the IRIS assessment process. That is, the external peer review and associated public comment period provide the public with the opportunity to raise questions regarding the quality of the information being used to support an IRIS assessment. According to EPA officials, federal agency responses to data quality challenges must be cleared by OMB before EPA sends responses to the parties filing challenges—although no law or guidance specifically provides for such reviews.\nIn June and July 2010, EPA received Data Quality Act challenges regarding two draft IRIS assessments. According to EPA officials, in its draft responses to these data quality challenges, EPA declined to review the challenged data because, according to agency policy, draft IRIS documents are not subject to data quality challenges. EPA used the same approach in 2006 when responding to and declining a similar challenge regarding a draft IRIS assessment; at that time, OMB approved the EPA response. EPA sent its draft responses for the two more recent challenges to OMB for approval in September 2010 and January 2011. EPA’s data quality guidelines set a goal of responding to Data Quality Act challenges within 90 days, but EPA officials said that they still await a decision by OMB. According to EPA officials, OMB is delaying a decision because OMB would like to return to its role in the prior assessment process, in which it managed interagency reviews and made the final determination as to whether EPA has satisfactorily responded to comments from OMB and officials in other federal agencies.\nEPA officials told us that as of September 30, 2011, the issues regarding data quality challenges had not delayed the progress of draft IRIS assessments. Meanwhile, OMB staff told us that they had sent comments to EPA on the draft responses and await EPA’s reply to their comments. It appears to GAO that the discussions of these issues between EPA and OMB officials, which have been ongoing for over a year without resolution, have highlighted the agencies’ differences regarding the revised IRIS process. If these differences persist, they could contribute to the compounding effects of delays in the IRIS process, discussed here and in our earlier work. For example, in August 2011, EPA received a third data quality challenge on an assessment that EPA had expected to be finalized at the end of fiscal year 2011. For reasons that remain unclear, EPA now projects that this assessment will not be finalized until fiscal year 2012. We note that the assessment had entered the interagency science discussion (step 6b) in July 2011. EPA asked interagency reviewers to submit written comments by August 26, 2011, but as of September 2011, OMB reviewers have not yet submitted comments.",
"The IRIS process reforms EPA began implementing in May 2009 have restored EPA’s control of the process and increased its transparency. Notably, EPA has addressed concerns we raised in our March 2008 report regarding the transparency of comments from both the interagency science consultation and discussion steps in the IRIS process. Making these comments publicly available is especially important because agencies providing input may have a vested interest in the outcome of the assessment should it lead to regulatory or other actions. As a result, stakeholders, including EPA regional and program offices, the public, and industry, can now see which other federal agencies comment and the nature of their comments, making IRIS assessments more transparent. In addition, EPA now manages the interagency science consultation and discussion steps and has streamlined the IRIS process.\nProgress in other areas, however, has been more limited. For example, even for its less challenging assessments, EPA took longer than its established time frames for accomplishing steps in the revised process— calling into question the feasibility and appropriateness of the established time frames in the IRIS assessment process for standard assessments. Thus, the established time frames may not be feasible. It is also unclear whether the established time frames apply to moderately complex assessments because EPA does not have a written policy that describes the applicability of the time frames, although EPA officials said they are trying to hold moderately complex assessments to the 23-month time frame. Similarly, EPA does not have written criteria for designating IRIS assessments as standard, moderately complex, or exceptionally complex. We note that EPA has not analyzed the time frames to determine whether the actual time taken for each step of the overall 23-month process is realistic. Such an analysis would provide more accurate information for EPA to use in establishing time frames for these assessments. Not having established time frames for these assessments also creates uncertainty for many stakeholders with significant interest in IRIS assessments.\nEPA also faces both long-standing and new challenges in implementing the IRIS Program. Notably, the National Academies and Science Advisory Board have identified recurring issues of clarity and transparency of draft IRIS assessments. Consequently, as part of its independent scientific review of EPA’s draft IRIS assessment of formaldehyde, the National Academies also provided suggestions in a “roadmap for revision” that included suggestions for improving EPA’s development and presentation of draft IRIS assessments in general. The report identified recurring methodological issues with how the IRIS Program develops and presents its assessments and suggested improvements. EPA announced that it intends to address the issues raised in the National Academies’ report but has not publicly indicated how these proposed changes would be applied to its current inventory of IRIS assessments. Many of the issues raised in the National Academies’ report have been brought to the agency’s attention previously. It is unclear whether any independent entity with scientific and technical credibility, such as EPA’s Board of Scientific Counselors, will have a role in reviewing EPA’s planned response to the National Academies’ suggestions to ensure that EPA addresses these long-standing issues.\nIn addition, EPA has not addressed other long-standing issues regarding the accuracy and availability of information on the status of IRIS assessments to IRIS users—including stakeholders such as EPA program and regional offices, other federal agencies, and the public. For example, since 2007, EPA has not published in the Federal Register an IRIS agenda that includes information on chemicals the agency is actively assessing or when it plans to start assessments of other listed chemicals. The agency also has not updated IRISTrack to display all current information on the status of assessments on the IRIS agenda, including estimated start dates and end dates of steps in the IRIS process. In addition, EPA has recently removed some key information presented in IRISTrack that showed the duration of IRIS assessments. Now, in some cases, the IRISTrack date for the beginning of draft development underestimates the actual duration of an assessment—sometimes by many years. Therefore, current and accurate information regarding when an assessment will be started, which assessments are currently ongoing, and when an assessment is projected to be completed is presently not publicly available. Finally, as we recommended the agency should do in our March 2008 report, EPA does not provide at least 2 years’ notice of its intent to assess specific chemicals, which would give agencies and other interested parties the opportunity to conduct research needed to fill any data gaps.",
"To improve EPA’s IRIS assessment process, we are making the following six recommendations: To better ensure the credibility of IRIS assessments by enhancing their timeliness and certainty, we recommend that the EPA Administrator require the Office of Research and Development to assess the feasibility and appropriateness of the established time frames for each step in the IRIS assessment process and determine whether different time frames should be established, based on complexity or other criteria, for different types of IRIS assessments, and should different time frames be necessary, establish a written policy that clearly describes the applicability of the time frames for each type of IRIS assessment and ensures that the time frames are realistic and provide greater predictability to stakeholders.\nTo better ensure the credibility of IRIS assessments by enhancing their clarity and transparency, we recommend that the EPA Administrator require the Office of Research and Development to submit for independent review to an independent entity with scientific and technical credibility, such as EPA’s Board of Scientific Counselors, a plan for how EPA will implement the National Academies’ suggestions for improving IRIS assessments in the “roadmap for revision” presented in the National Academies’ peer review report on the draft formaldehyde assessment.\nTo ensure that current and accurate information on chemicals that EPA plans to assess through IRIS is available to IRIS users—including stakeholders such as EPA program and regional offices, other federal agencies, and the public—we recommend that the EPA Administrator direct the Office of Research and Development to annually publish the IRIS agenda in the Federal Register each fiscal indicate in published IRIS agendas which chemicals EPA is actively assessing and when EPA plans to start assessments of the other listed chemicals; and update IRISTrack to display all current information on the status of assessments of chemicals on the IRIS agenda, including projected and actual start dates, and projected and actual dates for completion of steps in the IRIS process, and keep this information current.",
"We provided a draft of this report to the Administrator of EPA for review and comment. In written comments, which are included in appendix V, EPA agreed with the report’s recommendations. EPA also provided technical comments, which we incorporated into the report as appropriate. Specifically, EPA agreed that it should (1) assess the feasibility and appropriateness of the established time frames for each step in the IRIS assessment process by using available program performance measures collected since the current IRIS process was established to evaluate determine whether different time frames should be established, based on complexity or other criteria, for different types of IRIS assessments, (2) determine if different time frames are necessary, establish a written policy that clearly describes the applicability of the time frames for each type of IRIS assessment and ensures that the time frames are realistic and provide greater predictability to stakeholders, (3) continue to implement the 2011 suggestions for improving IRIS assessments in the “roadmap for revision” presented in the National Academies’ peer review report on the draft formaldehyde assessment and seek independent review through the Science Advisory Board to ensure that the agency is addressing the recommendations, (4) annually publish the IRIS agenda in the Federal Register each fiscal year, (5) indicate in published IRIS agendas which chemicals EPA is actively assessing and when EPA plans to start assessments of the other listed chemicals, and (6) update IRISTrack to display all current information on the status of assessments of chemicals on the IRIS agenda, including projected and actual start dates, and projected and actual dates for completion of steps in the IRIS process, and keep this information current.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Administrator of EPA, the appropriate congressional committees, and other interested parties. In addition, the report will be 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) 512-3841 or trimbled@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 major contributions to this report are listed in appendix VI.",
"This appendix details the methods we used to assess the Environmental Protection Agency’s (EPA) management of its Integrated Risk Information System (IRIS). For this review, our objectives were to evaluate (1) EPA’s progress in completing IRIS assessments under the May 2009 process and (2) the challenges, if any, that EPA faces in implementing the IRIS Program.\nTo address these objectives, we reviewed relevant EPA documents, including documents outlining the April 2008 and the May 2009 versions of the IRIS assessment process; documents related to IRIS performance metrics; chemical nomination forms submitted by EPA regional and program offices, federal agencies, and others; and documents and other information on the public EPA website, including the IRIS database and IRISTrack, the assessment tracking system available at the IRIS website. In addition, we reviewed other relevant documents, including Federal Register notices announcing, among other things, IRIS agendas, as well as documents related to EPA’s meetings with other federal agencies involved in interagency reviews of draft IRIS assessments. We did not evaluate the scientific content or quality of IRIS assessments; however, we did review the National Academies’ peer review report on the draft IRIS assessment of formaldehyde to evaluate their suggestions for overall improvements to the development of IRIS assessments and other peer review reports by the National Academies and EPA’s Science Advisory Board to evaluate their suggestions for improvements to draft IRIS assessments. In addition, we interviewed officials from EPA’s National Center for Environmental Assessment (NCEA) who manage the IRIS Program, including the Acting Center Director, the Associate Director for Health, and the IRIS Program Acting Director, to obtain their perspectives on, among other things, the May 2009 IRIS process and the effects of changes from the April 2008 IRIS process, the extent to which EPA has made progress in completing timely, credible chemical assessments, challenges EPA faces in completing assessments, and EPA’s process for responding to Data Quality Act challenges. We interviewed officials from EPA’s Office of Environmental Information to obtain their perspectives on EPA’s process for responding to data quality challenges. We also attended two Board of Scientific Counselors (BOSC) meetings to understand the board’s role in providing advice, information, and recommendations about the Office of Research and Development (ORD) research programs, including IRIS.\nFor the first objective, we obtained and analyzed data from fiscal year 1999 through September 30, 2011, including data, spreadsheets, project plans, and other documents used in IRIS assessment planning, development, and completion. From the data we gathered, we analyzed information on IRIS productivity, including information on the number of IRIS assessments completed and initiated, the status of IRIS assessments that are currently in progress or on the IRIS agenda, and the completion dates and durations of IRIS assessment process steps completed or currently in progress for given chemical assessments. In addition, we assessed the reliability of the data we received from EPA for our first objective. Our assessment consisted of interviews and e-mail exchanges with EPA officials about the data system, the method of data input, and internal data controls and documentation, among other areas. We also corroborated the data with other sources, where possible. For example, we verified the information provided in tables of IRIS assessment start dates and completion dates of IRIS assessment process steps through interviews and e-mail exchanges with the NCEA officials responsible for maintaining these data. Through our assessment, we determined that the data were sufficiently reliable for our purposes.\nFor the second objective, we interviewed the chair of the National Academies Committee to Review EPA’s Draft IRIS Assessment of Formaldehyde to obtain his perspective on the National Academies’ suggestions for improvements to the IRIS assessment process. We interviewed officials from the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs (OIRA) to obtain their perspectives on interagency review of draft IRIS assessments, OMB’s process for responding to EPA with regard to Data Quality Act challenges, and OMB’s process for reviewing and approving EPA guidance documents. In addition, we interviewed officials from the Department of Defense (DOD), the National Aeronautics and Space Administration (NASA) and the Department of Health and Human Services (HHS)—including representatives from the Centers for Disease Control and Prevention’s National Center for Environmental Health (NCEH)/ Agency for Toxic Substances and Disease Registry (ATSDR), National Institute for Occupational Safety and Health (NIOSH). We also interviewed HHS officials from the Food and Drug Administration (FDA); the National Institute of Environmental Health Sciences/National Toxicology Program and the Office of the Secretary. We also interviewed representatives from a chemical industry group and a nonprofit research and educational organization.\nWe conducted this performance audit from July 2010 to December 2011 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.",
"",
"Step 2–EPA internal review (8 assessments in step)\nStep 3– Interagency science consultation (2 assessments in step)\nStep 4–External peer review and public comment (9 assessments in step)\nStep 5–EPA draft revision (7 assessments in step)\nStep 6a and b–Final EPA review / Interagency science discussion (1 assessment in step)\nStep 7– Completion and posting (4 assessments in step)\nBenzopyrene Polychlorinated biphenyls (PCBs) (noncancer)\nArsenic, inorganic (cancer) Dichloro- benzene, 1,2- Dichloro- benzene, 1,3- Dichloro- benzene, 1,4- Formaldehyde Polycyclic aromatic hydrocarbon (PAH) mixtures Tetrachloro- dibenzo-p-dioxin, 2,3,7,8- (dioxin)\nDichloro- methane Ethylene oxide (cancer) Tetrachloro- ethylene (perchloro- ethylene or perc) Tetrahydrofuran (THF)",
" Trichloroethylene (TCE). In September 2011, EPA finalized and posted an IRIS assessment of TCE, 13 years after initiating it. A degreasing agent used in industrial and manufacturing settings, TCE is a common environmental contaminant in air, soil, groundwater, and surface water. TCE has been found in the drinking water at Camp Lejeune, a large Marine Corps base in North Carolina. It has also been found at Superfund sites and many industrial and government facilities, including aircraft and spacecraft manufacturing operations. TCE has been linked to cancer, including childhood cancer, and other significant health hazards, such as birth defects. In 1995, the International Agency for Research on Cancer, part of the World Health Organization, classified the chemical as “probably carcinogenic to humans,” and in 2000, the Department of Health and Human Services’ National Toxicology Program concluded that TCE is “reasonably anticipated to be a human carcinogen.” However, between 1989 and September 2011, the IRIS database contained no quantitative or qualitative data on TCE. Because of questions raised by peer reviewers about the IRIS cancer assessment for TCE, EPA withdrew it from the IRIS database in 1989 and did not initiate a new TCE cancer assessment until 1998. In 2001, EPA issued a draft IRIS assessment of TCE that characterized TCE as “highly likely to produce cancer in humans.” The draft assessment was peer reviewed by a Science Advisory Board panel and released for public comment. In the course of these reviews, issues arose concerning, among other things, EPA’s use of emerging risk assessment methods and the uncertainty associated with these new methods. To help address these issues, EPA and other agencies sponsored a National Academies peer review panel to provide guidance. The National Academies panel recommended in its 2006 report that EPA finalize the draft assessment using available data, noting that the weight of evidence of cancer and other health risks from TCE exposure had strengthened since 2001. Nonetheless, the TCE assessment was returned to draft development. It then underwent a third peer review, again through Science Advisory Board, which issued its report in January 2011. EPA revised the draft in response to the Science Advisory Board’s comments and, in September 2011, finalized and posted the TCE assessment. Dioxin. The term “dioxin” applies to a family of chemicals that are often the byproducts of combustion and other industrial processes. Complex mixtures of dioxins enter the food chain and human diet through emissions into the air that settle on soil, plants, and water. When animals ingest plants, commercial feed, and water contaminated with dioxins, the dioxins accumulate in the animals’ fatty tissue. EPA’s initial assessment of dioxin, which was published in 1985, focused on the dioxin TCDD (2,3,7,8-tetrachlorodibenzo-p- dioxin), which animal studies dating to the 1970s had shown to be the most potent cancer-causing chemical studied to date. EPA began work on updating this assessment in 1991. From 1995 through 2000, the revised draft assessment underwent a full peer review, as well as three peer reviews of key segments of the draft. As we have reported previously, EPA officials said in 2002 that the version of the revised assessment then in progress would conclude that dioxin may adversely affect human health at lower exposure levels than had previously been thought, and that most exposure to dioxins occurs from eating such American dietary staples as meat, fish, and dairy products. EPA was moving closer to finalizing the assessment when, in 2003, a congressional appropriations committee directed the agency not to issue the assessment until it had been peer reviewed by the National Academies. The National Academies issued its peer review report in July 2006. EPA then revised the draft assessment in response to the National Academies’ recommendations, releasing it for public comment in May 2010 and sending it to the Science Advisory Board for another peer review. In August 2011, the Science Advisory Board panel issued its peer review report. Having been tasked with evaluating EPA’s responses to the National Academies review and its incorporation of studies that have become available since 2006, the panel concluded that the draft IRIS assessment of dioxin was “generally clear, logical, and responsive to many but not all of the suggestions of the NAS.” Among other things, the Science Advisory Board panel recommended that EPA discuss both linear and nonlinear models for cancer risks associated with dioxin exposure in its revised report. Three days after the Science Advisory Board issued its report, EPA announced that it would split the dioxin assessment into two parts, completing the noncancer portion of the assessment first and then addressing the Science Advisory Board’s comments and completing the cancer portion of the assessment. EPA expects to complete the noncancer portion of the dioxin assessment by January 2012, and states that it will complete the cancer portion as expeditiously as possible thereafter. The effort to update the assessment of dioxin, which could have significant health implications for all Americans, has been ongoing for 20 years. Formaldehyde. Formaldehyde is a gas widely used in such products as pressed wood, paper, pharmaceuticals, leather goods, and textiles. The IRIS database currently lists formaldehyde as a “probable human carcinogen”; however, the International Agency for Research on Cancer classifies it as “carcinogenic to humans.” In June 2011, the Department of Health and Human Services’ National Toxicology Program classified formaldehyde as “known to be a human carcinogen” in its Report on Carcinogens. The report stated that epidemiological studies “have demonstrated a causal relationship between exposure to formaldehyde and cancer in humans”— specifically, nasopharyngeal cancer, sinonasal cancer, and myeloid leukemia. The current IRIS assessment of formaldehyde dates to 1989, when the cancer portion of the assessment was issued, and 1990, when the noncancer portion was added. The last significant revision of the formaldehyde assessment dates to 1991. As we have reported previously, EPA began efforts to update the IRIS assessment of formaldehyde in 1997. In 2004, EPA received a congressional directive to await the results of a National Cancer Institute study that was expected to take, at most, 18 months before finalizing the draft assessment. That study was completed in May 2009, and in June 2010, EPA released the draft assessment, which assessed both cancer and noncancer health effects, to the National Academies for peer review. In May 2011, the National Academies published its peer review report. As of September 30, 2011—14 years after EPA began work to update the IRIS formaldehyde assessment— the agency had indicated no timetable for finalizing the assessment. Continued delays in the revision of the IRIS assessment of formaldehyde have the potential to affect the quality of EPA’s regulatory actions. For example, in August 2011, EPA announced a proposed rule under the Clean Air Act related to certain emissions from natural gas processing plants. Because a newer IRIS assessment of formaldehyde has not been completed, the proposed rule relies on the existing IRIS value for formaldehyde, last updated in 1991. EPA had expected to complete the formaldehyde assessment by the end of fiscal year 2011, but withdrew the projected completion date from the IRIS website after the publication of the National Academies’ peer review report on the draft assessment. As of April 2011, EPA expected to complete the formaldehyde assessment in the fourth quarter of fiscal year 2011. However, as of September 30, 2011, the IRIS website provided no projected completion date for the assessment. Tetrachloroethylene (Perc). Tetrachloroethylene—also called perchloroethylene or perc—is a manufactured chemical used in, for example, dry cleaning, metal degreasing, and textile production. Perc is a widespread groundwater contaminant and the National Toxicology Program has determined that it is “reasonably anticipated to be a human carcinogen.” Currently, the IRIS database contains only a noncancer assessment based on oral exposure to perc, posted in 1988; it gives no information on potential cancer effects or potential noncancer effects associated with inhalation of perc. EPA began work to update this assessment, and to include information on cancer and noncancer inhalation risk, in 1998. As we have reported previously, EPA completed its internal review of the draft perc assessment in February 2005 and the interagency review in March 2006. However, when the Assistant Administrator of EPA’s Office of Research and Development requested that additional analyses be conducted, EPA was delayed in sending the draft assessment to the National Academies for peer review. In June 2008, EPA sent the draft assessment to the National Academies, which released its peer review report in February 2010. EPA is in the process of responding to the National Academies’ suggestions, 13 years after the agency began work on the draft perc assessment. As a result, IRIS users, including EPA regional and program offices, continue to lack both cancer values and noncancer inhalation values to help them make decisions about how to protect the public from this widespread groundwater contaminant. EPA had expected to complete the perc assessment by the end of fiscal year 2011, but as of September 30, 2011, it had not done so. Naphthalene. Naphthalene is used in jet fuel and in the production of such widely used commercial products as moth balls, dyes, insecticides, and plasticizers. The current IRIS assessment of naphthalene, issued in 1998, lists the chemical as a “possible human carcinogen”; since 2004, the National Toxicology Program has listed it as “reasonably anticipated to be a human carcinogen.” As we have reported previously, EPA began updating the cancer portion of its naphthalene assessment in 2002. By 2004, EPA had drafted a chemical assessment that had completed internal peer reviews and was about to be sent to an external peer review committee. Once it returned from external review, the next step, at that time, would have been a formal review by EPA’s IRIS Agency Review Committee. If approved, the assessment would have been completed and released. However, in part because of concerns raised by DOD, OMB asked to review the assessment and conducted an interagency review of the draft. In their 2004 reviews of the draft IRIS assessment, both OMB and DOD raised a number of concerns about the assessment and suggested to EPA that it be suspended until additional research could be completed to address what they considered to be significant uncertainties associated with the assessment. Although all of the issues raised by OMB and DOD were not resolved, EPA continued with its assessment by submitting the draft for external peer review, which was completed in September 2004. However, according to EPA, OMB continued to object to the draft IRIS assessment and directed EPA to convene an additional expert review panel on genotoxicity to obtain recommendations about short-term tests that OMB thought could be done quickly. According to EPA, this added 6 months to the process, and the panel, which met in April 2005, concluded that the research that OMB was proposing could not be conducted in the short term. Nonetheless, EPA officials said that the second expert panel review did not eliminate OMB’s concerns regarding the assessment, which they described as reaching a stalemate. In September 2006, EPA decided, however, to proceed with developing the assessment. By 2006, the naphthalene assessment had been in progress for 4 years, and EPA decided that the noncancer portion of the existing IRIS assessment was outdated and needed to be revisited. Having made this decision, the agency returned both portions of the assessment, cancer and noncancer, to the drafting stage. We reported in March 2008 that EPA estimated a 2009 completion date for the naphthalene assessment. As of September 30, 2011, however, the assessment remained in the draft development stage, even though EPA program offices had identified the naphthalene assessment as a high-priority need for the air toxics and Superfund programs. As of September 30, 2011, EPA expects to complete the naphthalene assessment in the third quarter of fiscal year 2013. Royal Demolition Explosive. This chemical, also called RDX or hexahydro-1,3,5-trinitro-1,3,5-triazine, is a highly powerful explosive used by the U.S. military in thousands of munitions. Currently classified by EPA as a “possible human carcinogen,” this chemical is known to leach from soil to groundwater. RDX can cause seizures in humans and animals when large amounts are inhaled or ingested, but the effects of long-term, low-level exposure on the nervous system are unknown. As we reported in March 2008, as is the case with naphthalene, the IRIS assessment of RDX could require DOD to undertake a number of actions, including steps to protect its employees from the effects of this chemical and to clean up many contaminated sites. We reported at that time that EPA had started an IRIS assessment of RDX in 2000, but it had made minimal progress on the assessment because EPA had agreed to a request by DOD to wait for the results of DOD-sponsored research on this chemical. In 2007, EPA resumed work on the assessment, although some of the DOD-sponsored research was still outstanding at the time. EPA decided to suspend work on the assessment in 2009 in order to focus on assessments that were further along in the IRIS process. According to EPA’s project plan for RDX, in March 2010, EPA received a letter from DOD requesting that EPA complete the assessment. In addition, in 2010, EPA’s Superfund Program labeled the RDX assessment as a high priority because of the presence of the chemical at federal facilities. In June 2010, EPA renewed work on the RDX assessment, but as of September 30, 2011, it remained in the draft development stage (step 1). An EPA official told us in October 2011 that EPA plans to contact DOD officials to confirm that the draft assessment of RDX adequately captures the findings of the DOD- sponsored research. In addition, the EPA official said that the agency plans to contact officials at HHS’s Agency for Toxic Substances and Disease Registry to ensure that the two agencies have coordinated research efforts on this chemical. EPA projects that it will finalize the assessment of RDX in the first quarter of fiscal year 2013.",
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"In addition to the individual named above, Diane LoFaro, Assistant Director; Christine Fishkin, Assistant Director; Summer Lingard; Mark Braza; Jennifer Cheung; Nancy Crothers; Lorraine Ettaro; Robert Grace; Gary Guggolz; Richard P. Johnson; Michael Kniss; Nadia Rhazi; and Kiki Theodoropoulos made key contributions to this report. Also contributing to the report were Tim Bober, Michelle Cooper, Anthony Pordes, Benjamin Shouse, Jena Sinkfield, and Nicolas Sloss."
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"question": [
"What benefits has EPA's revisions to the IRIS process had?",
"How has EPA's progress been limited?",
"Why did EPA's progress initially increase?",
"Why has EPA's recent progress been limited?",
"Why is EPA unable to start new assessments?",
"How did the National Academies suggest EPA improve development of draft IRIS assessments?",
"How did EPA react to National Academies' suggestions?",
"What has EPA not yet addressed?",
"What does GAO recommend with regards to what EPA still needs to address?",
"How did EPA respond to GAO's recommendations?",
"How does IRIS support EPA?",
"Why did EPA revise IRIS?",
"What was GAO asked to evaluate with regards to the EPA?",
"How did GAO evaluate EPA?"
],
"summary": [
"EPA's May 2009 revisions to the IRIS process have restored EPA's control of the process, increased its transparency, and established a new 23-month time frame for its less challenging assessments. Notably, EPA has addressed concerns GAO raised in its March 2008 report and now makes the determination of when to move an assessment to external peer review and issuance--decisions that were made by the Office of Management and Budget (OMB) under the prior IRIS process.",
"Progress in other areas, however, has been limited. EPA's initial gains in productivity under the revised process have not been sustained. After completing 16 assessments within the first year and a half of implementing the revised process, EPA completed 4 assessments in fiscal year 2011.",
"Further, the increase in productivity does not appear to be entirely attributable to the revised IRIS assessment process and instead came largely from (1) clearing the backlog of IRIS assessments that had undergone work under the previous IRIS process and (2) issuing assessments that were less challenging to complete.",
"EPA has taken longer than the established time frames for completing steps in the revised process for most of its less challenging assessments. However, EPA has not analyzed its established time frames to assess the feasibility of the time frame for each step or the overall 23-month process. The agency's progress has also been limited in completing assessments that it classifies as exceptionally complex and reducing its ongoing assessments workload.",
"Beyond the 55 ongoing IRIS assessments, the backlog of demand for additional IRIS assessments is unclear. With existing resources devoted to addressing its current workload of ongoing assessments, EPA has not been in a position to routinely start new assessments.",
"For example, as part of its independent scientific review of EPA's draft IRIS assessment of formaldehyde, the National Academies provided suggestions for improving EPA's development and presentation of draft IRIS assessments in general, including that EPA use a standardized approach to evaluate and describe study strengths and weaknesses and the weight of evidence.",
"EPA announced that it planned to respond to the National Academies' suggestions by implementing changes to the way it develops draft IRIS assessments. Given that many of the issues raised by the National Academies have been long-standing, it is unclear whether any entity with scientific and technical credibility, such as an EPA advisory committee, will have a role in conducting an independent review of EPA's planned response to the suggestions.",
"In addition, EPA has not addressed other long-standing issues regarding the availability and accuracy of current information to users of IRIS information, such as EPA program offices, on the status of IRIS assessments, including when an assessment will be started, which assessments are ongoing, and when an assessment is projected to be completed.",
"GAO recommends, among other things, that EPA assess the feasibility of the established time frames for each step in the IRIS assessment process and make changes if necessary, submit for independent review to an entity with scientific and technical credibility a plan for how EPA will implement the National Academies' suggestions, and ensure that current and accurate information on chemicals that EPA plans to assess through IRIS is available to IRIS users.",
"EPA agreed with GAO's recommendations and noted specific actions it will take to implement them.",
"The Environmental Protection Agency's (EPA) Integrated Risk Information System (IRIS) Program supports EPA's mission to protect human health and the environment by providing the agency's scientific position on the potential human health effects from exposure to various chemicals in the environment.",
"In response to a March 2008 GAO report on the IRIS program, EPA revised its IRIS assessment process in May 2009.",
"GAO was asked to evaluate (1) EPA's progress in completing IRIS assessments under the May 2009 process and (2) the challenges, if any, that EPA faces in implementing the IRIS program.",
"To do this work, GAO reviewed and analyzed EPA productivity data, among other things, and interviewed EPA officials."
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GAO_GAO-16-182
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{
"title": [
"Background",
"FDA’s Reliance on IT",
"FDA IT Governance",
"Our Prior Work Has Included Recommendations to Address FDA’s Challenges with IT Strategic Planning and Management",
"Changes in FDA’s IT Management Structure and Strategy",
"FDA Has Developed a New IT Strategic Plan, but It Lacks Key Elements",
"FDA Has Made Progress in Implementing Prior Recommendations on IT Planning and Management",
"FDA Implemented Four of Five Recommendations Related to IT Planning",
"Agency Officials Defined Criteria for Prioritizing Segment Architectures",
"FDA Accelerated the Development of the Enterprise Architecture and Managed Interim Risks",
"The Agency Addressed IT Human Capital Planning",
"FDA Implemented Two of Four Recommendations Regarding IT Management Challenges",
"FDA Assessed Information-sharing Needs and Capabilities for CFSAN",
"FDA Has Begun but Has Not Completed Efforts to Develop an IMS for MARCS",
"FDA Has Not Yet Used the IMS to Monitor Progress of MARCS",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Comments from the Department of Health and Human Services",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"Within the U.S. Department of Health and Human Services, FDA is responsible for the protection of public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices; and ensuring the safety and security of our nation’s food supply, cosmetics, and products that emit radiation. The agency is also responsible for ensuring the proper labeling of foods, drugs, medical devices, tobacco, and cosmetics. Further, its work includes advancing public health by facilitating innovations and promoting public access to science-based information on medicines, devices, and foods.\nAs stated in FDA’s agency-wide strategy for fiscal years 2014 through 2018, FDA Strategic Priorities, four goals support five organizational cross-cutting priorities—regulatory science, globalization, safety and quality, smart regulation, and stewardship. The four supporting goals are to enhance oversight of FDA regulated products, improve and safeguard access to FDA-regulated products to benefit health, promote better informed decisions about the use of FDA-regulated products, and strengthen organizational excellence and accountability.\nFDA exercises its core functions through four directorates: the Offices of Medical Products and Tobacco; Foods and Veterinary Medicine; Global Regulatory Operations and Policy; and Operations. These offices, along with the Chief Scientist, report to the FDA Commissioner and carry out their missions through seven centers and through FDA’s Office of Regulatory Affairs.\nOffice of Medical Products and Tobacco:\nCenter for Biologics Evaluation and Research. Regulates and evaluates the safety and effectiveness of biological products, such as blood and blood products, vaccines and allergenic products, and cells, tissues, and gene therapy products.\nCenter for Drug Evaluation and Research. Promotes and protects the public health by ensuring that all prescription and over-the-counter drugs are safe, as well as by reviewing and regulating clinical research.\nCenter for Devices and Radiological Health. Promotes and protects the public health by ensuring the safety and effectiveness of medical devices and preventing unnecessary human exposure to radiation from radiation-emitting products.\nCenter for Tobacco Products. Educates the public on the dangers of tobacco use; develops the science needed for tobacco regulation; and develops and enforces regulations on the manufacture, marketing, and distribution of tobacco products.\nOffice of Foods and Veterinary Medicine:\nCenter for Food Safety and Applied Nutrition. In conjunction with FDA’s field staff, promotes and protects the public health, in part by ensuring the safety of the food supply and that food products are properly labeled, and ensuring that cosmetics are safe and properly labeled.\nCenter for Veterinary Medicine. Protects and promotes the health of humans and animals by ensuring the safety and effectiveness of animal drugs, as well as the safety of animal food and devices.\nOffice of the Commissioner:\nNational Center for Toxicological Research. Conducts peer-reviewed scientific research and provides expert technical advice and training to support FDA’s science-based regulatory decisions.\nOffice of Global Regulatory Operations and Policy:\nOffice of Regulatory Affairs. Leads FDA field activities and provides FDA leadership on imports, inspections, and enforcement policy. This office supports the FDA product centers by inspecting regulated products and manufacturers, conducting sample analysis on regulated products, and reviewing imported products offered for entry into the United States. The office also develops FDA-wide policy on compliance and enforcement and executes FDA’s Import Strategy and Food Protection Plans.\nOffice of Operations. Ensures the timely and effective delivery of high quality and cost effective mission support services, including IT support, across the FDA and its centers, and coordinates emergency preparedness and response activities for incidents involving FDA- regulated products across FDA and its stakeholders.",
"FDA relies extensively on the use and outcomes of IT to achieve its strategic priorities, fulfill its mission, and support related administrative needs. Among others, the agency has implemented systems and other technology dedicated to supporting activities, such as:\nReviewing and evaluating new product applications, such as for prescription drugs, medical devices, and food additives. These systems are intended to help FDA determine whether a product is safe before it enters the market. One such system—the Document Archiving, Reporting, and Regulatory Tracking System—is intended to manage the drug and therapeutics review process.\nMonitoring the safety of products on the market by collecting and assessing adverse reactions to FDA-regulated products, such as illnesses due to food or negative reactions to drugs. This activity is supported by systems such as the Vaccine Adverse Event Reporting System, which accepts reports of adverse events that may be associated with U.S.-licensed vaccines from health care providers, manufacturers, and the public.\nScreening imported food to detect and prevent entry into the United States of adulterated, misbranded, or potentially spoiled food. For example, the Predictive Risk-based Evaluation for Dynamic Import Compliance Targeting is a tool used as part of the system that provides entry reviewers with information to help target high-risk shipments for examination and expedite the clearance of lower-risk cargo.\nSurveilling and promoting the safety of FDA-regulated products. With the exception of laboratories, systems developed and managed by the Mission Accomplishments and Regulatory Compliance Services (MARCS) investment are used to support all field activities, including domestic and foreign inspections, imports, compliance, and enforcement activities.\nConducting post-market safety surveillance for drug and therapeutic biologic products that have been approved by FDA. The FDA Adverse Event Reporting System is used to help identify new safety concerns that might be related to a marketed product, evaluate a manufacturer’s compliance with reporting regulations, and respond to outside requests for information.\nIn addition, FDA relies on various systems that support its administrative processes, such as payroll administration and personnel systems. All of the agency’s systems are supported by an IT infrastructure that includes network components, critical servers, and multiple data centers.\nFDA’s budget for the development, operations, and maintenance of its IT investments was approximately $419 million for fiscal year 2013 and approximately $566 million for fiscal year 2014. IT spending for fiscal year 2014 was categorized into three portfolios: $287.4 million for IT investments that support mission delivery and $260 million for IT infrastructure, security, office automation, and $18.72 million for investments in enterprise architecture capital planning and chief information officer functions.\nThe agency received about $578 million in IT funding for fiscal year 2015.",
"Within FDA, overall responsibility for managing IT resides in the Office of Information Management and Technology (OIMT), which was established within the Office of Operations as part of an agency-wide reorganization in January 2014. OIMT is headed by the agency’s Chief Operating Officer, and its mission is to ensure the timely and effective delivery of high quality, innovative and cost-effective mission- related information technology support services across the FDA and its centers. The office’s major functions include information security, business and customer assurance, technology, and informatics and technology innovation.\nThe Office of Information Management (OIM) is a component of OIMT and is led by the CIO. OIM’s mission includes, among other things, setting goals for improving customer focus and developing new IT solutions that support changing business needs. Within OIM, and under the direction of the Chief Operating Officer, the CIO is responsible for managing and overseeing the design and development of IT systems to support FDA’s mission, and creating a foundation to enhance the interoperability of the agency’s systems. As such, this official is charged with providing services and support to approximately 20,000 federal personnel and contractors throughout the United States and the international FDA community.",
"In previously reporting on FDA’s IT challenges, we highlighted deficiencies in a number of the agency’s management processes and system modernization efforts. Accordingly, our two reports—issued in June 2009 and March 2012—included a total of nine recommendations aimed at improving key IT areas, such as IT strategic planning, enterprise architecture development, human capital planning, investment management, information sharing, and project management. (We provide a detailed discussion of the agency’s actions to address the recommendations later in this report.)\nSpecifically, in 2009 we reported that FDA did not have a comprehensive IT strategic plan to coordinate and manage the numerous modernization projects that it was pursuing in response to federal law and guidance and the agency’s urgent mission needs. We noted that the agency had developed planning documents that included some, but not all of the elements of a comprehensive plan, and stressed that, lacking such a plan, the agency’s ability to meet its strategic goals was at risk. Thus, we recommended that the Commissioner of FDA require the CIO to set milestones and a completion date for developing a comprehensive IT strategic plan that included results-oriented goals, strategies, milestones, performance measures, and an analysis of interdependencies among projects and activities. We further recommended that the agency use such a plan to guide and coordinate its modernization projects and activities.\nOur 2009 report also noted that FDA had made mixed progress in establishing important IT management capabilities that are essential for helping to ensure a successful modernization, particularly in the areas of enterprise architecture and related segment development, and in IT human capital planning and management. We recommended additional actions to be taken by the CIO to improve these areas, which we discuss in detail later in this report. The Department of Health and Human Services, in commenting on our 2009 report, agreed with our recommendations and identified actions FDA had initiated or planned to address them.\nWe again reported on the agency’s IT management capabilities in 2012, noting that FDA lacked a comprehensive IT inventory—a tool for managing its investments that identifies and provides key information about the systems it uses and is developing. We also noted that much work remained to be done on the agency’s largest and most costly system modernization effort— the MARCS program—and that FDA’s Center for Food Safety and Applied Nutrition (CFSAN) had not assessed information sharing needs and capabilities. We recommended that FDA take actions regarding these issues, which we discuss in detail later in this report. Further, we pointed out that FDA still did not have an actionable IT strategic plan that identified specific goals and corresponding tasks to guide its overall modernization efforts and support agency-wide goals, as we had recommended in our earlier report. In commenting on our 2012 report, the Department of Health and Human Services neither agreed nor disagreed with the recommendations, but stated that FDA was taking actions to address many of the issues we identified.",
"Our prior work stressed that one of the reasons FDA had not established key management capabilities for the areas we found to be deficient was because the agency’s IT management structure had been in flux. Specifically, the agency had appointed five CIOs since 2008—each with differing priorities for managing IT, including the modernization of the agency’s infrastructure. Two of those CIOs served in an acting capacity during 2011, with the agency hiring a permanent CIO in October 2011. However, that official left FDA in March 2013, and the agency’s Chief Operating Officer took on additional responsibilities as an acting CIO until May 2015, when the agency hired its current CIO.\nSubsequent to our 2012 report, FDA’s CIO that was hired in October 2011 led the development of an IT strategic plan that was to be used to support the agency’s mission and goals. The plan, released in September 2012 and entitled Information Management Strategic Plan, Version 1.1, defined goals and objectives to be addressed from fiscal year 2012 through fiscal year 2016. The documented intent of the plan was to set the path forward for modernization of the agency’s IT infrastructure to more effectively support the agency’s mission, goals, and objectives. The plan included four goals and related objectives, major activities to fulfill these objectives and to be implemented within specified time frames, and performance indicators for determining whether outcomes resulting from the implementation of the plan were effective toward achieving goals. While FDA implemented some of the activities from 2012 through 2015, according to the CIO and OIM officials who participated in its development and implementation, the plan was not used, as intended, to manage and measure outcomes of activities to support the agency’s mission, goals, and objectives. OIMT officials told us that the plan was not used because the CIO who was present when the plan was finalized left the agency and the Chief Operating Officer, who resumed responsibilities of an acting CIO, managed IT from an operational perspective. According to these officials, the Chief Operating Officer worked with the agency’s IT organization to identify and incorporate key initiatives of the Information Management Strategic Plan into the Office of Operations’ strategic planning activities.",
"To be effective as a guide for managing IT investments and better address agency-wide business challenges, best practices show that an IT strategic plan should define the agency’s vision and provide a road map to help align information resources with business strategies and investment decisions. Accordingly, best practices call for a comprehensive and effective plan to (1) be aligned with the agency’s overall strategy; (2) identify the mission of the agency, results-oriented goals, and performance measures that permit the agency to determine whether implementation of the plan is succeeding; (3) include strategies the governing IT organization will use to achieve desired results; and (4) provide descriptions of interdependencies within and across projects so that they can be understood and managed.\nFDA’s new CIO, who was hired in May 2015, has taken steps to develop a new IT strategic plan. The CIO has stated that the intent of the plan, entitled Information Technology Strategic Plan, Version 1.0 and dated September 2015, is to allow OIMT to address business challenges facing the agency. The plan describes the current state and customer perception of the IT environment, along with OIMT’s mission, vision, and objectives of three strategic themes—quality service, security, and efficiency.\nTo support the office’s strategic themes, the CIO defined in the plan objectives, performance measures, and 15 initiatives. For example, the plan defines objectives for supporting stakeholders, such as “improve customer satisfaction” and “increase security,” as well as performance measures and targets for meeting the objectives. Specifically, a target and performance measure for “improve customer satisfaction” is that at least 80 percent of help desk requests are to be resolved on the first call. The plan also defines 15 categories of initiatives that are intended to support OIMT’s efforts to meet the objectives. These categories of initiatives are to address areas such as business continuity, contract and project management, customer service, IT security, infrastructure, and application development.\nThe 2015 IT strategic plan also includes a table of specific milestone activities that are mapped to OIMT’s categories of initiatives, and identifies responsible parties and target dates for completing them. For example, information included in the table describes a milestone to “improve knowledge and use of telework tools” that is to support the business continuity initiative. It also defines a target date for accomplishing the milestone, along with a responsible entity within FDA. The table also provides information about the status of the milestones’ implementation.\nNevertheless, in its current state, the document that FDA has developed does not include the key elements of a comprehensive IT strategic plan. First, the new plan does not align OIMT’s objectives with the agency-wide strategies and goals that were defined by the Commissioner in FDA Strategic Priorities: 2014-2018. Specifically, the plan identifies objective areas aimed at accomplishing OIMT’s mission that include, among other things, information security, training of staff, and project management. However, the plan does not address or align with the agency’s five strategic priorities—regulatory science, globalization, safety and quality, smart regulation, and stewardship—and the goals for achieving them: enhance oversight of FDA regulated products, improve and safeguard access to FDA-regulated products to benefit health, promote better informed decisions about the use of FDA-regulated products, and strengthen organizational excellence and accountability.\nFurther, the plan does not identify goals and performance measures for determining whether its implementation is successful in supporting the agency’s mission. Rather than emphasizing the agency-wide mission to protect public health, the plan reflects an office-level (OIMT) mission to “provide effective and fiscally responsible technology services in a manner that promotes high standards.” Thus, the performance measures and milestones for achieving goals were defined to be used to determine the success of initiatives such as applications development, staffing, and training. In addition, because the plan does not align with agency-wide goals and mission performance, it cannot provide information the agency needs to define appropriate performance measures and mechanisms for monitoring the outcomes of any IT objectives or initiatives to determine whether they contribute to FDA’s progress toward meeting its mission goals.\nThe 2015 IT strategic plan also does not identify initiatives that can be aligned with agency-wide strategies described in FDA’s strategic priorities document. Rather, it identifies specific IT initiatives that can be linked to OIMT’s mission, such as contract and project management, customer service, IT security, infrastructure, and application development. For example, the IT strategic plan includes a “cybersecurity” initiative and identifies activities for securing internal and external data. While this initiative could help support one of the strategies for achieving the fourth goal of the agency-wide plan—secure mission critical and sensitive assets and information—the IT strategic plan does not link this initiative to the agency-wide strategy.\nFinally, the plan does not identify interdependencies among planned and established IT initiatives. Further, it does not identify specific initiatives that support strategies and goals for fulfilling the agency’s public health mission. For example, the agency-wide plan identifies a strategic goal to enhance oversight of FDA-regulated products. However, the IT strategic plan does not identify any planned OIMT initiatives or ongoing modernization projects that could be aligned with this goal, such as the MARCS program—a collection of subprojects intended to enhance existing applications and develop new systems in support of the surveillance and safety of FDA-regulated products. Given the limitations noted, FDA’s current IT strategic plan is not a comprehensive tool for providing its officials the information they need to determine and manage interdependencies across IT projects throughout the agency.\nIn discussing our concerns, the CIO stated that the intent of the first version of the September 2015 IT strategic plan was to identify improvements, based on an assessment of FDA’s IT environment, that needed to be made to existing IT processes, technologies, roles, functions, and capabilities within OIMT. In October 2015, the CIO documented a process for maintaining milestones in the plan on a monthly basis, and for adding initiatives and milestones to updated versions that the agency intends to release on an annual basis. However, according to OIM officials and the CIO, they have not yet established or documented schedules or milestones for managing and completing the development and implementation of the next version of the IT strategic plan. As such, it is not known if and when FDA will have a comprehensive plan that can be implemented to provide the guidance and direction needed for effectively managing IT initiatives and ensuring that outcomes of the initiatives help the agency meet its overall mission and goals.\nUntil FDA incorporates into its IT strategic plan necessary elements that align the goals and objectives with its overall mission, the agency will continue to lack critical information needed to ensure that information resources support business strategies and investment decisions. In addition, without defined performance measures that support the goals of the agency, along with mechanisms for assessing system outcomes against them, FDA will be hampered in its ability to determine whether its IT initiatives are successful in supporting agency-wide goals. Further, until the plan identifies key IT initiatives and describes interdependencies among them, FDA will also remain without critical information it needs to guide and coordinate its modernization projects and other IT initiatives, and ensure that they are implemented in support of the agency’s strategic goals.",
"FDA has implemented six of the nine recommendations included in the two reports that we issued in 2009 and 2012. Specifically, the agency took actions that resulted in the implementation of four of the five recommendations that we made in 2009, and two of the four recommendations we made in 2012. As a result of its actions, FDA has improved its ability to plan and manage the agency’s IT initiatives. Implementing the remaining recommendations we made regarding needed improvements in the areas of IT strategic planning, and scheduling and monitoring the progress of key projects is important for ensuring that ongoing and planned IT initiatives and modernization projects are successful in supporting agency-wide goals and business needs.",
"With regard to the recommendations included in our 2009 report, FDA has taken actions that led to the implementation of four of the five recommendations for improving IT planning. The lone outstanding recommendation is to complete a comprehensive IT strategic plan. As previously discussed, FDA has developed a plan, but it is neither comprehensive nor linked to the overall agency strategic plan.\nTable 1 summarizes the status of FDA’s actions to implement the five recommendations.\nWe reported in 2009 that FDA had significant work remaining with regard to its enterprise architecture development, including developing a program management plan for ensuring that an enterprise architecture is effectively and efficiently developed. We noted that, without an enterprise architecture, FDA did not have the assurance it needed to enable effective modernization of its IT environment. Accordingly, we recommended that the agency develop an enterprise architecture program management plan that includes a detailed work breakdown of the tasks, activities, and time frames associated with developing the architecture, as well as the funding and staff resources needed.\nFDA has implemented this recommendation. In particular, FDA completed its Enterprise Architecture Program Management Plan, dated July 2012, that outlines the agency’s key enterprise architecture initiatives and program management functions, including a work breakdown of the major tasks, activities, time frames, and key staff responsible for developing the enterprise architecture. The plan’s key initiatives include adopting enterprise architecture processes and a management approach, developing the architecture, and developing and implementing an approach for operating and maintaining the architecture.\nThe agency also included in its Segment Architecture Funding and Resource Plan, dated September 2013, an estimate of $3.6 million for funding needed to accomplish enterprise architecture activities. The plan called for the establishment of a Program Support Office made up of OIM staff and business stakeholders from FDA centers. The office and its staff were to be responsible for developing and managing the enterprise architecture. As a result, FDA should be better positioned to manage its enterprise architecture development and ensure the effectiveness of its IT modernization efforts.",
"In 2009, we also reported that FDA had begun building the segments of an enterprise architecture before it had established priorities for doing so. However, the Federal Enterprise Architecture Practice Guidance states that prioritizing segments, based on business needs, should precede building them. Accordingly, we recommended that FDA define criteria for setting priorities for the segment architecture and then prioritize building of the segments accordingly.\nIn response, FDA identified relevant segment scoring criteria for use in setting priorities for the architecture segments. Further, as of September 2013, the agency had completed architecture development for its two highest priority segments—regulatory science and post-market safety and surveillance—and planned to prioritize remaining segments, such as scientific computing. These actions better positioned the agency to develop its segment architectures based on priorities, and reduce risks that its systems modernization efforts may not be successful in supporting FDA’s business needs.",
"Our report also noted that the agency’s major modernization projects were proceeding without the guidance and constraint of an enterprise or segment architecture. Accordingly, we recommended that FDA accelerate development of the enterprise architecture, including “as is” and “to be” architectures and transition plans, and, in the meantime, develop plans to manage the increased risks to modernization projects of proceeding without an architecture to guide and constrain their development.\nConsistent with this recommendation, FDA took steps to accelerate the development of its segment and enterprise architectures. For example, in fiscal year 2013, the agency developed “as is” and “to be” enterprise architectures in terms of business and applications, and proposed solution architectures for certain segments, including Adverse Events Analysis and Reporting and Regulatory Science. Further, FDA reported in its July 2012 Enterprise Architecture Program Management Plan that it had plans to complete the development of its enterprise architecture and transition plan and, in an update to the plan, stated that it intended to complete the segment architectures.\nIn conjunction with these efforts, FDA took steps to manage the increased risks of proceeding without the guidance that would be provided by a complete architecture. For example, in August 2013 it formed an Engineering Review Board to discuss and reach mutual agreement on architectural solutions for modernization projects that promote interoperability among systems. Further, the FDA centers jointly conducted reviews of solutions already in progress to identify IT capabilities that could be reused to avoid duplication. As a result of its actions, the agency should be better positioned to proceed with modernization projects and reduce risks of introducing inefficiencies, such as the lack of interoperability and duplication of efforts, that could occur without a complete enterprise architecture.",
"In our 2009 report, we also noted that FDA had not inventoried the skills of its current IT workforce, determined present and future skills needs, or analyzed gaps—steps it needed to take to determine critical skills and competencies for achieving IT program results. Accordingly, we recommended that the agency develop a skills inventory, needs assessment, and gap analysis, and develop initiatives to address any identified gaps as part of a strategic approach to IT human capital planning.\nConsistent with this recommendation, OIM officials implemented a strategic approach to IT human capital planning. Specifically, in September 2013, the office identified critical skill shortages, including insufficient cybersecurity skills. It also concluded that network, engineering, and infrastructure operations skills were outdated. In addition, OIM made plans to use a tool that allowed it to collect skills information about its staff on an ongoing basis, and conducted a skills gaps analysis, which identified gaps relating to eight job descriptions in two of its office components. FDA officials also took actions to address the skills gaps, including offering project management training and hiring staff, such as database administrators. As a result of its actions, the agency made important progress toward a strategic approach for managing IT human capital to more effectively achieve program results.",
"FDA has implemented two of the four recommendations we made in 2012 regarding challenges in key areas of IT management. Specifically, the agency developed a systems inventory and improved the sharing of information within CFSAN. However, it has taken some actions, but has not yet fully implemented two recommendations regarding the development and use of schedules for managing and monitoring the progress of IT initiatives.\nTable 2 summarizes the status of the four recommendations, and a discussion of each recommendation follows the table.\nOur 2012 report noted that FDA did not have a complete list of IT systems that it was using or developing. We recommended that the agency develop an inventory that includes key information for each of its systems.\nIn response, FDA took actions to implement our recommendation. Specifically, in May 2015, FDA developed an inventory that identified and described 205 systems that were reported in the agency’s fiscal year 2016 budget estimates for IT systems to the Office of Management and Budget. The inventory includes, for each system, data such as the system’s name; description; annual costs of development, maintenance, and operations; effective date the system became operational; and a unique identifier that links each system to a corresponding investment reported to the Office of Management and Budget. Further, in June 2015, the agency issued a draft procedure for maintaining the inventory, which it intends to follow to help ensure that the inventory is consistently updated.\nIn addition, FDA incorporated use of the system inventory into the agency’s IT investment management process. For example, FDA identified for each system the business capabilities that they support, such as strategic planning, emergency response, and product review and approval. These data enable the agency to organize systems and investments into portfolios according to business capabilities and to view systems as they relate to other systems that perform similar functions, rather than as unrelated IT systems. This portfolio view is intended to be used to help FDA better manage its IT investments as it allows agency officials to identify any gaps in its ability to support specific business capabilities that may arise after a system is retired. According to OIM officials, when such gaps are identified, the agency may then identify and appropriately fund IT investments that are needed to fill the gaps and ensure continued support of the agency’s mission.",
"We reported in 2012 that, although we had previously identified deficiencies in CFSAN’s ability to effectively share critical information, such as information on recalls of contaminated food, FDA had not performed a comprehensive review to identify opportunities for improving data sharing within the center. We therefore recommended that the agency perform a full assessment of the center’s data-sharing needs and capabilities, and develop a plan to address such needs and provide any additional capabilities.\nIn response, FDA implemented our recommendation. Specifically, FDA assessed and documented CFSAN’s information-sharing needs and capabilities. The resulting document, entitled Office of Foods and Veterinary Medicine Data Management Strategy and Roadmap (OFVM Roadmap), identifies IT shortfalls that contribute to information-sharing issues, such as the lack of integration between systems, and cases when systems do not store data in a central warehouse that could be used to share information. The document includes plans, with milestones and dates for addressing the center’s information-sharing needs, such as access to data needed to conduct food facilities and import inspections.\nThe roadmap also describes an existing capability for data sharing, the Online Reporting and Analysis Decision Support System (ORADSS) Data Warehouse. It noted that the warehouse was being used to store significant amounts of data used by CFSAN, such as data provided by FDA’s Office of Regulatory Affairs, but that most data from the center’s systems were not stored in a data warehouse. Specifically, the roadmap identified 17 systems that were assessed as “likely candidates” for integration with ORADSS, but did not store data in the warehouse. The roadmap also identified systems from other centers that could share data via the warehouse, and further stated that incorporating data from these systems into the warehouse would support data sharing by allowing access to information from one location, thereby improving collaboration within and between FDA’s centers.\nIn addition, consistent with plans described in the OFVM Roadmap, the agency documented a plan for sharing scientific computing data among CFSAN and its partners. This plan is focused on systems for sharing genomics data that are used to identify and track bacteria that contaminate food products. OFVM officials determined that scientific data should be maintained and stored separately from other data because, unlike the transactional data that are structured and can be stored in a data warehouse, scientific computing data are less structured and can be more voluminous, and require additional computational and data transfer capabilities. To address the need for additional data storage and sharing capabilities for these data, the agency established two scientific databases—the Bionumerics SQL and the Next Generation Sequencing databases.\nBy taking these actions, FDA has completed important steps toward developing an IT environment in which data from multiple systems and databases can be more efficiently stored and accessed.",
"In 2012 we noted that considerable work remained to be completed on the MARCS program, one of FDA’s largest and most costly IT modernization efforts. We recommended that the agency develop an IMS to assist in managing and monitoring projects that are part of the MARCS program. We stressed that such a schedule should (1) identify which legacy systems will be replaced and when, (2) identify all current and future tasks to be performed by contractors and FDA, (3) define and incorporate information reflecting resources, and (4) define critical dependencies between tasks.\nFDA took a number of steps to implement the recommendation, but there are shortfalls in its approach for identifying tasks and resources. For example, FDA developed an IMS that identified legacy systems and included associated tasks and time frames for updating or maintaining the systems from fiscal year 2014 through fiscal year 2018. In addition, the agency identified detailed tasks to be completed in fiscal years 2014 and 2015, and also included in the schedule some summary-level tasks to be completed in future years, such as those for maintaining legacy systems.\nHowever, we could not determine if the tasks in the schedule included all tasks that needed to be completed to implement the MARCS projects. We could not make this determination because the agency had not documented the information that it needed to identify all tasks that should be included in the schedule—i.e., it had not developed a work breakdown structure that could be used to identify all tasks needed to be completed for the program.\nIn addition, the schedule did not identify all resources needed to complete certain tasks—i.e., it did not identify specific FDA staff or the skills needed to complete tasks. Instead, the schedule identified responsible entities within the agency, thus increasing the risk that needed staff and skills could be assigned to another task and, therefore, would not be available to work on others.\nLastly, we found errors in the way dependencies between tasks were defined. Specifically, the MARCS IMS did not identify external dependencies between activities, such as projects to be completed by contractors, and dependencies that were identified between tasks contained errors. For example, there are a significant number of tasks in the schedule for which there are no identified dependencies, and some remaining tasks have restrictions on their start date that are not justified— i.e., the restrictions are not based on the start or finish of an activity on which the tasks are dependent.\nAgency officials from the Office of Regulatory Affairs and the MARCS program said that the IMS identifies detailed tasks for the current fiscal year because FDA develops its schedule based on work that is to be accomplished during that year. According to the officials, this is done because projects are funded on an annual basis; therefore, they cannot know what projects will be conducted in future years. The officials further explained that the IMS is updated at least annually based on changes in business priorities and funding availability, and as the planning horizon advances. While this approach can be taken for developing schedules, according to best practices defined in our schedule assessment guide, all tasks needed to complete the program should be identified within a work breakdown structure to ensure that the total scope of work is accounted for within the schedule.\nThe officials also noted that they do not identify specific FDA staff or estimate the percentage of time required of those resources because they assume that the responsible entities will dedicate one staff person to work full time on each project. However, a schedule that does not identify specific resources assumes unlimited availability and, thus, the risk of the program’s schedule slipping significantly increases if needed staff or skills are not available when needed.\nIn addition, officials said that, while they identify some dependencies between contractors’ projects, they do not identify all of them because some of the projects are not tightly integrated. The program officials further stated that the objectives and scope of the MARCS program today are much different from those at the time we recommended the development of an IMS, and that the program does not currently have the cross-task dependencies that existed in the prior scope that would be addressed by such an integrated schedule. However, the identification of interdependencies between all activities is important to allow program officials to recognize delays that could occur when activities that slip early in the schedule impact concurrent or future activities.\nLacking certainty that the IMS includes all short- and long-term tasks, reliable estimates of resources, and dependencies between individual tasks and contractors’ activities, the value of the schedule as a critical management tool is diminished—i.e., it cannot be used to accurately gauge the level of effort required to implement the MARCS program, determine whether staff will be available when needed, or predict the effect of factors such as delayed contractor activities on the schedule. Thus, the MARCS schedule cannot be used as an effective tool for managing and monitoring the progress of the project.",
"In our 2012 report, we also noted that the agency lacked an IMS for MARCS that provided a summary of progress on lower-level tasks and effects of changes to lower-level schedules and tasks on the overall project. Thus, we reported that the agency did not have the information it needed to gauge the progress of the entire project. We recommended that, in addition to developing a complete IMS, agency officials use it to monitor progress of the MARCS program.\nAgency officials have implemented certain activities that could help them use the IMS to monitor the progress of MARCS; however, they have not developed the schedule to include all the information needed to do so. First, agency officials began to conduct monthly updates that, for example, reflected actual progress from individual system subproject schedules. In addition, the program office developed a baseline schedule that could be used for measuring and monitoring project performance and progress. These actions are important steps to be taken toward addressing our recommendation that agency officials use the MARCS IMS to monitor the program’s progress.\nYet, because of deficiencies in the agency’s practices for conducting these activities, along with other deficiencies noted previously, the usefulness of the schedule for monitoring the program is limited. For example, although program officials update the IMS on a monthly basis, it includes activities with projected start or finish dates that are prior to the date the schedule was updated. However, according to best practices defined in our schedule assessment guide, projected start and finish dates should never be prior to the date the schedule was updated; that is, dates cannot be projected to start in the past. Agency officials within OIMT stated that they manually update the schedule each month, and do not use a tool for automated updating. As a result, the updates often are not accurate or complete, which could account for projected dates for activities not being modified during the monthly updates.\nMARCS program officials also developed a baseline schedule that is aligned to the MARCS IMS, and is intended to be used to monitor the progress of the program. For example, data in a baseline schedule represent important information that program management could use to assess the validity of the program’s initial duration estimates and the program’s progress toward beginning and finishing work on time and according to plan—i.e., trend data. While program officials stated that they planned to analyze trend data provided by the baseline schedule at the end of fiscal year 2015, and use the results of the analysis to manage and monitor the progress of MARCS, they have not yet done so.\nWhile FDA officials have taken some steps to use the IMS and a baseline schedule to monitor the progress of the MARCS implementation, they are doing so with inaccurate or incomplete information. Therefore, the agency may not have necessary information to monitor and make any needed changes to program plans to ensure that the schedule for implementing MARCS remains on track and the project is providing results that meet the agency’s needs.\nThe fiscal year 2016 business case that was reported to the Office of Management and Budget indicates that funding for MARCS is planned through fiscal year 2019. However, officials with the Office of Regulatory Affairs told us that the agency has chosen to restructure the MARCS investment to better reflect current business needs and objectives. As such, it is important that FDA continue to take steps toward implementing the recommendations that we made in our 2012 report regarding the agency’s need to develop an IMS that can be used to manage the implementation of MARCS and ensure its success.",
"Although FDA has developed an IT strategic plan, it does not include elements that best practices reflect are associated with a comprehensive plan—that is, it is not aligned with agency-wide strategic priorities, and does not include results-oriented goals and performance measures that support the agency’s mission, identify key IT initiatives that support agency-wide goals and objectives, or describe interdependencies among the initiatives. Until it incorporates these elements into and fully implements the plan, the agency will continue to lack critical information needed to align IT initiatives with business strategies and investment decisions, and to determine whether outcomes of the IT initiatives are succeeding in supporting the agency-wide mission, goals, and objectives.\nIn addition, FDA has implemented most of our prior recommendations for improving IT management practices. Taking further actions to fully implement the remaining recommendations will improve the agency’s ability to successfully monitor the progress of one of FDA’s most critical and costly IT modernization projects throughout its remaining life cycle.",
"To help ensure that FDA’s IT strategic planning activities are successful in supporting the agency’s mission, goals, and objectives, we recommend that the Commissioner of FDA require the CIO to take the following two actions: establish schedules and milestones for completing a version of an IT strategic plan that incorporates elements to align the plan’s strategies with agency-wide priorities; includes results-oriented goals and performance measures that support the agency’s mission, along with targets for measuring the extent to which outcomes of IT initiatives support FDA’s ability to achieve agency-wide goals and objectives; identifies key IT initiatives that support the agency’s goals; and describes interdependencies among the initiatives; and implement the plan to ensure that expected outcomes of the agency’s key IT initiatives are achieved.",
"We received written comments on a draft of this report, signed by the Department of Health and Human Services’ Assistant Secretary for Legislation. In the comments (reprinted in appendix II), the department stated that it concurred with our recommendations. Further, the department stated that FDA is committed to continuing the evolution and implementation of its IT strategic plan and has established a process for the annual review and updating of the plan. It added that FDA intends to follow this process to incorporate the alignment of strategic initiatives with the agency’s mission and business strategies. If effectively implemented, such actions could help assure that FDA develops a comprehensive plan that can be used to provide the guidance and direction needed to ensure that outcomes of key IT initiatives help the agency meet its overall mission and goals. The Department of Health and Human Services also provided technical comments, which we incorporated into the report as appropriate.\nWe are sending copies of this report to the Secretary of Health and Human Services, Commissioner of the Food and Drug Administration, appropriate congressional committees, and other interested parties. This report is also available at no charge on our website at http://www.gao.gov.\nIf you or your staff have any questions on matters discussed in this report, please contact me at (202) 512-6304 or melvinv@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 major contributions to this report are listed in appendix III.",
"The objectives of our review were to (1) determine the status of the Food and Drug Administration’s (FDA) efforts to develop and implement an information technology (IT) strategic plan that includes results-oriented goals, activities, milestones, and performance measures; and (2) assess the extent to which FDA has addressed our prior IT-related recommendations.\nFor the first objective, our scope was focused on FDA’s efforts to develop an IT strategic plan to be used to manage and guide key initiatives, including modernization projects, in support of agency-wide goals and objectives. To that end, we assessed FDA’s IT strategic plan, Information Technology Strategic Plan, Version 1.0, dated September 2015, by comparing its contents to key practices for IT strategic planning that we have previously identified. Those practices include developing a plan that (1) is aligned with the agency’s overall strategy; (2) identifies the mission of the agency, results-oriented goals, and performance measures that permit the agency to determine whether implementation of the plan is succeeding; (3) includes strategies the governing IT organization will use to achieve desired results; and (4) provides descriptions of interdependencies within and across projects so that they can be understood and managed. We compared the goals and objectives in the IT strategic plan to agency-wide goals and objectives defined in the September 2014 FDA Strategic Priorities document, which was released by the Commissioner to establish key strategies for fulfilling FDA’s public health mission. Finally, we examined the IT strategic plan to identify any key IT initiatives and modernization projects and determine whether interdependencies with any such projects were defined.\nTo address our second objective, we focused on actions FDA took to implement recommendations that we made in 2009 and 2012 as a result of studies related to IT management challenges that FDA faced. Specifically, to determine actions taken by FDA to implement the five recommendations related to IT planning that we made in our 2009 report, we collected and examined agency documentation related to its IT strategic planning, enterprise architecture development, and human capital planning. Specifically:\nFor the recommendation to develop a comprehensive IT strategic plan, we took the various actions described in the preceding paragraphs that pertained to objective 1.\nFor the recommendation to develop an enterprise architecture program management plan, we assessed FDA’s July 2012 Enterprise Architecture Program Management Plan against criteria defined in GAO’s enterprise architecture management maturity framework, such as the inclusion of detailed tasks and time frames necessary to develop the architecture. We also examined the plan to determine whether it identified the organizational unit and its staffing that would implement the plan, and whether it included detailed costs for implementing tasks described in the plan.\nFor the recommendation that FDA define criteria for setting priorities for developing the segment architectures, we analyzed documentation, such as the FDA Architecture Segment Architecture, Segment Scoring, that described the agency’s method for establishing priorities, to determine whether the approach for prioritizing segments development considered mission-based criteria. We also reviewed FDA’s prioritized list of segments and plans for completing segments, documented in its September 2013 FDA Segment Architecture Prioritization and List of Segments, to determine the agency’s progress and status of its effort to develop segments.\nTo address the recommendation that FDA accelerate development of the segment and enterprise architectures and develop plans to manage the increased risk of proceeding without an architecture, we reviewed documentation on the status of FDA’s architecture development initiative to determine whether progress had been made toward developing “as is” and “to be” architectures. Specifically, we reviewed segment architecture documentation to identify whether the “as is” architecture included components such as business processes and applications. We also reviewed documentation describing the agency’s “to be” architecture to identify the architectural components and transition steps that were included in the conceptual view. We also interviewed FDA officials to determine whether they had planned an approach to mitigate the risk of developing systems prior to completing the architecture. Finally, we assessed FDA’s enterprise architecture governance plan to determine whether the agency had established an organizational structure and designated responsibilities that supported a risk mitigation approach.\nFor the final recommendation regarding human capital planning, we assessed actions taken by FDA to implement a strategic approach to IT human capital planning, including developing a skills inventory, needs assessment, and gap analysis, and addressing skills gaps. To do so, we reviewed FDA’s assessment of the agency’s IT skills and gaps and its assessment of critical skill shortages. We also reviewed a template that OIM used to collect and inventory information on employee skills, to verify that FDA had an approach in place for collecting this information.\nTo assess FDA’s progress in addressing the four recommendations regarding IT management from our 2012 report, we collected and examined documentation that provided information relevant to the actions the agency had taken. Specifically:\nFor the recommendation that FDA develop a complete IT systems inventory, we compared the contents of its inventory to systems included in the IT portfolio summary that accompanied the agency’s fiscal year 2016 budget request to the Office of Management and Budget. We also examined artifacts that provided evidence of steps taken by FDA during its IT investment management process, including reports generated from the systems inventory that were used to align systems with business capabilities and help to identify versions of technologies to be retired. We assessed a document that described technologies used to support various systems, along with schedules for maintaining them, to identify information from the inventory that was used to make funding decisions.\nTo determine whether FDA had taken steps to assess information- sharing needs and capabilities of CFSAN, we reviewed an information-sharing assessment and roadmap for addressing business needs of the Office of Foods and Veterinary Medicine. Through our review, we identified the approach that was used to assess data-sharing needs, the capabilities that were identified, and the underlying reasons for information-sharing problems. In addition, we analyzed sections of the roadmap and compared the systems FDA was assessing for inclusion in a central data warehouse against the systems we identified in our prior report. We also examined FDA’s plan for addressing scientific computing information-sharing needs of CFSAN by assessing FDA’s Planned Scientific Data Sharing Capabilities and identifying the approaches that were planned to address data sharing, the agencies that were included as data-sharing partners, the types of information planned for sharing, and the schedule and steps that were planned to address scientific data-sharing needs.\nTo assess actions the agency had taken to address our recommendation that it develop an integrated master schedule (IMS) for the Mission Accomplishments and Regulatory Compliance Services (MARCS), we obtained the most current version of the schedule and determined whether it was complete by comparing it to best practices defined in our schedule guide. For each of the practices, we collected and examined documentation, such as descriptions of projects included in the IMS and their supporting schedules. In addition, we compared the tasks identified in the IMS against a list of MARCS legacy systems that FDA planned to replace, maintain, or update, to determine whether the schedule identified all legacy systems to be replaced and time frames for replacing them. We also used a software tool that analyzes project schedules to determine whether all tasks had dependencies identified and were sequenced logically, the number of tasks with date constraints, and whether all tasks had resources identified to complete the tasks. We inspected the IMS to determine whether it identified specific staff or skills needed to complete tasks. Finally, to establish whether the integrated schedule was aligned with other schedules on which it was dependent, we compared it to the project’s contractors’ schedules and looked for evidence of linkages. We also conducted a structured interview with agency officials responsible for developing the IMS, based on questions from our schedule guide, to obtain FDA’s explanation of practices that they were conducting or were conducting using a different approach than specified in best practices.\nFinally, to determine whether FDA had implemented our recommendation that it monitor the progress of MARCS using the IMS, we obtained and examined documents that described the agency’s approach for updating the schedule to reflect the progress made toward completing specific tasks. We compared its approach to best practices in our schedule guide for updating a schedule to be used for monitoring the progress of projects. We analyzed the most recently updated MARCS IMS and subproject schedules, and compared them to earlier versions to identify evidence of recent updates. In addition, we analyzed the schedule using a software tool to determine whether individual task dates were updated, and whether dependencies between tasks were logical.\nFor each of the recommendations, we supplemented the information we collected from examining and analyzing agency documentation by interviewing FDA officials knowledgeable of actions taken to address the recommendations.\nWe conducted this performance audit from March 2015 to December 2015 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 conclusion based on our audit objectives.",
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"In addition to the contact named above, Teresa F. Tucker, Assistant Director; Melina I. Asencio; Elena P. Epps; Rebecca E. Eyler; Jason T. Lee; Jennifer V. Leotta; Thomas E. Murphy; Edward G. Varty; Daniel K. Wexler; and Charles E. Youman made key contributions to this report."
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"question": [
"What plan has FDA developed?",
"Why was the plan developed?",
"What does the plan contain?",
"What is the FDA plan lacking?",
"How specifically is the plan lacking?",
"What did FDA's CIO claim the plan was developed for?",
"How can the plan meet this purpose?",
"How has FDA made progress in implementing GAO's recommendations?",
"What does FDA still need to work on with regards to the recommendations?",
"Why is it important that FDA finish implementing the recommendations?",
"Why are IT systems important for FDA?",
"What did GAO report on?",
"What recommendations did GAO give FDA?"
],
"summary": [
"As of September 2015, the Food and Drug Administration (FDA), an agency within the Department of Health and Human Services (HHS), had developed and released a new information technology (IT) strategic plan, entitled Information Technology Strategic Plan, Version 1.0 .",
"The plan, according to the agency's Chief Information Officer (CIO), was developed to help FDA's Office of Information Management and Technology (OIMT) address business challenges facing the agency through the implementation of IT.",
"The plan describes the current state of the agency's IT environment, along with OIMT's mission, vision, and the objectives of three strategic themes—quality service, security, and efficiency. The plan also defines performance measures and initiatives intended to support the office's strategic themes.",
"Nevertheless, the plan lacks key elements that GAO previously recommended be included in a comprehensive strategy to align with the agency-wide mission and goals, and allow the plan to be used for managing IT investments to more effectively address business challenges.",
"For example, FDA's IT strategic plan does not align with strategic priorities and goals that the agency defined for 2014 through 2018. Further, it does not identify results-oriented goals and performance measures and milestones, or targets for measuring the extent to which outcomes of IT initiatives support FDA's ability to achieve agency-wide goals and objectives; strategies that the governing IT organization will use to support agency-wide goals and objectives; and key IT initiatives and interdependencies to be managed.",
"The agency's CIO stated that this version of the strategic plan was developed to address challenges related to processes, technologies, roles, functions, and capabilities for improving the operations of OIMT, which has the responsibility for managing IT.",
"However, FDA has not yet defined schedules or milestones for managing and completing the development and implementation of future versions of the plan that would reflect actions intended to address the agency-wide mission and goals. Until FDA incorporates these key elements of comprehensive IT strategic planning into its plan and fully implements the plan, it will lack critical information needed to align information resources with business strategies and investment decisions, and be hindered in determining whether outcomes of its IT initiatives are succeeding in supporting agency-wide goals.",
"Although it has not yet developed a comprehensive IT strategic plan, the agency has improved enterprise architecture development and IT human capital planning by implementing four of nine prior recommendations. FDA implemented two recommendations to develop an IT systems inventory that can be used to help manage IT investments and to improve information-sharing capabilities of one of its centers, and took steps toward implementing the remaining two recommendations related to improvements in scheduling and monitoring progress of a key IT modernization initiative.",
"However, the agency did not complete all actions needed to implement these two recommendations. Specifically, it did not develop project schedules or conduct IT project monitoring in accordance with best practices.",
"FDA's continued efforts to implement the remaining recommendations are critical to assuring that the agency's ability to manage IT investments and resources will meet its overall mission and goals.",
"IT systems are critical to FDA's ability to achieve its mission.",
"GAO previously reported on limitations in a number of FDA's key IT areas, including data availability and quality, information infrastructure, the ability to use technology to improve regulatory effectiveness, and investment management.",
"GAO recommended FDA take actions to address these limitations, including the development of a comprehensive IT strategic plan to provide direction for modernizing the agency's IT environment."
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CRS_R40159
|
{
"title": [
"",
"Background",
"Key Legislation in Prior Congresses",
"Issues for Congress",
"Government Leadership, Organization, and Capacity",
"The Presidential Transition",
"Executive Branch Organization",
"Federal Leadership and Coordination",
"Strategic Planning",
"HHS Response Capability and Funding Authority",
"State Grants for Public Health and Health System Preparedness",
"Economic Stimulus",
"Health System Preparedness and Response",
"Medical Surge Capacity",
"Workforce Surge Capacity",
"The Health and Safety of Disaster Responders",
"Disaster Victims and Health Care Costs",
"Medical Monitoring Following a Disaster",
"Planning for the Needs of Special Populations",
"Defense Against Specific Threats",
"Pandemic Influenza Preparedness",
"Communicable Disease Control",
"Biodefense Laboratory Capacity and Oversight",
"Select Agent Program",
"Development, Procurement, and Use of Countermeasures",
"Project BioShield",
"Liability and Compensation",
"Expired Program Authorities"
],
"paragraphs": [
"",
"Three important principles color the issues in public health and medical preparedness and response. First, preparedness and response are different functions. At each level of government, they involve different leadership roles, legal authorities, organizational structures, and funding mechanisms. Generally, during an incident, certain conditions must be met before a jurisdiction can implement response activities, or access funds reserved for that purpose. Second, states and localities, rather than the federal government, are the seats of authority and responsibility for the oversight of both health care and emergency management. For example, state laws generally authorize governors to order and enforce the evacuation of residents in emergency situations. Except under extraordinary circumstances, the federal government generally does not dictate the conduct of health care or emergency management activities to state or local officials, or to health care providers. Finally, most public health functions—broad, population-based programs, such as restaurant inspections to assure food safety—are inherently governmental. In contrast, the nation's health care system—which delivers professional health care services to individuals—is primarily private and for-profit. Providers and facilities operate in an increasingly competitive marketplace in which emergency planning is not always seen as a necessary expense.\nThe 2001 terrorist attacks, the flawed response to Hurricane Katrina, and concerns about an influenza (\"flu\") pandemic sharpened congressional interest in the nation's ability to track and respond to health threats. The 109 th Congress established or reauthorized relevant programs and activities in the Departments of Health and Human Services (HHS) and Homeland Security (DHS). The 110 th Congress focused on oversight of these activities, in particular (1) the fitness of HHS and DHS—in terms of authority, funding, policies, and workforce—to respond to health emergencies; (2) the effectiveness of federal agency coordination; and (3) the status of major initiatives such as pandemic flu preparedness and disaster planning for at-risk populations.\nThe 111 th Congress is likely to remain engaged in oversight of the nation's readiness for health threats. It faces a different and dynamic landscape, however. The Obama Administration will likely usher in some shifts in preparedness priorities, in direction and degree yet to be shown. The nation's health care system is the subject of a vigorous reform debate. Although emergency management is not the focus of that debate, significant system reforms, if enacted, would likely affect emergency planning needs and system response capacity. And the nation's unsettled economy poses a dilemma for policy makers. Future spending for public programs may be significantly constrained, unless a program were seen as a means for job creation, or some other engine of economic stimulus. It remains to be seen where federal programs to address health emergencies will fit into this complex picture.\nThis report, which will be updated as needed, summarizes key issues in domestic public health and medical preparedness and response, citing other CRS Reports and sources of additional information.",
"The 109 th Congress enacted two comprehensive laws affecting public health and medical preparedness and response. The Pandemic and All-Hazards Preparedness Act (PAHPA, P.L. 109-417 ), passed in 2006, established or extended programs for public health emergency preparedness and response activities in HHS, and established a Biomedical Advanced Research and Development Authority (BARDA) in HHS to oversee the development and procurement of medical countermeasures (e.g., diagnostic tests, drugs, and vaccines). The Post-Katrina Emergency Management Reform Act of 2006 (PKA, Title VI of P.L. 109-295 ) reorganized DHS and, within it, the Federal Emergency Management Agency (FEMA). The PKA also codified the position of DHS Chief Medical Officer, with primary responsibility within DHS for medical issues related to natural and man-made disasters and terrorism.",
"",
"",
"The Obama Administration may reconsider any number of homeland security objectives, and its priorities are likely to differ, at least somewhat, from those of the George W. Bush Administration. For example, the Bush Administration placed considerable emphasis on the detection of and response to a large-scale biological attack. Among other things, it established the BioWatch system of air monitors in major cities, and redirected federal funds from states to these cities to bolster planning for mass dispensing of antibiotics in response to an attack. These efforts were widely critiqued. Some said they were excessive, draining resources from routine public health and biomedical research needs. Others said they were insufficient to protect the public in a timely manner. Still others questioned the basic effectiveness of the programs. Critiques are likely to continue, whether or not the Obama Administration maintains its predecessors' priorities.\nThe transition also marks the first transfer of presidential authority for the Department of Homeland Security (DHS), and for a number of homeland security positions and programs established since 2001. These positions include the Assistant Secretary for Health Affairs and Chief Medical Officer at DHS (DHS CMO), the Assistant Secretary for Preparedness and Response (ASPR) in the Department of Health and Human Services (HHS), and their corresponding offices and activities.\nShifts in doctrine or priority in the new Administration, if any, may manifest when key positions are filled, or when the budget proposal for FY2010 is unveiled.",
"The 111 th Congress may consider removing FEMA from DHS and re-establishing it as a separate agency, as it was in the Clinton Administration. Other substantial reorganizations of federal homeland security agencies do not appear to be under debate at this time. Congress may consider relocating certain programs, however. (See, for example, the subsequent section \" Select Agent Program .\") Also, President Obama may consider reorganizing certain homeland security functions, such as those of the Homeland Security Council (HSC). President George W. Bush established the HSC in the Executive Office of the President shortly after the 2001 terrorist attacks. From 2005 through 2008, the HSC served as the hub of federal preparedness activities for pandemic flu, involving HHS, DHS, the State Department, and other federal departments and agencies. Some have called for a merger of the HSC with the larger National Security Council (NSC), citing a number of responsibilities shared by the two. It is reported that President Obama has called for a comprehensive review of the functions of the NSC.",
"For public health and medical preparedness and response, the roles and responsibilities of principals in HHS and DHS have shifted in past years. The 109 th Congress provided some clarity, but refinement of these roles and responsibilities is likely to continue for some time to come. Pursuant to the PAHPA and the PKA, applicable activities in DHS are led by the DHS CMO, and in HHS by the HHS ASPR. The PKA provided that the DHS CMO \"shall have the primary responsibility within the Department for medical issues related to natural disasters, acts of terrorism, and other man-made disasters,\" while the PAHPA provided that the \"Secretary of [HHS] shall lead all Federal public health and medical response to public health emergencies and incidents.... \" (Emphasis added.) Hence, the Secretary of Homeland Security leads all federal emergency and disaster response activities; the DHS CMO leads both preparedness and response activities for public health and medical care, but only within DHS; and the Secretary of HHS, through the ASPR, leads all federal public health and medical response activities, under the overall leadership of the Secretary of Homeland Security.\nThe Government Accountability Office (GAO) noted, in the context of pandemic flu planning, that \" ... these leadership roles involve shared responsibilities, and it is not clear how these would work in practice.\" GAO recommended that DHS and HHS conduct training and exercises to ensure that federal leadership roles are clearly defined and understood. In February 2009, GAO reported that although some recommended activities have been undertaken, it is unclear whether these exercises rigorously tested federal leadership roles in a pandemic.\nFederal incident response activities are coordinated according to the National Response Framework (NRF), and \"all-hazards\" blueprint published by DHS. Public health and medical response activities (under the leadership of HHS) are laid out in an annex called Emergency Support Function #8 , or ESF-8. These activities, at the federal, state, and local levels, are commonly referred to as ESF-8 activities. The NRF replaced the earlier National Response Plan, incorporating lessons from the flawed response to Hurricane Katrina. Nonetheless, some leadership gaps and conflicts remain in ESF-8. In addition to the inter-related roles of the HHS ASPR and the DHS CMO discussed above, there are concerns about a lack of leadership clarity for responder health and safety (see \" The Health and Safety of Disaster Responders \"); emergency sheltering; mass fatality management; and mental health services, among others.\nOn January 28, 2009, DHS Secretary Janet Napolitano announced an action directive to review the Department's plans for the response to a large-scale medical incident. The directive required specific DHS offices and components, working with state and local partners, to review and assess current plans (including ESF-8 in the NRF), relevant homeland security grant programs, and other matters. DHS components were to report to the Secretary by February 24, 2009.",
"The PAHPA requires the HHS Secretary to publish a comprehensive, all-hazards national public health and medical response strategy and implementation plan (the \"National Health Security Strategy,\" or NHSS), beginning in 2009, and quadrennially thereafter. The NHSS is to include a process for achieving a number of preparedness goals enumerated in the statute. In 2007, the Bush Administration published a homeland security directive to establish a \"national strategy for public health and medical preparedness,\" including implementation steps. The directive stated that the principles and actions it contained were to be incorporated into the NHSS, and serve as a foundation to address the preparedness goals prescribed by the PAHPA.\nOn September 30, 2008, the Office of the HHS ASPR awarded a delivery order (a type of contracting mechanism) to the RAND Corporation, to provide support in developing the NHSS during FY2009. The 111 th Congress may be interested in monitoring the NHSS development process, in particular whether the leadership of the Office of the HHS ASPR maintains steady progress toward completion during the Obama Administration, and the extent to which the strategy and its accompanying plans and goals reflect, or are consistent with, any changes in doctrine or priority that may be adopted by the new Administration.",
"The 111 th Congress may consider the adequacy of permanent authorities of the HHS Secretary for responding to public health threats, including authority to declare a public health emergency and the expanded authorities that flow from it. Members of Congress may also consider how HHS funds any of its disaster response activities that are not reimbursable by FEMA. Although the HHS Secretary has authority for a no-year Public Health Emergency Fund, Congress has not appropriated monies to the fund for many years. Also, it is not clear that a flu pandemic would qualify as a major disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act). The definition of major disaster in the law does not explicitly include or exclude infectious diseases, and past interpretations of the provision's applicability to bioterrorism and naturally occurring infectious diseases have varied. If major disaster assistance were applicable in a flu pandemic, substantial FEMA funds could be available to support HHS response activities.",
"Since 2002, Congress has provided more than $9 billion in grants to states to strengthen public health and hospital preparedness for public health threats. The PAHPA extended the programs, adding authority to withhold funds for failure to meet program requirements, a state matching requirement, and a requirement that the Secretary of HHS publish certain information about program activities and performance on a public website. The Cooperative Agreement for Public Health Emergency Preparedness is administered by the Centers for Disease Control and Prevention (CDC). The Hospital Preparedness Program is administered by the HHS ASPR. The programs have been challenging for federal managers and state awardees alike. Among other things, federal managers have had difficulty developing meaningful and measurable performance goals for the programs. Also, state awardees have had some difficulty staffing their preparedness programs. Some have cited, as explanations, public health workforce shortages, and the challenges of recruiting with annual discretionary or \"soft\" funding.",
"In February 2009, Congress passed and the President signed P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), a package of spending and tax cuts intended to stimulate the nation's flagging economy. The law provided $50 million for cyber-security improvements at HHS. Earlier versions of the legislation would also have provided (1) $430 million for the advanced development and procurement of medical countermeasures through the Biomedical Advanced Research and Development Authority (BARDA); and (2) $420 million for pandemic flu preparedness for facility construction and the development and/or purchase of vaccines, drugs, supplies, and equipment. The BARDA and pandemic provisions were removed in conference. The law did not include enhanced funding for the CDC or HHS/ASPR public health or hospital preparedness grants to states, discussed earlier.",
"",
"Policymakers have long been concerned about medical surge capacity, that is, the ability of health systems to manage large increases in caseloads that would result from mass casualty incidents. The successful response to such incidents requires the coordination of several elements, which are variously based in federal, state or local authority, or in the private sector. These elements are (1) patients, who may require rescue or medical evacuation; (2) a treatment facility, which may be an existing hospital, or a field tent with cots; (3) a competent health care workforce; (4) medical equipment and non-perishable medical supplies; (5) drugs, vaccines, tests and other perishable medical supplies; (6) a system of medical records; and (7) a health care financing mechanism.\nFacing growing cost constraints for several decades, the largely private health care sector has sought to avoid having the unused, reserve capacity (such as empty beds) that would be needed in such situations. Since 2001, the federal government has sought to establish this capacity in the private sector, with mixed success. For example, the HHS Hospital Preparedness Program (described above) makes grants to state governments to work with private health care facilities and systems in assuring regional surge capacity, but the effectiveness of the program has been questioned.\nHistorically, the federal government has helped states with disaster response primarily by providing guidance and funding for preparedness activities, and assisting with the costs of response activities. During Hurricane Katrina, the shortcomings of this approach with respect to medical surge capacity were evident. Since then there has been an expansion of the federal role through direct procurement and deployment of medical response assets, providing a stronger backstop for state, local, and private-sector response efforts. For example, the PAHPA authorized HHS to acquire mobile medical assets, such as Field Medical Stations (FMS).\nHHS assets and personnel were deployed extensively for the evacuation and care of individuals with special needs before and during Hurricanes Gustav and Ike in the Fall of 2008. The Strategic National Stockpile (SNS) of medical supplies and drugs, as well as the National Disaster Medical System and other programs to provide emergency health workers, have also been expanded since 2005. The costs to procure FMS and SNS assets are borne in annual discretionary appropriations and may be fairly easily tracked. In contrast, many of the costs to deploy these and other assets in a disaster response, in addition to the staffing costs required to support these deployments, are often reimbursed by FEMA from the Disaster Relief Fund. The federal government has not published information about the costs associated with HHS's responses to Hurricanes Gustav and Ike. The Congress may be interested in seeking information about these costs, in order to determine whether they represent an appropriate and sustainable investment of federal effort.\nFinally, the 111 th Congress may examine the performance of the federal Crisis Counseling Assistance and Training Program (CCP), which is authorized in the Stafford Act and administered jointly by HHS, FEMA, and the states to address mental health problems among disaster victims. The response to Hurricane Katrina in 2005 prompted a re-examination of the CCP and other federal assistance programs that address disaster mental health. Concerns include the lack of a sound evidence base to identify effective services, the timeliness of services provided, the appropriate scope and duration of these services, and matters of organization, cost, and accountability. For example, the respective roles and responsibilities of HHS (which provides technical expertise for state CCP programs through its Substance Abuse and Mental Health Services Administration), FEMA (which funds the state programs), and states and their contractors (which implement them) are not always clear.",
"The HHS Health Resources and Services Administration (HRSA) manages several health professions programs intended to alleviate shortages and maldistributions of physicians, nurses, and others who provide health care services to individuals. These programs are not, however, geared toward assuring disaster surge capacity in the health care workforce. Efforts to bolster the ranks of health professionals for disaster response include ensuring civil liability protection for volunteer health professionals, and establishing a national system to verify their licenses and credentials. While efforts are ongoing among states and on the federal level, a uniform system for protection of volunteer health professionals does not yet exist.\nSurge capacity in the public health workforce—those workers who assure safe food and water, conduct diseases surveillance, and carry out other public health activities in response to disasters—has received little federal attention until recently. The PAHPA authorized a loan repayment demonstration project for individuals who serve in state or local health departments in defined areas of need, but the authority has not been implemented.\nAt this time, the National Disaster Medical System, administered by the HHS ASPR, and the Medical Reserve Corps, administered by local governments with the assistance of the HHS Office of the Surgeon General, provide surge capacity to bolster the local disaster response workforce in both health care and public health.",
"Responsibility for the health and safety of disaster response workers is a matter of concern in the National Response Framework (NRF). GAO found that the efforts of the Occupational Safety and Health Administration (OSHA, in the Department of Labor) during the response to Hurricane Katrina were hampered by confusion about OSHA's role. GAO noted in particular that disagreements between FEMA and OSHA regarding OSHA's role delayed FEMA's authorization of mission assignments to fund OSHA's response activities. Some Members of Congress and others sought to have worker health and safety elevated from a Support Annex to an Emergency Support Function in the NRF, which would have given OSHA more autonomy in commencing its response activities. Instead, the NRF contains a revised Worker Safety and Health Support Annex.",
"There is no federal assistance program designed purposefully to cover the uncompensated or uninsured costs of individual health care that may be needed as a result of a disaster. There is not consensus that this should be a federal responsibility. Nonetheless, if faced with a mass casualty incident, hospitals, physicians, and other providers could face considerable pressure to deliver care without a clear source of reimbursement.\nCongress or the Bush Administration provided special assistance to address this concern three times in response to recent disasters. Following the September 11, 2001 terrorist attacks, HHS provided funding to hospitals, clinics, and other health care facilities (including privately owned facilities) near the three affected sites (in NY, PA, and VA), that either provided unreimbursed health care services to victims, or suffered other economic hardship as a result of road closures or other infrastructure effects. Through intermittent appropriations, Congress has funded a program to provide medical screening, monitoring, and treatment services to responders and others who were exposed to hazards at the World Trade Center site in NY following the 2001 terrorist attack, and who are now experiencing health problems that are believed to have resulted from those exposures. Following Hurricane Katrina, Congress provided $2 billion to cover the state share of Medicaid costs associated with evacuees and individuals living in declared disaster areas (for states with approved federal waivers), and to restore access to care in affected areas.\nLegislative proposals in the 110 th Congress would have: authorized the HHS Secretary to use a special fund to provide temporary emergency health care coverage for uninsured individuals affected by public health emergencies ( H.R. 6569 / S. 3312 ); or addressed the health care needs of responders and others who are ill purportedly as a result of exposures at World Trade Center (WTC) site in NY following the 2001 terrorist attack (for example, H.R. 1414 / S. 201 , S. 1119 , H.R. 1247 , H.R. 3543 , H.R. 6594 , and H.R. 7174 ). None of these proposals was enacted. H.R. 847 , the James Zadroga 9/11 Health and Compensation Act of 2009, has been introduced in the 111 th Congress to address WTC-related illnesses.",
"After the 2001 terrorist attack on the World Trade Center, some responders developed chronic health problems believed to have resulted from hazardous exposures during the rescue, recovery, and clean-up operations. Efforts to track and address these problems were hampered because, at the outset, no central registry was established to identify all responders and other on-site workers, and no program was established to monitor their health going forward, in order to quickly detect common or unusual illness patterns in the cohort.\nFollowing Hurricane Katrina, the 109 th Congress enacted the SAFE Port Act ( P.L. 109-347 ). One of its provisions authorizes the President, acting through the Secretary of HHS and pursuant to a major disaster declaration under the Stafford Act, to establish medical monitoring programs, if needed, to track the health status of individuals (not limited to responders) who may experience hazardous exposures as a result of the disaster. The authority has not yet been implemented. According to GAO, as of May 2008, HHS had not articulated a plan for doing so. Federal agency responsibilities and funding mechanisms are not clear without such a plan. For example, within HHS, at least three components—the ASPR, as well as the Agency for Toxic Substances and Disease Registry and the National Institute for Occupational Safety and Health, both in CDC—have relevant authorities and responsibilities that overlap. Also, a major disaster typically triggers federal coordinating mechanisms laid out in the NRF, which places OSHA in the lead in assuring responder health and safety. In 2008 GAO recommended, for future disasters, that HHS develop plans to register all responders during a disaster, as part of a comprehensive departmental plan to assure responder health during and after disasters. GAO said that such a plan should also include a means to implement medical monitoring programs, or to assist states and localities in doing so. To meet the intent of the SAFE Port Act, such a plan must also address affected individuals who are not responders.",
"The terrorist attacks of 2001 and the hurricanes of 2005 showed that some people may be at greater risk, or more in need of special services, during and after a disaster. The PAHPA requires the Secretary of HHS to consider, in emergency planning, the needs of at-risk individuals, defined as children, pregnant women, senior citizens, and others as determined by the Secretary. The PKA required the head of FEMA to appoint a Disability Coordinator, charged, among other things, with coordinating emergency management policies and practices for individuals with disabilities. The 110 th Congress authorized and appropriated funds for a National Commission on Children and Disasters, which has been established in the HHS Administration for Children and Families.\nThe 111 th Congress is likely to be interested in the continued evolution of these efforts, in particular, how well these federal efforts address the diversity of special needs that exist in the population, and how well they are coordinated with each other in planning, and during disaster response. GAO has commented, for example, that the Office of the FEMA Disability Coordinator has generally not coordinated its work with a key federal agency—the National Council on Disability—as it is required to do by the PKA.",
"",
"To prepare for the threat of a human flu pandemic, the 109 th Congress provided $6.1 billion in emergency supplemental funding for FY2006. Most of it has supported an HHS initiative to expand domestic vaccine production capacity. The Congressional Budget Office (CBO) has analyzed the uncertainties and financial risks associated with this robust investment in applied research and infrastructure development, noting that the success of the HHS initiative may be affected, among other things, by the outcomes of research efforts to improve vaccine technology, and the extent to which the demand for seasonal flu vaccine can sustain the costs of expanded production capacity and more sophisticated vaccine production technology over the long term. GAO has made a number of recommendations regarding pandemic response planning, coordination, and capacity in recent years, and reported in February 2009 that many of the recommendations had not yet been fully implemented.\nGiven the considerable federal investment in preparing for this threat, the 111 th Congress is likely to remain interested in the status of national preparedness efforts. Additional issues of potential interest may include (1) the priority given by the Obama Administration to continued planning efforts, including its budget request for FY2010; (2) future federal leadership for planning efforts (see the earlier discussion of the HSC in the section \" Executive Branch Organization \"); and (3) the status of state preparedness efforts. Finally, as mentioned earlier, it is not clear that a flu pandemic would qualify as a major disaster under the Stafford Act. If so, substantial FEMA funds could be made available for HHS response activities. If not, alternative funding options available to the Secretary of HHS are limited. (See the earlier section of this report, \" HHS Response Capability and Funding Authority .\")",
"The response to communicable disease threats may involve movement restrictions, business and school closures, compulsory treatments, and other constraints. While state and local governments have the primary authority over these domestic containment measures, a comprehensive response to a public health emergency may involve overlapping governmental authorities and attendant legal and economic issues.\nManaging employers' and workers' concerns during outbreaks of communicable disease—in particular, a flu pandemic—may be especially difficult. For example, if workers fear losing their employment or their wages, compliance with public health measures such as isolation or quarantine may suffer. Although public health officials typically recommend, whenever possible, that isolation or quarantine measures be voluntary rather than compulsory, voluntary measures may not provide the same level of job protection for workers who miss work in order to comply with them.\nRecent incidents have expanded Congress's longstanding interest in the security of U.S. borders to include concerns about communicable diseases in travelers, which is a matter of federal jurisdiction. These incidents have brought into question the divisions of authority and effectiveness of coordination among federal agencies that are responsible for disease control, and for the security of the borders and the transportation infrastructure. Policy makers have noted that if these systems are unable to respond to common and expected infectious disease threats such as tuberculosis, they may also be unable to respond to more serious threats such as pandemic flu or bioterrorism. Effective solutions are elusive, but would ideally address scientific, technical, and economic constraints; the balance of individual and collective rights; and the roles of federal, state, and local authorities, and foreign governments.\nFinally, health emergencies often involve scarcities of resources, including personnel, equipment, drugs, and vaccines. Prioritizing the use of these resources to maximize benefit requires careful study of scientific and medical evidence, and raises complex legal and ethical questions that are best considered before emergencies arise.",
"Since 2001, HHS, DHS, USDA, the Department of Defense (DOD), state governments, and some academic institutions have expanded or are expanding their laboratory capacity to study or test for dangerous biological pathogens and toxins. These laboratories play a key role in the biodefense effort, offering the hope of better responses to a biological attack and a better understanding of the bioterrorism threat. However, they could also increase the risk of a biological attack by being a source of materials or training. In 2008, the congressionally mandated Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism recommended, among other things, the expansion of government oversight of these laboratories.\nThe 111 th Congress may consider issues associated with domestic biodefense laboratories, such as the effectiveness of current oversight efforts, the appropriate balance between security and the transparency that fosters scientific discovery, and possible effects of domestic regulatory approaches on international collaboration. Legislation introduced in the 111 th Congress ( S. 485 / H.R. 1225 ) would require the HHS Secretary to review and report to Congress regarding, among other things, the adequacy of current and planned laboratory capacity, and information sharing between the biodefense and infectious disease communities. The Secretary would also be required to develop minimal training standards for personnel, and to establish a voluntary reporting system through which laboratory personnel could report accidents and other incidents.",
"Legislation introduced in the 111 th Congress ( S. 485 / H.R. 1225 ) would reauthorize the Select Agent Program, which is jointly managed by the CDC and the U.S Department of Agriculture (USDA) Animal and Plant Health Inspection Service (APHIS) to regulate certain biological pathogens and toxins that could be used for bioterrorism. Program authority expired at the end of FY2007. The bills would require, among other things, a program review, planning for surges in testing capacity, and guidance to improve inventory practices. They would also authorize HHS and USDA to release certain sensitive information about the program to designated state officials if a state's laws are adequate to protect against the further release of such information. The bills would leave program administration under CDC and APHIS, as it is now.\nIn August 2008, the Federal Bureau of Investigation (FBI) announced that it believed a DOD scientist had been responsible for the 2001 anthrax attacks. The individual took his own life before charges could be filed, so the case will not reach a legal conclusion. Nonetheless, the incident has heightened concerns about the effectiveness of security risk assessments (\"background checks\") that FBI conducts on individuals who are registered in the Select Agent Program and granted access to the pathogens. Subsequently, the Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism—which was mandated by Congress before the matter involving the anthrax scientist was publicly known—recommended a comprehensive review of the Select Agent Program.\nThe Commission did not recommend that leadership for the Select Agent Program be changed. However, at a hearing on the Commission's report, Senators Joseph Lieberman and Susan Collins (the Chairman and Ranking Member, respectively, of the Senate Committee on Homeland Security and Governmental Affairs) signaled that they may introduce legislation to put DHS in charge of regulating biological pathogens. CDC and APHIS have the scientific and technical expertise to support the program, but the Senators were concerned that they may lack the homeland security and national security expertise that is also required. However, some members of the biomedical research community were concerned about proposals to move the program into DHS when legislation to establish the new department was under consideration in 2002. They argued, successfully at the time, that the program should remain with CDC and APHIS.",
"",
"The 108 th Congress launched Project BioShield to encourage the development of countermeasures that lack commercial markets. (The program is not limited to procurement of biodefense countermeasures. Products to address radiological, chemical, and other threats are also considered.) DHS and HHS have shared responsibility for the program since its inception, although the process by which procurement decisions are made has changed several times. At this time, DHS manages a 10-year advance appropriation (through FY2013) to purchase countermeasures, and is responsible for conducting Material Threat Determinations (MTDs) to assess whether a particular hazard—such as an anthrax or sarin gas attack—poses a threat to national security. In response to an MTD, HHS evaluates the threat, and the potential need for countermeasures, in a public health context. Funds for development and procurement are drawn from the 10-year appropriation, with the approval of the President, following joint recommendations from the Secretaries of HHS and DHS.\nThe 109 th Congress established, in the PAHPA, the Biomedical Advanced Research and Development Authority (BARDA) in HHS to support countermeasure development and facilitate communication between the government and developers. The PAHPA also required the HHS Secretary to develop and publish a strategic plan to guide HHS countermeasures research, development, and procurement.\nThe BioShield program has experienced numerous problems over the years, and many have been resolved. Key issues that remain are (1) the clarity of the shared roles of DHS and HHS; and (2) whether HHS can define contract terms that are perceived by product developers as sufficiently clear and lucrative to be worth their investment. The first concern appears to have improved over time, partly as a result of successive directives from Congress and the Bush Administration. Given the program's limited history of successful procurements, the second concern may persist and continue to be of interest to the 111 th Congress.\nFinally, intellectual property protections may affect the availability of countermeasures by making them more commercially attractive to developers, or more costly to purchasers, including governments.",
"In December 2005, Congress passed Department of Defense Emergency Supplemental Appropriations, 2006 ( P.L. 109-148 ), including Division C, titled the \"Public Readiness and Emergency Preparedness Act\" (PREP Act). Upon a declaration of emergency, the PREP Act eliminates liability, except in the case of willful misconduct, of manufacturers and others involved in the production, distribution, and use of covered countermeasures. In October 2008, HHS Secretary Leavitt made several such emergency declarations with respect to countermeasures for smallpox, anthrax, botulism, and acute radiation sickness, and amended a prior declaration for pandemic flu countermeasures. Each declaration is in effect through 2016, unless amended.\nThe law also establishes, in the U.S. Treasury, a \"Covered Countermeasure Process Fund\" to compensate those who may be harmed by a covered countermeasure. As of FY2009, the fund has not received an appropriation. No funding was requested in the annual budget submissions of the Bush Administration.",
"The 111 th Congress may consider reauthorization of expired preparedness and response programs. These include authority for HHS health professions programs, which expired in 2002. These programs, in Title VII of the Public Health Service Act, aim to address underserved areas and populations, and have not focused on emergency preparedness and response in the past. However, the last reauthorization in 1998 preceded heightened concerns regarding this matter since 2001. Also, although authority for the Strategic National Stockpile of countermeasures was amended since the terror attacks of 2001, general program authority expired at the end of FY2006 and has not been extended. In addition, as discussed earlier, authority for the Select Agent program to regulate biological pathogens expired at the end of FY2007."
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{
"question": [
"Why did congressional interest in systems that deal with public health threats increase?",
"How did Congress act on this increased interest?",
"What matters was the 110th Congress focused on?",
"How will the 111th Congress be involved in public health threats?",
"What will the 111th Congress review?",
"Why is it unclear whether a flu pandemic qualifies for major disaster assistance?",
"What issue might Congress and HHS have?",
"How are Congress and HHS working together?",
"Why was Project BioShield launched by 108th Congress?",
"What concern is there with Project BioShield?",
"What did the 109th Congress provide?",
"What is missing from what the 109th Congress provided?"
],
"summary": [
"Key recent events—the 2001 terrorist attacks, Hurricane Katrina, and concerns about an influenza (\"flu\") pandemic, among others—sharpened congressional interest in the nation's systems to track and respond to public health threats.",
"The 109th Congress passed several laws that established, reorganized, or reauthorized key public health and medical preparedness and response programs in the Departments of Health and Human Services (HHS) and Homeland Security (DHS).",
"The 110th Congress was engaged in oversight of the implementation of these laws, focused in particular on such matters as (1) the fitness of HHS and DHS—in terms of authority, funding, policies, and workforce—to respond to health emergencies; (2) the effectiveness of coordination among them and other federal agencies; and (3) the status of major initiatives such as pandemic flu preparedness and disaster planning for at-risk populations.",
"The 111th Congress is likely to remain engaged in oversight of the nation's readiness for health threats.",
"The 111th Congress may review HHS's disaster response capabilities, including its authority to declare a public health emergency and the means to fund its response efforts.",
"Among other things, it is not clear that a flu pandemic would qualify for major disaster assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act).",
"Also, although the HHS Secretary has authority for a no-year Public Health Emergency Fund, Congress has not appropriated monies to the fund for many years.",
"Finally, since Hurricane Katrina, Congress has urged and HHS has adopted a more aggressive federal role in the response to health emergencies.",
"The 108th Congress launched Project BioShield to encourage the development of medical countermeasures.",
"Some concerns remain about the program's ability to attract private-sector developers.",
"Also, the 109th Congress provided a means for liability protection for product developers and others, if countermeasures are used during a health emergency.",
"A program to compensate persons who may be injured by such covered countermeasures has not been funded."
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GAO_GAO-15-724
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{
"title": [
"Background",
"History of ASEAN",
"ASEAN Country Economies",
"Governance of ASEAN",
"ASEAN Economic and Connectivity Initiatives",
"U.S. Goals for Southeast Asia",
"Chinese Goals for Southeast Asia",
"China Has Surpassed the United States in Trade in Goods with ASEAN Countries and Trades a Similar Amount of Services, but U.S. Investment Exceeds China’s",
"China’s Total Trade in Goods with ASEAN Countries Surpassed the United States’ in 2007, but Neither Predominates in the Region",
"Chinese Goods Trade with ASEAN Countries Has Grown More Rapidly Than U.S. Goods Trade",
"Most Goods That the United States and China Trade with ASEAN Countries Are for Industrial Use",
"The United States and China Are Key Trading Partners of ASEAN Countries, but ASEAN Countries Trade Most among Themselves",
"Total U.S. Trade in Services with ASEAN Countries Is Similar to China’s, but Available Data Have Limitations",
"U.S. Investment in ASEAN Countries Exceeded Chinese Investment from 2007 through 2012, but Available Data Have Limitations",
"U.S. and Chinese Firms Often Compete in Different Sectors",
"Goods Export Data Indicate That U.S. Firms Exporting to ASEAN Countries Compete More with Japanese and European Firms Than with Chinese Firms",
"The United States and China Engage with ASEAN Countries through Trade Agreements, Support for Firms, and Support for Regional Integration",
"The United States and China Have Existing and Proposed FTAs with ASEAN Countries",
"The United States Has an FTA with Singapore, while China Has Free Trade and Investment Agreements with All ASEAN Countries",
"The United States and China Are Each Party to Different Proposed Regional FTAs",
"The United States and China Each Support Firms in ASEAN Countries",
"The United States Has Provided More Than $6 Billion in Financing for Exports to, and Investments in, ASEAN Countries since Fiscal Year 2009",
"China Provides Competitive Financing but Does Not Publish Country-Specific Data",
"U.S. and Chinese Entities Support Business and Investment in ASEAN Countries",
"The United States Supports Capacity Building to Foster ASEAN Economic Development, while China Supports Infrastructure Development",
"The United States Has Supported Economic Development in ASEAN Countries by Enhancing Governance and Regional Connectivity",
"China Supports Trade Capacity Building and Infrastructure Development and Proposes Tens of Billions of Dollars for Future Infrastructure Projects",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Roles and Responsibilities of U.S. and Chinese Entities in ASEAN Countries",
"Appendix III: U.S., Chinese, European Union, and Japanese Goods Trade with ASEAN Countries",
"Appendix IV: Overseas Staffing in ASEAN Countries by Departments of State, Commerce, and Agriculture",
"Appendix V: U.S. Trade Capacity Building Assistance to ASEAN Countries and the ASEAN Secretariat",
"Appendix VI: U.S. and Chinese Official Development Assistance to ASEAN Countries",
"MCC Commitments Have Increased U.S. ODA to ASEAN Countries",
"China Does Not Publish Aid Data Disaggregated by Country",
"Appendix VII: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"Southeast Asian nations have growing populations and economies. According to a 2014 study by the Asian Development Bank Institute, the combined populations of ASEAN countries are projected to reach 700 million by 2030. This study also found that ASEAN countries’ collective nominal GDP increased by an average of 5.7 percent annually from 1992 to 2013, despite the Asian financial crisis in 1997 and 1998 and the global financial slowdown in 2008 and 2009. According to International Monetary Fund (IMF) data, if ASEAN countries were a single nation, their collective 2014 GDP would represent the seventh largest economy in the world. However, a study by the Economic Research Institute for ASEAN and East Asia found that while the average poverty level in ASEAN countries declined from about 45 percent in 1990 to about 16 percent in 2010, about 95 million people in these countries in 2010 lived in poverty. In addition, a study by the Institute of Southeast Asian Studies has estimated that ASEAN countries would need about $600 billion from 2010 to 2020 to meet their infrastructure investment needs.\nASEAN countries are located astride key sea lanes between the Persian Gulf and the economic centers of East Asia. The U.S. Energy Information Administration, based on a 2011 United Nations (UN) Conference on Trade and Development Review of Maritime Transport, estimated that more than half of the world’s annual merchant fleet tonnage passed through the Straits of Malacca, Sunda, and Lombok on to the South China Sea in 2010 and that about 15 million barrels of oil passed through the Strait of Malacca between Singapore and Indonesia each day in 2013. The South China Sea also has important fishing areas and is thought to be rich in oil and natural gas reserves. Figure 1 shows the names and locations of the ASEAN countries.",
"The leaders of Indonesia, Malaysia, the Philippines, Singapore, and Thailand founded ASEAN in 1967 to accelerate economic growth, social progress, and cultural development in the region through joint projects and cooperation. In 1976, ASEAN countries agreed to the Treaty of Amity and Cooperation in Southeast Asia, which called for peaceful resolution of disputes and mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all nations. Also in 1976, ASEAN established the ASEAN Secretariat, an administrative body with representatives from each member nation, in Jakarta, Indonesia, to provide greater efficiency in the coordination of ASEAN organizations and more effective implementation of projects and activities. ASEAN’s membership expanded to include Brunei in 1984, Vietnam in 1995, Laos and Burma in 1997, and Cambodia in 1999.\nASEAN amended the Treaty of Amity and Cooperation in 1998 to permit states outside Southeast Asia to accede to the treaty with the approval of all 10 members. China acceded to the treaty in 2003. The United States acceded to the treaty in July 2009 and the following year became the first non-ASEAN country to establish a dedicated mission to ASEAN. In 2011, the United States appointed its first resident Ambassador to ASEAN. China established a mission to ASEAN in October 2012.",
"Economic development in the first six ASEAN members—Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand, known as the ASEAN 6—is generally more advanced than in the newer members— Cambodia, Laos, Burma (Myanmar), and Vietnam, known as the CLMV countries (see table 1). The business environment also varies significantly across ASEAN countries. In Transparency International’s 2014 Corruption Perceptions Index, which measures perceived levels of public sector corruption among 175 countries and territories, ASEAN countries’ rankings ranged from 7 for Singapore to 156 for Cambodia and Burma. The World Bank’s 2014 ease of doing business ranking of 189 economies ranked Singapore at 1, as having the most business-friendly regulations, and Burma at 177, the lowest ranked ASEAN country.",
"As stated in ASEAN’s Charter, ASEAN emphasizes noninterference in the domestic matters of its members and respect for their sovereignty and territorial integrity. According to U.S. officials, as well as officials at the ASEAN missions of other countries, the primary mode of decision making in ASEAN is consensus. Further, according to an ADB study, the Secretariat does not direct ASEAN but instead plays a coordinating and facilitating role. The Chair of ASEAN rotates annually among members; Burma served as the 2014 Chair and Malaysia as the 2015 Chair. Biannual ASEAN summit meetings are used to make decisions on key issues, provide policy guidance, and set the objectives of ASEAN.",
"In 2003, ASEAN leaders adopted a plan to create an ASEAN Community by 2015, comprising security, sociocultural, and economic communities. According to the ASEAN Economic Community Blueprint (the Blueprint), the ASEAN Economic Community will be a single market and production base that includes the free flow of goods, services, investment, capital, and skilled labor; highly competitive economic region that includes consumer protection and regional cooperation for intellectual property rights; region of equitable economic development based on inclusive growth and narrowing the development gap; and region fully integrated into the global economy that negotiates for FTAs and trade facilitation.\nASEAN established a monitoring mechanism called the ASEAN Economic Community scorecard to report the progress of implementing various measures and to identify implementation gaps and challenges. According to a 2013 ADB study of progress in achieving the ASEAN Economic Community, a significant milestone of economic integration has been the substantial progress in tariff liberalization, but removal of nontariff barriers, such as import bans and subsidies, new import procedures and requirements, and technical barriers, remain as major impediments.\nIn 2010, ASEAN adopted the Master Plan on ASEAN Connectivity, which envisioned enhancing intraregional connectivity to encourage trade, investment, tourism, people-to-people exchanges, and development. The plan identifies needed improvements to physical connectivity (e.g., roads, rail, power supply, and port facilities); institutional connectivity (e.g., mutual recognition arrangements for movement of skilled labor in the region and harmonization of rules, regulations, procedures, and standards); and people-to-people connectivity (e.g., reducing visa requirements and enhancing training opportunities and outreach).",
"In late 2011, the President announced that the United States would rebalance its worldwide engagement to include a greater focus on the Asia-Pacific region. In April 2014, pursuant to a mandate in the Department of State, Foreign Operations and Related Programs State and USAID provided Congress with a Appropriations Act, 2014,strategy for the rebalance that states the following goals for the region:\nDeepen U.S. security ties and alliances in the region to, among other things, deter and defend against threats to the region and the United States and resolve disputes peacefully.\nAdvance U.S. prosperity and inclusive economic growth in the region through the expansion of U.S. exports and investment, increased regional economic integration, and sustainable development.\nStrengthen partnerships with China and emerging partners to, among other things, promote trade and economic growth.\nShape an effective regional architecture of robust regional institutions and multilateral agreements to strengthen regional stability and economic growth.\nSupport sustainable development, democracy, and human rights by advancing regional commitment to democratic development and human rights and addressing health threats and climate change.\nIn addition, other U.S. agencies have stated goals specific to the region. USAID’s Regional Development Mission for Asia seeks, for example, to increase regional institutions’ ability to promote sustainable and inclusive regional growth. The Secretary of Commerce has stated that the economic dimension of the rebalance includes deepening trade and investment ties with existing partners; working multilaterally to build both the hard and soft infrastructure necessary for growth of emerging partners; and building new mechanisms to establish a level playing field for commerce across the region, such as the proposed Trans-Pacific Partnership (TPP) FTA. TPP is currently being negotiated by the Office of the United States Trade Representative (USTR). Other agencies also work to promote U.S. economic engagement in Southeast Asia. (See app. II for more information about selected U.S. entities’ roles and responsibilities and areas of involvement in ASEAN countries.)",
"Chinese government leaders have stated goals regarding Southeast Asia that emphasize regional connectivity as well as mutual benefit and noninterference. For example, in 2013, Chinese President Xi Jinping spoke of increasing engagement and rapport with China’s neighbors to foster China’s development while benefitting countries on its periphery. Chinese leaders also regularly refer to the Five Principles of Peaceful Coexistence, originally espoused in a 1954 agreement between China and India: mutual respect for sovereignty and territorial integrity, mutual nonaggression, noninterference, equality and mutual benefit, and peaceful coexistence. Moreover, at the 16th ASEAN-China Summit in 2013, Premier Li Keqiang proposed a framework for cooperation between China and ASEAN, known as the 2 + 7 cooperation framework, with a stated goal of deepening cooperation by focusing on economic development and expanding mutual benefit.\nChina has also articulated policy regarding Southeast Asia in two documents. China’s 2011-2015 Five Year Plan emphasizes developing infrastructure and other connections with neighboring countries, improving the quality of Chinese exports instead of export volume, increasing China’s level of investment in other countries in mutually beneficial ways, and increasing its influence in international economic and financial institutions. A 2014 Chinese government white paper on foreign aid states that China actively promotes cooperation between developing nations while seeking mutually beneficial results and respecting other countries’ development paths. assistance to ASEAN countries has focused on narrowing development gaps within ASEAN by funding infrastructure construction, supporting agricultural development, and providing technical training. (App. II provides more information about selected Chinese agencies’ roles and responsibilities and areas of involvement in Southeast Asia.)\nAccording to the paper, China’s China has claimed sovereignty over the islands of the South China Sea and has illustrated its claims by marking a “nine dash line” on its maps that encircles most of the South China Sea and its land features, including the Paracels and Spratlys. The ASEAN countries of Vietnam, Brunei, Malaysia, Indonesia, and the Philippines have competing claims with China and with each other. China has also conducted dredging operations to create new above-water features in the South China Sea, raising tensions between China and ASEAN countries with interests in the South China Sea.\nInformation Office of the State Council, The People’s Republic of China, China’s Foreign Aid (2014), (Beijing, July 2014).",
"Chinese trade in goods with ASEAN countries has grown rapidly since 2001, surpassing U.S. trade in goods since 2007. Most of the goods that the United States and China trade with ASEAN countries are for industrial use. Although the United States and China are important trading partners of ASEAN countries, trade among ASEAN countries exceeds their trade with either the United States or China. Available data, though limited, indicate that the total value of U.S. trade in services with ASEAN countries is similar to the value of China’s but U.S. foreign direct investment (FDI) in ASEAN countries has exceeded China’s FDI. U.S. FDI was concentrated in four of the ASEAN 6 countries—Indonesia, Malaysia, Singapore, and Thailand—and more Chinese FDI was in the CLMV countries—Cambodia, Laos, Burma (Myanmar), and Vietnam. While Chinese and U.S. firms compete in ASEAN countries, available data indicate that U.S. firms compete more directly with firms from Europe, South Korea, and Japan.",
"Chinese trade in goods with ASEAN countries has surpassed U.S. trade in goods and has grown as a share of China’s total trade in goods, while U.S. trade in goods with ASEAN countries has declined as a share of total U.S. trade in goods. Both U.S. and Chinese firms compete with many other countries for the ASEAN market. U.S. and Chinese trade in goods with ASEAN countries reflects these countries’ inclusion in global supply chains.",
"In 2014, China’s total goods trade with ASEAN countries was more than double that of the United States: $480 billion for China and $220 billion for the United States. In 1994 through 2014, Chinese total trade in goods with ASEAN countries grew much more rapidly than U.S. total trade in goods with ASEAN countries.\nIn 2007, China surpassed the United States in total goods trade with ASEAN countries, and the gap has continued to grow.\nChinese imports from ASEAN countries surpassed U.S. imports from ASEAN countries in 2008. In 2014, China imported $208 billion of goods from ASEAN countries, and the United States imported $142 billion.\nChinese exports to ASEAN countries surpassed U.S. exports in 2005.\nIn 2014, China exported $272 billion of goods to ASEAN countries, and the United States exported $79 billion.\nAfter China acceded to the World Trade Organization (WTO) in 2001, Chinese goods trade increased worldwide, and at a faster rate in ASEAN countries. Chinese goods trade in ASEAN countries increased in nominal terms every year except 2009. The United States has run a trade deficit with ASEAN countries in every year from 1994 through 2014, while China had a trade deficit or slight surplus with ASEAN countries from 1994 through 2011 before running a growing surplus from 2012 through 2014. In 2014, China had a goods trade surplus of $64 billion with ASEAN countries, while the United States had a goods trade deficit of $63 billion.\nFigure 2 shows the growth of U.S. and Chinese trade in goods with ASEAN countries from 1994 through 2014.\nThe relative importance of trade in goods with ASEAN countries since 1994 has increased for China but decreased for the United States. From 1994 through 2014, Chinese trade in goods with ASEAN countries rose from 6.1 percent to 11.2 percent of total Chinese trade in goods. In contrast, during the same period, U.S. trade in goods with ASEAN countries fell from 7.2 percent to 5.5 percent of total U.S. trade in goods.",
"Most of the goods that the United States and China trade with ASEAN countries are goods for industrial use, reflecting ASEAN countries’ integration into the U.S. and Chinese global supply chains.\nTotal trade. U.S. and Chinese trade in industrial goods (capital and intermediate goods) with ASEAN countries represented, respectively, about 62 percent and 80 percent of their total trade with ASEAN countries in 2014, down from 71 percent and 87 percent in 2007. In 2014, consumer goods represented 25 percent of the United States’ total trade with ASEAN countries and 14 percent of China’s. The remaining goods were not classified according to these categories.\nImports. Goods for industrial use represented 59 percent of U.S. imports from ASEAN countries and 88 percent of Chinese imports in 2014. Among industrial goods, microchips were the top U.S. and Chinese import from ASEAN countries. Consumer goods represented 35 percent of U.S. imports from ASEAN countries and 7 percent of Chinese imports in 2014.\nExports. Goods for industrial use represented 67 percent of U.S. exports to ASEAN countries and 74 percent of Chinese exports to ASEAN countries in 2014. Among industrial goods, microchips were the top export to ASEAN countries from both the United States and China. Consumer goods represented 8 percent of U.S. exports to ASEAN countries and 20 percent of Chinese exports in 2014.\nFigure 3 shows U.S. and Chinese trade in goods with ASEAN countries by use in 2014.\nFor more information about the composition of goods trade by ASEAN countries with the United States and China by type, see appendix III.",
"ASEAN countries trade more with each other than with other trading partners. China is the largest outside trading partner of ASEAN countries, followed by the European Union (EU), Japan, and the United States.\nExports. In 2013, ASEAN countries exported $330 billion in goods to other ASEAN countries, $115 billion in goods to the United States, and $153 billion in goods to China. The United States is the fifth largest market for ASEAN countries’ goods exports, behind other ASEAN countries, China, the EU, and Japan. From 2003 through 2013, the U.S. share of ASEAN exports fell from 15.4 percent to 9.1 percent, while China’s share of ASEAN exports increased from 6.4 percent to 12.2 percent.\nImports. In 2013, ASEAN countries imported $278 billion in goods from other ASEAN countries, $92 billion from the United States, and $198 billion from China. The United States is the fifth largest source of ASEAN goods imports, behind other ASEAN countries, China, the EU, and Japan. From 2003 through 2013, the United States’ share of ASEAN imports fell from 13.0 percent to 7.6 percent, while China’s share of ASEAN imports increased from 8.2 percent to 16.2 percent.\nFigure 4 shows ASEAN countries’ exports and imports of goods, by trading partner, in 2003, 2008, and 2013.\nIn 2011 through 2013, 7 of the 10 ASEAN countries exported more goods to China than to the United States: only Cambodia, the Philippines, and Vietnam exported more goods to the United States (see fig. 5). However, while most individual ASEAN countries traded more goods with China than with the United States, they exported the majority of their goods to many other countries.\nIn 2011 through 2013, 9 of the 10 ASEAN countries imported more goods from China than from the United States. Brunei was the only exception, importing slightly more goods from the United States (see fig. 6). Individual ASEAN countries imported goods from a diverse set of trading partners.\nThe United States’ role relative to China’s in ASEAN countries’ goods and services trade may be greater when the amount of intermediate inputs to the traded goods and services is taken into account. For example, because of the nature of global supply chains, a consumer phone from a U.S. company may be assembled in China but incorporate components from Germany, Japan, South Korea, and other countries. Although components of a country’s exports may originate in other countries, export data from the United Nations Commodity Trade database count the full value of the export for only the exporting country. Data from the Organisation of Economic Co-operation and Development (OECD) and the WTO attempt to account for the value added to a finished export by each contributing country. Data from the United Nations, WTO, and the International Trade Centre, as well as our estimates, showed that ASEAN countries imported more in total goods and services from China in 2009 than from the United States. However, OECD-WTO’s data show that ASEAN countries imported $41 billion in value-added goods and services from China in 2009 and $52 billion from the United States. This suggests that Chinese exports contained a higher portion of components produced elsewhere than did U.S. exports. Similarly, some components of the goods and services that ASEAN countries exported to the United States and China were produced outside ASEAN countries. Data from the United Nations, WTO, and the International Trade Centre, as well as our estimates, showed that ASEAN countries exported more in total goods and services from China in 2009 than from the United States. However, according to OECD-WTO data, ASEAN countries exported $86 billion in value-added goods and services to the United States in 2009 and $47 billion to China.",
"Although our analysis of U.S. and Chinese trade in services with ASEAN countries represents broad estimates rather than precise values, these data indicate that the United States and China traded approximately the same total value of services in 2011. Our calculations, based on data from the U.S. Bureau of Economic Analysis (BEA) and other sources, indicate that the U.S. trade in services with ASEAN countries totaled approximately $37 billion in 2011. According to UN, WTO, and International Trade Centre estimates of Chinese trade in services for 2011, China’s trade in services with ASEAN countries also totaled approximately $37 billion. In 2011, the United States exported more services to ASEAN countries than it imported from them, and China imported more services from ASEAN countries than it exported to them.\nU.S. and Chinese imports. We calculated that the United States imported approximately $14 billion in services from ASEAN countries in 2011 and approximately $16 billion in 2012. In 2012, the top categories for U.S. service imports from ASEAN countries were (1) business, professional, and technical services (approximately $6 billion) and (2) travel and passenger fares (approximately $5.7 billion). Estimates from the UN, the WTO, and the International Trade Centre on Chinese trade in services for 2011 indicated that China imported approximately $23 billion in services from ASEAN countries. China does not publish data on its service imports from ASEAN countries by category of service.\nU.S. and Chinese exports. We calculated that the United States exported approximately $23 billion in services to ASEAN countries in 2011 and approximately $25 billion in 2012. In 2012, the top categories for U.S. service exports to ASEAN countries, totaling approximately $15 billion, were (1) business, professional, and technical services and (2) royalties and license fees. Estimates from the UN, the WTO, and the International Trade Centre on Chinese trade in services for 2011 indicated that China exported approximately $13 billion in services to ASEAN countries. China does not publish data on service exports to ASEAN countries by category of service.\nBoth U.S. and Chinese trade in services with ASEAN countries are small in value compared with their goods trade. In 2011, total U.S.-ASEAN services trade was 19 percent of the value of U.S.-ASEAN goods trade, while the estimated total China-ASEAN services trade was 10 percent of the value of China-ASEAN goods trade.",
"Data on FDI in ASEAN countries from the United States and China have limitations, in that U.S. and Chinese FDI data may not accurately reflect the countries to which U.S. and Chinese FDI ultimately flows. However, available data show that from 2007 through 2012, U.S. FDI flows to ASEAN countries totaled about $96 billion, exceeding China’s reported FDI of about $23 billion. However, annual Chinese FDI flows increased each year during this period, from $1 billion in 2007 to $6 billion in 2012 in nominal terms (see fig. 7). According to BEA, U.S. FDI in ASEAN countries in 2003 through 2013 was concentrated in holding companies, which accounted for about half of total U.S. FDI. Manufacturing, especially computer and electronic products manufacturing, was the second largest category of U.S. FDI.\nFrom 2007 through 2012, U.S. investment was concentrated in several of the ASEAN 6 countries whereas a larger share of Chinese investment was in the CLMV countries (see fig. 8). Almost all U.S. FDI flows were to four of the ASEAN 6 countries—Indonesia, Malaysia, Singapore, and Thailand. U.S. FDI flows exceeded China’s FDI flows in these countries. U.S. FDI flows in the four ASEAN 6 countries represented 99 percent of all U.S. FDI flows to ASEAN countries during this period. However, Chinese FDI flows exceeded U.S. FDI flows for the four CLMV countries.\nChinese FDI flows to these four countries totaled $7.8 billion for 2007 through 2012, whereas U.S. FDI flows to those countries totaled around $0.5 billion. China’s FDI in CLMV countries represented 35 percent of Chinese FDI in ASEAN countries in this time period. For both the United States and China, the largest FDI flows were to Singapore. Singapore is a regional financial hub; therefore, according to BEA, a portion of FDI in Singapore is likely to have been reinvested in other countries, which may include other ASEAN countries.",
"Data on competition between U.S. and Chinese firms in ASEAN countries are limited but indicate that the United States competes more often with firms from Europe, South Korea, and Japan than with Chinese firms. In addition, U.S. firms tend to obtain World Bank and ADB contracts in different sectors than Chinese firms.",
"From 2001 through 2014, U.S. exports of goods to ASEAN countries were more similar to Japanese and EU exports than to Chinese exports, suggesting that U.S. firms are more likely to compete directly with Japanese and EU firms than with Chinese firms for exports to ASEAN countries.\nTo assess the extent of the similarity of exports, we calculated a commonly used index to compare U.S., Chinese, and other countries’ exports to ASEAN countries. From 2001 through 2014, U.S. exports to ASEAN countries have consistently been more similar to EU and Japanese exports than to Chinese exports (see fig. 9). However, during this period, Chinese exports to ASEAN countries have grown more similar to U.S. exports, while Japanese exports have grown less similar to U.S. exports. This is consistent with the pattern for Chinese exports globally. According to an IMF study, China has traditionally competed with other Asian countries, and although large differences remain, China’s exports are becoming more similar to those of advanced economies, such as Germany and the United States. China’s export similarity index with the United States grew from 0.248 in 1995 to 0.333 in 2008, according to the IMF study.\nWe identified three data sources that provide some information on individual contracts competed for, or obtained by, U.S. and Chinese firms. These data indicate that in ASEAN countries, U.S. firms compete more often with firms from countries other than China and tend to be awarded contracts in different sectors. We analyzed data for contracts funded by the World Bank and ADB as well as data from Commerce’s Advocacy Center on host-government contracts. The World Bank and ADB track the awardees of their contracts, as well as contract size and sector. The Advocacy Center tracks contract competitors and awardees for the U.S. firms that apply for and receive its support, as well as the size and sector of the contract. Although these data represent a small share of activity in the region, they provide insights into the degree of competition between U.S. and Chinese firms for the projects represented.\nFrom 2000 through 2014, both U.S. and Chinese firms were awarded hundreds of World Bank-financed contracts in ASEAN countries, but they tended to obtain contracts in different sectors (see fig. 10). Excluding contracts that went to domestic firms, our analysis of World Bank data showed that Chinese firms were awarded a higher dollar value of World Bank contracts in ASEAN countries ($781 million) than firms from any other country.value of World Bank contracts that Chinese firms were awarded in ASEAN countries, and contracts for consulting services accounted for less than 1 percent. In contrast, U.S. firms did not obtain any World Bank contracts for civil works in ASEAN countries, and contracts for consulting services accounted for about 78 percent of the value of World Bank contracts obtained by U.S. firms. Contracts for goods accounted for about Civil works projects accounted for about 73 percent of the 22 percent of the value of the contracts that U.S. firms obtained in ASEAN countries and about 26 percent of the value of contracts obtained by Chinese firms.\nADB has also predominantly awarded contracts to U.S. and Chinese firms in different sectors in ASEAN countries (see fig. 11). Similar to World Bank contracts, most ADB contracts in 2013 and 2014 went to domestic firms in the project country. However, U.S. firms received the largest amount of contract value ($329 million) awarded to foreign firms and Chinese firms received the second largest ($308 million). Nearly all ADB contract value awarded to U.S. firms was for management of emergency assistance to typhoon-affected areas of the Philippines. In contrast, Chinese firms received 84 percent of their contract value for construction. Of Chinese construction contracts, the largest share, $242 million, was for road transportation projects in Vietnam, Cambodia, and Laos. Chinese firms received 16 percent of their contract value ($50 million) for goods to be used in the electricity and renewable energy sectors, such as transformers, wires, and hydraulic equipment. U.S. firms received one contract for a renewable energy construction project, a $9 million contract for a geothermal plant in Indonesia.\nU.S. firms that received support from Commerce’s Advocacy Center in fiscal years 2009 through 2014 competed less often with Chinese firms than with firms from other countries. The Commerce data cover those public sector contracts competed for by U.S. firms in ASEAN countries for which the Advocacy Center received an application by a U.S. firm for commercial advocacy. Chinese firms competed for 30 out of these 172 contracts (see table 2). The value of the contracts for which Chinese firms competed was $6.8 billion—6 percent of the $112 billion in total contract value for which U.S. firms were competing and less than the total value competed for by nine other countries’ firms. U.S. firms that applied for Advocacy Center support competed against firms from only China or from China and other developing countries in only five cases. U.S. firms were most likely to compete with Chinese firms in the telecommunications sector, where U.S. and Chinese firms competed for 5 of 8 contracts; and the energy and power sector, where U.S. and Chinese firms competed for 7 of 19 contracts.",
"To further economic engagement with ASEAN countries, the United States and China each have entered into existing trade agreements and are parties to ongoing negotiations. The two countries also support their domestic firms by providing export financing and other services. The United States supports regional economic development and integration as part of its trade capacity building (TCB) assistance to strengthen institutions and governance. China supports regional economic development and integration through capacity building and has provided billions of dollars for infrastructure development. China has also promised additional billions of dollars for future infrastructure construction in the region, including through the creation of the new multinational Asian Infrastructure Investment Bank, headquartered in Beijing.",
"The United States has an FTA with Singapore, while China has free trade and investment agreements with all 10 ASEAN countries as well as a separate FTA with Singapore. The United States is party to the ongoing TPP negotiations, which include 4 ASEAN countries. China is party to the Regional Comprehensive Economic Partnership negotiations, which include all ASEAN countries.",
"U.S.-Singapore FTA. The January 2004 U.S.-Singapore FTA eliminated tariffs for U.S. exports to Singapore and phased out tariffs for Singapore’s exports to the United States over a 10-year period. As a result of the U.S.-Singapore FTA, goods from the United States and Singapore no longer face any tariffs in each other’s markets. For example, Singapore faces no tariff on its exports to the United States of a type of medicine, a top Singapore export in 2014, for which other U.S. trading partners with normal trade relations face a tariff of 6.5 percent. In addition to eliminating tariffs, the U.S.-Singapore FTA provided greater access for U.S. service providers and addressed trade issues, such as strengthening Singapore’s intellectual property rights protection, government procurement, protection of the environment, and protection of labor rights. According to USTR, the U.S. goods trade surplus with Singapore was $14.1 billion in 2014; and the U.S. services trade surplus with Singapore was $5.8 billion in 2013, the latest data available.\nChina-ASEAN Framework Agreement on Comprehensive Economic Cooperation. China’s framework agreement with the ASEAN countries comprises a series of trade and investment agreements focused on expanding access to each other’s markets. From 2004 through 2009, China and the ASEAN countries signed three agreements:\nThe China-ASEAN Trade in Goods Agreement entered into force in July 2005. The agreement separates goods into different groups, each with different timelines for tariff reduction. For example, under the agreement the parties committed to reduce tariffs to zero for most goods traded between the ASEAN 6 and China by 2012; CLMV countries agreed to reduce most tariffs to zero by 2018. The parties also agreed to reduce tariffs for goods categorized by a country as sensitive or highly sensitive for its economy to no more than 5 percent by 2018 for ASEAN 6 countries and by 2020 for CLMV countries. CLMV countries may also designate more goods as sensitive or highly sensitive than China and the ASEAN 6 countries. According to the WTO, the average Chinese tariff on imports from ASEAN countries in 2013 was 0.7 percent (0.8 percent for Laos and Cambodia), compared with an average of 9.4 percent for all of China’s trading partners. For example, according to WTO data, ASEAN countries face no tariff on a type of rubber, a key export from ASEAN countries to China in 2014, for which other Chinese trading partners with normal trade relations face a tariff of 8 percent. Similarly, for example, according to WTO data, China faces a 10 percent tariff on women’s cotton jackets and blazers, a top Chinese export to Vietnam in 2014, for which other Vietnamese trading partners with normal trade relations face a 20 percent tariff.\nThe China-ASEAN Trade in Services Agreement entered into force in July 2007. The agreement provides market access for participant countries’ companies and requires that firms located in participant countries be given treatment equal to domestic service providers in agreed-upon sectors. All countries signing the agreement agree to the specific service sectors to which the agreement applies in each country. The agreement permits CLMV countries to open fewer sectors and liberalize fewer types of transactions.\nThe China-ASEAN Investment Agreement entered into force in February 2010. Under the agreement, China and ASEAN countries commit to treat each other’s investors as equal to domestic investors and investors from other countries with which China and ASEAN countries have signed investment agreements. The agreement also included a provision on how disputes between the investor and the invested country are to be settled.\nIn August 2014, China and ASEAN announced discussions to upgrade these agreements. The second round of discussions, held in February 2015, focused on investment, economic cooperation, and other areas.\nChina-Singapore FTA. The China-Singapore FTA, which entered into force in 2009, included tariff reductions for goods beyond those covered under the China-ASEAN Trade in Goods Agreement. All of China’s exports to Singapore, and almost all of Singapore’s exports to China, enter the respective countries tariff free. As of 2014, Singapore generally did not apply any tariffs on any imports, including those from the United States and China. According to Singapore’s Ministry of Trade and Industry, the FTA also included provisions to expand access for Singapore’s and China’s service providers beyond each country’s WTO commitments for certain sectors such as business and hospital services.\nUnlike the U.S.-Singapore FTA, China’s FTAs with ASEAN and Singapore do not address issues such as protection of intellectual property rights and labor rights. For example, the China-ASEAN FTA does not address protection of the environment and labor rights and only reaffirms each country’s commitments to WTO provisions on the protection of intellectual property rights. According to USTR, China’s existing FTA covers only three areas—goods, services, and investment— while the U.S.-Singapore FTA has 21 chapters covering a wide range of areas, including intellectual property rights, government procurement, environment, and labor rights. In addition, according to USTR, China’s FTA is significantly less ambitious in the areas of services and investment than the U.S.-Singapore FTA. USTR expects that, although negotiations are ongoing, TPP will be a more ambitious and comprehensive agreement than the proposed Regional Comprehensive Economic Partnership (RCEP).",
"The United States and China are actively engaged in ongoing negotiations for TPP and RCEP, respectively. Several countries in the Asia-Pacific region, including ASEAN countries, are parties to negotiations for both agreements (see fig. 12).\nTrans-Pacific Partnership (TPP) Agreement Negotiations As of August 2015, the United States Trade Representative is engaged in TPP negotiations with 11 other Asia-Pacific region countries, including 4 ASEAN countries—Brunei, Malaysia, Singapore, and Vietnam. According to our analysis of World Bank and UN data, in 2013, the 12 Asia-Pacific countries negotiating TPP had a combined population of approximately 800 million people; had a combined GDP of almost $28 trillion, about 37 percent of global GDP; and covered about 26 percent of world goods The four ASEAN countries that are engaged in TPP negotiations trade.accounted for 58 percent of U.S. trade with ASEAN countries. Launched in 2002, with the United States joining in 2009, TPP has had several rounds of negotiation, the most recent in July 2015. Although TPP’s text is not finalized, in 2011 negotiators agreed that it would address, for example, ensuring a competitive business environment; providing TCB in developing countries; improving customs procedures; addressing impediments to e-commerce; creating clear rules for addressing disputes; and protecting the environment, labor rights, and intellectual property rights, among other issues. USTR is seeking to finalize TPP in 2015.\nRegional Comprehensive Economic Partnership Agreement Negotiations China, the 10 ASEAN countries, and five other countries are currently negotiating RCEP to expand trade and investment access. In 2011, ASEAN proposed establishing RCEP to broaden and deepen existing FTAs between the ASEAN countries and six others—Australia, China, India, Japan, New Zealand, and South Korea. According to our analysis of World Bank and UN data, RCEP negotiating partners have a combined population of more than 3.4 billion people, have a combined GDP of more than $21 trillion—more than 28 percent of global GDP—and account for about 29 percent of world goods trade.spoke with, RCEP will not greatly expand the six existing ASEAN agreements but will synthesize their provisions in a single comprehensive agreement. RCEP negotiation working groups include those for trade in goods, trade in services, investment, intellectual property, competition, and economic and technical cooperation. The eighth round of RCEP negotiations was held in Kyoto, Japan, in June 2015. Details of RCEP, like those of TPP, are not finalized, but the negotiating parties have stated that they hope to complete the agreement in 2015.\nAccording to U.S. officials we Existing FTA Relationships between FTA Negotiating Partners China and the United States each have existing FTAs with a number of their negotiating partners in the proposed regional FTAs. The United States has existing FTAs with 6 of its 11 TPP negotiating partners (see fig. 13). Of the 66 possible FTA pairings among the 12 TPP participants, 42 FTAs are currently in place. China has FTAs with ASEAN and New Zealand and, in June 2015, signed FTAs with Australia and South Korea. The Australia and South Korea FTAs have not entered into force (see fig. 14). Counting ASEAN as a single negotiating partner, there are 21 possible FTA pairings among RCEP participants, 12 of which are currently in place.\nBoth TPP and RCEP include major trading partners with which China and the United States do not currently have FTAs. According to our analysis of UN and BEA data, TPP negotiating partners with which the United States does not have an existing FTA represented approximately 7 percent of both U.S. goods trade and U.S. services trade in 2013 (see table 3). In 2013, bilateral goods trade between the United States and Japan, the largest U.S. trading partner engaged in TPP negotiations without a U.S. FTA, represented 5 percent of total U.S. goods trade and 7 percent of U.S. services trade. The six TPP negotiating partners with which the United States has an existing FTA constituted 33 percent of U.S. goods trade in 2013 and 16 percent of U.S. services trade. According to our analysis of data from the UN, the WTO, and the International Trade Centre, Chinese trade with India and Japan—the two countries in RCEP with which China has not negotiated an FTA— represented 9 percent of total Chinese goods trade in 2013 and more than 8 percent of Chinese services trade in 2011 (see table 4). Chinese trade with ASEAN, Australia, New Zealand, and South Korea represented 21 percent of total Chinese goods trade in 2013 and more than 18 percent of Chinese services trade in 2011.\nIn 2014, leaders of economies that belong to the Asia-Pacific Economic Cooperation (APEC) forum, which includes seven ASEAN economies, the United States, and China, among others, agreed to undertake a study of issues related to the realization of a Free Trade Area of the Asia-Pacific (FTAAP).a statement issued at APEC’s 2014 meeting, FTAAP is not viewed as an alternative to TPP and RCEP but will build on current and developing The study is to be completed by the end of 2016. According to regional architectures. APEC identified TPP and RCEP as possible steps toward eventual realization of FTAAP.",
"The United States and China provide support and financing to their firms that trade and invest in ASEAN countries. U.S. agencies provide financing and maintain overseas personnel to promote U.S. policies and support U.S. firms. While country-specific data on Chinese financing are unavailable, the Chinese government provides significantly greater financing than the United States worldwide and has taken steps to support Chinese investment in ASEAN countries.",
"According to our analysis of U.S. agency data, from fiscal years 2009 through 2014, the United States provided more than $6 billion in financing to support U.S. exports to, and investment in, ASEAN countries (see table 5). During that period:\nThe U.S. Export-Import Bank (Ex-Im) authorized about $5.4 billion in loans, loan guarantees, and insurance to support U.S. exports to ASEAN countries. Worldwide, Ex-Im authorizations were $27.3 billion in 2013 and $20.5 billion in 2014.\nThe Overseas Private Investment Corporation (OPIC), the United States’ development finance institution, committed about $664 million in financing to support U.S. investment projects in ASEAN countries.\nOPIC supports U.S. investment projects in overseas countries by providing U.S. private sector investors with direct loans, loan guarantees, political risk insurance, and support for private equity investment funds. they offer loan terms more generous than those the arrangement specifies.\nAccording to our analysis of Ex-Im data, in fiscal years 2009 through 2014, Ex-Im’s authorizations in ASEAN countries largely consisted of loan guarantees and were concentrated in Indonesia and Singapore. For example, about half of the $2.1 billion that Ex-Im authorized to support U.S. exporters in ASEAN countries in fiscal year 2013 was for a loan guarantee to a U.S. firm exporting commercial aircraft to Indonesia. According to our analysis of OPIC data, OPIC’s two largest individual commitments in ASEAN countries from 2009 through 2014, each for $250 million, were for investment guarantees in fiscal year 2013 for a research center, medical school, and teaching hospital in Malaysia and in fiscal year 2011 for construction and development of solar power projects in Thailand.",
"U.S. Ex-Im estimates and data from China’s export credit agencies indicate that China provides significantly more financial support to its exporters worldwide than does the United States. In 2014, Ex-Im estimated in an annual report to Congress that China provided $111 billion worldwide in official export support in calendar year 2013, far more Ex-Im’s report noted that than Ex-Im’s $15 billion in calendar year 2013. Chinese export credit agencies—along with those of Japan and South Korea—have multiple advantages, including greater funding capacity, the ability to lend in dollars at competitive rates, and lending programs that are not bound by OECD agreements. China is not a participant in the OECD Arrangement on Officially Supported Export Credits. The Ex-Im report also expressed concern that Chinese concessional loans provided to other governments as development assistance—including some loans with terms likely outside the range allowed by OECD agreements—may affect the competitiveness of U.S. exports.\nThree Chinese state-owned institutions offer various types of financing to support Chinese firms engaged in international business, including business in ASEAN countries. These three institutions do not publish data by country on their financing for exports, imports, and investment by private and state-owned enterprises.\nExport-Import Bank of China (China Ex-Im). China Ex-Im provides support for the import and export of goods and services, including Chinese companies’ overseas construction and investment projects. China Ex-Im is also the conduit for China’s official concessionary lending to developing countries. No data are publicly available on China Ex-Im financing for specific countries in Southeast Asia. According to its 2014 annual report, China Ex-Im provided a total of $70 billion in export and import credits worldwide that year.\nChina Development Bank. The China Development Bank supports state-backed projects, such as airports, railways, and bridges. Although the bank does not publish country-specific data on its overseas lending, it reported that of its net loan balance of $1.24 trillion for 2014, 12.7 percent ($157 billion) was provided to recipients outside mainland China. The bank did not specify whether those recipients included foreign governments, Chinese companies operating overseas, or both.\nChina Export & Credit Insurance Corporation (Sinosure).\nThese numbers are based on the December 31, 2014, exchange rate of 6.205 Chinese yuan per U.S. dollar. report published by the OECD, Sinosure insured almost 15 percent of China’s exports in 2013.",
"Multiple U.S. entities, such as the U.S. Departments of State (State), Commerce, and Agriculture (USDA), provide export promotion services and other support to help U.S. firms enter ASEAN markets or expand their presence in ASEAN countries. For example:\nState. State maintains economic officers in each of the 10 ASEAN countries. State supports U.S. export promotion efforts by engaging with foreign governments on policies that affect U.S. economic and commercial interests and by supporting other U.S. agencies’ export promotion efforts, among other things.\nCommerce. Commerce maintains a presence in seven ASEAN countries and a regional office in Singapore. Commerce provides export promotion services to U.S. firms, including advocacy and commercial diplomacy, market intelligence, matchmaking with local firms, trade counseling, and trade promotion programs. Commerce also leads or supports trade missions. From 2009 through 2014, Commerce led 11 trade missions to ASEAN countries covering a range of industries, such as aerospace, education, energy, and textiles.\nUSDA. USDA maintains a presence in seven ASEAN countries.\nUSDA provides export promotion services for U.S. agricultural exporters, such as market intelligence and international trade missions. USDA also offers multiple market development programs in partnership with U.S. food and agriculture industry groups.\nFor information about State, Commerce, and USDA staffing in ASEAN countries, see appendix IV.\nThe Chinese government also pursues agreements with other countries to facilitate trade and investment by Chinese firms in other countries, including ASEAN countries. For example:\nSpecial economic zones. China’s Ministry of Commerce has worked with some ASEAN countries to set up special economic cooperation zones to facilitate cross-border investment and trade. According to China’s Ministry of Commerce, the Chinese government supports Chinese firms that establish and invest in the zones by offering financing, and facilitating movement of materials, equipment, labor, and foreign exchange between China and the zones. China also negotiates with the host government in the areas of tax, land, and labor policies to support firms that choose to invest in the zones. According to Chinese embassy websites, as of 2012, Chinese firms had set up five zones in four countries—Cambodia, Thailand, Vietnam, and Indonesia—91 enterprises had established businesses, and more than $930 million had been invested in the zones.\nCurrency swaps. China also facilitates cross-border trade in local currencies with ASEAN countries.\nChinese agencies have publicly reported that China has currency swap agreements with the central banks of Indonesia, Malaysia, Thailand, and Singapore totaling 650 billion Chinese yuan. Currency exchanges help to facilitate trade and investment between the countries by eliminating the cost of converting to a third currency, ensuring that sufficient amounts of foreign currency are available for transactions, and reducing the risk of exchange rate fluctuation. These agreements encourage trade between China and the countries involved in the agreements to be settled in those countries’ currencies rather than in dollars. Chinese Premier Li Keqiang, the second-highest ranked Chinese Communist party official, has stated that China also plans a pilot program to allow currency swaps for cross-border transactions with other countries of the Greater Mekong Subregion (Vietnam, Laos, Cambodia, and Burma).",
"The United States and China both provide assistance to ASEAN countries to support regional economic development and integration. U.S. initiatives have included enhancing governance and regional connectivity by, for example, efforts to improve customs procedures across ASEAN countries. Chinese initiatives have focused on infrastructure development. China has promised billions of dollars for infrastructure investment through new funds and multilateral institutions, such as the Asian Infrastructure Investment Bank.",
"In fiscal years 2009 through 2013, the United States identified $536 million of its assistance to ASEAN countries and the ASEAN Secretariat as TCB assistance—that is, development assistance intended to improve a country’s ability to benefit from international trade. U.S. TCB assistance has supported initiatives aimed at, among other things, helping ASEAN countries draft laws and regulations, improve public financial management, train government officials, meet WTO commitments, and increase accountability and transparency. U.S. TCB assistance has supported multiple initiatives to advance ASEAN’s goal of increased connectivity and integration throughout the region. For example:\nASEAN Connectivity through Trade and Investment. This 5-year, $16.2 million USAID program, begun in 2013, seeks to facilitate trade through improving standards and systems, boosting the capacity of small and medium-sized enterprises, accelerating the deployment of clean energy technologies, and expanding connectivity. One of the program’s objectives is to provide support for the ASEAN Single Window, which will integrate ASEAN’s 10 national single customs windows to enable electronic exchange of data to expedite cargo clearance and lower the cost of doing business. According to USAID officials, four ASEAN countries were ready to use the system as of January 2015, and it is planned to be operational by the end of the year.\nASEAN-U.S. Partnership for Good Governance, Equitable and Sustainable Development and Security. This 5-year, $14 million program supported by USAID and State, also begun in 2013, seeks to support ASEAN integration by harmonizing approaches to the rule of law across countries; supporting people-to-people links through, for example, fellowships; collaboration on disaster response; and enhancing the ASEAN Secretariat’s management capabilities, including information technology and public outreach capacities.\nU.S.-ASEAN Connectivity Cooperation Initiative. Launched in 2011, this U.S. Trade and Development Agency (USTDA) initiative seeks to support ASEAN integration by leveraging private sector resources and expertise to support activities that increase connectivity and investment in the energy, transportation, and information and communications technology sectors. For example, USTDA has led reverse trade missions and workshops to increase U.S. trade and investment in electric smart grids, rail development, and other infrastructure areas in ASEAN countries. In September 2013, USTDA sponsored the ASEAN Connectivity through Rail Workshop in Indonesia that highlighted U.S. firms’ capabilities in operation and maintenance of rail systems. In addition, USTDA is sponsoring the Global Procurement Initiative with the goal of fostering procurement systems that will make awards based on the best value offered, rather than on the lowest cost.\nMCC is a U.S. government corporation that seeks to reduce global poverty through economic growth. The Indonesia compact’s Green Prosperity Project is designed to increase productivity in rural areas and reduce reliance on fossil fuels by expanding renewable energy, and to increase productivity and reduce greenhouse gas emissions by improving land use practices and management of natural resources.\nMCC had expended $1.2 million of its $333 million commitment to Indonesia. For more information about U.S. TCB in ASEAN countries, see appendix V.",
"Like the United States, China has supported capacity-building efforts in ASEAN countries, but it also provides billions of dollars for infrastructure construction. According to the Chinese government’s July 2014 white paper on foreign aid China’s capacity-building efforts in ASEAN countries since 2010 have included setting up experimental crop stations, building three agricultural technology demonstration centers, dispatching 300 agricultural experts to provide technical guidance, and helping to establish systems for animal and plant disease prevention and control. The paper states that China has also provided training to more than 5,000 officials and technicians from ASEAN countries in fields such as business promotion, culture and arts, Chinese language, finance, energy, and agriculture.\nChina has also contributed to regional development and integration through infrastructure construction, generally in the form of loans for specific projects, many of which are carried out by Chinese firms. The 2014 white paper states that China appropriated $14.4 billion for global foreign assistance from 2010 to 2012, 64 percent of which was interest- free or concessional loans. The white paper also indicates that China emphasized assistance in infrastructure construction, with 45 percent of China’s total aid for economic infrastructure and 28 percent for social and public infrastructure. The white paper did not break out information on foreign aid in ASEAN countries. the U.S.-China Economic and Security Review Commission in May 2015, as a result of overcapacity in the domestic Chinese construction market, projects overseas have become more attractive to Chinese state-owned enterprises.\nSee app. VI for information on U.S. and Chinese official development assistance to ASEAN countries.\nChina has also provided loans to neighboring countries to finance transportation links that will facilitate trade and other exchanges. Some of these projects are part of the Greater Mekong Subregion (GMS) Economic Cooperation Program, supported by ADB. Burma, Cambodia, Laos, Thailand, Vietnam, and China’s Yunnan Province and Guangxi Zhuang Autonomous Region are members of the subregion. According to Chinese government publications and other sources, China funded construction of part of a highway in Laos on a route between Kunming and Bangkok, has upgraded its own highways that connect to other GMS countries, has built other roads financed by ADB, and has financed and built bridges in the subregion. The Chinese and Burmese governments recently completed construction of crude oil and natural gas pipelines from an Indian Ocean port in Burma to China. China also recently signed a memorandum of understanding with Thailand to build a railway in Thailand from the Thai-Laos border to Bangkok and the southeastern province of Rayong and is negotiating with Laos to build a railway connecting China with Laos’ capital of Vientiane and the Thai border.\nChina has promised billions of dollars for new funds and multilateral institutions for the purpose of investing in infrastructure, including in ASEAN countries. For example:\nSilk Road Fund. China announced the creation of the $40 billion Silk Road Fund to finance infrastructure construction and other development in support of two initiatives announced by Chinese President Xi Jinping in 2013: the Silk Road Economic Belt and 21st Century Maritime Silk Road. According to a document released by the Chinese government in March 2015, these initiatives aim to improve land and maritime cooperation and connectivity along routes between China and the rest of Asia, the South China Sea, the Indian Ocean, Africa, and Europe. In February 2015, the Chinese central bank announced that an initial $10 billion had been contributed to the fund by state-owned financial institutions and the Chinese foreign exchange reserves.investment, in support of a hydropower project in Pakistan.\nIn April 2015, China announced the fund’s first\nAsian Infrastructure Investment Bank (AIIB). In 2013, Chinese President Xi Jinping proposed the creation of an international institution, AIIB, to finance infrastructure projects throughout the Asia- Pacific region. Under the bank’s initial agreement, the bank’s authorized capital is $100 billion. According to AIIB documents, 57 countries are prospective founding members of the bank, including each of the 10 ASEAN countries, and the bank anticipates beginning The bank will be headquartered operations before the end of 2015.in Beijing. Chinese officials have said that all countries are welcome to join the bank; the United States and Japan have so far declined to do so. U.S. Treasury officials have stated that the United States welcomes the creation of new development institutions but have also expressed concerns about the governance and standards of the new bank.\nOther funds. In addition, in November 2014, Chinese Premier Li Keqiang pledged $20 billion in loans to boost infrastructure connectivity in Southeast Asia, including $10 billion in loans to ASEAN countries. He also announced that China would raise another $3 billion for the China-ASEAN Investment Cooperation Fund, a dollar- denominated equity fund that targets investment opportunities in infrastructure, energy, and natural resources in ASEAN countries. As of June 2015, the fund reported that its current size was $1 billion, and it had set a target to ultimately raise $10 billion.",
"We are not making recommendations in this report. We sent a draft of this report for review and comment to the Departments of Agriculture, Commerce, State, and the Treasury and to MCC, OPIC, USAID, Ex-Im, USTDA, and USTR. We received technical comments from Agriculture, Commerce, State, the Treasury, and USTR, which we incorporated as appropriate.\nWe are sending copies of this report to the Secretaries of Agriculture, Commerce, State, and the Treasury; the Chairman of Ex-Im; the Administrator of USAID; the United States Trade Representative; the Director of USTDA; the Chief Executive Officers of OPIC and MCC; 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) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of Public Affairs and Congressional Relations may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix VII.",
"We were asked to review the nature of the United States’ and China’s economic engagement in Southeast Asia. Our objectives were to examine (1) what available data indicate about U.S. and Chinese trade and investment with the Association of Southeast Asia Nations (ASEAN) countries and (2) what actions the U.S. and Chinese governments have taken to further economic engagement with these countries.\nAs part of this review, we conducted fieldwork in Jakarta, Indonesia— where the ASEAN Secretariat is located—and Hanoi and Ho Chi Minh City, Vietnam. We based our selection of these two countries, among the 10 ASEAN countries, on the amounts of U.S. and Chinese exports and imports, foreign direct investment (FDI), and development assistance in each country. We also considered whether a country participated in U.S. and Chinese trade agreements or was a negotiating partner in the Trans- Pacific Partnership, whether a country was the location of any regional institutions, whether it was an emerging partner, and whether it was a South China Sea claimant. The information on foreign law in this report is not a product of GAO’s original analysis but is derived from interviews and secondary sources.\nTo describe U.S. and Chinese engagement with ASEAN countries, we analyzed data on U.S. and Chinese trade in goods, trade in services, and FDI. We also analyzed trade and contract data to determine the extent to which U.S. and Chinese firms compete. To assess the reliability of these data, where possible, we cross-checked the data with other sources, conducted checks on the data for internal consistency, and consulted with U.S. officials. Because of the limited availability of data and the context for different sets of data we report, the time period for each set of reported data varied. We determined that the data were sufficiently reliable for the purposes of our report and have noted caveats where appropriate to indicate limitations in the data.\nTo obtain data on U.S. and Chinese trade in goods from 1994 through 2014, we accessed the United Nations’ (UN) Commodity Trade Statistics Database by means of the Department of Commerce’s (Commerce) Trade Policy Information System. This database provides data for comparable categories of exports and imports of goods for the United States and China. In reporting the value of exports, we used data on total exports, which include re-exports— goods that are imported but then exported in substantially the same condition. China does not report export data to the UN Commodity Trade database that separates re-exports from total exports. Therefore, we used data on total exports to ensure the comparability of U.S. and Chinese data on goods exports. For imports, we used data on general imports, which include goods that clear customs and goods that enter into bonded warehouses or foreign trade zones. We determined that data on trade in goods for the United States and China were generally reliable for comparing trends over time and the composition of trade.\nTo categorize the U.S. and Chinese trade in goods into capital, intermediate, and consumer goods, we assigned each good from the UN Commodity Trade database to one of these three categories using the UN’s Broad Economic Categories. For goods that the UN does not classify as capital, intermediate, and consumer goods, we created an unclassified category. For example, the UN does not classify passenger motor cars as capital or consumer goods.\nWe analyzed data from the Organisation for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO) on trade in value-added goods and services to illustrate the importance of accounting for components of a country’s exports that originate in other countries.\nWe analyzed data from the ASEANstats database for 2003, 2008, and 2013 to examine ASEAN countries’ trade in goods with their trading partners over time. Because some of the ASEAN countries’ trading partners do not report data to the UN Commodity Trade database, we used data from the ASEANstats database as a comprehensive set of data on trade in goods for all of ASEAN countries’ trading partners. We compared trade data from the ASEANstats database and the UN Commodity Trade Database and found some differences in values of bilateral trade between ASEAN countries and their trading partners. Reasons for the differences include differences in the valuation of goods and differences in data quality.\nWe calculated U.S. trade in services for 2011 and 2012, based on tabulations prepared for us by the Commerce’s Bureau of Economic Analysis (BEA) and other sources, including the U.S. Census Bureau. BEA's data on trade in services for several categories—travel and passenger fares, transportation, education, and other private services—are based on data from various sources. According to BEA, its survey data are from mandatory surveys of primarily U.S. businesses with services trade that exceeds certain thresholds. BEA does not survey a random sample of U.S. businesses and therefore does not report the data with margins of error. Our estimates of U.S. trade in services represent broad estimates rather than precise values. We extrapolated values for certain services at the country level from broader data (e.g., travel service data are based on multiplying the number of travelers for a country by data on average expenditures for travelers and average passenger fees for the region) We calculated values for other services (e.g., business, professional, and technical services) from a range of estimates based on survey data. In instances where the volume of trade for a service was presented to us as a range, we used the midpoint value to estimate the volume of trade for that service. In instances where the volume of trade for a service was presented as a range and described by BEA as trending upward, we used the lowest value for the earlier years and the highest value for the later years and assumed that the growth was linear.\nFor China’s trade in services in 2011, we used estimates from the UN Conference on Trade and Development, the World Trade Organization (WTO), and the International Trade Centre downloaded from the International Trade Centre’s Trade Map database. The estimates for 2009 from the Trade Map database are the same as data on China’s trade in services from a report by China’s Ministry of Commerce.\nFor data on U.S. firms’ investments from 2007 through 2012, we used data that we obtained directly from BEA. For Chinese firms’ investments, we used data from the UN Conference on Trade and Development as reported by China’s Ministry of Commerce. To identify patterns in, and to compare, U.S. and Chinese FDI, we report U.S. and Chinese data on FDI while noting their limitations. First, as we have previously reported, both U.S. and Chinese FDI may be underreported, and experts have expressed particular concern regarding China’s data. U.S. and Chinese firms set up subsidiaries in places such as the Netherlands and the British Virgin Islands, which can be used to make investments that are not captured by U.S. and Chinese data on FDI. Experts state that this could be a significant source of underreporting for China’s data. For U.S. data, according to BEA, U.S. data on FDI are based on quarterly, annual, and benchmark surveys. BEA’s benchmark survey is the most comprehensive survey of such investment and covers the universe of U.S. FDI. According to BEA, quarterly and annual surveys cover samples of businesses with FDI that exceed certain thresholds. BEA does not survey a random sample of businesses and therefore does not report the data with margins of error; therefore, we have not reported margins of error. Second, China does not report its definition of FDI when reporting its data. However, the types of data included by China in its FDI (e.g., equity investment data and reinvested earnings data) appear similar to data reported for U.S. FDI, which the United States defines on the basis of the OECD definition of FDI. Despite these limitations, various reports, including those published by international organizations such as the IMF, government agencies, academic experts, and other research institutions, use China’s reported investment data to describe China’s FDI activities. In addition, despite some potential underreporting of FDI data, we determined that the U.S. FDI data were reliable for reporting general patterns, when limitations are noted.\nGiven challenges in determining appropriate deflators for some data, we used nominal rather than inflation-adjusted values for U.S. and Chinese trade and for investments in ASEAN countries. However, we did test to see what the impact would be of deflating these data and found that deflating these values made a limited difference in describing the overall trends. For example, if the goods trade values that we report were adjusted using the U.S. gross domestic product (GDP) deflator, total Chinese trade in goods would surpass total U.S. trade in goods in 2007— similar to trends we found in nominal trade values. U.S. total trade in goods increased by a factor of 2.4 from 1994 through 2013 if not adjusted for inflation and by a factor of 1.7 if adjusted for inflation. Over the same period, Chinese total trade in goods increased by a factor of 30.9 if not adjusted for inflation and by a factor of 21.4 if adjusted for inflation.\nTo determine the extent to which U.S. and Chinese firms compete in ASEAN countries, we interviewed U.S. agency and private sector representatives and analyzed available data. To assess the extent to which exporters from the United States, China, and other countries compete, we calculated an export similarity index to compare U.S., Chinese, and other countries’ exports to ASEAN countries from 2001 through 2014. The export similarity index is a measure of the similarity of exports from two countries to a third country. For example, to calculate the index for U.S. and Chinese exports to ASEAN countries, for each type of good that the United States and China exports, we first calculate the share of that good in the United States’ and China’s total exports to ASEAN countries. We then identify the minimum of the United States’ and China’s shares. The index is the sum of the minimum shares for all types of goods that the United States and China export to ASEAN countries. We used data on goods exports from the UN Commodity Trade database at the four-digit level and calculated each country’s export of a particular good as a share of that country’s total exports to ASEAN countries.\nWe also analyzed data from Commerce’s Advocacy Center on host- government contracts and data for contracts funded by the Asian Development Bank (ADB) and World Bank. Although these data represent a small share of activity in the region, they provide insights into the degree of competition between U.S. and Chinese firms for the projects represented.\nCommerce’s Advocacy Center data were for a limited number of cases (184) where U.S. firms requested the agency’s assistance in bidding for host-government contracts in ASEAN countries in 2009 through 2014. Because these data included the nationality of other firms bidding on a host-government contract, we used this information to determine the extent to which Chinese firms or firms of other nations were competing with U.S. firms for these contracts. We counted the numbers of contracts and summed the value of contracts in the Advocacy Center data for which each foreign country’s firms competed against U.S. firms. We excluded 12 contracts for which the nationality of competitors was not identified, and in cases where the U.S. firm(s) competed against a consortium of firms from different countries, we counted the whole value of the contract in each country’s total. We also used the Advocacy Center’s classification of contracts by sector to determine the sectors in which Chinese firms competed for the highest proportion of contracts. To determine the reliability of these data, we manually checked the data for missing values and reviewed information about how the data were collected. In addition, we interviewed Advocacy Center staff about the data. Advocacy Center staff told us that data from before 2010 may be less complete, because the center switched databases at that time, and some contracts that had been closed may not have been transferred. Overall, we found the data to be reliable for reporting on competition between U.S. and other firms, including Chinese firms, in ASEAN countries.\nThe World Bank publishes data on the value, sector, and suppliers of its contracts in ASEAN countries. We used the World Bank’s classification of contracts into procurement categories (goods, civil works, consultant services, and nonconsultant services) to compare the value and types of contracts that U.S. and Chinese firms were awarded from 2001 through 2014. However, we combined the consultant services and nonconsultant services categories into one category that we titled “consultant and other services”. The data include contracts (generally large-value) that World Bank staff reviewed before the contracts were awarded. We analyzed all contracts in individual ASEAN countries as well as Mekong and ASEAN regional contracts. To determine the reliability of these data, we electronically checked the data for missing values and possible errors. We also contacted World Bank personnel to determine how the data were collected and any limitations of the data. We found that the data for contracts funded by the World Bank were generally reliable for the purpose of demonstrating U.S. and Chinese competition in ASEAN countries over time.\nTo compare the value and types of contracts obtained by U.S. and Chinese firms, we used ADB’s published data on the value, sector, and recipient of its contracts for consulting services, goods, and civil works provided as technical assistance or funded by loans and grants to ASEAN countries in 2013 and 2014. We also included regional contracts for Southeast Asia or the Greater Mekong Subregion in our analysis. ADB publishes data only for consulting contracts over $0.1 million in value and other contracts over $1.0 million, so our analysis of ADB contracts does not include some smaller ADB contracts. In addition, a portion of the ADB data did not have the contracts classified according to the nature of the contract (construction, consulting services, goods, turnkey, and others). Therefore, we classified contracts obtained by U.S. and Chinese firms that were missing these categories according to those used in the rest of the data. To determine the reliability of these data, we checked the data for missing values and other types of discrepancies. We found that the ADB data were generally reliable for our purpose of reporting on U.S. and Chinese competition in ASEAN countries in 2013 and 2014.\nTo examine the actions that the U.S. and Chinese governments have taken to further economic engagement, we reviewed regional and country studies and U.S., Chinese, and ASEAN agency documents and interviewed U.S. and third-country officials, officials from private sector business associations, and experts from think tanks. We tried to arrange visits with Chinese government officials in the ASEAN countries we visited and in Washington, D.C.; however, they were unable to accommodate our requests for a meeting. U.S. agencies included in the scope of our study are the U.S. Departments of Agriculture (USDA), Commerce, State (State), and the Treasury; the Office of the U.S. Trade Representative (USTR); the Millennium Challenge Corporation; the U.S. Agency for International Development (USAID); the Export-Import Bank of the United States (Ex-Im); the Overseas Private Investment Corporation (OPIC); and the U.S. Trade and Development Agency.\nTo obtain information about U.S. and Chinese trade agreements with ASEAN countries, we reviewed the trade agreements; U.S., Chinese, and ASEAN documents; academic and government studies; prior GAO reports; and documents from multilateral organizations, such as the WTO. We also interviewed U.S. officials in Indonesia and Vietnam, officials from private sector business associations, and experts from think tanks. To calculate examples of tariff reductions from these trade agreements, we used data on trade in goods from the UN Commodity Trade database to identify top traded goods and data from the WTO and the U.S. International Trade Commission on U.S., Chinese, and ASEAN countries’ tariffs.\nTo calculate the percentage of world goods trade for the participants in the Trans-Pacific Partnership negotiations, the Regional Comprehensive Economic Partnership negotiations, and the North American Free Trade Agreement, we used data on trade in goods from the UN Commodity Trade Database. As of July 2015, some countries such as Malaysia and Italy had not reported data on trade in goods for 2013, so we used the average of those countries’ available data from 2010 through 2012 as an estimate of its 2013 trade in goods.so we excluded it from the calculations. To calculate the total population and percentage of world GDP for these participants, we used data on population and GDP from the World Bank’s World Development Indicators.\nIn addition, Laos did not report data for 2010 through 2013,\nTo obtain information about U.S. financing, we compiled Ex-Im and OPIC data from these agencies’ annual reports and congressional budget justifications and interviewed agency officials to provide additional context and to clarify elements of the data. Where relevant, we note that additional Ex-Im insurance may include ASEAN countries but do not include these in our totals. To determine the reliability of these data, we interviewed agency officials and checked their published annual reports against agency-provided summary data to determine any limitations of the data or discrepancies in the data. We determined that data from Ex-Im and OPIC were generally reliable to present trends and aggregate amounts by year.\nTo document U.S. efforts to provide export promotion services in ASEAN countries, we reviewed State’s Foreign Affairs Manual and information about Commerce and USDA’s export promotion policies and trade missions. We also interviewed State, Commerce, and USDA officials in Washington, D.C., and in Vietnam and Indonesia. We obtained data from State, Commerce, and USDA on the agencies’ staffing in ASEAN countries. To determine the reliability of the data, we obtained information about how the data were collected and tabulated. We determined that the data were sufficiently reliable to show staffing trends over time (see app. IV).\nTo document Chinese financing and support for firms, we used publicly available information from the websites of the Export-Import Bank of China, the China Development Bank, and the China Export & Credit Insurance Corporation. We converted financing numbers from Chinese yuan to U.S. dollars using exchange rates reported by the Federal Reserve. We supplemented this information with estimates from U.S. Ex-Im on Chinese export finance in 2013. We also used information reported by China’s Ministry of Commerce about Chinese investment in special economic zones and from Xinhua, China’s state press agency, about currency swap agreements between China and other countries’ central banks.\nTo obtain data on U.S. official development assistance, we used data from the OECD’s Development Assistance Committee. To obtain data on China’s grants and aid, we used data from China’s 2014 white paper on foreign aid, which describes China’s foreign assistance activities from 2010 through 2012. To determine the reliability of U.S. development assistance data, we interviewed a knowledgeable USAID official about the definitions and collection of the data. We determined that U.S. development assistance data were generally reliable for showing the trends and composition of aid to ASEAN countries over time. China’s white paper does not break out the data that it provides by country; thus, we were unable to provide data on China’s provision of aid to ASEAN countries.\nTo document U.S. support for economic development and integration in ASEAN countries, we used the USAID trade capacity building (TCB) database to capture U.S. development assistance efforts related to trade in ASEAN countries and at the ASEAN Secretariat. USAID collects data to identify and quantify the U.S. government’s TCB activities in developing countries through an annual survey of agencies on behalf of USTR. We also reviewed agency project summaries and interviewed agency officials in Washington, D.C., Indonesia, and Vietnam. Where relevant, we noted that funds provided in a larger region (for example, funds provided to the East Asia and Pacific region) may include ASEAN countries, but we did not include these regional funds in our totals. To determine the reliability of these data, we interviewed agency officials regarding their methods for compiling and reviewing the data. We determined that data from the TCB database were sufficiently reliable for our purposes.\nTo describe China’s support for regional integration, we assessed publicly available information from China’s July 2014 white paper on foreign aid; from Chinese ministries, such as the Ministry of Foreign Affairs; and from Xinhua, China’s state news agency. We determined that the white paper and web publications from the Ministry of Foreign Affairs represented official Chinese statements. We relied on Xinhua for translation of statements by Chinese officials about Chinese initiatives and strategies and for other factual information, such as the location of infrastructure built in ASEAN countries with Chinese support.\nWe conducted this performance audit from April 2014 to August 2015 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.",
"Multiple U.S. and Chinese entities have roles in managing and conducting economic engagement with member countries of the Association of Southeast Asian Nations (ASEAN). Tables 6 and 7 provide more information about the roles and responsibilities of 10 U.S. entities and 6 Chinese entities that seek to promote trade and investment in, and provide aid to, ASEAN countries.\nSix Chinese entities manage China’s economic relationship with ASEAN countries. (See table 7.)",
"Machinery is the largest component of both the United States’ and China’s total goods exports and imports with the Association of Southeast Asian Nations (ASEAN) countries, but machinery’s share of goods trade is falling. From 2007 through 2014, approximately 95 percent of U.S. and Chinese traded machinery was for industrial use, to produce other goods. For example, integrated circuits, a top machinery good, are used for producing computers and other electronic goods. The significant role of trade in machinery indicates that ASEAN countries are integrated into the U.S. and Chinese supply chains.\nImports. From 2000 through 2014, U.S. imports of machinery from ASEAN countries declined from 61 percent to 40 percent of U.S. imports from ASEAN countries. As of 2014, the next largest categories of U.S. imports from ASEAN countries consisted of “other” (23 percent); textiles (15 percent); chemicals, plastic, and rubber (11 percent); and animals, plants, and food (10 percent). Machinery as a percentage of Chinese imports from ASEAN countries ranged from a low of 41 percent in 2000 to a high of more than 60 percent in 2006 before falling to 43 percent in 2014. Other leading Chinese imports in 2014 were chemicals, plastic, and rubber (16 percent) and mineral products (15 percent).\nExports. From 2000 through 2014, machinery declined from 64 percent to 34 percent of U.S. exports to ASEAN countries, as the export share of U.S. transportation products grew from a low of 5 percent in 2000 to a high of 15 percent in 2013. In 2014, the other large categories of U.S. exports to ASEAN countries were “other” (17 percent); animals, plants, and food (14 percent); chemicals, plastic, and rubber (12 percent); and mineral products (6 percent). Machinery as a percentage of Chinese exports to ASEAN countries fell from a high of 46 percent in 2004 to 33 percent in 2014. Other leading Chinese exports in 2014 were “other” (30 percent); metals (13 percent); chemicals, plastic, and rubber (10 percent); and transportation (5 percent).\nFigure 15 shows the United States’ and China’s total goods imports from ASEAN countries, by type of goods, in 2000 through 2014.\nFigure 16 shows the United States’ and China’s total goods exports to ASEAN countries, by type of goods, from 2000 through 2014.\nTables 8 through 11 show the top 10 exports by the United States, China, the European Union (EU), and Japan to ASEAN countries in 2014. In 2014, electronic integrated circuits and microassemblies was the top export to ASEAN countries for both the United States and China; otherwise, U.S. and Chinese top 10 exports to ASEAN countries did not overlap. Electronic integrated circuits and microassemblies was also the only top 10 U.S. export to ASEAN that was among the top 10 EU exports to ASEAN. Three of the top 10 U.S. exports to ASEAN: (1) electronic integrated circuits and microassemblies; (2) diodes, transistors and similar semiconductor devices and photosensitive semiconductor devices, light emitting diodes; and (3) gold, nonmonetary (excluding gold ores and concentrates) were among the top 10 Japanese exports.",
"Overseas staffing in the member countries of the Association of Southeast Asian Nations (ASEAN) by the Departments of State (State) and Commerce (Commerce) generally increased in recent years, while the Department of Agriculture’s (USDA) overseas staffing remained relatively constant.\nState’s economic foreign service officer (FSO) positions in ASEAN countries increased from 2008 through 2014, with the largest increase in positions from 2011 through 2012. However, State attributed the increase in positions in 2011 and 2012 to a worldwide reclassification of some positions from generalist interfunctional to economic. State economic FSO positions in ASEAN countries as a percentage of economic FSO positions worldwide remained from 6 to 7 percent from 2008 to 2014 (see table 12).\nCommerce’s FSO positions in ASEAN countries increased in fiscal years 2012 through 2014, while its locally employed staff (LES) positions remained about the same (see table 13).\nThe Department of Agriculture’s (USDA) FSO and LES positions in ASEAN countries did not change significantly in fiscal years 2009 through 2014. USDA positions in ASEAN countries as a percentage of its global presence gradually increased for FSO positions during these years but decreased somewhat for LES positions from fiscal years 2009 through 2014 (see table 14).",
"U.S. agencies have identified certain official development assistance to member countries of the Association of Southeast Asian Nations (ASEAN) and the ASEAN Secretariat as trade capacity building (TCB) assistance. TCB assistance addresses areas including the regulatory environment for business, trade, and investment; constraints such as low capacity for production and entrepreneurship; and inadequate physical infrastructure, for example, poor transport and storage facilities. Table 15 shows U.S. TCB assistance to ASEAN countries, including the ASEAN Secretariat, in fiscal years 2009 through 2013.\nAs table 15 shows, in fiscal years 2009 through 2011, U.S. TCB assistance to ASEAN countries and the ASEAN Secretariat remained relatively constant at approximately $45 million annually. In fiscal year 2012, the Millennium Challenge Corporation (MCC) signed a $600 million compact with Indonesia. MCC categorized its Indonesia compact’s $332.5 million Green Prosperity Project as TCB assistance, resulting in an increase to $365.5 million in identified TCB assistance that year. In fiscal year 2013, U.S. TCB assistance fell to approximately $34 million.\nIndonesia was the largest recipient of TCB assistance among ASEAN countries in recent years. Indonesia received almost 70 percent of the TCB funding in fiscal years 2009 to 2013, primarily because of funding from the MCC compact. The Philippines, Vietnam, and Cambodia were the next largest recipients of TCB assistance, with the Philippines receiving about 9 percent of total TCB assistance to ASEAN countries and the Secretariat in fiscal years 2009 through 2013, followed by Vietnam with 6 percent and Cambodia with about 5 percent. Singapore and Brunei did not receive TCB assistance during this period.",
"U.S. official development assistance (ODA) to member countries of the Association of Southeast Asian Nations (ASEAN) has increased in recent years due to Millennium Challenge Corporation (MCC) commitments and has focused on social infrastructure and services. China does not report ODA by country and does not use the definitions used by the United States and other members of the Organisation for Economic Co-operation and Development’s Development Assistance Committee (OECD-DAC).",
"In calendar years 2005 through 2013, the United States provided approximately $7.2 billion in ODA to ASEAN countries, approximately 2.8 percent of U.S. ODA worldwide for that period. In calendar year 2013, U.S. ODA to ASEAN countries was 4.5 percent of total U.S. ODA. More than half of U.S.-provided ODA to ASEAN countries was for “social infrastructure and services,” which includes categories such as education, health, and assistance to government and civil society. In accordance with the 2005 Paris Declaration on Aid Effectiveness, the U.S. government generally does not condition its aid on, or tie it to, the recipient country’s use of the aid to procure goods or services from the United States. From 2005 through 2013, the three highest U.S. ODA commitment levels to ASEAN countries resulted from large one-time commitments. In 2005, the United States committed $374 million in humanitarian aid to Indonesia. The 2011 and 2013 peaks reflect the entry-into-force of MCC compacts with the Philippines and Indonesia, respectively (see fig. 17).\nMCC’s 5-year $434 million Philippines compact consists of rehabilitation of a 222-kilometer road on Samar to improve access to markets and social services ($214.4 million); funding for projects selected by communities, such as water systems, clinics, and schools ($120 million); efforts to improve tax administration ($54.3 million); and $45.1 million for program administration, monitoring, and evaluation. MCC’s 5-year, $600 million Indonesia compact consists of the Green Prosperity Project ($332.5 million) to provide technical and financial assistance for locally identified projects in renewable energy and natural resource management; the Community-Based Health and Nutrition to Reduce Stunting Project ($131.5 million) to improve child health and nutrition; and the Procurement Modernization Project ($50 million) to increase institutional capacity and employee knowledge of good procurement practices; and $86 million for program administration, monitoring, and Supported by the large commitments by MCC, Indonesia evaluation.and the Philippines, the first and second-largest ASEAN countries by population, received the largest percentages of U.S. ODA to ASEAN countries in 2005 through 2013. Vietnam, the third largest, received the third-largest percentage (see table 16).",
"China is not a member of the OECD-DAC and does not provide data according to OECD-DAC definitions and categories. In recent years, however, China has published some information about its foreign assistance. In 2011 and again in July 2014, China released a white paper on its foreign aid. The white paper stated that China appropriated a total of $14.4 billion for global foreign assistance as grants (36 percent of the total), interest-free loans (8 percent), and concessional loans (56 percent) in 2010 through 2012. The white paper also stated that 31 percent ($4.4 billion) of China’s aid was provided to Asia, but did not break out this aid by country. According to the white paper, 45 percent of China’s total aid was for economic infrastructure, 28 percent was for social and public infrastructure, and from 2010 to 2012 China emphasized assistance in infrastructure construction. Unlike OECD-DAC countries, China has not agreed to eliminate tying aid to the use of its own goods and services.",
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"In addition to the contact named above, Emil Friberg (Assistant Director), Charles Culverwell, Fang He, Kira Self, Michael Simon, and Eddie W. Uyekawa made key contributions to this report. Benjamin A. Bolitzer, Lynn A. Cothern, Mark B. Dowling, Justin Fisher, Michael E. Hoffman, Reid Lowe, J. Daniel Paulk, and Oziel A. Trevino provided technical assistance."
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"question": [
"How do US and Chinese economic engagements compare?",
"How did China's goods trade with ASEAN compare to US?",
"How did US and China trade with ASEAN with regards to services in 2011?",
"How did US foreign direct investment to ASEAN compare to China?",
"How do FTAs of US and China in ASEAN compare?",
"How do US and China regional trade agreement negotiations differ?",
"What does China's FTA not address?",
"What do US and China want?",
"What do ASEAN countries want?",
"How would ASEAN countries fare economically if they were one nation?",
"What was US's focus since 2011?",
"What was GAO asked to examine?",
"What does the GAO report examine?",
"How did GAO analyze US and China economic engagement in Southeast Asia?"
],
"summary": [
"China has surpassed the United States in goods trade with Association of Southeast Asian Nations (ASEAN) countries and trades a similar amount of services, but U.S. investment exceeds reported Chinese investment. China surpassed the United States in goods trade with ASEAN countries in 2007. In 2014, China's total goods trade of $480 billion was more than twice the U.S. total goods trade of $220 billion.",
"China surpassed the United States in goods trade with ASEAN countries in 2007. In 2014, China's total goods trade of $480 billion was more than twice the U.S. total goods trade of $220 billion.",
"Limited available data indicate that in 2011, the United States and China each traded about $37 billion in services with ASEAN countries.",
"From 2007 through 2012, U.S. foreign direct investment flows to ASEAN countries of $96 billion exceeded China's reported $23 billion.",
"Trade agreements. The United States has a free trade agreement (FTA) with one ASEAN country, Singapore, while China has an FTA with all 10 ASEAN countries.",
"The United States and China are each party to separate regional trade agreement negotiations—the United States through the Trans-Pacific Partnership and China through the Regional Comprehensive Economic Partnership.",
"China's existing FTAs do not address aspects of trade addressed in the U.S.-Singapore FTA, such as intellectual property, the environment, and labor rights.",
"Both the United States and China seek to deepen their economic engagement with the 10 ASEAN members: Brunei Darussalam, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.",
"ASEAN countries are seeking to further integrate their economies and create an economic community by the end of 2015.",
"According to International Monetary Fund data, if ASEAN countries were a single nation, their collective 2014 GDP would represent the seventh largest economy in the world.",
"In 2011, the President announced a renewed focus—known as the rebalance—on the Asia-Pacific region. The U.S. Department of State and U.S. Agency for International Development prepared a 5-year strategy for the rebalance.",
"GAO was asked to examine the United States' and China's economic engagement in the region.",
"This report examines (1) what available data indicate about U.S. and Chinese trade and investment with ASEAN countries and (2) what actions the U.S. and Chinese governments have taken to further economic engagement with these countries.",
"GAO analyzed publicly available economic data and Chinese government documents and reviewed documentation from 10 U.S. agencies. GAO also interviewed U.S. officials and private sector representatives."
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GAO_GAO-17-322
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{
"title": [
"Background",
"DOD’s Acquisition Guidance and Framework for Managing MAIS Acquisitions",
"Leading Practices for Managing an IT Acquisition Program",
"Most Selected MAIS Programs Had Changes in Their Planned Cost or Schedule Estimates, and Half Met Their Technical Performance Targets",
"Sixteen of Eighteen Selected MAIS Programs Had Changes in Their Planned Cost Estimates",
"Fourteen of Eighteen Selected MAIS Programs Had Changes in Their Planned Schedule Estimate",
"Nine Selected MAIS Programs Had Met Technical Performance Targets, while Others Were at Various Stages of Progress",
"All Five Selected MAIS Programs Had Fully or Partially Implemented Leading Practices for Managing Risk, Requirements, and Systems Testing and Integration",
"Two of the Five MAIS Programs Had Not Fully Implemented All Practices for Managing Requirements",
"Two of the Five MAIS Programs Had Not Fully Implemented All Practices for Managing Risk",
"Four of the Five MAIS Programs Had Fully Implemented All Practices for Managing Systems Testing and Integration",
"Conclusions",
"Recommendations for Executive Action",
"Comments from the Department of Defense",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Profiles of Selected MAIS Programs",
"Air Force—Air and Space Operations Center- Weapon System Increment 10.2 (AOC-WS Inc 10.2)",
"Air Force—Base Information Transport Infrastructure Wired (BITI Wired)",
"Navy—Consolidated Afloat Networks and Enterprise Services (CANES)",
"Navy—Common Aviation Command and Control System Increment 1 (CAC2S Inc 1)",
"Defense Logistics Agency—Defense Agencies Initiative Increment 2 (DAI Inc 2)",
"Department of Defense— Healthcare Management System Modernization (DHMSM)",
"Air Force—Defense Enterprise Accounting and Management System-Increment 1 (DEAMS Inc 1)",
"Global Combat Support System—Army Increment 1 (GCSS-A Inc 1)",
"Marine Corps—Global Combat Support System- Marine Corps Logistics Chain Management Increment 1 (GCSS-MC LCM Inc 1)",
"Defense Health Agency— Integrated Electronic Health Record Increment 1 (iEHR Inc 1)",
"Army—Integrated Personnel and Pay System—Army Increment 1 (IPPS-A Inc 1)",
"Army—Integrated Personnel and Pay System—Army Increment 2 (IPPS-A Inc 2)",
"Air Force—Integrated Strategic Planning and Analysis Network Increment 4 (ISPAN Inc 4)",
"Air Force—Joint Space Operations Center, Mission System Increment 2 (JMS Inc 2)",
"Army—Logistics Modernization Program Increment 2 (LMP Inc 2)",
"Defense Information Systems Agency— Teleport Generation 3 (Teleport Gen 3)",
"Army—Tactical Mission Command (TMC)",
"DOD—Theater Medical Information Program— Joint Increment 2 (TMIP-J Inc 2)",
"Appendix III: Comments from the Department of Defense",
"Appendix IV: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"DOD’s organizational structure includes the Office of the Secretary of Defense, the Joint Chiefs of Staff, the military services, numerous defense agencies and field activities, and various unified combatant commands that contribute to the oversight of DOD’s MAIS programs. Figure 1 provides a simplified depiction of DOD’s organizational structure.\nThe Under Secretary of Defense for Acquisition, Technology, and Logistics (USD (AT&L)) serves as the Defense Acquisition Executive and is the official responsible for supervising the acquisition and oversight of MAIS programs. This official is the principal acquisition official of the department and is the acquisition advisor to the Secretary of Defense. The USD (AT&L) has policy and procedural authority for the defense acquisition system, which establishes the steps that DOD programs generally take as the department plans, designs, acquires, deploys, operates, and maintains its IT systems (discussed in more detail following this section). The USD (AT&L)’s authority also includes directing the military services and defense agencies on acquisition matters and— unless the authority is delegated to the service or agency—making milestone decisions for MAIS programs.",
"The Department of Defense Instruction 5000.02 is the policy that establishes guidelines for the management of all acquisition programs. The department’s policy guidance includes six defense acquisition models based on the type of product being acquired (e.g., software- intensive programs and hardware-intensive programs). A generic acquisition model that shows all of the program life-cycle phases and key decision points is shown in figure 2 and described below.\nMateriel solution analysis: Refine the initial system solution (concept) and create a strategy for acquiring the solution. A decision—referred to as Milestone A, the risk reduction decision point—is made at the end of this phase to authorize entry into the technology maturation and risk reduction phase.\nTechnology maturation and risk reduction: Determine the preferred technology solution and validate that it is affordable, satisfies program requirements, and has acceptable technical risk. A decision—referred to as Milestone B, the program initiation decision point—is made at the end of this phase to authorize entry of the program into the engineering and manufacturing development phase and award development contracts. An acquisition program baseline is first established at the Milestone B decision point. A program’s first acquisition program baseline contains the original life-cycle cost estimate (acquisition and operations and maintenance costs), the schedule estimate (major milestones and decision points), and performance parameters that were approved for that program by the Milestone Decision Authority. The first acquisition program baseline is established after the program has refined user requirements and identified the most appropriate technology solution that demonstrates that it can meet users’ needs.\nEngineering and manufacturing development: Develop a system and demonstrate through testing that the system meets all program requirements. A decision—referred to as Milestone C, the deployment decision point—is made during this phase to authorize entry of the system into the production and deployment phase or into limited deployment in support of operational testing.\nProduction and deployment: Achieve an operational capability that meets program requirements, as verified through independent operational tests and evaluation, and implement the system at all applicable locations.\nOperations and support: Operationally sustain the system in the most cost-effective manner over its life cycle.",
"Entities such as the Project Management Institute, the Software Engineering Institute at Carnegie Mellon University, IEEE, and GAO have developed and identified leading practices to help guide organizations to effectively plan and manage the acquisition of major IT systems, such as the MAIS programs. Our work has shown that proper implementation of such practices can significantly increase the likelihood of delivering promised system capabilities on time and within budget. These practices include, but are not limited to,\nRisk management: A process for anticipating problems and taking appropriate steps to mitigate risks and minimize their impact on program commitments. It involves identifying and documenting risks, categorizing them based on their estimated impact, prioritizing them, developing risk mitigation strategies, and tracking progress in executing the strategies.\nRequirements management: Requirements establish what the system is to do, how well it is to do it, and how it is to interact with other systems. Appropriate requirements development involves eliciting and developing customer and stakeholder requirements, and analyzing them to ensure that they will meet users’ needs and expectations. It also consists of validating requirements as the system is being developed to ensure that the final systems to be deployed will perform as intended in an operational environment.\nSystems testing and integration management: A rigorous and efficient test and evaluation program provides early knowledge of developmental and operational issues. Correcting these issues early can mitigate risks of cost overruns and schedule slippages, and can ultimately contribute to delivery of effective and suitable systems in a timely manner. System integration ensures that all the “pieces” of the system can work together to realize the program’s goals. It involves the collaborative planning and execution of test phases and events to provide shared data in support of independent analysis, evaluation, and reporting by all stakeholders.",
"The majority of the 18 selected MAIS programs that we reviewed had experienced changes in their planned cost estimates and in their planned schedule estimates when comparing the first acquisition program baseline to the most recent acquisition program baseline estimate. These cost estimate changes ranged from a decrease of $1,466.2 million (-39 percent) to an increase of $1,625.7 million (469 percent), and schedule estimate changes ranged from a slippage of 13 years and 9 months to no change. Further, nine of the programs had met all of their technical performance targets, while four of the programs had partially met the performance targets. The remaining five programs had not yet conducted testing activities. As a result, it is too early to report on the status of technical performance targets. Table 2 shows the extent of changes in planned cost and schedule estimates for each of the selected MAIS programs we reviewed since the first program baseline estimate and the number of technical performance targets met. See appendix II for the detailed profiles of each program.",
"Of the 18 MAIS programs we reviewed, 16 had experienced changes in their planned cost estimates. Specifically, five of the 16 programs had cost decreases that ranged from $58.5 million (-1.5 percent) for the Army’s Global Combat Support System, Increment 1 (GCSS-A Inc 1) program to $1,466.2 million (-39 percent) for the Air Force’s Base Information Transport Infrastructure Wired (BITI Wired) program.\nOfficials reported various reasons for the decreases in planned cost estimates. For example, the Defense Health Agency’s integrated Electronic Health Record Increment 1 (iEHR Inc 1) program reported that the 70 percent cost decrease was due to a reduction in the program’s scope. Officials for the Air Force’s BITI Wired program reported that the 39 percent cost decrease was due to early assumptions about risks not materializing. For example, when the program had solicited bids for the contract, they included risk factors that never materialized.\nIn addition, 11 of the 16 programs had experienced cost increases. These increases ranged from $2.6 million (1 percent) for the Defense Logistics Agency’s Defense Agencies Initiative Increment 2 (DAI Inc 2) program to $1,625.7 million (469 percent) for the Navy’s Common Aviation Command and Control System Increment 1 (CAC2S Inc 1) program. Among the 11 programs that reported an increase, the average increase was $457.2 million.\nProgram officials reported a variety of reasons for the increases in planned cost estimates. For example, officials for the Army’s Tactical Mission Command (TMC) program attributed its 159 percent increase to, in part, higher than expected costs for research and development testing. In addition, officials for the Air Force’s Defense Enterprise Accounting and Management System Increment 1 (DEAMS Inc 1) program attributed a 9 percent cost increase to the program’s growth in scope and the addition of software upgrade enhancements. Further, officials for the Navy’s CAC2S system attributed cost increases of 469 percent to the program’s early developmental challenges, which included program scope growth and restructuring.\nTwo programs had not experienced any changes in their cost estimates: These include the Defense Health Agency’s Department of Defense Healthcare Management System (DHMSM) program and the Air Force’s Integrated Strategic Planning and Analysis Network Increment 4 (ISPAN Inc 4) program.",
"Of the 18 selected MAIS programs we reviewed, 14 programs had experienced changes in their planned schedule estimates. These changes consisted of schedule slippages that ranged from 2 months for the Air Force’s BITI Wired program to 13 years and 9 months for the Navy’s CAC2S program.\nProgram officials reported various reasons for the changes in their planned schedule estimates. For example, officials for the Navy’s CAC2S program attributed the schedule slippages to the addition of new requirements and program restructuring. Officials for the Air Force’s AOC- WS Inc 10.2 program reported that the 3 years of schedule slippages were due to a combination of test problems and system maturity issues. In addition, officials for the Air Force’s JMS Inc 2 system cited a larger than expected number of discrepancies in testing that had caused schedule delays totaling 2 years and 10 months. In turn, the program delayed completion of its Milestone C and Full Deployment Decision by more than 1 year beyond the original estimate.\nFour MAIS programs experienced no change to their planned schedule estimates—the DAI Inc 2, DHMSM, IPPS-A Inc 2, and the ISPAN Inc 4 programs.",
"Among other information, DOD uses key performance parameters as a metric to report on each program’s progress toward meeting the system technical performance targets. This information includes a description of the performance characteristics, the objective and threshold value for each target and, importantly, whether the target has been met in demonstrating performance. For example, one program identified “network readiness and exchange of information” as a technical performance target. The program also established an objective value for this target as successfully processing 98 percent of the information into the system, and established an threshold value for this target as successfully processing 95 percent of the information into the system.\nAmong the 18 selected MAIS programs we reviewed that had established technical performance targets, nine had met all of their defined targets. As an example of technical performance targets that had been met, the Army’s GCSS Inc 1 program reported in the 2016 Major Automated Information System Annual Report that both of its technical performance targets had been met. These targets related to the readiness of the system to fully support operational activities and information exchanges in the architecture (referred to as Net Ready) and compliance with the operational activities that represent the system’s mission critical functions (referred to as Mission Critical Functions).\nAs another example, the Defense Health Agency’s iEHR Inc 1 program reported that all 3 performance targets had been met. These targets related to ensuring that end user devices display the same information, context, and display of the patient, expediting user access to the applications, and ability of users to move from one device to another.\nFurther, of the 18 MAIS programs, four programs—the Air Force’s BITI- Wired and DEAMS Inc 1 programs, Navy’s CANES and Defense Information Systems Agency’s Teleport Gen 3 programs—had partially met their technical performance targets. For example, BITI-Wired had partially implemented all 4 of its performance targets—related to readiness of the network, availability of redundant features such as dual power supplies and spares, reliability of systems, and the installation of support equipment at all 178 sites. According to program officials, support equipment had been installed at 167 of the 178 total sites and the program expects all 4 performance targets to be met in September 2017, the planned full deployment date. As another example, the Air Force’s DEAMS Inc 1 program officials reported that 6 of 9 targets had been met. For the 3 performance targets that had not been met, officials reported that processing issues had prevented them from meeting these targets, which included establishing accurate fund balances, reporting in a timely manner, and ensuring readiness of the network. As of June 2016, program officials reported they were working to address these issues.\nFinally, five programs—IPPS-A Inc 2, AOC-WS Inc 10.2, ISPAN Inc 4, JMS Inc 2, and DHMSM—were in the early stages of the system development and had not begun testing. As a result, it is too early to determine the status of performance targets because information on the status of technical performance is not yet available.",
"According to the Software Engineering Institute’s Capability Maturity Model® Integration for Acquisition (CMMI- ACQ), leading practices for managing an IT program include risk management, and requirements management. Effective requirements management includes establishing an agreed-upon set of requirements and ensuring traceability between requirements and work products. Further, changes to requirements should be managed in collaboration with stakeholders for the acquisition of systems within their established cost, schedule, and delivery of the expected product. Likewise, an effective risk management process includes identifying problems before they occur, so that risk-handling activities may be planned and invoked, as needed, across the life of the project in order to mitigate the potential for adverse impacts. Further, regarding systems testing and integration, other leading practices from the Institute of Electrical and Electronics Engineers, Incorporated (IEEE) and DOD policy guidance (DOD Instruction 5000.02, Defense Acquisition Guidebook, and Test & Evaluation Management Guide) state that roles and responsibilities should be established and test-related plans, schedules, and reports should be developed to better manage test and integration activities.\nAll five MAIS programs that we selected for an in-depth review had fully or partially implemented leading practices for managing risk, requirements, and systems testing and integration. Table 3 shows the extent to which these programs had implemented the practices for requirements management, risk management, and systems testing and integration management. We assessed one program as “not applicable” because it was initiated after a limited production decision point (post- Milestone C) and, therefore, had not implemented certain practices.",
"Leading requirements management practices include establishing an agreed-upon set of requirements, ensuring traceability between requirements and work products, and managing any changes to the requirements in collaboration with stakeholders. Such leading practices help organizations to better manage the design, development, and delivery of systems within established cost and schedule time frames. These practices include developing an understanding with the requirements providers on the meaning of the requirements, obtaining commitment to requirements from project participants, managing changes to requirements as they evolve during the project, maintaining bidirectional traceability among requirements and work, ensuring that project plans and work products remain aligned with requirements.\nThree of the five programs had fully implemented the requirements management practices, while the other two had partially implemented some practices.\nAir Force— Air and Space Operations Center-Weapon System Increment 10.2 (AOC-WS Inc 10.2)\nThe Air Force had fully implemented four, and partially implemented one, of the five requirements management practices for the AOC WS Inc 10.2 program. For example, the program developed an understanding with requirements providers on the meaning of the requirements and established a requirements working group that oversees the development and management of program requirements. In addition, the AOC-WS Inc 10.2 program obtained commitment to requirements from project participants through the DOD configuration control board process, in which requirements were reviewed and, upon acceptance, approved, documented, and tracked. The program also managed changes to requirements as they evolved during the project; however, although changes to requirements were documented and maintained, the program did not provide evidence of its rationale for the changes. The AOC-WS Inc 10.2 program has since completed its acquisition phase and, therefore, providing a rationale for changes made during the requirements development phase would not impact the program moving forward.\nAir Force— Base Information Transport Infrastructure Wired (BITI Wired)\nThe Air Force had fully implemented the two applicable requirements management practices for the BITI Wired program. Specifically, the program had developed an understanding with requirements providers on the meaning of the requirements and had managed changes to requirements as they evolved during the project. The BITI Wired requirements management plan established the criteria for the evaluation and acceptance of the requirements.\nOn the other hand, three of the five requirements—obtain commitment to requirements from project participants; maintain bidirectional traceability among requirements and work products; and ensure that project plans and work products remain aligned with requirements—were not applicable for the BITI Wired Program. This was due to the Air Force beginning the program after Milestone C.\nAir Force— Joint Space Operations Center, Mission System Increment 2 (JMS Inc 2)\nThe Air Force had fully implemented the five requirements management practices for the JMS Inc 2 program. Specifically, the program had developed an understanding with requirements providers on the meaning of the requirements. For example, the program’s Requirements Engineering and Management Plan established criteria for distinguishing appropriate requirements and for evaluating and accepting requirements. In addition, changes to requirements were managed as they evolved during the project. For example, requirements change requests had been sent through the Lead Command, which validated them and sent them to the Program Management Office for approval. Lastly, the program maintained requirements traceability from source requirements to lower- level requirements to ensure that all source requirements had been completely addressed. Specifically, the program had established processes for managing the program’s Requirements Traceability Matrix database, which included activities to enter approved requirements, sequence traceability changes, update development, test status, and report data.\nArmy— Global Combat Support System-Army Increment 1 (GCSS-A Inc 1)\nThe Army had partially implemented all five requirements management practices for the GCSS-A Inc 1 program. Officials reported that, although the program had progressed to the sustainment phase, and its requirements activities had been completed since 2014, the Configuration Steering Board review process had been used to manage, oversee, and approve requirements as they evolved during the project. The program had developed a Software Development Overview Schedule that provided a general overview of their software development life cycle process.\nNevertheless, an approved and signed Requirements Management Plan at program initiation had not been implemented. Such a plan would have been important to ensuring an understanding with the requirements providers of the meaning of the requirements. Further, the program’s Release Management Plan included a section on the requirements process and references to a central information repository in the Requirements Traceability database. However, the requirements traceability matrix provided did not contain all relevant information such as “priority.” These important management tools could have provided the program with the discipline, structure, and oversight typically associated with successful organizations that apply this practice. However, since the GCSS-A Inc 1 program has completed its acquisition phase, fully implementing these practices now would not impact the program moving forward.\nArmy—Integrated Personnel and Pay System—Army Increment 2 (IPPS-A Inc 2)\nThe Army had fully implemented the five requirements management practices for the IPPS-A Inc 2 program. Specifically, the program had developed an understanding with requirements providers on the meaning of the requirements and had managed changes to requirements as they evolved during the project. For example, the program’s Requirements Management Plan described the criteria and process through which requirements are evaluated and accepted. In addition, the IPPS-A Requirements/Configuration Control Board Charter requires that all changes be vetted through senior governance boards, such as the Council of Colonels and General Officer’s Steering Committee. Further, the program maintained bidirectional traceability of requirements. Specifically, a history for all requirements changes was maintained within a repository for requirements that were managed by the Application Lifecycle Management Tool.",
"According to leading practices, an effective risk management process identifies potential problems before they occur, so that risk-handling activities may be planned and invoked, as needed, across the life of the project in order to mitigate the potential for adverse impacts. These practices include determining risk sources and categories; defining parameters used to analyze and categorize risks and to control the risk management effort; establishing and maintaining the strategy to be used for risk identifying and documenting risks; evaluating and categorizing each identified risk using defined risk categories and parameters, and determining its relative priority; developing a risk mitigation plan in accordance with the risk monitoring the status of each risk periodically and implementing the risk mitigation plan as appropriate.\nThree of the five programs had fully implemented the risk management practices, while two had partially implemented some practices.\nThe Air Force had fully implemented four, and partially implemented three, of the seven risk management practices for the AOC WS Inc 10.2 program. For example, the program had determined risk sources and categories used to examine and oversee changes that impact the project, as described in the program’s Risk Management Plan. The program also had defined parameters used to analyze and categorize risks and to control the risk management effort. Specifically, the Risk Management Plan evaluated and assigned values to each risk by calculating the probability and consequence of a risk, as well as its likelihood.\nThe AOC-WS Inc 10.2 program had partially implemented the key management practice to identify risks that could negatively affect work efforts. For example, although the program identified risk in specific risk categories, it did not identify risks that were outside the normal scope of the project.\nIn addition, while the program had developed criteria for evaluating and qualifying risk likelihood and severity levels, it did not develop an overall risk mitigation plan in accordance with the risk management strategy. This occurred because the program underwent a critical change and, according to program officials, this critical change altered the management of the program due to its complexity. Until an overall risk mitigation plan is developed, the program will not be able to effectively manage risk mitigation and contingency planning activities.\nThe Air Force had fully implemented all seven of the risk management practices for the BITI Wired program. Specifically, the program had defined parameters used to analyze and categorize risks and to control the risk management effort. For example, the program evaluated and assigned values to each risk by calculating the probability and consequence of a risk as well as its likelihood and consequence. The program had also identified and documented risks that could negatively affect work efforts. For example, the Risk Management Plan established risk conditions, thresholds, and probabilities of occurrence. In addition, the BITI Wired program monitored the status of each risk periodically and implemented risk mitigation plans as appropriate through the use of a risk management tool and risk board.\nThe Air Force had fully implemented all seven of the risk management practices for the JMS Inc 2 program. Specifically, the program had defined parameters used to analyze and categorize risks and to control the risk management effort. For example, as detailed in the program’s Risk and Opportunity Management Plan, risk ratings, including likelihood and consequence of occurrence, were established through the risk matrix; this provided a consistent, standardized method for risk analysis. In addition, defined thresholds were used to prioritize risks and trigger management action. Further, the program had developed risk management plans establishing a strategy used for risk management. Specifically, risks were monitored and risk status was reviewed in the issue database as well as through meetings used to report on programmatic metrics. Standard operating procedures had also been developed to manage risk, including one to manage risk identification, analysis, mitigation, and tracking.\nThe Army had fully implemented five, and partially implemented two, of the risk management practices for the GCSS-A Inc 1 program. Specifically, the program had a Risk and Opportunity Management Plan that identified risk sources and categories. Further, in order to control the risk management effort, risks were categorized and grouped according to defined risk categories in the program’s Risk Management Plan. Further, identified risks were evaluated using defined risk parameters. For example, the Risk Register identified risk consequence and probability.\nOn the other hand, the program did not define thresholds or bounds for mitigation or management action. According to leading practices, the risk management effort can be prioritized, controlled, and managed better by defining thresholds and categorizing risks for mitigation/management action. Although program officials stated that they were in the process of continuing to optimize their risk management efforts, and were updating their standard operating procedures, this key leading practice has not yet been implemented. Until the program has, and is guided by, updated procedures, it will not be positioned to ensure that risks can be effectively prioritized, controlled, and managed.\nThe Army had fully implemented all seven of the risk management practices for the IPPS-A Inc 2 program. Specifically, the program’s Risk Management Plan provided guidelines that determined risk sources and categories. These risks were categorized in the Risk Management Tool based on the “Risk Taxonomy” found in the Risk Management Plan. Specifically, the risks were assigned to three main categories—technical, programmatic, and external risks. The program also ensured potential risks were identified and documented. For example, the Defense Information Systems Agency, which hosts the two IPPS-A Defense Enterprise Computing Centers (in St. Louis, MO, and Ogden, UT), conducted assessments to ensure the sites were in compliance with environmental controls. Further, the program developed risk mitigation plans that identified the person or group responsible for addressing each risk through the Risk Register.",
"According to leading practices for managing systems testing and integration activities, roles and responsibilities should be established and test-related plans, schedules, and reports should be developed. Doing so provides a baseline by which to measure progress so that appropriate corrective actions can be taken when the program’s performance deviates from the plans. These practices include establishing roles and responsibilities to manage testing and developing test-related plans, schedules, and reporting.\nFour of the five programs had fully implemented practices for systems testing and integration.\nThe Air Force had fully implemented both systems testing and integration practices for the AOC-WS Inc 10.2 program. The program established roles and responsibilities to manage testing/integration activities and formulated test related plans, schedules, and reports. Specifically, the program’s Integrated Test Team Charter and the Test and Evaluation Master Plan (TEMP) established organizational and individual roles and responsibilities for testing and integration. Further, the program developed a test plan that included a test and evaluation strategy and schedule.\nThe Air Force had fully implemented both systems testing and integration practices for the BITI Wired program. In this regard, the program had established testing roles and responsibilities. The program also formulated all applicable test related plans, schedules, and reports. For example, the BITI Wired Program developed testing plans and schedules for each base installation site.\nThe Air Force had fully implemented one, and partially implemented one, of the systems testing and integration practices for the JMS Inc 2 program. For example, the program had developed a Test and Evaluation Master Plan that provided the framework and strategy for planning and executing its testing and evaluation activities. Although the program had established roles and responsibilities to manage testing and integration activities, a chief developmental tester to oversee testing activities had not been identified. Program officials stated that it had been difficult to fill this position due to the lack of qualified personnel. Until this position is filled, it may be difficult to manage and mitigate risks during development, verify that products are compliant with operational requirements, and inform decision makers throughout the program’s life cycle.\nThe Army had fully implemented both systems testing and integration practices for the GCSS-A Inc 1 program. In this regard, the program had established and documented roles and responsibilities for all testing and evaluation activities, including identifying a chief developmental tester. In addition, a GCSS-A Inc 1 Test and Evaluation Master Plan had been developed, which described the total testing and evaluation planning from component development through operational testing and evaluation. The program also had developed test plans, such as the Capstone Test Plan and Systems Engineering Plan, which further detailed the program’s testing and evaluation strategy.\nThe Army had fully implemented both systems testing and integration practices for the IPPS-A Inc 2 program. In this regard, the program had established testing roles and responsibilities and formulated test plans, schedules, and reports, where applicable. Specifically, the Increment II Test and Evaluation Working Integrated Product Team Charter was established to provide guidance in overseeing testing activities. In addition, a chief developmental tester had been appointed to serve as the focal point for all testing and evaluation efforts. Further, the IPPS-A Inc 2 program developed a Test and Evaluation Master Plan, which described the overall testing and evaluation plans from system development through operational testing and evaluation for all releases.",
"MAIS programs are important for sustaining DOD’s key operations in communications, business, and command and control, and provide the department with access to information to organize, plan, direct, and monitor mission operations. Therefore, it is vital that these programs follow leading practices to ensure success. While a number of leading practices for risk, requirements, and systems testing and integration had been fully or partially implemented by five programs that we reviewed in- depth—the Air Force’s AOC WS Inc 10.2, BITI Wired and JMS Inc 2 programs; and the Army’s GCSS-A Inc 1 and IPPS-A Inc 2 programs— three programs lacked practices to better manage the development of systems. The program office for GCSS-A Inc 1 did not have standard operating procedures for defining thresholds or bounds to manage risks, thus putting at risk the program’s ability to effectively prioritize, control, and manage for mitigation and management actions. In addition, the program office for AOC-WS Inc 10.2 did not have an overall Risk Mitigation Plan to guide the implementation of individual risk mitigation and contingency planning activities. An overall risk plan is necessary to help ensure that individual efforts are managed in a cohesive and repeatable way. Further, the program office for JMS Inc 2 had not assigned a chief developmental tester, an important role to ensure that risks are managed and mitigated effectively throughout testing and integration. Unless this position is filled, it will be difficult for the program to effectively manage risks and verify compliance with certain operational requirements throughout the acquisition.",
"To help improve the management of DOD’s MAIS programs, we are recommending that the Secretary of Defense take the following three actions: direct the Secretary of the Army to direct the program manager for GCSS-A Inc 1 to establish standard operating procedures for managing risks that include guidance for establishing thresholds and bounds for key risk areas. direct the Secretary of the Air Force to direct the program manager for AOC-WS Inc 10.2 to develop an overall risk mitigation plan to guide the implementation of individual risk mitigation and contingency plan activities. direct the Secretary of the Air Force to direct the program manager for JMS to appoint a chief developmental tester to oversee systems testing and integration activities.",
"DOD provided written comments on a draft of this report, which are reproduced in appendix III. In its comments, the department agreed with all three of our recommendations. Further, the department provided evidence that it had fully addressed one of the recommendations and it described plans and actions for addressing the remaining two recommendations.\nRegarding our recommendation that the GCSS-A Inc 1 program establish standard operating procedures for managing risks, DOD provided evidence that the Army had updated its risk management plan. Specifically, the Army’s GCSS-A Inc 1 program manager amended the Risk Management Plan for Project Manager Army Enterprise Systems Integration Program on March 1, 2017. The plan now describes how risk prioritization occurs; it requires that risk owners work with the risk management officer to define appropriate trigger conditions in order to ensure a mitigation plan can be initiated at the appropriate point. By taking these actions to implement this recommendation, the program should be in a better position to more effectively manage risks.\nDOD also concurred with our recommendation to develop an overall risk mitigation plan to guide the implementation of individual risk mitigation and contingency planning activities on the AOC WS Inc 10.2 program.\nToward this end, the Air Force reported that it plans to restore the program’s risk management practices to include weekly meetings to review program risks and publish a risk management plan in April 2017. Once implemented, these actions should help the Air Force to better ensure that individual risk mitigation and contingency plan activities are conducted in a consistent and repeatable way.\nFurther, DOD concurred with our recommendation that JMS appoint a chief developmental tester to oversee systems testing and integration activities. In this regard, the Air Force reported that it had identified a qualified candidate to fill the Chief Developmental Tester position. According to the Air Force, the program expects the new test chief to be in place in July 2017. Once the position is filled, the program should be better able to oversee important systems testing and integration activities.\nWe are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Secretary of the Army; the Secretary of the Air Force; and other interested parties. This report also is available at no charge on the GAO website at http://www.gao.gov.\nShould you or your staffs have any questions on information discussed in this report, please contact me at (202) 512-4456 or harrisc@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 major contributions to this report are listed in appendix IV.",
"The National Defense Authorization Act for Fiscal Year 2012 mandated that we select, assess, and report on Department of Defense’s (DOD) major automated information system (MAIS) programs annually through March 2018. This report is the fifth in our series of annual assessments. Our objectives were to: (1) describe the extent to which selected MAIS programs have changed their planned cost and schedule estimates and met technical performance targets and (2) assess the extent to which selected MAIS programs have used leading IT acquisition practices, including requirements and risk management, and systems testing and integration.\nTo address the first objective, we used DOD’s official list of 35 MAIS programs as of May 1, 2016, to establish a basis for selecting programs. We selected 18 of 35 MAIS programs based on our criteria that programs must be unclassified and have a first acquisition program baseline that could be used as a reference point for evaluating cost, schedule, and technical performance characteristics.\nFor each selected program, we asked relevant DOD officials to complete a data collection instrument with questions on estimated cost, schedule, and technical performance goals, including the latest program status in meeting those estimated goals. Using the responses from the data collection instrument, we then compared each program’s first acquisition program baseline cost estimate to the latest estimate to determine the extent to which planned program costs had changed. Similarly, to determine the extent to which these programs had changed their planned schedule estimates, we compared each program’s first acquisition program baseline schedule estimate to the latest schedule.\nTo determine whether the selected programs met their performance targets, we reviewed the most recent program management reports and examined each program’s self-identified system performance targets and the status of their progress. We also reviewed additional information on each program’s cost, schedule, and performance, including program documentation, such as DOD’s MAIS annual and quarterly reports, acquisition program baselines, system test reports, and our prior reports. We then aggregated and summarized the results of these analyses across the programs, and developed individual profiles for each program.\nTo address the second objective, we started with the list of 18 MAIS programs that were selected specifically for the first objective. From this list, we identified programs for a more in-depth review based on two criteria: the programs selected must represent at least two military services, and the programs must have not been evaluated by us within the last year. Using this criteria, we identified 5 programs from two military services: the Army’s Global Combat Supply System Increment 1 (GCSS-A Inc 1) and Integrated Personnel and Pay System Increment 2 (IPPS-A Inc 2); and the Air Force’s Air and Space Operations Center– Weapon System Increment 10.2 (AOC-WS Inc 10.2), Base Information Transport Infrastructure Wired (BITI Wired), and Joint Space Operations Center, Mission System Increment 2 (JMS Inc 2).\nBased on prior work evaluating MAIS programs, we identified three management practice areas—requirements management, risk management, and systems testing and integration that are applicable to these programs. For evaluating how the selected five programs applied practices in the risk and requirements management areas, we identified key practices related to these areas from the Software Engineering Institute’s Capability Maturity Model® Integration for Acquisition (CMMI- ACQ).\nSpecifically, for requirements management, we evaluated each of the five programs against the following 5 practices: develop an understanding with the requirements providers of the meaning of the requirements, obtain commitment to requirements from project participants, manage changes to requirements as they evolve during the project, maintain bidirectional traceability among requirements and work, and ensure project plans and work products remain aligned with requirements.\nIn doing so, we analyzed program requirements documentation against the practices. This documentation included requirements management plans, traceability matrices, requirements change forms, technical performance assessments, and requirements board meeting minutes. We also interviewed program officials to obtain additional information about their requirements management practices.\nFor the risk management area, we evaluated each of the five programs against the following 7 practices: determine risk sources and categories; define parameters used to analyze and categorize risks and to control the risk management effort; establish and maintain the strategy to be used for risk management; identify and document risks; evaluate and categorize each identified risk using defined risk categories and parameters, and determine its relative priority; develop a risk mitigation plan in accordance with the risk management monitor the status of each risk periodically and implement the risk mitigation plan as appropriate.\nIn doing so, we analyzed each program’s key documents, such as risk management plans, risk charts, and other artifacts, to determine the extent to which these practices had been applied. We also interviewed program officials to obtain additional information about their risk management practices.\nFor the systems testing and integration area, we evaluated each of the five programs against the following 2 practices: establish roles and responsibilities to manage testing and integration develop test-related plans, schedules, and reporting.\nIn this regard, we evaluated the test manager’s roles and responsibilities, as well as test plans, schedules, and test reports to determine the extent that these practices had been applied. We also conducted interviews with program officials to obtain additional information about their systems test and integration practices.\nFurther, in determining the extent to which each of the five MAIS programs had implemented the three practice areas—requirements management, risk management, and systems testing and integration—we rated a practice as “fully implemented” when all of the practices for the area had been implemented. Similarly, when a program had implemented at least one of the practices within the area, we rated the practice as “partially implemented” to indicate the practice had been partially implemented. For a MAIS program that did not conduct activities for any of the practices because the program had been initiated after a limited production decision point (post-Milestone C), we assessed the practice as “not applicable” because such programs do not apply practices to develop, manage requirements, or test the systems.\nTo assess the reliability of the data that we used to support the findings in this report, we corroborated program office responses with relevant program documentation and interviews with agency officials. We found no data reliability issues and determined that the data used in this report were sufficiently reliable for our reporting purposes. We have also made appropriate attribution indicating the sources of the data.\nWe conducted this performance audit from April 2016 to March 2017 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.",
"This section contains profiles of the 18 selected MAIS programs that we analyzed to determine whether they had changed their planned cost and schedule estimates and met performance measures. Each profile presents data on the program’s purpose and status, its latest cost and schedule estimates compared to the first acquisition program baseline and system performance data. The first page of each two-page profile provides (1) a description of the program’s purpose, (2) essential details, such as the responsible DOD component, program owner, prime contractor, the total number of active contractors supporting the program; and (3) program costs (in then-year dollars), comparing the program’s latest life-cycle cost estimate (separated into acquisition and operations and maintenance costs) to its first acquisition program baseline (subsequent acquisition program baselines that may have been established are not identified).\nThe profile also provides information on the program’s status, costs, schedule, and performance.\nIn the program status section, we discuss recent milestones achieved and acquisition events.\nIn the cost section, we identify the extent to which the program’s life- cycle cost estimate has changed from its first acquisition program baseline, as well as any notable causes for any changes.\nIn the schedule section, we discuss the extent to which the program’s schedule has changed from its first acquisition program baseline and causes for significant changes.\nIn the performance section, we identify the extent to which each program has met its established measures. These performance ratings represent point-in-time assessments as reported by the program. System performance targets are rated as “met” when the program fully met all of its key performance parameters. System performance was rated as “did not fully meet” when a program did not pass system testing. System performance was rated as “not yet applicable” when the system had not yet been tested because the program was not yet at the appropriate acquisition phase.",
"The AOC-WS Inc 10.2 program is expected to provide system hardware, software, technical documents, and technology refresh to ensure it remains a viable weapons system. The program will enable personnel at selected air and space operations centers to better plan, execute, and assess theater-wide air and space operations. It will replace the currently fielded AOC 10.1 system and provide additional capabilities, such as dynamic planning and execution; data management; information assurance; predictive battlespace awareness; and airspace management.\nProgram essentials (as of October 2016)\nDOD component: Air Force Program owner: Air Combat Command Prime contractor: Northrop Grumman, Mission Systems Total number of contractors (as of May 2016): 10 As of June 2016, the AOC-WS Inc 10.2 program was in the engineering and manufacturing development phase of acquisition in the Defense Acquisition Management System. In March 2016, the program declared a critical change because of significant cost and schedule growth due to schedule and technical difficulties in reaching Milestone C, which is the key juncture for approval to move into limited production. According to the program office, major factors contributing to the cost and schedule delays were the prime contractor (1) underestimating the software development effort; (2) insufficiently allocating manpower; and (3) underestimating the end-to-end testing capability.\nAs of June 2016, the AOC-WS Inc 10.2 program’s total life-cycle cost was $5,642.0, an increase of $56.8 million (1 percent) from the original estimate of $5,585.2. The estimated total acquisition cost is $706.0 million, an increase of $243.3 million (53 percent) from the original estimate of $462.7 million.\nThe AOC-WS Inc 10.2 program experienced significant schedule delays since establishing the original schedule in 2007. Specifically, Milestone C was estimated to be completed on July 2015, but, as of September 2016, the program had not reached the milestone. According to program officials, the program was undergoing a critical change that will result in a 3-year schedule delay.\nThe AOC-WS Inc 10.2 program was still early in development and system performance data was not available at the time of our review.",
"The BITI Wired program is to upgrade the enterprise network and provide the core cyber infrastructure. The upgrade includes wired and wireless systems, and network cables and servers for more than 150 active duty, Air Force Reserve, and Air National Guard bases. The program is expected to update the fixed local area network and all necessary information transport infrastructure to support current and future communications needs of the Air Force and Joint Command warfighter. This includes enabling base level data, voice, video, imagery, sensor, and telemetry requirements.\nProgram essentials (as of October 2016)\nDOD component: Air Force Program owner: Air Force Space Command (AFSPC) Prime contractors: General Dynamics, Harris Corp, Lockheed Martin, Telos Corp, Three Wire Systems, and Red River for the procurement contracts and Affigent and ThunderCat for the operations and support contracts Total number of contractors (as of May 2016): 8 The BITI-Wired program achieved a full deployment decision on February 18, 2014, and expects to reach full deployment in September 2017. The program completed 167 out of 178 turnkey network upgrades and expects to remain within the cost, schedule, and performance thresholds.\nAs of July 2016, the BITI Wired program’s total life-cycle cost estimate was $2,323.7 million, a decrease of $1,466.2 million (-39 percent) from the original estimate of $3,789.9 million. The decrease was due to more accurate cost estimates being provided by vendors. Specifically, initial estimates included large risk factors because, at the time, the government could not provide vendors a definitive list of items. As a result, vendors’ earlier estimates reflected the potential for risks in their estimates. The new list of refined equipment resulted in reduced costs. In addition, while officials cited insufficient human resources as a potential risk to cost as the program moves forward, they fully expect to stay within the cost estimates.\nThe BITI Wired program’s full deployment decision was 2 months’ behind schedule. However, program officials report they are on track to meet full deployment in September 2017.\nDid not fully meet all of the system performance targets The BITI-Wired program had partially implemented all 4 of performance targets—net ready, availability, support, and reliability. According to program officials, installation of equipment had been installed at 167 of the 178 sites. The program expects to report all 4 performance targets as fully met in September 2017, the full deployment date, when the equipment has been installed at all sites.",
"The CANES program is expected to consolidate and standardize the Navy’s existing network infrastructures and services by reducing and eliminating existing standalone afloat (i.e., surface ships and submarines) networks, providing a technology platform that can rapidly adjust to changing warfighting requirements, and reducing the hardware footprint on 259 afloat and maritime operations center platforms.\nProgram essentials (as of October 2016)\nDOD component: Navy Program owner: C4I Prime contractors: Northrop Grumman, Serco, BAE Systems, DRS Laurel Technologies, General Dynamics, CGI Federal, Global Technical Systems Total number of contractors (as of May 2016): 82 The CANES program had moved past the full deployment milestone. The program is expected to have all systems fully fielded by September 2024. According to program officials, risks remain that could result in delaying the fielding of CANES, thereby increasing risk to the program’s ability to achieve full deployment on schedule.\nAs of July 2016, the CANES program’s total life-cycle cost estimate was $11,910.6 million, a decrease of $830.3 million (-7 percent) from the original estimate of $12,740.9 million. In February 2016, in response to a full deployment decision, the life-cycle cost estimate was updated to reflect reductions in procurement costs, the program’s technology refresh schedule, and manpower costs.\nThe CANES program experienced a significant delay in reaching a full deployment decision. In June 2014, the program slipped the objective date for full deployment decision 2 years, from December 2013 to December 2015. A full deployment decision was achieved in October 2015, and full deployment is estimated for September 2024. According to program officials, an unstable funding environment is the largest risk to achieving full deployment.\nDid not fully meet all of the system performance targets The CANES program had not met all 9 of the performance targets. Specifically, of the 9 performance targets, 8 have been met, while 1 performance target was partially met—the net ready performance target. According to the program office, this performance target was only partially met because testing for afloat core services has been deferred.",
"The CAC2S Inc 1 program is expected to provide an integrated and coordinated modernization effort for the equipment of the Marine Air Command and Control System. The system is expected to provide enhanced capability for three air defense centers to support aviation employment in joint, combined, and coalition operations. It will provide tactical situational display, information management, sensor and data link interface, and operational facilities for planning and execution of Marine Aviation missions.\nProgram essentials (as of October 2016)\nDOD component: Navy Program owner: USMC, Program Executive Officer, Land Systems Prime contractors: General Dynamics, C4 Systems, Inc. Total number of contractors (as of May 2016): 5 As of March 2016, Phase 1 of the CAC2S Inc 1 program was in the operations and sustainment acquisition phase and Phase 2 was in the production and deployment phase. The program has been rebaselined once following a critical change that occurred in 2009 due to the program’s inability to meet the initial operational capability date.\nAs of March 2016, the CAC2S Inc 1 program’s total estimated life-cycle estimate was $1,972.7 million, an increase of $1,625.7 million (469 percent) from the original life-cycle estimate of $347 million. Similarly, the program’s current total acquisition estimate is $882 million, an increase of $708.7 million (409 percent) from the original total acquisition estimate of $173.4 million. As we reported in March 2016, factors that contributed to the cost increase were early challenges in estimating costs due to program scope growth and need for restructuring. Program officials noted funding instability as a potential area of risk in meeting cost estimates.\nAs of October 2015, the CAC2S Inc 1 program had a 13-year, 9-month slippage in their full deployment date due to a major change in project scope and restructuring of the project.\nMet all of the system performance targets CAC2S Inc. 1 had met both of the technical performance targets which were (1) net ready, and (2) data fusion.",
"The DAI Inc 2 program’s mission is expected to deliver auditable, accurate, timely, authoritative financial data to support DOD’s goal of standardizing financial management practices, improving financial decision support, and supporting audit readiness. Defense agencies use more than ten different non-compliant financial management systems supporting diverse operational functions and the warfighter in decision making and financial reporting.\nProgram essentials (as of October 2016)\nDOD component: Defense Logistics Agency Program owner: OSD (C) Prime contractor: Credence Management Solutions, LLC; TeraThink Corp; IBM; CACI, Inc; Northrop Grumman Systems Corp; CACI ISS, Inc; Amyx, Inc Total number of contractors (as of May 2016): 25 As of March 2016, the DAI Inc 2 program was in the limited deployment phase of the business capability life cycle. According to a 2016 MAIS annual report, the program was on track to remain within the schedule, cost, and performance thresholds identified in the original estimate. According to program officials, the program was rebaselined to adjust release 2 objective and threshold dates for limited fielding to accommodate the time frame for resolving a bid protest. Notwithstanding this additional time for the bid protest, the program achieved the original acquisition program baseline objective date for this event.\nAs of March 2016, the DAI Inc 2 program’s total life-cycle estimate was $868.8 million, an increase of $2.6 million (<1 percent) from the original life-cycle cost estimate of $866.2 million. Similarly, the program’s current total acquisition estimate was $184.9 million, an increase of $2.6 million (1 percent) from the original acquisition estimate of $182.3 million. However, these cost increases were within the planned cost objective estimates. Officials cited funding instability as a potential risk to cost as the program moves forward.\nThe DAI Inc 2 program had met the first acquisition program baseline objective schedule estimate for limited fielding in September 2015. Officials noted they were on schedule to stay within the threshold date of April 2017 for a full deployment decision.\nDid not fully meet all of the system performance targets According to the 2016 MAIS annual report, the DAI Inc 2 program had not met any of the five of the technical performance targets which are (1) financial system performance, (2) business enterprise architecture compliance, (3) support net centric DOD military operations, (4) managed in network, and (5) effectively exchange information.",
"The DHMSM Program is expected to provide a configurable and scalable modernized electronic Health Record System. It will replace DOD’s legacy healthcare systems including the Armed Force’s Health Longitudinal Technology Application, Composite Health Care System (inpatient), and most components of the Theater Medical Information Program-Joint program, with a commercial Off-The-Shelf electronic health record system. It is expected to address the current state of the Military Health System, where multiple legacy systems and data stores, developed over decades, are in need of modernization.\nProgram essentials (as of October 2016)\nDOD component: Defense Health Agency Program owner: PEO Defense Healthcare Management Systems Prime contractor: Leidos Total number of contractors (as of May 2016): 35 Cost, schedule, and performance summary Not applicable: The program obtained its first baseline on May 3, 2016. Due to the recent establishment of the program’s first baseline, a history of cost, schedule, and technical performance has not been established. Therefore, the cost, schedule, and technical performance is not discussed.",
"The DEAMS Inc 1 program is expected to provide the Air Force with an entire spectrum of financial management capabilities, including collections; commitments and obligations; cost accounting; general ledger; funds control; receipts and acceptance; accounts payable and disbursement; billing; and financial reporting. The DEAMS program is also intended to be a key component of DOD’s solution for achieving fully-auditable financial statements by September 30, 2017, as required by the National Defense Authorization Act for Fiscal Year 2010.\nProgram essentials (as of October 2016)\nDOD component: Air Force Program owner: Air Force Financial Management Prime contractors: Accenture and Kearney Total number of contractors (as of May 2016): 29 As of June 2016, the DEAMS Inc 1 program was in the limited deployment phase. In March 2016, the program was approved for limited deployments at smaller major commands. Since then, the program has undergone a Critical Change due to schedule slippage of the threshold full deployment date of more than a year. However, the Critical Change report was not completed at the time of our review. Specifically, the DEAMS Inc 1 program was not demonstrating enough progress towards operational effectiveness, suitability, and survivability to reach the full deployment date within one year of the milestone objective. In addition, the program office identified requirements management and technical risks as areas that pose risks to successfully meeting schedule milestones.\nAs of July 2016, the DEAMS Inc 1 program’s total life-cycle estimate was $1,563.7, an increase of $124.9 million (9 percent) from the original life- cycle estimate of $1,434.3 million. In addition, the program’s cost estimate decreased by $49.0 million (-8 percent) when compared to the original total acquisition estimate of $641.1.\nThe DEAMS Inc 1 program was undergoing a critical change due to schedule slippages. The full deployment date has been exceeded by more than a year. However, a Critical Change report had not yet been issued at the time of our review.\nDid not fully meet all of the system performance targets The DEAMS Inc 1 program had partially met the system performance targets. Specifically, 6 of the 9 performance targets have been met, while 3 have not.",
"The GCSS-A Inc 1 program is a commercial off-the-shelf enterprise resources planning system that is expected to provide users with supply, maintenance, property, integrated materiel management, and management functionality and support. It uses non-developmental items made up of software and server hardware and has two components: GCSS-Army, which provides logistics and financial operations, and the Army Enterprise System Integration Program, which is expected to provide enterprise hub services, master data management, and business intelligence.\nProgram essentials (as of October 2016)\nDOD component: Army Program owner: Assistant Secretary of the Army, Acquisition, Logistics and Technology Prime contractor: Northrop Grumman Total number of contractors (as of May 2016): Northrop Grumman As of March 2016, the GCSS-A Inc 1 program was in the production and deployment phase of the Defense Acquisition Management System. According to the 2016 Annual Report, the program was on track to remain within schedule, cost, and performance thresholds. However, the GCSS- A Inc 1 program realized a decrease of $16 million in funding that could potentially cause, in part, a six-month slip in fielding with a completion date of March 2018.\nAs of May 2016, the GCSS-A Inc 1 program’s total life-cycle estimate was $3,910.4 million, a decrease of $58.5 million (-1.5 percent) from the original life-cycle estimate of $3,968.9 million. The current total acquisition estimate was $1,932.7 million, an increase of $100.8 million (5.5 percent) from the original total acquisition estimate of $1,831.9 million.\nThe GCSS-A Inc 1 program reached the full deployment decision in December 2012, 10 months after the objective date of February 2012, and 4 months after the threshold date of August 2012. This represents a significant change from the original estimate of February 2012. The program office cited the potential for a 6-month slip in schedule to meet the full deployment date of September 2017. According to a MAIS summary report, the program conducted a trade-off analysis to minimize a 6-month slip in fielding, as a result of a $16 million decrement in 2016 funding. Other challenges in meeting schedule include requirements management, insufficient human resources, and the possibility for Army schedule changes. However, the program reports they are on schedule for full deployment prior to the threshold schedule date of March 2018.\nMet all of the system performance targets The GCSS-A Inc 1 program had met both of the systems performance targets which were (1) net ready, and (2) mission critical functions.",
"The GCSS-MC LCM Inc 1 program is a portfolio of systems that is expected to support logistics elements of command and control, joint logistics interoperability, and secure access to and visibility of logistics data. As a program within GCSS-MC, Increment 1 is based on the implementation of Oracle e-Business Suite 11i as the core software package. It is expected to provide the foundation for all future Marine Corps logistics systems modernization.\nProgram essentials (as of October 2016)\nDOD components: Department of the Navy, United States Marine Corps Program owner: Deputy Commandant Installations and Logistics Headquarters Marine Corp Prime contractor: N/A, managed by the federal government Total number of contractors (as of May 2016): Not applicable As of March 2016, the GCSS-MC LCM Inc 1 program had been fully implemented and reported as a closed acquisition program.\nAs of March 2016, the GCSS-MC LCM Inc 1 program’s total life cycle cost estimate was $1,821.70 million, an increase of $1,360.3 million (295 percent) from the original total life cycle cost estimate of $461.4 million. The GCSS-MC LCM Inc 1 program’s current total acquisition cost estimate was $556.7 million, an increase of $362.3 million (186 percent) from the original estimate of $194.4 million.\nThe GCSS-MC LCM Inc 1 program had a significant change in reaching full deployment. The program reached the full deployment date in December 2015. When compared to the original date of May 2010 for full operational capability (equivalent is full deployment), this resulted in a 5 year and 7 month delay. The program is fully implemented.",
"The iEHR Inc 1 program is expected to deliver two user capabilities—a medical single sign on that streamlines the login process to allow users to sign in once and leverage securely stored credentials to automatically access the other available applications, and a context management capability that will automatically present a patient’s data within all applications. Other deliverables include enhanced infrastructure services, a development test center/environment configuration, and clinical data repository upgrades.\nProgram essentials (as of October 2016)\nDOD component: Defense Health Agency Program owner: PEO DHMS Prime contractor: General Dynamics Information Technology Total number of contractors (as of May 2016): Not applicable As of March 2016, the iEHR Inc 1 program was in the sustainment phase and, according to a 2016 MAIS Annual Report, the program is closed out as an acquisition program.\nThe iEHR Inc 1 program’s March 2015 estimate for total life-cycle cost was $307.6 million, a decrease of $718.3 million (-70 percent) from the original total life-cycle estimate of $1,025.9 million. Likewise, the program’s total estimated acquisition cost was $249.3 million, a decrease of $117 million (-32 percent) from the original total acquisition cost estimate of $366.3 million. The reduction in estimated cost was primarily because of reductions in the program’s scope.\nThe iEHR Inc 1 program’s original objective schedule estimate for full deployment decision was December 2013. When compared to the actual full deployment decision date of November 2014 with the original date, the program’s schedule slipped 11 months. The program achieved full deployment in April 2015, 1 month ahead of schedule.",
"The IPPS-A Inc 1 program is expected to provide a 24-hour, web-based, integrated human resources system to soldiers, human resource professionals, combatant commanders, personnel and pay managers, and other authorized users. Specifically, the system is expected to provide a single, multi-component, trusted database with a single record for all Army soldiers, and serve as a trusted data source for personnel and human resources data for the entire Army. Soldiers will have web- based access to their personnel data, enabling them to better manage their careers and ensure accuracy of information. The system will allow for interface communications and new multi-component reports that include a Soldier Record Brief for all Army components (Active, National Guard and Reserve).\nProgram essentials (as of October 2016)\nDOD component: Department of the Army Program owner: Department of the Army, Deputy Chief of Staff, G-1 Prime contractors: EDC Consulting, LLC - System Integration, Booz Allen Hamilton-Support Services Total number of contractors (as of May 2016): N/A: Program is in sustainment As of March 2016, the IPPS-A Inc 1 program had achieved full deployment and was in the sustainment phase. The program was re- baselined after implementing strategic recommendations by an independent review team established in June 2013 that determined the system design was sufficient to meet Increment I requirements. The re- baselined acquisition program baseline was signed by the Milestone Decision Authority in February 2015.\nAs of January 2015, the IPPS-A Inc 1 program’s total estimated life-cycle cost was $368.9 million, an increase of $10.5 million (3 percent) from the original total estimated life-cycle cost of $358.4 million. The total estimated acquisition cost was $191.4 million (as of February 2015), an increase of $34.4 million (22 percent) from the original total acquisition cost of $157 million. According to program officials, the increase in cost was a direct result of deferring continuity of operations requirements and capturing the testing environment requirement under Increment 2.\nThe IPPS-A Inc 1 program achieved Milestone C and Full Deployment Decision about 6 months after the original threshold dates in August 2013 and October 2013, respectively. During the acquisition, the delay associated with the slip for a Milestone C decision triggered a significant change to the program’s schedule. The program has achieved full deployment and is now in the sustainment phase.",
"The IPPS-A Inc 2 program is expected to provide a 24-hour, web-based, integrated Human Resources system for Army personnel. It is to deliver an integrated personnel and pay services for all Army components (Active, National Guard, and Reserve), building on a trusted database delivered by the IPPS-A Inc 1 program. The IPPS-A Inc 2 program is planned to improve the Army’s financial management processes in support of military personnel and payroll by linking the personnel and payroll functions for all Army personnel, eliminating duplicate data entry, reducing complex system maintenance, and minimizing pay discrepancies. The IPPS-A Inc 2 program is expected to account for status changes between Active, Reserve, and National Guard components to ensure accurate service time, minimize impact on individual pay, credit for service, and other benefits.\nProgram essentials (as of October 2016) DOD component: Department of the Army Program owner: Department of the Army, Deputy Chief of Staff, G-1 Prime contractor: CACI-System Integration, Booz Allen Hamilton-Support Services Total number of contractors (as of May 2016): 38 As of March 2016, the IPPS-A Inc 2 program is in the development and deployment phase of the defense acquisition life cycle. A Milestone B decision was achieved in December 2014. In fiscal year 2016, the program completed several reviews—system requirements, system functional, and integrated baseline. The program indicated requirements growth as an area of potential risk.\nAs of March 2016, the IPPS-A Inc 2 program’s total life-cycle cost estimate was $2,081.9 million, an increase of $330.9 million (19 percent) from the original estimated life-cycle cost of $1,751.0 million. The current total estimated acquisition cost estimate was $820.2 million, an increase of $94.3 million (13 percent) from the original estimated acquisition cost of $725.8 million.\nThe IPPS-A Inc 2 program achieved Milestone B on 19 December 2014, within the planned threshold schedule.\nThe IPPS-A Inc 2 program was still early in development and system performance data was not available.",
"The ISPAN Inc 4 program is expected to be a system-of-systems that spans multiple security enclaves for strategic and operational level planning and leadership decision making. The system is composed of two primary components: (1) a global adaptive planning collaborative information environment that manages strategy-to-execution planning across all United States Strategic Command (USSTRATCOM) mission areas and (2) a mission planning and analysis system that supports developing nuclear and conventional force application plans. Both components establish a framework to support the USSTRATCOM’s effects-based planning and analysis activities.\nProgram essentials (as of October 2016)\nDOD component: Air Force Program owner: USSTRATCOM Prime contractors: BAE, Leidos, Lockheed Martin, and Northrop Grumman Total number of contractors (as of May 2016): 19 As of June 2016, the ISPAN Inc 4 program was in the engineering and manufacturing development phase of the Defense Acquisition Management System. According to officials, the program was on track to remain within the schedule, cost, and performance thresholds identified in the original estimate, with no major risks. The program has not been rebaselined.\nThe ISPAN Inc 4 program’s current cost estimates have not changed since their first estimate.\nThe ISPAN Inc 4 program’s current schedule estimates have not changed since their first estimate The ISPAN Inc 4 program was still early in development and system performance data was not yet available.",
"The JMS Inc 2 Program is expected to replace the legacy Space Defense Operations Center hardware and services with extensible and sustainable infrastructure. The effort is planned to integrate components of the Space Situational Awareness mission applications and Command and Control capabilities into the Joint Space Operations Center to create timely, actionable knowledge necessary for maintaining space superiority and exercising command and control capabilities of space forces.\nProgram essentials (as of October 2016)\nDOD component: Air Force Program owner: Air Force Space Command Prime contractor: N/A, managed by federal government Total number of contractors (as of May 2016): 7 As of March 2016, the JMS Inc 2 program was in the engineering and manufacturing development acquisition phase. Due to issues associated with schedule delays of more than 12 months and acquisition development costs increasing more than 25 percent, the program underwent a critical change. A critical change report was delivered to Congress in September 2016 due to the delayed completion of the program’s Milestone C and full deployment decision by more than 12 months. According to the report, three factors that caused a critical change were (1) the program’s original schedule was aggressive and contained a significant level of concurrency, (2) funding and manpower issues, and (3) contracting issues.\nAs of March 2016, the JMS Inc 2 program’s total life-cycle cost estimate was $965.9 million, a decrease of $134.6 million (-12 percent) from the original total estimate of $1,100.5 million. The latest estimate for total estimated acquisition cost was $462.8 million, an increase of $150.1 million (48 percent) from the original acquisition cost estimate of $312.7 million. The decrease for the total life-cycle cost estimate was because the original estimate for operations and sustainment costs was 20 years after fielding while the new estimate is for 10 years after fielding.\nDue to significant delays in the JMS Inc 2 program’s aggressive schedule, the program underwent a rebaseline effort and issued a critical change report in September 2016. The new estimate for a full deployment decision is May 2019. With an original schedule date of July 2016, this represents a 2-year, 10-month slippage.\nThe JMS Inc 2 program was still early in development and system performance data was not yet available.",
"The LMP Inc 2 program is expected to deliver an enterprise solution that builds, sustains, and generates warfighting capabilities using a fully- integrated supply chain and maintenance, repair, and overhaul system. The LMP Inc 2 program’s support is critical to the Army’s ability to achieve an integrated system that enables materiel readiness and asset management and accountability, architecture, and acquisition compliancy. When deployed, it is expected to deliver capabilities that address critical Army Materiel Command requirements for automation of the industrial base shop floor operations, standardization of ammunition automatic identification technology, non-Army managed items management, Army prepositioned stock planning, national maintenance program, and the expansion and refinement of the integration between Army enterprise resource planning systems.\nProgram essentials (as of October 2016)\nDOD component: Army Program owner: PEO EIS Prime contractor: CSRA, LLC Total number of contractors (as of May 2016): 188 As of June 2016, the LMP Inc 2 program was in the operation and support phase of the acquisition life cycle. The program went to full deployment in September 2016. The program will continue to provide national level logistics and financial operations to Army arsenals and depots.\nAs of July 2016, the LMP Inc 2 program’s total estimated life-cycle cost estimate was $736 million, an increase of $6.9 million (1 percent) from the original total life-cycle cost estimate of $729.9 million. Likewise, the total current estimated acquisition cost estimate was $419.2 million, an increase of $14.1 million (3 percent) from the original estimate of $405.1 million. However, these increases were within the threshold estimate established for the program.\nThe LMP Inc 2 program had a schedule slip of 5 months when comparing the original objective full deployment decision date of October 2015 to the current estimate of July 2016. However, the schedule slip was within the established threshold date of April 2016.\nMet all of the system performance targets The LMP Inc 2 program had met all seven of the system performance targets which were (1) support net-centric military operations, (2) enter and be managed in the network, (3) net readiness exchange information, (4) survivability system information assurance, (5) survivability information assurance system disaster recovery, (6) sustainment operational availability, and (7) training proficiency level.",
"The Teleport Gen 3 program is expected to be a satellite communications gateway that will enable the transportation of voice, video, and data information to deployed forces, and links the deployed warfighter to the sustaining base. The system is expected to provide expanded system capacity, throughput, and functional capabilities to greatly enhance support to tactical and deployed warfighters worldwide.\nProgram essentials (as of October 2016)\nDOD component: Defense Information Systems Agency Program owner: DISA Component Acquisition Executive Prime contractors: Booz Allen Hamilton, Femme Comp Inc., and Itility Total number of contractors (as of May 2016): 5 As of July 2016, the Teleport Gen 3 program was in the production and deployment acquisition phase.\nAs of July 2016, the Teleport Gen 3 program’s current total life-cycle cost estimate was $575.3 million, an increase of $11.6 million (2 percent) from the original estimate of $563.7 million.\nThe Teleport Gen 3 program had a schedule slip of 3 years and 2 months, from January 2013 to March 2016 when comparing the original baseline Milestone C (Gen 3, Phase 3) objective schedule estimate.\nDid not fully meet all of the system performance targets The Teleport Gen 3 program’s Phase 1 performance target had been met. However, performance targets for Phases 2 and 3 had not been met. According to the program office, all developmental and operational testing had been completed for Teleport Gen 3 Phases 1 and 2. Additional testing is planned for Phase 3.",
"The TMC program is a suite of systems that is expected to provide mission command computing capabilities to Army commanders and their staffs, consisting of a user-customizable common operating picture enabled with real-time collaboration. These capabilities, together with voice-over-internet-protocol, will provide real-time situational awareness and decision support across the formation (battalion thru Army Service Component Command). A component of the mission command capability is the ability to layer information from multiple functions on the same map display and share among command posts, allowing all parties to have a common view.\nProgram essentials (as of October 2016)\nDOD component: Army Program owner: Mission Command Prime contractor: General Dynamics (previous); currently a government led effort by Army Research and Development Engineering Center Total number of contractors (as of May 2016): N/A. Army is the lead As of March 2016, the TMC program is currently post Milestone C. The program has been rebaselined two times. A critical change report was issued in response to a cost breach caused by a growth in the program’s scope growth that was considered a “fact of life” change. As of March 2016, program officials reported they are on track to remain within the schedule, cost, and performance thresholds identified in the original estimate.\nAs of March 2016, the TMC program’s total life cycle cost estimate was $2,315.50 million, an increase of $1,421.7 million (159 percent) from the original total life cycle cost estimate of $893.80 million. The TMC program’s latest total acquisition cost estimate was $2,192.1 million, an increase of $1,371.7 million (167 percent) from the original acquisition estimate of $820.40 million in March 2016. We reported in March 2016 that the Army’s TMC program estimated program development costs had increased by 45 percent over the original estimate due to program scope changes derived from the realignment of Command Post of the Future as a foundation for Mission Command Collapse, the integration of Personalized Assistant that Learns, and the incorporation of future force requirements. According to a 2016 MAIS Annual Report, the program was on track to remain within the schedule, cost, and performance thresholds identified in the original estimate.\nAs we reported in our March 2016 report, the TMC program experienced a slight slippage in schedule (3 months), however, it was within the established threshold date. Program officials report they are still on track to reach full deployment by December 2018.\nMet all of the system performance targets As of March 2016, the TMC program had met all three of the performance targets which were (1) net ready, (2) display the common operational picture, and (3) disseminate (create and exchange) orders.",
"The TMIP-J Inc 2 program is expected to integrate components of the Military Health System sustaining base systems and the Services´ medical information systems to ensure timely interoperable medical support for mobilization, deployment, and sustainment of all theater and deployed forces. The system is expected to enhance clinical care and information capture at all levels of care in theater, transmits critical information to the theater commander; the evacuation chain for combat and non-combat casualties; and forges the theater links of the health record to the sustaining base and the Department of Veterans Affairs. The TMIP-J program is the medical component of the Global Combat Support System.\nProgram essentials (as of October 2016)\nDOD components: DOD, Joint Participants: U.S. Army; U.S. Navy and Marine Corps; U.S. Air Force Program owner: PEO Defense Healthcare Management Systems Prime contractor: KRATOS Inc. Total number of contractors (as of April 2016): 6 Program status As of July 2016, the TMIP-J Inc 2 program was reported as fully deployed and was in the sustainment phase. The system consists of two increments—Increment 1 was fielded in 2003, and development of Increment 2 was being done in three releases. Release 1 was fielded in 2009 and Release 2 was fielded in 2013. Release 3, is the last major release. In February 2016, the Under Secretary of Defense for Acquisition, Technology, and Logistics declared that the TMIP-J Inc 2 program had met its full deployment decision action items. He delegated Milestone Decision Authority to the Program Executive Officer, Defense Healthcare Management Systems, and authorized the Services to declare full deployment in accordance with their Service acquisition strategies.\nExceeded planned cost estimate As of July 2016, the TMIP-J Inc 2 program’s total life cycle cost estimate was $1,056.4 million, an increase of $380.3 million (56 percent) from the original estimate of $676.1 million. The total acquisition cost estimate was $608.2 million, an increase of $374.9 million (161 percent) from the original estimate of $233.3 million.\nExceeded planned schedule estimate The TMIP-J Inc 2 program had a 5-year, 6-month change to the full deployment decision date when a breach occurred. Program officials stated the schedule change was due to a mandate to increase the scope of the program. In turn, a revised acquisition program baseline was approved in January 2012. The objective date for full deployment changed from June 2008 to December 2013, and a threshold date changed from December 2008 to June 2014. The TMIP-J Inc 2 program reached full deployment in May 2016 and has transitioned into the sustainment phase.\nMet all of the system performance targets The TMIP-J Inc 2 program had met all ten of the performance targets which were (1) net ready, (2) data transfer data availability, (3) data availability, currency, and responsiveness—medical logistics visibility, (4) data availability, currency and responsiveness—patient visibility, (5) data availability, currency and responsiveness—medical infrastructure readiness, (6) data availability, currency and responsiveness—individual medical readiness, (7) data availability, currency and responsiveness— illness and injury rates, (8) data availability, currency and responsiveness—reportable medical events, (9) standards compliance, and (10) system operational availability and responsiveness.",
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"In addition to the contact name above, the following staff also made key contributions to this report: Eric Winter (Assistant Director), John Ortiz (Analyst in Charge), Neha Bhatt, Nancy Glover, Kate Nielsen, and Teresa Smith."
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"question": [
"What did GAO notice about the MAIS programs it reviewed?",
"What cost changes did the MAIS programs experience?",
"What schedule and target changes did the MAIS programs experience?",
"Why did 4 programs partially meet their targets?",
"How can a risk management process be effective?",
"How did one program not fully implement risk management processes?",
"What practices should programs have?",
"What is the result of a program not having these practices?",
"What should the programs do?",
"What issue was there with this requirement?",
"How might the program with this issue not be as effective?",
"What purpose do MAIS programs serve?",
"Why did GAO report on MAIS programs?",
"What does GAO's report describe about MAIS?",
"What did GAO review?",
"What in-depth reviews did GAO perform?",
"Why were in-depth reviews performed on the selected programs?",
"How did GAO interact with the programs for the reviews?"
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"summary": [
"Most of the 18 selected Department of Defense (DOD) major automated information system (MAIS) programs that GAO reviewed had experienced changes in their planned cost and schedule estimates and half of the programs had met their technical performance targets.",
"Specifically, 16 programs experienced changes in their cost estimates ranging from a 39 percent decrease ($1.47 billion) to a 469 percent increase ($1.63 billion). The average cost increase was $457.2 million among the 11 programs reporting an increase.",
"Fourteen programs experienced schedule delays, which ranged from 2 months to over 13 years. Finally, half of the MAIS programs fully met all of their technical performance targets.",
"Of the remaining nine programs, 4 four had partially met their target because each was still conducting tests. The other five programs were in the early stages of system development and had not begun testing.",
"An effective risk management process identifies potential problems before they occur.",
"For example, one Army program did not have standard operating procedures for defining thresholds or bounds to manage risk. Unless such procedures are defined, the program will not have the tools needed to define risk management activities, including whether and how certain risks are prioritized.",
"Further, programs should include practices to identify potential problems so that risk-handling activities may be planned and invoked across the project to mitigate the potential for adverse impacts.",
"However, one Air Force program did not develop an overall risk mitigation plan to guide the implementation of individual risk mitigation activities. Without an overall risk plan to guide individual development efforts, those efforts cannot be managed cohesively.",
"Programs should, among other activities, establish roles and responsibilities to manage testing and integration activities, including a chief developmental tester to oversee testing activities.",
"However, one Air Force program reported difficulty in hiring a qualified individual to perform these duties.",
"Until this position is filled, the program may not effectively manage risks and verify compliance with system acquisition and operational requirements.",
"DOD's MAIS programs include systems that are intended to help the department sustain its key operations.",
"The National Defense Authorization Act for Fiscal Year 2012 includes a provision for GAO to select, assess, and report on the department's MAIS programs annually through March 2018.",
"This is GAO's fifth report and (1) describes the extent to which selected MAIS programs have changed their planned cost and schedule estimates and met technical performance targets and (2) assesses the extent to which selected MAIS programs have used leading IT acquisition practices, including risk management.",
"GAO selected and reviewed cost, schedule, and performance data for 18 of DOD's MAIS programs that were non-classified and had an acquisition performance baseline.",
"In addition, GAO performed an in-depth review of 5 of the programs, comparing selected IT management practices used by them to leading practices for requirements and risk management and systems testing and integration.",
"The five selected programs were from at least two military services and had not been assessed by GAO in the past year.",
"GAO also interviewed relevant program officials."
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{
"title": [
"",
"Introduction",
"The Cost Structure in a Payment Card Transaction",
"The Components",
"Merchant Restraints",
"The Optimal Payment Card System",
"The Problem with Cost Regulation",
"Allowing Merchants to Pass Through the Interchange Fees",
"The Durbin Interchange Fee Amendment to S. 3217, and the Credit Card Fair Fee Act of 2009 (H.R. 2695)",
"The Durbin Amendment",
"Credit Card Fair Fee Act of 2009 (H.R. 2695)19",
"Reaction to the Durbin Amendment, H.R. 2695 and H.R. 5546",
"Implications"
],
"paragraphs": [
"",
"Payment card interchange fees, which were paid without contention for almost seven decades, are now the source of controversy. An interchange fee is paid by the merchant's bank to the cardholder's bank (that issued the card) after the cardholder purchases goods or services with a payment (credit or debit) card.\nThe Durbin Amendment to S. 3217 as amended and incorporated into the Senate-passed version of H.R. 4173 proposes to ensure that small businesses and other entities that accept debit cards pay a reasonable and proportional price for using the payment card networks and prohibit the payment card network from imposing anti-competitive restrictions on small businesses and other entities that accept payment cards, such as providing discount to customers who pay with cash.\nEarlier in the 111 th Congress, the House Judiciary Committee had introduced interchange fee legislation. On June 4, 2009, House Judiciary Chairman John Conyers Jr. introduced the Credit Card Fair Fee Act of 2009 ( H.R. 2695 ), which would require voluntary interchange fee negotiations among merchants, the Visa and MasterCard associations, and card-issuing banks. It would also require that the negotiating parties file the negotiation schedule with the U.S. Attorney General within one month of the enactment of the bill. If the negotiating parties do not file such a schedule within one month, the Attorney General would issue the schedule. The act would grant the negotiating parties limited antitrust immunity for negotiation of access fees and terms for using the electronic payment system to make electronic transactions. Some opponents of H.R. 2695 argue that the bill would force interchange negotiations whether or not the stake holders are interested in such negotiations. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 ( P.L. 111-24 ) was enacted on May 22, 2009, two weeks before H.R. 2695 was introduced. P.L. 111-24 did not mandate any change in interchange fees. However, it directed the Government Accountability Office (GAO) to complete a study of the interchange issues within six months of its enactment.\nIn the 110 th Congress, Chairman Conyers established a congressional task force to look into interchange fees because some merchant and consumer groups had complained that these fees are cutting into merchants' profits and are costing the cardholders and non-cardholders, who ultimately pay the fee in the price of the goods or services. According to Chairman Conyers, \"in 2005, U.S. families paid an average of more than $300 for hidden interchange fees including households that do not even use credit cards.\" Another source estimated that, \"in 2007, retail merchants in the United States will pay banks issuing Visa and MasterCard payment cards more than $30 billion in collectively set per transaction interchange fees.\" At issue are increases in interchange fees set by the credit card associations like Visa and MasterCard and card-issuing banks or companies like Discover Card and American Express to enable merchants to gain access to the associations' and issuers' electronic payment network.\nInterchange fees have been rising since the 1990s, despite diminishing fraud losses and technological advances in communications that lowered the costs of accessing the electronic payment system. Merchants argue that the card associations have not negotiated these fees with them but instead present them as take it or leave it offers. Economists who have studied the payment card market attribute the higher interchange fees to the nature and structure of the market, which is not the traditional market but a two-sided market. Within this structure, they have identified two conditions that, combined, could lead to high interchange fees. The conditions are where the payment card issuers have market power and merchants have an inelastic demand for accepting payment cards. Some commentators note that if it is determined that interchange fees are excessive as a result of issuing banks' marketing power, those circumstances could lead to the government imposing legal or regulatory caps on interchange fees, as was the case in Australia and the United Kingdom. Related questions have been raised concerning the mechanism the government might use to induce merchants to lower their prices and pass the excess revenues back to the cardholders. In these two countries, the pass back of the fees through price reduction has been voluntary, and there is no formal evidence that merchants lowered their prices.\nThis report focuses on the Visa and MasterCard card associations that account for more than three-fourths of the payment card market, with Visa accounting for 44% and MasterCard accounting for 31% of the market in the United States in 2008. The report does not discuss unitary payment card systems, such as American Express and Discover cards, that issue virtually all their own cards and sign up their own merchants. This report does not analyze the application of antitrust statutes to interchange fees. The report begins with a discussion of the nontraditional structure of the payment card market. The second section is an analysis of the problem of the optimum level of payment cards to achieve the highest social welfare benefit for cardholders and merchants. The third section discusses the Durbin Amendment to the Restoring American Financial Stability Act of 2010 ( S. 3217 ) and provisions of the Credit Card Fair Fee Act of 2009 ( H.R. 2695 ) and 2008 ( H.R. 5546 ), respectively. The last section discusses the implications of the analysis.",
"",
"There are several components of cost in a payment card transaction. When a consumer makes a purchase with a payment card, the merchant's account at the merchant's bank, the acquirer bank, is credited with the purchase amount, less an amount called the merchant discount fee . The merchant discount fee consists of a flat rate in the amount ranging from a few cents to a dollar or a percentage amount of the purchase. The total fees usually range from 1% to 3% but could be as high as 15% for merchants who are of high risk because of low transaction volume, limited credit history, or the nature of their business. The acquirer bank retains part of the merchant discount fee, and the remainder is remitted to the network association. The interchange fee is this remittance to the network association. The remittance to the card issuer is also called the interchange fee . The network association that receives the remittance from the acquiring bank keeps a small portion of it for the costs of authorization, clearing, and settling the transaction. The association remits the rest to the issuer bank to cover the costs of funding the purchase, chargebacks (returns), and fraud risks.\nThe network association sets the interchange rates annually. The level of the fees charged by the network is partially based on the interchange rate, which is set by the issuing and acquirer banks. Thus, the merchant discount fee is the interchange rate plus an additional percentage taken by the acquirer bank. However, the interchange rate does not vary much on the basis of the cost of the transaction. It varies mainly on the merchant's type and the level of bundled reward points attached to a particular payment card. As mentioned above, the merchant's discount fee varies by the merchant's risk profile and the acquirer bank profit component of the fee. Overall, the interchange rates are lower in stable, low-margin industries like groceries and higher in small volume, high-risk businesses like adult Internet websites.",
"Explicit costs in the Visa or MasterCard association network reflect the associations' rules. These rules include merchant restraints that are designed to increase card usage at the expense of all other types of payments and to maintain higher interchange rates: (1) Merchants are forbidden to impose a surcharge for the use of payment (credit or debit) cards [no surcharge rule], even though card transactions cost merchants more than some other payment methods. The effect is to prevent merchants from passing on the cost of the payment card directly to their customers, who use the card, which would give their customers a disincentive to use the card. Thus, the merchants absorb the payment card transaction costs. (2) Merchants are required to take all credit cards bearing the card association brand [honor-all-cards rule], and they are required to accept these cards at all outlets [all-outlets rule]. In addition, (3) merchants are prohibited from offering discounts to particular types of cards [non-differentiation rule]. These rules prevent merchants from operating at overall minimum cost because the rules force them to accept all [all or none rule] the association's cards, even though different cards have different costs attached to them.\nTo summarize the description of the mechanism, Figure 1 shows an example in which the merchant discount fee is 2.6% as set by the banks and the card association. For this discount, the merchant may attract cardholder customers and potentially higher sale volume, guaranteed payments, and reduced administration and accounting costs, as well as increased checkout efficiency. On the cardholder side, the card issuer bank issues payment cards to cardholders at its own costs, including card production and advertisements. In the beginning of card issuance, cardholders paid an annual fee for most cards. Today, issuer banks are profitable enough from the lines of credit attached to their cards as well as related fees (such as late and overdraft fees) that they generally no longer demand annual fees. More important, issuer banks are in highly competitive markets where the elasticity of demand for payment cards is high enough to force the fees to practically zero.\nIn a card association network, the association serves as an active umbrella organization for four parties: (1) the acquiring bank and (2) the merchant, on one side, and (3) the issuing bank and (4) the cardholder, on the other. Starting at the bottom of Figure 1 , the cardholder purchases goods or services for $100.00 with a payment card. The accounting information goes to the merchant's acquirer bank as an account receivable. The acquirer bank credits the merchant's account $97.40, which is the merchant discount that was agreed to by accepting the card. The acquirer bank takes a 0.5% fee for its services and asks the card association for authorization for the $100.00 payment. The association sends the acquirer bank a payment of $97.90 as the association deducts its 0.1% for authorization, clearing and settling fees from the amount it receives from the issuer bank. The card association then requests authorization from the payment card's issuer banks, which sends the card association $98.00, after deducting its 2% interchange fee from the $100.00.\nThe issuer bank usually extends the $100.00 credit to the cardholder if the payment card is a credit card, and there is no balance on the credit card, in which case, the cardholder enjoys the $100.00 float. The float is the use of the funds in transition of payment until the payment is actually collected by the issuer bank. The value of the float to the cardholder depends on the market rate of interest and when the purchase is made in the cardholder's payment cycle. On the other hand, if the payment card is a debit card, the issuer bank may deduct the $100.00 from the cardholder's deposit account immediately. In either case, processing is done electronically in seconds where all five parties are credited and debited the appropriate amounts.",
"Students of the process of setting interchange fees, which include regulatory authorities, economists, and lawyers, have offered two proposed solutions to rising interchange fees. The first would regulate the cost that a card system may use to calculate its interchange fees. The second would permit merchants to put a surcharge on payment card transactions so that interchange fees could be passed on directly to the cardholder using the credit card. Each of these solutions has its own problems in terms of maximizing the overall social benefits of a payment card system.",
"It is argued that interchange fees based on card issuers' cost (which is now implemented in several countries, such as Australia) could solve the problem of rising interchange fees. Others argue that interchange fees should be abolished, set to zero. Issuers can cover their costs by raising interest rates and annual fees for the card. However, economists have pointed out that price regulations based on costs have historically been plagued with practical problems even in industries in which theory would predict that the optimal price can be based on cost. The practical reason for these theories' failure to determine the optimal price based on costs is that a firm has little incentive to cut cost if its revenues are tied to those costs. However, in the case of interchange fees, economic theory also suggests that cost-based regulation would not be expected to produce the optimal interchange fee.\nEconomists have shown that, because of the nature of the credit card market, it would be very unlikely that the optimal interchange fee could be reached by setting it at zero or determining it strictly on a cost-based measure. As we can see from Figure 1 , the credit card market is two-sided: services are being sold to cardholders and merchants, and each side affects the other. Costs play a significantly reduced role in determining the optimal interchange fee or price. There are effectively two demand and supply curves to determine the optimal price. Maximizing output requires issuers and acquirers to set prices in a way that will provide proper incentives for cardholders to use and merchants to accept the payment card. Balancing costs in some fashion would achieve this result only if the elasticity of demand on both sides were equal. Furthermore, setting the fee to zero would maximize output only if on both sides of the two-sided market costs and demand were equal. Because neither is likely to be true, one should not expect either a cost-based or zero interchange fee to be optimal. This conclusion is supported by the newspaper subscription and advertising revenues described in an earlier footnote. In both the newspaper and the payment card cases, revenue transfers are necessary to maximize overall social welfare.",
"Some analysts would lift the prohibition that keeps merchants from surcharging card transactions. They believe that this would be fair because it would place the costs of the interchange fee on the party generating the costs. If the merchant was free to charge extra for using a particular card, cardholders would be paying the interchange fees that card issuers charge to the merchants. The card issuer would lose transaction volume, if the cardholders shift to another card with lower interchange fees or pay by cash as a result of the surcharge. This would give issuers an incentive not to raise the interchange fee above the optimal levels. However, a surcharge solution has practical as well as theoretical concerns. There is empirical evidence that suggests that high-volume merchants are reluctant to impose surcharges because of the administrative costs associated with alternative methods of payment such as the cost of handling cash. Most important, merchants will not impose surcharges because of fear of losing customers to competitors who do not surcharge.\nTheoretically, to maximize welfare in a two-sided market, a seller needs a way to discriminate between the two sides. When the rule prohibiting surcharge is eliminated, the division of benefits between merchants and cardholders becomes irrelevant. Only when the surcharge is constrained [with the no surcharge rule] does the payment card system concentrate on its charges on merchants and provide rebates to cardholders to induce card use. In a case where greater volume is needed to optimize the efficiency of the payment card system, the surcharge would raise costs to the cardholder equal to at least the benefits that the issuer can provide to the cardholder from the interchange fee income. Consequently, merchant surcharging of card transactions would prevent issuers from stimulating card use in the circumstances where greater volume is needed to optimize the efficiency of the payment system.\nA third solution to the interchange fee issue is the antitrust aspect of the payment card association, which is currently tied up in the courts. This solution is beyond the scope of this report. However, below, the report presents a summary of H.R. 2695 and H.R. 5546 that is related to the antitrust solution. In that regard, the economic assessment of the issue may contribute to the judicial and legislative determination of whether the Visa and MasterCard associations are monopolies and whether the domination of these associations warrants granting limited antitrust immunity to providers and merchants to negotiate interchange fees. Even though Visa and MasterCard have dominated the payment card volume since the 1970s, some analysts argue that it is difficult to see how banks are able to control the system and collectively harm the over all welfare of the society. The reason given is that within the association individual banks set virtually all their own fees and compete with each other. And, although interchange fees are set collectively, the associations are open to any bank or federally insured financial institution. Others argue, however, that larger banks dominate the association, because larger issuing banks have lower costs than the thousands of smaller issuers in the system. The more favorable cost structure enables larger banks to charge higher fees because of their market power. These higher fees are high enough to be beneficial to smaller banks, even though smaller banks face higher cost structures. In short, the card associations allow some smaller banks to piggyback on the marketing power of the larger ones.",
"",
"Even though interchange fees were not considered a contributing cause of the 2007-2009 financial crisis, the Restoring American Financial Stability Act of 2010 ( S. 3217 ), which addresses the regulatory failures that caused of the crisis, also contains provisions concerning interchange fees. Senator Durbin's Amendment on interchange fees that was adopted as part of S. 3217 as amended by the full Senate and incorporated into the Senate-passed version of H.R. 4173 mandates specific regulatory actions. The amendment applies to debit cards and contains no explanation of why it could not apply to other cards. Its purpose is to ensure that small businesses and other entities that accept debit cards pay a reasonable and proportional price for the use of the payment card networks and prohibits the payment card network from imposing anti-competitive restrictions, such as prohibiting discounts to customers who pay with cash, on small businesses and other entities that accept payment cards.\nSpecifically, the amendment mandates that the Federal Reserve Board establish rules regarding any interchange transaction fee that an issuer or payment card network may charge with respect to an electronic debit transaction. The rules must establish the amount of the fee for a debit transaction that shall be reasonable and proportional to the actual cost incurred by the issuer or payment card network with respect to the transaction. The board shall issue the final rules not later than nine months after the date of enactment of the Consumer Financial Protection Act of 2010. The amendment exempts small issuers that together with affiliates have assets less than $10 billion. It also limits anti-competitive payment card network restrictions by allowing businesses to offer discounts for using a competing payment card network, the network through contract can not prevent businesses from providing discounts or in-kind incentive for payment by use of cash, check, debit or credit card. A payment card network cannot restrict the setting minimum or maximum dollar value for acceptance of a debit transaction.\nThe effect of the Durbin Amendment would be to lower the cost to merchants for using the payment card network to process debit card transactions, but does not guarantee the cost to consumers will be lowered. In testimony before the House Judiciary Committee, Mr. Jushua R. Floum, general counsel and corporate secretary of Visa Inc argued the following:\n\"We've seen it now twice in other jurisdictions. The retailers don't lower their retail prices; they simply keep the revenue at the expense of the local community banks. So that's threat number one to consumers. Threat number two to consumers is they pay more for cards, and they get fewer rewards. The Reserve Bank of Australia, there's a quote—they're the regulators, they found out themselves. And in today's GAO report, just released, on Page 36, the GAO concluded that lowering interchange in Australia meant that—this is a quote—\"Cardholders have experienced a decline in the value of credit cards, reward points for most cards and an increase in annual and other consumer credit card fees.\" So consumers pay more; that's the second problem.\"",
"On June 4, 2009, House Judiciary Chairman John Conyers Jr. introduced the Credit Card Fair Fee Act of 2009 ( H.R. 2695 ) that would require voluntary interchange fee negotiations. It would also require that the negotiating parties file their negotiation schedule with the U.S. Attorney General within one month of the bill's enactment. If the negotiating parties do not file such a schedule within one month, the Attorney General would issue the schedule. The act would grant the negotiating parties limited antitrust immunity for negotiating access fees and terms to use the electronic payment system for making electronic payment transactions.\nIn the 110 th Congress, Chairman Conyers introduced a bill by the identical title, and the committee's task force on competition policy and antitrust laws held a hearing on this bill on May 15, 2008. The House Judiciary Committee held a markup session on July 16, 2008, after which the bill was reported as amended to the full House. On October 3, 2008, H.R. 5546 was reported as amended by the Committee on Judiciary ( H.Rept. 110-913 ). No further action was taken on the bill by the House, and no similar bill on interchange fees was introduced in the Senate in the 110 th Congress.\nBoth bills authorize providers and merchants to enter in voluntarily negotiated access agreements and declare that such voluntarily negotiated access agreements shall be given effect between the signatories in lieu of any other determination. The major difference between the 2008 and the 2009 bills is who would be responsible to make sure that negotiation take place. In the 2009 bill, the U.S. Attorney General would have the responsibility. In one version of the 2008 bill, it would have been a panel of three full-time electronic payment system judges, appointed by the Antitrust Division of the Department of Justice and the Federal Trade Commission Bureau of Competition, to determine the schedule of rates and terms for three-year periods. In the final version of H.R. 5546 that was reported to the House, the Antitrust Division of the Department of Justice would have been required to see that the negotiations take place as well as filing a report to the House and Senate Judiciary Committees detailing the negotiations and, if an agreement is reached, whether such access rates and terms will have an adverse effect on competition and how such rates compare with access rates and terms in current use in other countries.",
"Even though the Durbin Amendment exempt financial firms, including affiliates with assets less than $10 billion that would include most credit unions and community banks, the associations of both these groups of financial have not supported the amendment. The main reason for their opposition to changes in the existing interchange fee structure is that smaller issuers get practically the same interchange payment per transaction as larger institutions at a fraction of the cost. As a result, the interchange fee is a large profit center for credit unions and community banks. The proponents and opponents have not changed regarding interchange fee regulation since 2008.\nThe amendments and bills have gotten support from merchant and consumer groups and opposition from payment card companies and the banking community, including credit unions. In general, the reaction to the 2009 bill was not expected to be much different from those of the 2008 bill because the changes in the new bill did not address the provisions that resulted in support or opposition to the bill. The National Credit Union Association (NCUA) came out with an announcement of its opposition to H.R. 2695 that states that the bill would only benefit merchants, who are expected to support H.R. 2695 as they did H.R. 5546 . This is reflected in a statement by John J. Motley of the Food Marketing Institute about H.R. 5546 , \"a major milestone in our long-standing campaign for a fair, competitive and transparent credit card interchange fee system. The credit card company cartels fix the fees at levels that far exceed actual transaction costs. This legislation gives retailers the right to negotiate reasonable fees with the Visa and MasterCard networks.\" Consumer groups also supported the bill at the Task Force hearing on the bill. U.S. Pubic Interest Research Group consumer program director, Ed Mierzwinski, argued,\nAn oligopoly of issuers dominates the marketplace. They can do whatever they want. I am completely unconvinced that there is any competition in this marketplace. We are fortunate [the Antitrust Task Force] is shining light on the issue. This act would create a non-price control mechanism. It is a commonsense approach to the problem that will force the two sides to the bargaining table.\nIn contrast, the general council of Visa argued that the bill would suppress competition and innovation and result in unintended and harmful consequences for consumers. The American Bankers Association points out that the bill contains provisions that violate fundamental antitrust principles and will ultimately result in less competition and increased costs and reduced benefits for consumers. Despite receiving an exemption for most credit unions, the Credit Union National Association (CUNA) opposes government intervention in setting interchange fees. The Federal Trade Commission (FTC) opposed the bill because the commission has long discouraged exemptions from the antitrust laws, and the Justice Department's Office of Legislative Affairs opposes the bill on similar grounds as the FTC.\nOne important issue raised at the hearing on H.R. 5546 and is expected to be raised again in considering H.R. 2695 is whether merchants would pass on to their customers the savings they obtain from lower interchange fees. The representative from Visa suggested that there is no evidence that merchants have lowered their profits by passing on the lower cost of interchange fees to their customers. According to the testimony, there is little evidence that customers benefitted from the lower interchange fees, including the lower interchange fee case that was settled with Wal-Mart. In the case in Australia where the interchange fees were capped by regulation, the Royal Bank of Australia has not offered empirical estimates that savings from lower interchange fees have been passed on to consumers in terms of lower prices.",
"The economic assessment of the two-sided market is a critical part of analyzing the interchange fee issue. Merchant complaints are focused on the rise of the merchant discount rate, indicating that the acquirer banks' costs do not justify the merchant's discount fee that they collect from them. However, it is not clear that the merchants fully account for the costs of the issuing banks that are included in the discount fee. Some evidence shows that the amount of the merchant discount fee that the acquirer bank keeps is competitively determined; it is estimated to be about 0.5% of the transaction amount for most payment cards, including Discover and American Express. However, empirical evidence suggests that merchant's acceptance of payment cards has little to do with the acquirer bank's fees, because raising the acquirer fee did not show a reduction in card acceptance. Consequently, the focus turns to the cardholder and the issuing bank's side of the market. On this side, there is evidence that payment card pricing has a dramatic effect on card usage because of the ease of switching to another card or method of payment. Cardholders avoid using a card rather than paying more, which may justify the card association making larger payments to the issuer banks, which lowers the costs to the cardholder but provides little perceived benefit to the merchants.\nAnother implication concerns the market mechanism that would reverse any anti-competitive behavior existing in the payment card industry. For example, if it is determined that the interchange fee is currently the result of anti-competitive behavior on the part of the card associations and issuing banks, interchange fees should arguably be lowered. What mechanism might be used to ensure that the price of the goods and services is lowered to reflect the lower interchange fees? Although experience has shown that interchange fees can be lowered by regulatory caps and other government restrictions, there has been little discussion of how to pass the excess fees back to the cardholders. If the government just lowers the fee with the expectation that merchants will pass the savings back to cardholders, it might not occur. The government's regulatory caps would be redistributing revenues from the issuing banks to merchants. The result could be that the social benefit of the electronic payment card system is lowered, because the government's action would lower revenues to the card-issuing banks, causing them to issue fewer than the optimal number of cards to cardholders. With fewer cardholders using the payment system, merchants may not see the growth in customers they had in the past."
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"question": [
"What is an interchange fee?",
"How do merchants and cardholders deal with interchange fees?",
"How have interchange fees been changing?",
"What issue do merchants have with interchange fees?",
"Why do economists believe there are higher interchange fees?",
"What must banks do in the payment card market?",
"How is this system similar to newspapers?",
"How could a payment card system that needs more cardholders be optimal?",
"What could happen if there is an excess of revenue transfers?",
"What is the purpose of the Durbin amendment?",
"What does the Durbin amendment lack?",
"What mechanism is needed in the Durbin amendment?",
"How could capping interchange fees be beneficial to the Durbin amendment?",
"What does the report examine?",
"How will the report be updated?",
"What problem is there with payment cards?",
"What is the purpose of legislation in the House regarding payment cards?",
"What does the last section discuss?"
],
"summary": [
"An interchange fee is paid by the merchant's bank to a cardholder's bank (that issued the card) after the cardholder purchases goods or services with a payment (credit or debit) card.",
"Merchants and cardholders assert that they must accept excessive and increasing interchange fees set by the card associations such as Visa and MasterCard and member card-issuing banks.",
"Interchange fees have been rising since the 1990s, despite diminishing fraud losses and technological advances in communications that lower the costs of accessing the electronic payment system.",
"Merchants argue that the card associations have not negotiated these fees with them but instead present the fees as \"take it or leave it\" offers.",
"Economists who have studied the payment card markets attribute the higher interchange fees to the nature and structure of the market. This is not the traditional market, they point out, but a two-sided market where suppliers compete for two types of customers with different demand responses, like a newspaper that must attract both readers and advertisers.",
"In the payment card market, banks must attract cardholders and merchants, and a transfer of revenues is usually necessary to provide card-issuing banks an incentive to issue more cards, which provide more payment card users to merchants.",
"This is similar to newspapers, where the lower the subscription rates, the higher the readership and the higher the advertiser revenues.",
"For a payment card system that needs more cardholders to achieve the optimal benefits to cardholders and merchants, more revenue transfers may be needed to offset the cost of issuing more cards to cardholders.",
"There could be cases, however, where the revenue transfers are excessive, which would mean that the interchange fees are providing excess profits to issuer banks.",
"The Durbin Amendment (S.Amdt. 3989) on interchange fees was adopted. The amendment mandated specific regulations to applied debit cards to ensure that small businesses and other entities that accept debit cards pay a reasonable and proportional price for the use of the payment card network, and limit the payment card network from imposing anti-competitive restrictions on small businesses and other entities that accept payment cards.",
"The amendment does not address what some believe to be a critical part of the interchange fee issue that relates to legal or regulatory caps on the fees.",
"Specifically, presently there is not a mechanism that could be used to ensure that merchants lower their prices to pass the excess revenues back to the cardholders.",
"Specifically, presently there is not a mechanism that could be used to ensure that merchants lower their prices to pass the excess revenues back to the cardholders. In countries where interchange fees are capped, the governments have been relying on merchants to voluntarily lower prices.",
"This report examines the Visa and MasterCard card associations' systems.",
"This report will be updated as financial and legislative developments warrant.",
"The next section is an analysis of the problem of the optimum level of payment cards to achieve the highest social welfare benefit for cardholders and merchants.",
"The third section discusses the provisions in Senator Durbin's amendment and other legislation in the House that was not acted upon by the full House of Representatives that would grant the payment card stakeholders limited antitrust immunity for negotiating access fees and terms for using electronic payment card system.",
"The last section is a discussion of some implications of the analysis."
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CRS_R45451
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{
"title": [
"",
"Introduction",
"EPA's Greenhouse Gas Regulations",
"Standards for Power Plants (Clean Power Plan and NSPS)",
"Standards for the Oil and Gas Industry",
"Standards for Motor Vehicles",
"Air Quality Standards",
"Background",
"EPA's Review of the NAAQS",
"2020 Review of the Ozone NAAQS",
"2020 Review of Particulate Matter NAAQS",
"Other Issues",
"Air Toxics Regulations",
"Revision of Brick and Clay Standards",
"Review of Ethylene Oxide Standards",
"Mercury from Power Plants",
"New Source Performance Standards for Wood Heaters",
"Renewable Fuel Standard"
],
"paragraphs": [
"",
"Review of Clean Air Act regulations issued under the Obama Administration, with the possibility of their modification or repeal, has been a major focus of the Trump Administration since it took office in 2017. The U.S. Environmental Protection Agency (EPA) has conducted these reviews as part of the Trump Administration's \"regulatory reform\" initiative under which the Administration has directed federal agencies to evaluate existing regulations and identify those that should be considered for replacement, repeal, or modification. In addition, Executive Order (E.O.) 13783 has directed EPA and other federal agencies to review existing regulations and policies that \"potentially burden the development or use of domestically produced energy resources\" for consistency with policies that the E.O. enumerates, and as soon as practicable, to \"suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules.\" EPA rules to regulate greenhouse gas (GHG) emissions from power plants, cars and trucks, and the oil and gas sector have been of particular interest.",
"EPAs regulatory actions to limit GHG emissions have relied on authority that Congress granted the agency in the Clean Air Act (CAA) Amendments of 1970. Since 2007, the Supreme Court has ruled on two separate occasions that the CAA, as amended, authorizes EPA to set standards for GHG emissions. In the first case, Massachusetts v. EPA , the Court held that GHGs are air pollutants within the CAA's definition of that term and that EPA must regulate their emissions from motor vehicles if the agency finds that such emissions cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare. Following the Court's decision, in 2009, the agency made an endangerment finding. In the second case, American Electric Power, Inc. v. Connecticut , the Court held that corporations cannot be sued for GHG emissions under federal common law, because the CAA delegates the management of carbon dioxide and other GHG emissions to EPA: \"... Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants; the delegation is what displaces federal common law.\"\nEPA's GHG regulations have focused on six gases or groups of gases that multiple scientific studies have linked to climate change. Of the six gases, carbon dioxide (CO 2 ), which is produced by combustion of fossil fuels and is the most prevalent, accounts for about 80% of annual emissions of the combined group when measured as CO 2 equivalents.\nOf the GHG emission standards promulgated by EPA, four sets of standards, which have had the broadest impacts, are discussed below: those for power plants, the oil and gas industry, trucks, and light-duty vehicles (the latter two topics are combined under the heading \" Standards for Motor Vehicles \"). EPA finalized GHG standards for power plants in August 2015; set GHG emission standards for oil and gas industry sources in June 2016; finalized a second round of GHG standards for trucks in August 2016; and completed a Mid-Term Evaluation (MTE) of the already promulgated GHG standards for model years 2022-2025 light-duty vehicles (cars and light trucks) in January 2017. Most of these rules are under review at EPA; the agency has proposed repeal or modification in several cases.",
"The electricity sector has historically accounted for the largest percentage of anthropogenic U.S. CO 2 emissions, though transportation activities have more recently accounted for a slightly larger share. In 2017, the electricity sector accounted for 27.5% of total U.S. GHG emissions and transportation activities accounted for 28.9%. EPA finalized GHG (CO 2 ) emission standards under CAA Section 111 for new, existing, and modified fossil-fueled power plants in August 2015. The standards would primarily affect coal-fired units, which emit twice the amount of CO 2 that would be emitted by an equivalent natural gas combined cycle (NGCC) electric generating unit. The final rules were controversial: EPA received more than 4 million public comments as it considered the proposed standards for existing units, by far the most comments on a rulemaking in the agency's 48-year history.\nThe Clean Power Plan (CPP), which is the rule for existing units, would set state-specific goals for CO 2 emissions or emission rates from existing fossil-fueled power plants. EPA established different goals for each state based on three \"building blocks\": improved efficiency at coal-fired power plants; substitution of NGCC generation for coal-fired power; and zero-emission power generation from increased renewable energy, such as wind or solar. The goals would be phased in, beginning in 2022, with final average emission rates for each state to be reached by 2030.\nIndependently of the CPP, the period since its proposal in 2014 has seen rapid changes in the electric power industry. Coal-fired power plants have been retired in record numbers and cleaner sources of electric power (both renewable and natural-gas-fired) have taken their place. Coal, which accounted for 39% of electric power generation in 2014, declined to 28% of the total in 2018; natural gas generation rose from 28% to 35% of the total, and wind and solar from 7% to 11% in the same period.\nAs a result of this shift in power sources, emissions of CO 2 from the electric power sector have declined faster than would have been required by the CPP. Cheap and abundant natural gas, state and federal incentives to develop wind and solar power, and tighter EPA standards for non-CO 2 emissions from coal-fired power plants have all played a role in this transition.\nNew Source Performance Standards (NSPS) for new and modified power plants, promulgated at the same time as the CPP, would affect fewer plants, but they too are controversial, because of the technology the rule assumed could be used to reduce emissions at new coal-fired units. As promulgated in 2015, the NSPS would have relied in part on carbon capture and sequestration (CCS) technology to reduce emissions by about 20% compared to the emissions of a state-of-the-art coal-fired plant without CCS. Critics stated that CCS is a costly and unproven technology, and because of this, the NSPS would effectively have prohibited the construction of new coal-fired plants. No operating commercial U.S. power plant was capturing and storing CO 2 as of the date the rule was promulgated. (The first commercial CCS facility in the United States, the Petra Nova project at the W.A. Parish Generating Station in Texas, came on line in 2016.) For additional information on the Clean Power Plan and the 2015 NSPS, see CRS Report R44744, Clean Air Act Issues in the 115th Congress: In Brief .\nImplementation of the CPP has been stayed by the Supreme Court since February 2016, pending the completion of judicial review. Prior to the stay, challenges to the rule were filed with the U.S. Court of Appeals for the D.C. Circuit by more than 100 parties, including 27 states. These challenges were consolidated into a single case, West Virginia v. EPA . The D.C. Circuit heard oral argument in the case in September 2016; as of this writing, the court has not issued a decision. (For a discussion of the legal issues, see CRS Report R44480, Clean Power Plan: Legal Background and Pending Litigation in West Virginia v. EPA .) The NSPS have also been challenged ( North Dakota v. EPA ). EPA requested (and the court granted) a pause in that litigation to give EPA time to conduct a review.\nUnder the Trump Administration, EPA has reviewed both the CPP and the NSPS. This review concluded, among other things, that the CPP exceeded EPA's statutory authority by using measures that applied to the power sector as a whole rather than measures carried out within an individual facility. The agency therefore proposed repeal of the CPP on October 16, 2017, and a rule to replace it (the Affordable Clean Energy (ACE) rule) on August 21, 2018. The ACE rule would apply a narrower interpretation than the CPP of the best system of emission reduction (BSER), defining it as on-site heat rate improvements for existing coal-fired units. The rule would not establish a numeric performance standard for existing coal-fired units. Instead, EPA proposed a list of candidate technologies that would constitute the BSER. The ACE rule does not establish BSER for other types of existing power plants, such as natural gas single cycle or combined cycle plants or petroleum-fired plants.\nEPA proposed two additional actions in ACE—one to revise regulations that implement CAA Section 111(d) and another to modify an applicability determination for a CAA preconstruction permitting program for new and modified stationary sources, known as New Source Review (NSR). The former seeks to codify EPA's current legal interpretation that states have broad discretion to establish emission standards consistent with BSER. The latter would revise the NSR applicability test for certain power plants and, according to EPA, prevent NSR from discouraging the installation of energy-efficiency measures. (For more information about the ACE proposal, see CRS Report R45393, EPA's Affordable Clean Energy Proposal .)\nThe agency also proposed to revise the NSPS on December 6, 2018. In the December 2018 proposal, EPA determined that the BSER for newly constructed coal-fired units would be the most efficient demonstrated steam cycle in combination with the best operating practices. This proposed BSER would replace the determination from the 2015 rule, which identified the BSER as partial carbon capture and storage. According to the agency, \"the primary reason for this proposed revision is the high costs and limited geographic availability of CCS.\"\nAnother issue of interest to Congress relates to the agency's legal basis for the 2015 NSPS, including EPA's conclusion in 2015 that power plants emit a significant amount of CO 2 . Prior to the power sector GHG rules, EPA made two findings under CAA Section 202: (1) that GHGs currently in the atmosphere potentially endanger public health and welfare and (2) that new motor vehicle emissions cause or contribute to that pollution. These findings are collectively referred to as the endangerment finding. The endangerment finding triggered EPA's duty under CAA Section 202(a) to promulgate emission standards for new motor vehicles.\nIn the 2015 NSPS rule, EPA concluded that it did not need to make a separate endangerment finding under Section 111, which directs EPA to list categories of stationary sources that cause or contribute significantly to \"air pollution which may reasonably be anticipated to endanger public health or welfare.\" EPA reasoned that because power plants had been listed previously under Section 111, it was unnecessary to make an additional endangerment finding for a new pollutant emitted by a listed source category. The agency also argued that, even if it were required to make a finding, electric generating units (EGUs) would meet that endangerment requirement given the significant amount of CO 2 emitted from the source category.\nWhile neither ACE nor the 2018 NSPS rule proposes to reconsider the endangerment finding or the conclusions related to the endangerment finding in the 2015 NSPS, the 2018 NSPS requested comments on these issues, \"either as a general matter or specifically applied to GHG emissions.\" For example, EPA noted that power sector GHG emissions are declining and requested comment on whether EPA has \"a rational basis for regulating CO 2 emissions from new coal-fired\" units. EPA also requested comment on whether the CAA requires the agency to make an endangerment finding once for a source category or if the act requires EPA to make a new endangerment finding each time it regulates an additional pollutant from a listed source category.\nThe NSPS revision and repeal and replacement of the CPP are still at the proposal stage. Revising, repealing, or replacing a promulgated rule require the agency to follow the administrative steps involved in proposing and promulgating a new rule, including allowing public comment, and responding to significant comments upon promulgation of a final rule. Following promulgation, the repeal action, revisions, and replacement rules are subject to judicial review. A large group of stakeholders, including some states, are seen as likely to oppose the changes associated with repealing the CPP and replacing it with ACE.\nThe EPA and judicial processes could be short-circuited by Congress, through legislation overturning, modifying, or affirming the CPP or NSPS. Congressional action is considered unlikely, however, as the threat of a filibuster, requiring 60 votes to proceed, could prevent Senate action.\nThe new House majority has expressed a strong interest in addressing climate change. As a result, oversight hearings are considered likely as EPA finalizes actions on the ACE rule and NSPS.",
"On June 3, 2016, EPA promulgated a suite of New Source Performance Standards (NSPS) under CAA Section 111 to set controls for the first time on methane emissions from sources in the crude oil and natural gas production sector and the natural gas transmission and storage sector. The rule builds on the agency's 2012 NSPS for volatile organic compound (VOC) emissions and would extend controls for methane and VOC emissions beyond the existing requirements to include new or modified hydraulically fractured oil wells, pneumatic pumps, compressor stations, and leak detection and repair at well sites, gathering and boosting stations, and processing plants. The Obama Administration stated that the rule was a key component under the \"Climate Action Plan,\" and that the plan's Strategy to Reduce Methane Emissions was needed to set the United States on track to achieve the Administration's goal to cut methane emissions from the oil and gas sector by 40%-45% from 2012 levels by 2025, and to reduce all domestic GHG emissions by 26%-28% from 2005 levels by 2025.\nMethane—the key constituent of natural gas—is a potent greenhouse gas with a global warming potential (GWP) more than 25 times greater than that of carbon dioxide (CO 2 ). According to EPA's Inventory of U.S. Greenhouse Gas Emissions and Sinks , methane is the second most prevalent GHG emitted in the United States from human activities, and over 25% of those emissions come from oil production and the production, transmission, and distribution of natural gas.\nEPA projected that the standards for new, reconstructed, and modified sources would reduce methane emissions by 510,000 tons in 2025, the equivalent of reducing 11 million metric tons of CO 2 . In conjunction with the proposal, EPA conducted a Regulatory Impact Analysis (RIA) that looked at the illustrative benefits and costs of the proposed NSPS: in 2025, EPA estimated the rule will have costs of $530 million and climate benefits of $690 million (in constant 2012 dollars). The rule would also reduce emissions of VOCs and hazardous air pollutants (HAPs). EPA was not able to quantify the benefits of the VOC/HAP reductions.\nThe methane rule is among the rules subject to review under E.O. 13783, signed by President Trump on March 28, 2017. Section 7 of the E.O. directed EPA to review the rule for consistency with policies that the E.O. enumerates, and, if appropriate, as soon as practicable, to \"suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules.\"\nOn March 12, 2018, EPA published a final rule to make two \"narrow\" revisions to the 2016 NSPS. The rule removes the requirement that leaking components be repaired during unplanned or emergency shutdowns and provides separate monitoring requirements for well sites located on the Alaskan North Slope.\nOn October 15, 2018, EPA proposed a larger set of amendments to the 2016 NSPS. The proposed changes would decrease the frequency for monitoring fugitive emissions at well sites and compressor stations; decrease the schedule for making repairs; expand the technical infeasibility provision for pneumatic pumps to all well sites; and amend the professional engineer certification requirements to allow for in-house engineers. Upon the proposal's release, the agency stated that it \"continues to consider broad policy issues in the 2016 rule, including the regulation of greenhouse gases in the oil and natural gas sector,\" and that \"these issues will be addressed in a separate proposal at a later date.\" The comment period for the proposed amendments closed on December 17, 2018. (For more discussion, see CRS Report R42986, Methane and Other Air Pollution Issues in Natural Gas Systems , by Richard K. Lattanzio.)",
"Controversy regarding GHG standards promulgated by the Obama EPA for new motor vehicles has surfaced under the Trump Administration. In May 2009, President Obama reached agreement with major U.S. and foreign auto manufacturers, the state of California (which has separate authority to set motor vehicle emission standards, if EPA grants a waiver), and other stakeholders regarding the substance of GHG emission and related fuel economy standards. A second round of standards for cars and light trucks, promulgated in October 2012, was also preceded by an agreement with the auto industry and key stakeholders. Under the agreements, EPA, the U.S. Department of Transportation (DOT, which has authority to set fuel economy standards), and California would establish \"One National Program\" for GHG emissions and fuel economy. The auto industry supported national standards, in part, to avoid having to meet standards on a state-by-state basis.\nThe second round of GHG standards for cars and light trucks is being phased in over model years (MY) 2017-2025. It would reduce GHG emissions from new light-duty vehicles (i.e., cars, SUVs, crossovers, minivans, and most pickup trucks) by about 50% compared to 2010 levels, and average fuel economy will rise to nearly 50 miles per gallon (mpg) when fully phased in, in 2025. As part of the rulemaking, EPA made a commitment to conduct a Mid-Term Evaluation (MTE) for the MY2022-2025 standards by April 2018. The agency deemed an MTE appropriate given the long time frame at issue, with the final standards taking effect as long as 12 years after promulgation. Through the MTE, EPA was to determine whether the standards for MYs 2022-2025 were still appropriate given the latest available data and information, with the option of strengthening, weakening, or retaining the standards as promulgated.\nOn November 30, 2016, EPA released a proposed determination under the MTE stating that the MY2022-2025 standards remained appropriate and that a rulemaking to change them was not warranted. EPA based its findings on a Technical Support Document, a previously released Draft Technical Assessment Report (which was issued jointly by EPA, DOT, and the California Air Resources Board [CARB]), and input from the auto industry and other stakeholders. The proposed determination opened a public comment period that ran through December 30, 2016. On January 12, 2017, the EPA Administrator made a final determination to retain the MY2022-2025 standards as originally promulgated.\nThe final action arguably accelerated the timeline for the MTE (which called for a final determination by April 2018), and EPA announced it separately from any DOT or California announcement. EPA noted its \"discretion\" in issuing a final determination, saying that the agency \"recognizes that long-term regulatory certainty and stability are important for the automotive industry and will contribute to the continued success of the national program.\" Some auto manufacturer associations and other industry groups criticized the results of EPA's review and reportedly vowed to work with the Trump Administration to revisit EPA's determination. These groups sought actions such as easing the MY2022-2025 requirements or better aligning DOT's and EPA's standards.\nThe Trump Administration reopened the MTE in mid-March 2017. On April 2, 2018, EPA released a revised final determination, stating that the MY2022-2025 standards are \"not appropriate in light of the record before EPA and, therefore, should be revised.\" The notice stated that the January 2017 final determination was based on \"outdated information, and that more recent information suggests that the current standards may be too stringent.\"\nFollowing the revised final determination, on August 24, 2018, EPA and DOT proposed amendments to the existing fuel economy and GHG emission standards. The proposal offers eight alternatives. The agencies' preferred alternative, if finalized, is to retain the existing standards through MY2020 and then to freeze the standards at this level for both programs through MY2026. The preferred alternative also removes the current CO 2 equivalent air conditioning refrigerant leakage, nitrous oxide, and methane requirements after MY2020. The proposed standards would lead to an estimated average fuel economy of 37 mpg for MY2020-2026 vehicles, causing a projected increase in fuel consumption of about 0.5 million barrels per day (equivalent to about 186,000 metric tons of carbon dioxide per day), according to EPA and DOT. The agencies project a net benefit from revising the standards, relying on new estimates of compliance costs, fatalities, and injuries. The proposed standards were subject to public comment for 60 days following their publication in the Federal Register . Until the new rulemaking is completed, the standards promulgated in 2012 remain in effect. (For additional information, see CRS Report R45204, Vehicle Fuel Economy and Greenhouse Gas Standards: Frequently Asked Questions , by Richard K. Lattanzio, Linda Tsang, and Bill Canis.)\nFurther, under the proposal, EPA aims to withdraw California's CAA preemption waiver for its vehicle GHG standards applicable to MYs 2021-2025. DOT contends that the Energy Policy and Conservation Act of 1975 (EPCA), which authorizes the department's fuel economy standards, preempts California's GHG emission standards. DOT argues that state laws regulating or prohibiting tailpipe CO 2 emissions are related to fuel economy and can therefore be preempted under EPCA. The agencies accepted comments on the proposal through October 26, 2018.\nEPA and DOT have also promulgated joint GHG emission and fuel economy standards for medium- and heavy-duty trucks, which have generally been supported by the trucking industry and truck and engine manufacturers. This rule was finalized on August 16, 2016. The new standards cover MYs 2018-2027 for certain trailers and MYs 2021-2027 for semi-trucks, large pickup trucks, vans, and all types and sizes of buses and work trucks. According to EPA,\nThe Phase 2 standards are expected to lower CO 2 emissions by approximately 1.1 billion metric tons, save vehicle owners fuel costs of about $170 billion, and reduce oil consumption by up to 2 billion barrels over the lifetime of the vehicles sold under the program.\nIn the Regulatory Impact Analysis accompanying the rule's promulgation, EPA projected the total cost of the Phase 2 standards at $29-$31 billion over the lifetime of MY2018-2029 trucks. The standards would increase the cost of a long haul tractor-trailer by as much as $13,500 in MY2027, according to the agency; but the buyer would recoup the investment in fuel-efficient technology in less than two years through fuel savings. In EPA's analysis, fuel consumption of 2027 model tractor-trailers will decline by 34% as a result of the rule.\nIn general, the truck standards have been well received. The American Trucking Associations, for example, described themselves as \"cautiously optimistic\" that the rule would achieve its targets: \"We are pleased that our concerns such as adequate lead-time for technology development, national harmonization of standards, and flexibility for manufacturers have been heard and included in the final rule.\" The Truck and Engine Manufacturers Association highlighted its work providing input to assure that EPA and DOT established a single national program, and concluded: \"A vitally important outcome is that EPA and DOT have collaborated to issue a single final rule that includes a harmonized approach to greenhouse gas reductions and fuel efficiency improvements.\"\nNeither group filed a petition for judicial review of the rule. The only challengers were the Truck Trailer Manufacturers Association and the Racing Enthusiasts and Suppliers Coalition. In April 2017, EPA took steps to review the rule, asking the D.C. Circuit Court of Appeals to hold the legal challenge ( Truck Trailer Manufacturers Association v. EPA ) in abeyance while EPA conducts a review of the standards. The court granted EPA's request on May 8, 2017. On October 27, 2017, the D.C. Circuit Court granted the Truck Trailer Manufacturers Association's request to stay certain requirements for trailers pending the judicial review of the medium- and heavy-duty vehicles rule. The rest of the rule remains in effect. (For additional information, see CRS In Focus IF10927, Phase 2 Greenhouse Gas Emissions and Fuel Efficiency Standards for Medium- and Heavy-Duty Engines and Vehicles , by Richard K. Lattanzio.)\nThe truck rule also established emission standards for vehicles manufactured from \"glider kits\" (truck bodies produced without a new engine, transmission, or rear axle). On November 16, 2017, EPA proposed a repeal of the emission standards and other requirements on heavy-duty glider vehicles, glider engines, and glider kits based on a proposed interpretation of the CAA. EPA's proposed repeal has not been finalized, and efforts to expedite the proposal or provide regulatory relief to the industry have been met with resistance from a number of states, environmental groups, and stakeholders in the trucking sector. EPA's fall 2018 regulatory agenda characterizes its glider rulemaking as a \"long-term action,\" which is defined as a measure for which the agency \"does not expect to have a regulatory action within\" a year of publishing the agenda. (For additional information, see CRS Report R45286, Glider Kit, Engine, and Vehicle Regulations , by Richard K. Lattanzio and Sean Lowry.)",
"",
"Air quality has improved substantially since the passage of the CAA in 1970. Annual emissions of the six air pollutants for which EPA has set national ambient air quality standards (NAAQS)—ozone, particulate matter, sulfur dioxide, carbon monoxide, nitrogen dioxide, and lead—have declined by more than 70%, despite major increases in population, motor vehicle miles traveled, and economic activity. Nevertheless, the goal of clean air continues to elude many areas, in part because evolving scientific understanding of the health effects of air pollution has caused EPA to tighten standards for most of these pollutants. Congress anticipated that the understanding of air pollution's effects on public health and welfare would change with time, and it required, in Section 109(d) of the act, that EPA review the NAAQS at five-year intervals and revise them, as appropriate.\nThe most widespread air quality problems involve ozone and fine particles (often referred to as \"smog\" and \"soot,\" respectively). A 2013 study by researchers at the Massachusetts Institute of Technology concluded that emissions of particulate matter (PM) and ozone caused 210,000 premature deaths in the United States in 2005. Many other studies have found links between air pollution, illness, and premature mortality, as well. EPA summarizes these studies in what are called Integrated Science Assessments (ISAs) and Risk Analyses when it reviews a NAAQS. The most recent ISA for particulate matter—a draft version that EPA published as part of the PM NAAQS review currently underway—concludes that there is a \"causal relationship\" between total mortality and both short-term and long-term exposure to PM. The most recent ozone ISA states that there is \"likely to be a causal relationship\" between short-term exposures to ozone and total mortality.\nWith input from the states, EPA identifies areas where concentrations of pollution exceed the NAAQS following its promulgation. As of March 31, 2019, 124 million people lived in areas classified as \"nonattainment\" for the current ozone NAAQS; 23 million lived in areas that were nonattainment for the current fine particulate matter (PM 2.5 ) NAAQS.\nFigure 1 identifies areas that had not attained one or more of the NAAQS as of March 31, 2019.",
"EPA's statutorily mandated reviews of the ozone and particulate matter NAAQS are underway and may be more contentious than usual. The CAA has minimal requirements for how the agency is to conduct NAAQS reviews, leaving the details to the EPA Administrator. Congress may undertake oversight, as EPA moves forward with these reviews.\nEPA also intends to streamline NAAQS reviews and obtain Clean Air Scientific Advisory Committee (CASAC) advice regarding background pollution and potential adverse effects from NAAQS compliance strategies. In October 2018, EPA made an unprecedented change and eliminated the pollutant-specific scientific review panels, which have historically helped agency staff conduct the five-year reviews. Specifically, EPA disbanded the Particulate Matter Review Panel, which was appointed in 2015, and stated that it would not form an Ozone Review Panel. Instead, the seven-member CASAC is to lead \"the review of science for any necessary changes\" to the ozone or particulate matter NAAQS. Since then, however, some members of CASAC have raised concerns about this approach. In April 2019, the CASAC recommended that EPA either \"reappoint the previous CASAC [particulate matter] panel or appoint a panel with similar expertise.\" Others, including former members of CASAC and previous ozone review panels, stated that the current CASAC lacks the depth and breadth of expertise required for the ozone review. Additional stakeholder views—in particular, those that may support this particular change—are not readily available.",
"Since 2008, review of the NAAQS for ozone has sparked recurrent controversy. In 2008, EPA promulgated a more stringent ozone NAAQS, and for the first time ever, the Administrator chose a health-based standard outside the range recommended by the independent scientific review committee established by the CAA. In 2015, EPA strengthened the ozone NAAQS again.\nThe final ozone standards were released on October 1, 2015, and appeared in the Federal Register , October 26, 2015. Areas of the United States exceeding the new NAAQS were identified on May 1 and July 17, 2018. The standards have been challenged in court; the D.C. Circuit Court of Appeals heard oral argument in the case on December 18, 2018.\nThe 2015 revision sets more stringent standards than the 2008 ozone NAAQS, lowering both the primary (health-based) and secondary (welfare-based) standards from 75 parts per billion (ppb)—the level set in 2008—to 70 ppb. EPA has identified 52 nonattainment areas with a combined population of 124 million, where air quality exceeds the 2015 NAAQS: 201 counties or partial counties in 22 states, the District of Columbia, and 2 tribal areas. EPA's analysis of the rule's potential effects—undertaken when the rule was promulgated—showed all but 14 of the nonattainment counties could reach attainment with a 70 ppb ozone NAAQS by 2025 as a result of already promulgated standards for power plants, motor vehicles, gasoline, and other emission sources.\nEPA estimated the cost of meeting a 70 ppb ozone standard in all states except California at $1.4 billion annually in 2025. Because most areas in California would have until the 2030s to reach attainment, EPA provided separate cost estimates for California ($0.8 billion in 2038). These cost estimates are substantially less than widely circulated estimates from the National Association of Manufacturers (NAM) and other industry sources. (For a discussion of the differences, see CRS Report R43092, Implementing EPA's 2015 Ozone Air Quality Standards .)\nEPA faces a statutory deadline of October 2020 to complete a review of the ozone NAAQS and decide whether to modify or retain it. As previously noted, the agency announced plans to speed up the review process and declined to convene a scientific review panel specific to ozone. EPA is expected to grapple with issues raised during the 2015 ozone review, such as background ozone. In addition, EPA stated that it intends to seek CASAC advice regarding potential adverse effects from NAAQS compliance strategies.",
"EPA completed its most recent review of the particulate matter NAAQS in late 2012 and promulgated revisions to strengthen the standards. During the 2012 particulate matter review, congressional deliberations focused on the regulatory costs associated with implementing more stringent standards as well as the potential impacts on economic growth, employment, and consumers. Some Members of Congress also raised concerns about potential impacts that more stringent particulate matter standards may have on industry and agricultural operations. For more information about the 2012 revision and related congressional deliberations, see CRS Report R42934, Air Quality: EPA's 2013 Changes to the Particulate Matter (PM) Standard .\nEPA initiated the current particulate matter review in 2014. In October 2018, EPA released a draft version of its ISA for Particulate Matter to CASAC for review and public comment. The ISA, which summarizes the scientific literature published since the last NAAQS review, serves as the scientific basis for reviewing the NAAQS.\nThe CASAC's review of the particulate matter ISA is ongoing. In April 2019, CASAC found that EPA's Draft ISA did \"not provide a sufficiently comprehensive, systematic assessment of the available science relevant to understanding the health impacts of exposure to particulate matter,\" and recommended \"substantial revisions\" to the Draft ISA. As previously noted, the CASAC also recommended that EPA reconvene a particulate matter review panel. EPA's response to these recommendations is not yet available. EPA stated that it intends to complete the particulate matter NAAQS review by December 2020.",
"Other issues are likely to arise as EPA continues to review CAA regulations. The agency is reviewing additional regulations, among them air toxics rules applicable to power plants, brick and ceramic kilns, and industrial sources of ethylene oxide as well as NSPS rules applicable to particulate matter from wood heaters. In addition, the Renewable Fuel Standard program may be of interest to Congress, in particular Renewable Fuel Standard management, the potential impacts such management could have on the associated stakeholders, and related biofuel matters.",
"The CAA directs EPA to promulgate emission standards for sources of the 187 hazardous air pollutants, informally referred as \"air toxics,\" that are listed in Section 112(b). In general, these standards, known as National Emission Standards for Hazardous Air Pollutants (NESHAPs), require major sources to meet numeric emission limits that have been achieved in practice by the best performing similar sources. These standards are generally referred to as Maximum Achievable Control Technology (MACT) standards. EPA is to \"review, and revise as necessary\" the emission standards promulgated under Section 112(d) at least every eight years. The remainder of this section highlights some of the air toxic standards that have garnered interest in the 116 th Congress.",
"EPA promulgated MACT standards for brick, structural clay, and ceramic clay kilns in 2015 that may garner interest in the 116 th Congress. The 2015 rulemaking established emission standards for mercury, particulate matter, acid gases, dioxins, and furans. EPA estimated the cost of the rule at $25 million annually, with monetized co-benefits three to eight times the cost. The Brick Industry Association called the proposal \"a much more reasonable rule than the one EPA first envisioned several years ago,\" but they and others have continued to express concerns regarding the cost and achievability of the standards. Environmental groups and an association of state air pollution officials are concerned for different reasons: in their view, EPA improperly set standards under a section of the CAA that allows an alternative to the MACT requirement that generally applies to hazardous air pollutant standards. After reviewing petitions filed by industry groups and environmental groups, the D.C. Circuit in 2018 ordered EPA to revise the 2015 standards but did not vacate them.",
"EPA's most recent National Air Toxics Assessment (NATA)—published in August 2018—concluded that ethylene oxide is carcinogenic to humans and that it \"significantly contributes to potential elevated cancer risks\" in some areas of the country. EPA subsequently announced it is \"addressing ethylene oxide\" based on the NATA results. EPA has begun to review the NESHAP for miscellaneous organic chemical manufacturing (\"MON\"), an industrial source category that includes facilities emitting ethylene oxide. EPA is under a court order to complete the MON NESHAP review by March 2020.\nAdditional NESHAP regulations apply to sources of ethylene oxide. EPA has stated that it will \"take a closer look\" at these NEHSAPs, starting with the commercial sterilizers source category.\" EPA reported that it anticipates proposing any necessary revisions for the commercial sterilizer NESHAP in mid-2019 and that it will publish schedules for other rules as they are determined. Regardless of the NATA findings on ethylene oxide, the CAA requires EPA to \"review, and revise as necessary\" the NESHAPs promulgated under CAA 112(d) at least every eight years. EPA has not met the statutory deadline for periodic reviews of various NESHAPs, including the MON NESHAP and the commercial sterilization NESHAP, which were both due in 2014.\nLegislative proposals introduced in the 116 th Congress would require EPA to update NESHAPs applicable to ethylene oxide. For example, S. 458 would, among other things, direct EPA to update the MON and commercial sterilization NESHAPs within 180 days. Similarly, H.R. 1152 would, among other things, require EPA to revise the MON and commercial sterilization NESHAPs within 180 days, and to base the revision on an EPA report, \"Evaluation of the Inhalation Carcinogenicity of Ethylene Oxide.\"",
"EPA is reviewing the benefit-cost analysis it prepared in 2011 for the Mercury and Air Toxics (MATS) rule, raising questions about whether the agency will take additional action on the rulemaking in 2019. Promulgated in February 2012, the MATS rule established MACT standards under Section 112 of the CAA to reduce mercury and acid gases from most existing coal- and oil-fired power plants. EPA's 2011 analysis estimated that the annual benefits of the MATS rule, including the avoidance of up to 11,000 premature deaths annually, would be between $37 billion and $90 billion. Virtually all of the avoided deaths and monetized benefits come from the rule's effect on emissions of particulates, rather than from identified effects of reducing mercury and air toxics exposure. Numerous parties petitioned the courts for review of the rule, contending in part that EPA had failed to conduct a benefit-cost analysis in its initial determination that control of air toxics from electric power plants was \"appropriate and necessary.\" In June 2015, the Supreme Court agreed with the petitioners, remanding the rule to the D.C. Circuit for further consideration.\nEPA prepared a supplemental \"appropriate and necessary\" finding based on the agency's review of the 2012 rule's estimated costs in 2016. The 2016 supplemental finding concluded that it is appropriate and necessary to regulate air toxics, including mercury, from power plants after including a consideration of the costs.\nAs of this writing, the MATS rule remains in effect and litigation remains on hold, at the agency's request. In late 2018, however, EPA proposed to reverse the 2016 finding that it is appropriate and necessary to regulate air toxics under Section 112 (\"2018 A&N proposal\"). The proposal, even when finalized, would not revoke the mercury and acid gas emissions limits established in the 2012 MATS rule. That would require a separate regulatory action, which EPA has not proposed.\nSome Members of Congress and various stakeholder groups have raised concerns about the 2018 A&N proposal and advised against further actions that would revoke the MATS standards. For example, a bipartisan group of U.S. Senators wrote to EPA to \"strongly oppose any action that could lead to the undoing\" of the 2012 MATS rule and requested the agency withdraw the 2018 A&N proposal. A group of power sector trade organizations—representing all U.S. investor-owned electric companies, over 2,000 community-owned, not-for-profit electric utilities, over 900 not-for-profit electric utilities, and others—wrote to \"urge that EPA leave the underlying MATS rule in place and effective\" and \"take no action that would jeopardize\" the industry's estimated $18 billion investment in the MATS rule.\nNot all stakeholders have disagreed with the 2018 A&N proposal, however. Murray Energy Corporation, which describes itself as the largest privately owned U.S. coal company, testified that \"MATS should never have been adopted\" and \"urge[d] EPA to take the only reasonable action flowing from its repudiation of the legal basis for MATS, and rescind the [2012 MATS] rule immediately.\"\nWhile it is unclear whether EPA will take additional action on the MATS standards, the 2018 A&N proposal reveals changes in EPA's interpretation of the CAA and use of benefit-cost analysis. EPA's analysis for the 2018 A&N proposal excludes co-benefits—the human health benefits from reductions in pollutants not targeted by MATS—from its consideration of whether MATS is \"appropriate and necessary\" under CAA Section 112(n). With this exclusion, the 2018 analysis finds that monetized costs outweigh monetized benefit estimates by several orders of magnitude. (For additional discussion, see CRS In Focus IF11078, EPA Reconsiders Basis for Mercury and Air Toxics Standards , by Kate C. Shouse.)",
"In 2015, EPA published final emission standards for new residential wood heaters, including wood stoves, pellet stoves, hydronic heaters, and forced air furnaces. The 2015 wood heater regulations generated a substantial amount of interest, particularly in areas where wood is used as a heating fuel. House and Senate hearings in the 115 th Congress highlighted concerns about inadequate time to demonstrate compliance with emission standards by the 2020 deadline. Others have expressed concerns about the air quality impacts of delaying the 2020 deadline. On March 7, 2018, the House passed H.R. 1917 , which would have delayed implementation of the standards for three years.\nMore recently, EPA proposed to add a two-year \"sell-through\" period for new hydronic heaters and forced-air furnaces. Specifically, EPA's proposal would allow all affected new hydronic heaters and forced-air furnaces that are manufactured or imported before the May 2020 deadline to be sold at retail through May 2022. In addition, EPA published an advance notice of proposed rulemaking (ANPR) in late 2018 on new residential wood heaters, new residential hydronic heaters, and new residential air furnaces. The 2018 ANPR does not propose specific changes to the standards, but it requests comments on various regulatory issues \"in order to inform future rulemaking to improve these standards and related test methods.\" Citing stakeholder feedback about ways to improve implementation of the 2015 NSPS, EPA requested comment on 10 topics, including the cost and feasibility of meeting the emission limits that become effective in 2020, the timing of the 2020 compliance date, and test methods used for certification. (For additional information on the wood heater rule, see CRS Report R43489, EPA's Wood Stove / Wood Heater Regulations: Frequently Asked Questions , by James E. McCarthy and Kate C. Shouse.)",
"The Renewable Fuel Standard (RFS) is a mandate that requires U.S. transportation fuel to contain a minimum volume of renewable fuel. The RFS is an amendment of the CAA, having been established by the Energy Policy Act of 2005 ( P.L. 109-58 ; EPAct05) and expanded in 2007 by the Energy Independence and Security Act ( P.L. 110-140 ; EISA). It is a volume mandate that increases annually, starting with 4 billion gallons in 2006 and ascending to 36 billion gallons in 2022, with the EPA determining the volume amounts post-2022. Renewable fuels that may be applied toward the mandate include transportation fuel, jet fuel, and heating oil. To be eligible as a renewable fuel under the RFS, fuels must meet certain environmental and biomass feedstock criteria. Thus far, the predominant fuel used to meet the mandate has been corn starch ethanol.\nAt issue for Congress are RFS management, the potential impacts such management could have on the associated stakeholders, and related biofuel matters. The topics of interest include small refinery exemptions under the RFS, the year-round sale of E15, RFS compliance and compliance costs, the RFS \"reset,\" and approval of advanced biofuel pathways for the RFS (e.g., renewable electricity). The associated stakeholders include renewable fuel producers, agricultural producers, the petroleum industry, and environmental organizations, among others.\nOne legislative proposal specific to the RFS has been introduced in the 116 th Congress— H.R. 104 , the Leave Ethanol Volumes at Existing Levels Act or LEVEL Act—which would decrease the amount of biofuel that must be contained in gasoline and would eliminate the advanced biofuel portion of the mandate. Other legislation was introduced in the 115 th Congress and may be reintroduced in the 116 th Congress. (For further information, contact Kelsi Bracmort, Specialist in Natural Resources and Energy Policy, and see CRS Report R43325, The Renewable Fuel Standard (RFS): An Overview , by Kelsi Bracmort.)"
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{
"question": [
"To what extent is the Trump Administration committed to examining past EPA rules?",
"What was the purpose of Executive Order 13783?",
"What was the main focus of Executive Order 13783?",
"How far-reaching is the Executive Order, and how is it being implemented?",
"How does the Trump Administration plan to repeal the CPP?",
"To what extent do the implementation of ACE rules alter existing EPA rules?",
"How can opposition to the CPP's repeal inhibit the implementation of ACE rules?",
"Among the provisions of the Clean Air Act, which ones are currently being contested?",
"How does the new proposal aim to alter GHG standards for cars and light trucks?",
"How does this differ from the current GHG standards?",
"To what extent would this proposal affect fuel consumption?",
"How would this proposal affect California's Clean Air Act waiver?",
"How far-reaching have the Californian standards been?",
"How can Congress address any possible issues in the new Clean Air Act regulations?",
"Why has no Senate action been taken as of yet?",
"How have Congressional positions on the new EPA regulations changed with the 116th Congress?",
"How might the new majority in the house alter Congressional approaches to the roll-back of EPA regulations?",
"What aspects of the Clean Air Act are likely to be examined by Congress?",
"How does the EPA review air quality to ensure compliance with standards?",
"What changes to the review process has the EPA proposed?",
"To what extent does the Clean Air Act define how the EPA is to conduct air quality reviews?",
"How could the standards for the review process as a result of Congressional investigation into changes of the Clean Air Act?"
],
"summary": [
"Review and rollback of Clean Air Act rules to regulate greenhouse gas (GHG) emissions from power plants, cars and trucks, and the oil and gas sector has been a major focus of the Trump Administration since it took office in 2017.",
"On March 28, 2017, President Trump signed Executive Order 13783, to require the review of regulations and policies that \"burden the development or use of domestically produced energy resources.\"",
"The E.O. directed the U.S. Environmental Protection Agency (EPA) to review the Clean Power Plan (CPP), which set limits on GHG emissions from existing power plants, and several other regulations for consistency with policies that the E.O. enumerates, and as soon as practicable, to \"suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules.\"",
"GHG rules for new power plants, for cars and trucks, and for methane emissions from the oil and gas industry, in addition to the CPP, are subject to the executive order and are under review at EPA, as well as being challenged in the courts.",
"The Trump Administration's EPA has proposed to repeal the CPP and replace it with the Affordable Clean Energy rule (ACE), a rule that defines the \"best system of emission reduction\" for coal-fired power plant GHGs as efficiency improvement technologies.",
"As proposed, the CPP repeal and ACE rules would remove federal numerical carbon dioxide (CO2) emission limits for existing coal- and natural gas-fired power plants, eliminating one backstop on power plant GHG emissions.",
"Some Members of Congress have submitted comments to EPA on the ACE proposal. Congress may be interested in conducting oversight of the ACE rule.",
"The CPP, which was promulgated by the Obama Administration's EPA in 2015 and would limit GHG emissions from existing fossil-fueled power plants, has been one focus of debate.",
"An August 2018 proposal would freeze EPA's GHG standards for new cars and light trucks at the level required in model year (MY) 2020.",
"Current regulations, promulgated in 2012 and reaffirmed in January 2017, set increasingly stringent emission standards through MY2025.",
"The EPA proposal would cause a projected increase in vehicle fuel consumption of about a half million barrels of gasoline per day (equivalent to about 186,000 metric tons of carbon dioxide per day) when fully implemented, according to EPA and the Department of Transportation.",
"The proposal would also withdraw California's Clean Air Act waiver for new vehicle GHG standards applicable to MY2021-MY2025.",
"The California standards have been adopted by 12 other states and cover about 35% of the new vehicle market.",
"Following promulgation of these or other Clean Air Act regulations, Congress could address the issues through legislation affirming, modifying, or overturning them.",
"The threat of a filibuster, requiring 60 votes to proceed, however, has generally prevented Senate action.",
"In the 116th Congress, the new majority in the House has indicated a greater interest in addressing climate change issues rather than rolling back regulations.",
"One result may be a new focus on oversight of agency actions to address climate change and its impacts.",
"The 116th Congress may also be interested in issues related to EPA air quality standards for what are called \"conventional\" or \"criteria\" pollutants.",
"EPA faces statutory deadlines to complete reviews of the National Ambient Air Quality Standards (NAAQS) for the two most widespread of this group: ozone and particulate matter (PM).",
"The agency has proposed to speed up the review process, while simultaneously eliminating the scientific review panels that have historically assisted agency staff in conducting the reviews.",
"The Clean Air Act has minimal requirements for how the agency is to conduct NAAQS reviews, leaving the details to the EPA Administrator.",
"Nevertheless, congressional oversight is considered possible as EPA moves forward with the ozone and PM reviews."
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GAO_GAO-17-188
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{
"title": [
"Background",
"Financial Regulators",
"Prudential Regulators for the Banking Industry",
"Consumer Financial Protection Bureau",
"Regulatory Analyses in Federal Rulemaking",
"Interagency Coordination Requirements in Dodd- Frank Act Rulemakings",
"Agencies Reported Conducting Required Regulatory Analyses and for Select Major Rules, Generally Included Key Elements of Cost- Benefit Analysis",
"Agencies Reported Conducting Required Regulatory Analyses",
"Regulators Are Not Required to Follow OMB Guidance but Included Most Key Elements of Cost-Benefit Analysis",
"Evaluation of Alternative Approaches",
"Analysis of Costs and Benefits of Major Rules",
"Regulators Coordinated on Rulemakings as Required",
"Prudential Regulators, CFTC, and International Regulators Engaged in Recurring Coordination on the Swaps Rules",
"Domestic Coordination",
"International Coordination",
"Coordination on the Integrated Mortgage Disclosure Rule Followed CFPB’s Internal Guidance for Agency Consultation",
"Indicators of the Impacts of the Dodd- Frank Act on SIFIs and Swaps",
"Indicators Suggest Large Bank SIFIs Have Become Larger but Less Vulnerable to Financial Distress",
"Indicators Suggest Designated Nonbanks Have Become More Resilient and Less Interconnected",
"Higher Percentages of Collateral for Swaps by Banks May Reduce Credit Loss",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Dodd-Frank Act Rules Effective as of July 22, 2016",
"Appendix III: Coordination for Dodd-Frank Act Rules Effective as of July 22, 2016",
"Appendix IV: Summary of Rulemakings Related to Selected Dodd-Frank Act Provisions Applicable to Designated Nonbanks and Systemically Important Banks",
"Appendix V: Trends in GAO Indicators for Bank Systemically Important Financial Institutions",
"Data",
"Sample",
"Methodology",
"Limitations",
"Indicators",
"Size",
"Appendix VI: Dodd-Frank Rules Implementing Central Clearing, Capital, and Margin Swap Reforms",
"Appendix VII: GAO Contact and Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"The financial regulatory system consists of numerous regulators with varying missions and functions. They promulgate regulations via federal rulemakings. In particular, the Dodd-Frank Act includes specific rulemaking and coordination requirements.",
"",
"In the banking industry, the specific regulatory configuration generally depends on the type of charter the banking institution chooses. Depository institution charter types include commercial banks, which originally focused on the banking needs of businesses but over time have broadened their services; savings associations (also known as thrifts), which include federal savings banks and certain state savings banks, and savings and loans and were originally created to serve the needs—particularly the mortgage needs—of those not served by commercial banks; and credit unions, which are member-owned cooperatives run by member- elected boards with a historical emphasis on serving people of modest means.\nAll depository institutions that have federal deposit insurance have a federal prudential regulator, which generally may issue regulations and take enforcement actions against institutions within its jurisdiction. The prudential regulators are identified in table 1. Holding companies that own or control a bank or thrift are subject to Federal Reserve supervision. The Bank Holding Company Act of 1956 and the Home Owners’ Loan Act set forth the regulatory frameworks for bank holding companies and savings and loan holding companies, respectively. The Dodd-Frank Act made the Federal Reserve the regulator of savings and loan holding companies and amended the Home Owners’ Loan Act and the Bank Holding Company Act to create certain similar requirements for bank and savings and loan holding companies.\nThe securities and futures markets are regulated under a combination of self-regulation (subject to oversight by the appropriate federal regulator) and direct oversight by SEC and CFTC, respectively. SEC regulates the securities markets, including participants such as securities exchanges, broker-dealers, investment companies, and certain investment advisers and municipal advisors. SEC’s mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. SEC also oversees self-regulatory organizations—including securities exchanges, clearing agencies, and the Financial Industry Regulatory Authority—that have responsibility for overseeing securities markets and their members; establishing standards under which their members conduct business; monitoring business conduct; and bringing disciplinary actions against members for violating applicable federal statutes, SEC’s rules, and their own rules.\nCFTC is the primary regulator for futures markets, including futures exchanges and intermediaries, such as futures commission merchants. CFTC’s mission is to protect market users and the public from fraud, manipulation, abusive practices, and systemic risk related to derivatives subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound futures markets. CFTC oversees the registration of intermediaries and relies on self-regulatory organizations, including the futures exchanges and the National Futures Association, to establish and enforce rules governing member behavior. CFTC and SEC jointly regulate security futures, which generally refers to futures on single securities and narrow-based security indexes.\nIn addition, Title VII of the Dodd-Frank Act expands regulatory responsibilities for CFTC and SEC by establishing a new regulatory framework for over-the-counter swaps. The act authorizes CFTC to regulate swaps and SEC to regulate security-based swaps with the goals of reducing risk, increasing transparency, and promoting market integrity in the financial system. CFTC and SEC share authority over mixed swaps—that is, security-based swaps that have a commodity component.",
"The Dodd-Frank Act transferred consumer protection oversight and other authorities over certain consumer financial protection laws from multiple federal regulators to CFPB, creating a single federal entity to, among other things, help ensure consistent enforcement of federal consumer financial laws. The Dodd-Frank Act charged CFPB with the following responsibilities, among others: ensuring that consumers are provided with timely and understandable information to make responsible decisions about financial transactions; ensuring that consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; monitoring compliance with federal consumer financial law and taking appropriate enforcement action to address violations; identifying and addressing outdated, unnecessary, or unduly burdensome regulations; ensuring that federal consumer financial law is enforced consistently, in order to promote fair competition; ensuring that markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation; and conducting financial education programs.\nFurthermore, the Dodd-Frank Act gave CFPB supervisory authority over certain nondepository institutions, including certain kinds of mortgage market participants, private student loan lenders, and payday lenders.",
"Several regulatory analyses may apply to independent regulators, including the financial regulators. The regulators are subject to compliance with various requirements as part of their rulemakings, such as those in PRA; RFA, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996; and the Congressional Review Act.\nPRA requires federal agencies to (1) seek public comment on proposed collections and (2) submit proposed collections for review and approval by OMB. According to the Office of Information and Regulatory Affairs’ PRA guidance, these actions must occur before federal agencies require or request information from the public.\nRFA requires that federal agencies consider the impact of certain regulations they issue on small entities and, in some cases, alternatives to lessen the regulatory burden on these entities. In some cases, PRA and RFA also require agencies, including financial regulators, to assess various effects and costs, respectively, of their rules. However, RFA, like PRA, does not require the agencies to conduct formal benefit and cost analyses.\nThe Small Business Regulatory Enforcement Fairness Act of 1996, which amended RFA, generally includes judicial review of compliance with certain provisions of RFA and requires agencies, including financial regulators, to develop one or more small entity compliance guides for each final rule or group of related final rules for which the agency must prepare a regulatory flexibility analysis. In addition, the act requires CFPB to convene a small business review panel, when preparing an initial regulatory flexibility analysis in connection with a proposed rule, to gather recommendations and advice from representatives of small business entities about any projected increase in the cost of credit for small entities and any significant alternatives to the proposed rule.\nUnder the Congressional Review Act, before rules can take effect, agencies (including financial regulators) must submit their rules to Congress and the Comptroller General, and rules deemed major by OMB generally may not become effective until 60 days after the rules are submitted.\nIn addition to these requirements, authorizing or other statutes require certain financial regulators to consider specific benefits, costs, and effects of their rulemakings (see table 2).\nIn contrast, E.O. 12,866, supplemented by E.O. 13,563, requires executive agencies (which do not include independent regulators such as financial regulators), to the extent permitted by law and where applicable, to provide more formal cost-benefit analyses that (1) assess costs and benefits of available regulatory alternatives and (2) include both quantifiable and qualitative measures of benefits and costs in their analysis, recognizing that some costs and benefits are difficult to quantify. Such analysis, according to OMB, can enable an agency to learn if the benefits of a rule are likely to justify the costs and discover which possible alternatives would yield the greatest net benefit or be most cost-effective.\nIn 2003, OMB issued Circular A-4 to provide guidance to executive agencies on developing regulatory analysis as required by E.O. 12,866.\nThe circular defines good regulatory analysis as including a statement of the need for the proposed regulation, an assessment of alternatives, and an evaluation of the costs and benefits of the proposed regulation and the alternatives. It also standardizes the way costs and benefits of regulatory actions should be measured and reported. FSOC and the Department of the Treasury (Treasury), which are not financial regulators, are subject to E.O. 12,866 and Circular A-4. However, as we have reported, some independent agencies consult Circular A-4.",
"As we have noted in prior reports, effective coordination can help regulators minimize or eliminate staff and industry burden, administrative costs, conflicting regulations, unintended consequences, and uncertainty among consumers and markets. The Dodd-Frank Act imposes interagency coordination or consultation requirements and responsibilities on regulators or in connection with certain rules, including the following examples:\nUnder Title VII, SEC and CFTC must coordinate and consult with each other and with prudential regulators (for the purposes of Title VII, these regulators are the Federal Reserve, OCC, FDIC, Farm Credit Administration, and Federal Housing Finance Agency), to the extent possible, before starting a rulemaking or issuing an order on swaps, security-based swaps, swap entities, or security-based swap entities. This requirement is designed to ensure regulatory consistency and comparability across the rules or orders, to the extent possible. Title VII also directs CFTC, SEC, and the prudential regulators, as appropriate, to coordinate with foreign regulators on establishing consistent international standards on the regulation of swaps, security-based swaps, swap entities, and security-based swap entities. In addition, the Dodd-Frank Act requires SEC and CFTC, in consultation with the Federal Reserve, to jointly adopt certain rules under Title VII, and if Title VII requires CFTC and SEC to issue joint regulations to implement a provision, any guidance on or interpretation of the provision is effective only if issued jointly and after consultation with the Federal Reserve.\nUnder section 1022, before proposing a rule and during the comment process, CFPB must consult with the appropriate prudential regulators or other federal agencies on consistency with prudential, market, or systemic objectives administered by such agencies.",
"We found that for rules that were issued and became effective between July 23, 2015, and July 22, 2016, agencies reported conducting PRA and RFA analysis where required. In addition, although not required to do so, financial regulators told us that they generally follow OMB’s guidance for developing regulatory analysis (Circular A-4). We found that the agencies included most of the key elements of OMB’s guidance in their analyses for select major rules during this review period. We recommended in our December 2011 report that federal financial regulators more fully incorporate OMB’s regulatory guidance into their rulemaking polices.",
"Of the 30 Dodd-Frank Act rules within our scope, the agencies reported conducting regulatory analysis for PRA on 12 rules and conducted a regulatory analysis or provided a certification that such an analysis was not needed under RFA for 21 rules as part of their rulemaking process. These rules were issued individually or jointly by CFTC, CFPB, FDIC, the Federal Reserve, OCC, and SEC. (See app. II for a list of the regulations within the scope of our review.) In examining the regulatory analyses for the 12 rules, we found that the agencies reported conducting the regulatory analysis pursuant to PRA when required—that is, the agencies are required to minimize the paperwork burden of their rulemakings and evaluate whether a proposed collection is necessary for the proper performance of the functions of the agency. PRA analysis on all of the 12 rules included a discussion of the analysis the agencies performed and provided estimates of the paperwork burden on entities. For instance, for the joint rule on the registration and supervision of appraisal management companies, the regulators provided estimates on the total number of states and appraisal management companies affected and estimated total burden hours for reporting and recordkeeping requirements for these entities. In another rule, CFPB determined that permitting electronic filing of reports would result in a minimal one-time burden associated with a new method of submission but it estimated savings over time due to the reduction of paper filings each year. The rule allows land developers to choose whether to submit certain filings, such as annual reports, either by paper or via electronic means. For another rule on business conduct standards for security-based swap dealers and participants, SEC performed a PRA analysis in its proposed rule and updated certain estimates for security-based swap market participants and other entities for the final rule to reflect the most recent data available.\nFor the remaining 18 rules, the agencies determined that they were not required to conduct the regulatory analyses pursuant to PRA or that PRA was not applicable. In some cases, they determined that they were not required to conduct regulatory analyses pursuant to PRA because they determined no new collection of information would be required. For instance, CFTC’s rule on trade options stated that for PRA, CFTC determined that the final rule would not impose any new information collection requirements that require OMB’s approval under PRA. In other cases, the agencies determined that the PRA was not applicable. For example, the Federal Reserve’s rule on unfair or deceptive acts or practices stated that the final rule contains no requirements subject to the PRA.\nUnder the RFA, when an agency proposes a rule that would have a significant economic impact on a substantial number of small entities, the rule must be accompanied by an impact analysis, known as an initial regulatory flexibility analysis (IRFA) when it is published for public comment. The agency must publish a final regulatory flexibility analysis (FRFA) with the final rule. Alternatively, in the appropriate circumstances, an agency may certify that its rule will not have a significant economic impact on a substantial number of small entities.\nThe certification must be published in the Federal Register “along with a statement providing the factual basis for such certification.”\nIn one instance, a regulator—CFPB—determined that the final rule on integrated mortgage disclosures would have a significant impact on a substantial number of small entities. It conducted the regulatory flexibility analysis and estimated the number of affected entities in certain mortgage transactions and the benefits and costs to small entities. For 6 rules, the regulators conducted a FRFA and concluded that the rule would not have a significant economic impact on a substantial number of small entities. For example, the Federal Reserve, in a rule that established minimum margin and capital requirements for certain swap entities, considered the potential impact on small entities in accordance with a FRFA, and based on its analysis, believed that the rule would not have a significant economic impact on a substantial number of small entities.\nFor 10 rules, the regulators stated that RFA was not applicable. For example, CFPB stated in its rule amending certain filing requirements under the Interstate Land Sales Full Disclosure Act that because no notice of proposed rulemaking is required, RFA does not require an initial or final regulatory flexibility analysis. In another example, FDIC determined that its rule on assessments relates directly to the rates imposed on insured depository institutions for deposit insurance. For this reason, it determined that the requirements of RFA do not apply. FDIC explained that certain types of rules, such as rules of particular applicability relating to rates or corporate or financial structures, or practices relating to such rates or structures, are expressly excluded from the definition of the term ‘‘rule’’ for purposes of RFA.\nIn the remaining cases, the regulators certified that the regulations would not have a significant economic impact on a substantial number of small entities per section 605(b) of the RFA. In doing so, each regulator provided a basis supporting its certification. For example, SEC’s rule on business conduct standards for swap dealers and participants noted that because (1) large financial institutions generally were the entities engaged in the dealing activity involving security-based swaps, and (2) major security-based swap participants were not small entities, its security-based-swap entity registration rules and forms, as adopted, would not have a significant economic impact on a substantial number of small entities for purposes of RFA.\nFinally, of the 30 regulations that were issued and became effective between July 23, 2015, and July 22, 2016, the agencies identified 9 as being major rules. Pursuant to the Congressional Review Act, a major rule is one that results in or is likely to result in an annual impact on the economy of $100 million or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic or export markets. Specifically, CFTC issued 1 major rule; CFPB issued 1 major rule; Federal Deposit Insurance Corporation issued 1 major rule; the Federal Reserve issued 1 major rule; SEC issued 4 major rules; and 1 major rule was issued jointly (Farm Credit Administration, FDIC, Federal Housing Finance Agency, Federal Reserve, and OCC).",
"Independent federal financial regulators are not required to follow OMB’s Circular A-4 when developing regulations, but they told us that they try to follow this guidance in principle or spirit. Regulators generally included the key elements of OMB’s guidance in their regulatory analyses for these major rules.\nTo assess the extent to which the regulators follow Circular A-4, we examined 5 major rules (see table 3 for a description of these rules). Specifically, we examined whether the regulators (1) identified the problem to be addressed by the regulation; (2) established the baseline for analysis; (3) considered alternatives reflecting the range of statutory discretion; and (4) assessed the costs and benefits of the regulation.\nWe found that all five rules we reviewed were consistent with OMB Circular A-4, which states that a rule should clearly identify the specific problem that the proposed regulatory action is intended to address. For example, SEC stated in its rule on pay ratio disclosure that current disclosure rules required registrants to disclose compensation information for only certain employees in their SEC filings; as a result, shareholders cannot calculate a company-specific metric that they can use to evaluate the chief executive officer’s compensation within the context of their own company. As another example, FDIC noted in its rule on assessments the need to reach the minimum reserve ratio to strengthen the fund, reduce the risk of the banking industry facing unexpected, large increases in assessment rates in a period of stress, and maintain stable and predictable bank assessments. Also, CFTC stated in its rule on margin requirements for uncleared swaps that the rule was intended to implement a specific provision of the Commodity Exchange Act, as amended by Title VII of the Dodd-Frank Act. As CFTC noted in the rule, Title VII intended to establish a comprehensive regulatory framework to reduce risk, increase transparency, and promote market integrity in the derivatives market.\nIn addition, all five rules identified the baseline for analysis. OMB Circular A-4 states that the baseline should be the best assessment of the way the world would look absent the proposed action. For example, CFTC stated in its rule on margin requirements for uncleared swaps that the baseline against which the costs and benefits associated with this rule will be compared is the uncleared swaps markets as it existed at the time the rule was finalized. SEC stated in its rule on pay ratio disclosure that the baseline is the current state of the market without a requirement for registrants to disclose pay ratio information. Similarly, CFPB stated in its rule on integrated mortgage disclosures that the baseline considers economic attributes of the mortgage market and the existing regulatory structure.",
"The regulators also provided alternative approaches to the proposed rules implementing the relevant provision of the Dodd-Frank Act and solicited comments. OMB Circular A-4 states that good regulatory analysis is designed to inform the public and other parts of the government of the effects of alternative actions. We found that all five rules that we assessed provided alternative approaches to the proposed rules. The agencies also asked for and received public comments, including possible alternatives to proposed requirements. For instance, in the joint rule on margin and capital requirements for covered swap entities, the prudential regulators identified and considered a number of alternatives raised by commenters and provided the rationale in their decision to a suggested approach. SEC stated in its rule on pay ratio disclosure that after considering all of the comments received on the proposed rule—and in particular, after considering specific suggestions from commenters on alternatives that could help to mitigate compliance costs and practical difficulties associated with the proposed rule—it was adopting a number of revisions to the final rule.",
"OMB Circular A-4 states that quantifying costs and benefits allows regulators to evaluate different regulatory options using a common measure. Additionally, OMB Circular A-4 recognizes that some important costs and benefits may be inherently too difficult to quantify given current data and methods and recommends a careful evaluation of qualitative costs and benefits. In prior work, we have noted some of the challenges to quantifying costs and benefits. For example, in our 2014 report, we found that federal financial regulators were constrained by several factors such as limited data or data unavailability and difficulties modeling and quantifying costs and benefits.\nHowever, we also found that by drawing on several sources, such as public comments on proposed rulemakings or data from other regulators, regulators are able to more effectively consider the costs and benefits of the rulemakings. As shown in the following examples, the regulators generally quantified some costs in all five of their respective rules and in four instances they discussed some costs qualitatively.\nThe preamble to CFTC’s final rule on margin requirements for uncleared swaps stated it used industry data to construct its own estimates of costs, but noted that there were a number of challenges in conducting quantitative analysis of the costs associated with the rule. As a result, CFTC stated that the discussion of the costs and benefits is largely qualitative in nature since administrative costs are difficult to quantify. For example, the preamble stated that the higher degree of harmonization between various regulators and jurisdictions in the final rule should result in lower administrative costs. Additionally, CFTC stated that longer lead times for industry to build compliance systems provided in the final rule will result in less operational error and costs.\nThe joint rule on margin and capital requirements for uncleared swaps estimated the annual cost associated with initial margin requirements that will be required of U.S. swap entities and their counterparties once the requirements are fully implemented to range from $672 million to roughly $46 billion, depending on the specific initial margin estimate and incremental funding costs that is used to compute the estimate. The agencies noted the difficulty of estimating the costs associated with providing initial margin with any precision due to differences in marginal funding costs across different types of entities and over time, among other things.\nSEC’s rule on pay ratio disclosure provided both quantitative and qualitative costs. SEC discussed direct compliance costs paid by registrants that are subject to the pay ratio disclosure. For example, SEC estimated that the average initial cost of compliance for a registrant with foreign operations is expected to be approximately $700,000 and for a registrant with U.S.-based operation only is expected to be approximately $150,000. In its pay ratio disclosure rule, SEC allows a company, in identifying the median employee, to use a cost-of-living adjustment for employees living in a jurisdiction other than the jurisdiction in which the chief executive officer resides. Thus, where a company has employees in countries whose cost-of- living differs from the cost-of-living in the chief executive officer’s country of residence, the cost-of-living adjustment may have an effect on the determination of the median employee and on the calculation of the pay ratio. SEC noted that it was limited in its ability to quantify the impact of the adjustment on the pay ratio calculation by lack of data on the countries where employees are located, the actual distribution of employee pay and the specific cost-of-living measure used. SEC stated that it qualitatively analyzed the main factors that may contribute to more significant effects of the cost-of-living adjustment on the determination of the median employee compensation and on the calculation of the pay ratio. It found that the effect of the cost-of-living adjustment could be potentially larger for registrants with a larger percentage of employees outside the chief executive officer’s country of residence and for registrants with employees in countries with a cost-of-living that differs significantly from the chief executive officer’s country of residence.\nIn addition, two of the five rules quantified some benefits and all of the rules included some qualitative information on benefits, such as their nature, timing, likelihood, location, and distribution. In one example, CFPB quantified some benefits in connection with its integrated disclosure rule. For example, CFPB estimated that the rule could result in savings of $130 million per year for employee time saved for mortgage transactions and stated that most of these savings are likely to be passed on to consumers. FDIC’s assessment rule also quantified some benefits. FDIC stated that it will collect approximately $10 billion in surcharges and award approximately $1 billion in credits to small banks, although actual amounts will vary from these estimates. The three remaining rules did not quantify benefits and noted data and other limitations to not doing so.\nThe five rules provided a discussion of some qualitative benefits. FDIC’s rule on assessments stated that imposing surcharges on assessments so that the deposit insurance fund reaches its target reserve ratio promptly strengthens the fund more quickly so that it can better withstand an unanticipated spike in losses from bank failures or the failure of one or more large banks. FDIC stated that reaching the target ratio early also reduces the risk of the banking industry facing unexpected, large increases in assessment rates in a period of stress. In another example, SEC stated in its rule on pay ratio disclosures that providing additional executive compensation information to shareholders provides new data points that shareholders may find relevant and useful when exercising their certain voting rights. However, SEC also stated that it could not quantify in monetary terms the benefit to shareholders. SEC stated that pay ratio disclosure is not tied to an immediate economic transaction, such as a sale of a security, and that the pay ratio disclosure is but one data point among many considerations that shareholders might find relevant when exercising their say-on-pay votes.",
"The agencies reported coordinating as required or voluntarily on 19 of the 30 regulations that became effective between July 23, 2015, and July 22, 2016. The Dodd-Frank Act stipulated coordination for 17 regulations, and agencies reported coordinating on these rules. For example, in its rule on business conduct standards for security-based swap dealers and major security-based swap participants, SEC reported consulting and coordinating with CFTC and the prudential regulators in accordance with the consultation mandate in the Dodd-Frank Act. For 2 additional rules, the Dodd-Frank Act did not stipulate coordination, but the rules were jointly issued by two or more regulators, and thus, inherently required coordination.\nFor most of the other 11 rules, agency officials told us that they did not voluntarily coordinate because the rules were technical amendments or focused on areas solely within the agency’s purview. For example, CFPB explained that it did not coordinate on several of its rules because they were threshold adjustments that were mechanical in nature and often tied to the Consumer Price Index. Similarly, FDIC did not coordinate on its rule on assessments because FDIC is solely responsible for deposit insurance assessments, so this is not an area promulgated in coordination with other entities. Appendix III provides a complete list of rulemakings, along with an explanation of whether coordination was required and the nature of any coordination.\nOf the 19 rules that we identified as having interagency coordination, we reviewed 3 rules in depth (see table 4). Specifically, we examined when, how, and to what extent federal financial regulators coordinated on the CFTC’s and the prudential regulators’ respective rules on margin requirements for uncleared swaps, as well as CFPB’s rule on integrated mortgage disclosures. For the margin requirements for uncleared swaps rules, we also examined the efforts taken by the prudential regulators and CFTC to harmonize their respective versions of the rule.\nAccording to regulators, most coordination for the rulemakings occurred throughout the rulemaking process. Agencies described coordinating through regularly scheduled meetings and conference calls, as well as through e-mail, telephone conversations, and sharing copies of drafts for comment.",
"In developing their respective rules on margin requirements for uncleared swaps, staff from the prudential regulators and CFTC engaged in coordination domestically, staff from the banking regulators and CFTC engaged in coordination internationally.",
"Staff from the banking regulators and CFTC said that throughout the rulemaking process, regulators scheduled recurring interagency meetings to coordinate their rules and engaged in additional coordination as needed. Staff from the banking regulators and CFTC also said that before proposing their respective rules, they began holding regular meetings to discuss their ideas. According to staff from the regulators, these meetings, which were typically held at least biweekly, continued throughout the rulemaking process, although regulatory staff from one agency said that the regulators would meet more frequently if there were issues that required more discussion. Federal Reserve staff created agendas for these recurring meetings. These agendas included discussion items such as revisions for specific sections and particular comments for the agencies to consider. Staff from CFTC and one banking regulator said that they continue to have biweekly conference calls to discuss the implementation of the rules and issues that may arise regarding them.\nAccording to staff from CFTC and the banking regulators, their efforts to coordinate throughout the rulemaking process led to rules that are largely harmonized, particularly in key areas such as the initial and variation margin requirements, the timing for posting margin, and the parties that are required to post the margin. CFTC staff said that one of the goals of coordinating with the other regulators was to harmonize the rules to the extent possible and avoid the potential for regulatory arbitrage. Staff from CFTC and the banking regulators noted that the coordination process allowed them to resolve several areas where they had differences. For example, CFTC staff said that initially the prudential regulators and CFTC were considering setting different thresholds for the size of an entity that would be subject to the rules. However, they said that CFTC conducted an analysis that helped the regulators achieve a consensus on the appropriate threshold.\nAccording to regulators, another area where the prudential regulators and CFTC initially differed was in their proposed margin requirements for the treatment of uncleared cross-border swap transactions—transactions involving swap entities operating in a foreign jurisdiction or organized as U.S. branches or agencies of foreign banks. In their respective final rules, CFTC and the prudential regulators came to a similar position regarding whether to allow entities to comply with comparable margin requirements in a foreign jurisdiction. The prudential regulators’ rule permits certain swap entities to comply with a foreign regulatory framework for non- cleared swaps if the regulators jointly determine that the foreign regulatory framework is comparable to the regulators’ rule. Similarly, CFTC allows entities, under certain circumstances, to rely on compliance with a foreign jurisdiction’s margin requirements if CFTC determines they are comparable to CFTC’s. OCC staff noted that through the coordination process CFTC came to this determination, in part because much of the international swap dealer community is subject to the prudential regulators’ rule rather than CFTC’s rule.\nWhile regulators noted that coordination helped them achieve comparability between the final rules in many key areas, they identified one area where differences remain—that of margin requirements for uncleared swaps with affiliated entities (interaffiliate swaps). Both final rules require swap entities covered by the rules to collect and post variation margin for uncleared swaps with affiliates on the same basis as for nonaffiliated counterparties. However, the final rules are different with respect to the collection of initial margin for interaffiliate transactions. While the prudential regulators’ rule does require a swap entity to collect initial margin from an affiliate, subject to a threshold amount, CFTC generally does not impose a similar requirement to collect initial margin from an affiliate (although it stipulates such swaps must be subject to a centralized risk-management program that is designed to monitor and to manage the risks associated with such transactions). CFTC’s Chairman said in his statement of record that interaffiliate transactions are transactions within the consolidated entity, and not with a third party. As such, they do not increase the overall risk exposure of the consolidated entity. In its final rule, CFTC noted that, among other contributing factors, it considered the difference in mission and overall regulatory framework between the prudential regulators and CFTC in determining its initial margin requirement for interaffiliate transactions. CFTC and two banking regulators’ staff noted that it was unclear at this time as to whether this difference in the final rules was going to affect interaffiliate transactions. Two regulators said the regulators will need to monitor potential effects as the margin rules are implemented. However, in finalizing CFTC’s rule, one dissenting Commissioner said in her statement of record that CFTC’s treatment of interaffiliate initial margin places the swap dealers CFTC regulates and their customers at unnecessary risk in times of financial stress.",
"The Dodd-Frank Act directs CFTC, SEC, and the prudential regulators to consult and coordinate, as appropriate, with foreign regulatory authorities on the establishment of consistent international standards for regulating swaps. Staff from CFTC, SEC, and several of the prudential regulators participated on the international working group that helped develop the international framework to regulate uncleared swaps, which was issued in September 2013 by the Basel Committee on Banking Supervision and the Board of the International Organization of Securities Commissions. According to CFTC staff, the working group coordinated on issues such as the logistics for the collection of margin and how to treat transactions in emerging markets. Staff from two banking regulators and CFTC said that after the international standards were established, the regulators coordinated through their standing, biweekly meetings to reconcile their initial proposed rules with the international framework.",
"With respect to the integrated mortgage disclosure rule, CFPB followed its formal consultation process for working with agencies to develop Dodd-Frank Act rules. As previously discussed, section 1022 of the Dodd- Frank Act requires CFPB to consult with the appropriate prudential regulators or other federal agencies as part of the rulemaking process. In March 2012, CFPB developed internal guidelines that outline the minimum steps that it expects staff to follow during the consultation process. The guidelines state that while the process may vary depending on factors such as the nature, complexity, and deadlines of rulemakings, the process typically includes an opportunity for relevant agencies to coordinate with CFPB before it proposes its rule, after CFPB receives comments on its proposal, and before the final rule is issued. This coordination includes in-person briefings and solicitations for input on CFPB’s approach to the particular rule.\nIn developing the integrated mortgage disclosure rule, CFPB staff said that they provided notification of a desire to consult on the rule to the prudential regulators, offered four briefings during the rulemaking process, and held other consultations as needed in accordance with its consultation process guidelines. While developing the proposed and final rules, CFPB staff provided outlines to the prudential regulators for their consultation and feedback. According to CFPB staff, when agencies provided comments in the proposal stage, CFPB staff sometimes updated the proposed rule to include a request for comment on their suggestions. For example, staff said that when FDIC suggested that CFPB improve the disclosures on annual percentage rates, CFPB included a request for comment in the proposed rule on ways to improve the disclosure.\nStaff from CFPB and the prudential regulators said that the prudential regulators participated in CFPB’s consultation process. For example, Federal Reserve staff said they participated in several interagency consultation meetings and calls that occurred throughout the proposed and final rulemakings. They said that CFPB staff consulted with them prior to proposing the rule and during the comment process on the rule’s consistency with prudential, market, and systemic objectives administered by the Federal Reserve. In addition, Federal Reserve staff provided informal feedback to enhance the clarity of the rule and facilitate compliance. FDIC staff described CFPB’s rulemaking process as flexible, allowing FDIC staff the opportunity to participate and understand CFPB’s rulemaking process, putting FDIC staff in a better position to explain the rule to FDIC-supervised banks.",
"Financial regulators continue to implement reforms pursuant to the Dodd- Frank Act, but a number of factors make the full impact of the act uncertain. In particular, while many rules have been finalized, several rules have not been finalized or have not yet been started. As of December 2016, regulators had issued final rules for over 75 percent of the 236 provisions of the act that we are monitoring. When the act’s reforms are fully implemented, it can take time for the financial services industry to comply with the new regulations, which means additional time is needed to measure the impact of the rules. Moreover, isolating the Dodd-Frank Act’s effect on the financial marketplace is difficult. Many other factors that can affect the financial marketplace, such as monetary policy, could have an even greater impact than the act.\nRecognizing these limitations and difficulties, we developed an approach to analyze current data and trends that might indicate some of the Dodd- Frank Act’s initial impacts. First, using data through the second quarter of 2016, we updated the indicators developed in our December 2012 and 2015 reports to monitor changes in certain characteristics of bank SIFIs, which are subject to enhanced prudential standards and oversight under the act. Second, using data through the second quarter of 2016, we updated indicators of designated nonbanks that we developed in our December 2015 report that parallel our bank SIFI indicators. Third, using data through the second quarter of 2016, we updated indicators developed in our December 2013 report to monitor the extent to which certain of the act’s swap reforms are consistent with the act’s goals of reducing risk. These analyses have limitations, which we discuss in the following sections.",
"According to the legislative history, the Dodd-Frank Act contains provisions intended to reduce the risk of failure of a large, complex financial institution and the damage that such a failure could do to the economy. Such provisions include (1) authorizing FSOC to designate a nonbank financial company for Federal Reserve supervision if FSOC determines its material distress or financial activities could pose a threat to U.S. financial stability and (2) directing the Federal Reserve to impose enhanced prudential standards on bank holding companies with $50 billion or more in total consolidated assets (bank SIFI) and nonbank financial companies designated by FSOC (designated nonbanks). The Federal Reserve has finalized rules imposing enhanced prudential standards on bank SIFIs, including capital, leverage, and liquidity requirements, and rules that require these firms to conduct resolution planning and stress testing, as well as proposed other rules. (See app. IV for a summary of provisions related to SIFIs and their rulemaking status.)\nAs we first reported in December 2012, the Dodd-Frank Act and its implementing rules may result in adjustments to the size, interconnectedness, complexity, leverage, or liquidity of bank SIFIs over time. We updated the indicators we developed in our December 2012 and December 2015 reports to monitor changes in some of the characteristics of bank SIFIs. The size, interconnectedness, and complexity indicators reflect the potential for financial distress or activities of a single bank SIFI to affect the financial system and economy (spillover effects). The leverage and liquidity indicators reflect a SIFI’s resilience to shocks or its vulnerability to financial distress.\nIt is important to note however, that these indicators have limitations. For example, the indicators do not identify causal links between changes in SIFI characteristics and the act. Rather, the indicators track changes in the size, interconnectedness, complexity, leverage, and liquidity of SIFIs since the passage of the act to examine if the changes have been consistent with the goals of the act. However, other factors—including international banking standards agreed upon by the Basel Committee on Banking Supervision (Basel Committee) and monetary policy actions— also affect bank holding companies and, thus, the indicators. These factors may have a greater effect than the Dodd-Frank Act on SIFIs. Furthermore, because several rules implementing provisions related to SIFIs have not been finalized or have not yet been started, our indicators include the effects of these rules only insofar as SIFIs have modified their behavior in response to issued rules or in anticipation of expected rules (see app. IV). In this regard, our indicators provide baselines against which to compare future trends. See appendix V for additional limitations of our indicators.\nTable 5 summarizes the changes in our bank SIFI indicators from the second or third quarter of 2010 through the second quarter of 2016 (see app. V for more information). For example:\nChanges in some size and complexity indicators are consistent with increased potential spillover effects for large bank SIFIs (which we define as bank holding companies with $500 billion or more in assets), while changes in interconnectedness and other size and complexity indicators are consistent with decreased or no change in potential spillover effects for large bank SIFIs.\nChanges in size, interconnectedness, and complexity indicators are consistent with decreased or no change in potential spillover effects for other bank SIFIs (which we define as bank holding companies with at least $50 billion but less than $500 billion in assets).\nChanges in all of our leverage and liquidity indicators are consistent with increased resilience for both large bank SIFIs and for other bank SIFIs.",
"We updated indicators associated with size, interconnectedness, leverage, and liquidity for institutions whose material financial distress or activities FSOC determines could pose a threat to U.S. financial stability and therefore should be subject to Federal Reserve supervision and enhanced prudential standards. During 2013 and 2014, FSOC designated four nonbank financial companies for Federal Reserve supervision pursuant to a determination that their material financial distress could pose a threat to U.S. financial stability. These included the American International Group, Inc. (AIG) in July 2013, General Electric Capital Corporation, Inc. (GECC) in July 2013, Prudential Financial, Inc. (Prudential) in September 2013, and MetLife, Inc. (MetLife) in December 2014. FSOC determined that each of these institutions was predominately engaged in financial activities (that is, at least 85 percent of their revenues were derived from, or more than 85 percent of their assets were related to, activities that were financial in nature). According to FSOC, at the time of the designations, AIG was the third-largest insurance company in the United States and one of the largest insurers in the world; GECC was one of the largest holding companies in the United States and a significant source of credit to commercial and consumer customers; Prudential was one of the largest financial services companies in the United States providing a wide array of financial services, including group and individual life insurance, annuities, retirement-related products and services, and asset management; and MetLife was the largest publicly traded U.S. insurance organization and one of the largest financial services companies in the United States. However, in March 2016, the U.S. District Court for the District of Columbia invalidated FSOC’s designation of MetLife. Then, in June 2016, after the reorganization of GECC, FSOC rescinded the nonbank’s designation noting that divestures and organizational changes significantly reduced the potential for any material financial distress to threaten financial stability.\nAs we first reported in December 2012, the Dodd-Frank Act and its implementing rules may result in adjustments to size, interconnectedness, leverage, and liquidity characteristics of designated nonbanks over time. Size and interconnectedness reflect the potential for the financial distress of a single designated nonbank to affect the financial system and economy, while leverage and liquidity reflect a designated nonbank’s resilience to shocks or its vulnerability to financial distress. In our December 2015 report, we developed the following indicators based on the characteristics of companies that FSOC reviews as part of its process for designating nonbanks:\nSize. Our indicator of size is total consolidated assets.\nInterconnectedness. Our indicators of interconnectedness are gross notional amounts of credit default swaps outstanding for which the designated nonbank is the reference entity and total debt outstanding (excluding deposit liabilities).\nLeverage. Our indicator of leverage is total equity as a percentage of total assets, except separate accounts.\nLiquidity. Our indicator of liquidity is short-term debt (excluding deposit liabilities) as a percentage of total assets, except separate accounts.\nWe calculated each indicator, for each quarter, for each of the currently designated nonbanks from the second quarter of 2012 to the second quarter of 2016. We also calculated the medians of each indicator for publicly traded banks and insurance companies with total consolidated assets of $50 billion or more to provide a frame of reference.\nLike our indicators for bank SIFIs, our indicators for designated nonbanks have some limitations. For example, the indicators do not identify causal links between changes in designated nonbanks’ characteristics and the Dodd-Frank Act. Rather, the indicators track changes in the size, interconnectedness, leverage, and liquidity of designated nonbanks since the passage of the act to examine if the changes have been consistent with the goals of the act. However, other factors, such as capital standards for large, internationally active insurance companies, may also affect designated nonbanks and, thus, the indicators. Furthermore, to the extent that a number of rules implementing provisions related to designated nonbanks have not yet been finalized, our indicators include the effects of these rules only insofar as designated nonbanks have changed their behavior in anticipation of expected rules. In this regard, our indicators provide baselines against which to compare future trends.\nFigure 1 shows the indicators from the second quarter of 2012 through the second quarter 2016. In November 2011 and October 2012, the Federal Reserve issued specific rules requiring designated nonbank financial companies to conduct resolution planning and stress testing, respectively, and in June 2016 proposed rules that would establish corporate governance, risk-management, and liquidity risk-management standards for these firms. Thus, the current values of our indicators are baselines against which to compare future trends as more rules for designated nonbanks are implemented.\nOur indicators allow for the following observations:\nBased on their total assets, both designated nonbanks are relatively large. They are all larger than the median publicly traded bank or insurance company with assets of $50 billion or more.\nGross notional amounts of credit default swaps outstanding (for which designated nonbanks are the reference entities) have decreased since the second quarter of 2012, suggesting that the designated nonbanks are relatively less interconnected and thus have smaller potential spillover effects than in prior years by this measure, all else being equal.\nTotal debt outstanding (excluding deposits) for the two designated nonbanks has decreased since the second quarter of 2012. These trends suggest that the designated nonbanks have become less interconnected and thus have smaller potential spillover effects than in prior years based on this indicator, all else being equal.\nTotal equity as a percentage of assets, except separate accounts, ranged from about 21 percent for AIG to about 11 percent for Prudential in the second quarter of 2016. This range in leverage suggests that the designated nonbanks have varying resilience to shocks and financial distress by this measure, all else being equal.\nShort-term debt as a percentage of assets, except separate accounts, decreased from the second quarter of 2012 to the second quarter of 2016. Decreases in short-term debt as a percentage of assets, except separate account ranged from about 71 percent for AIG to about 42 percent for Prudential. These trends suggest that the two designated nonbanks’ resilience to shocks and financial distress has improved by this measure, all else being equal.",
"As we reported in December 2013, once fully implemented, some provisions in Title VII of the Dodd-Frank Act may help reduce systemic risks to financial markets in part by increasing margins posted for over- the-counter swaps. In November 2015 and January 2016, respectively, the prudential regulators and CFTC published final rules on margin requirements for uncleared swaps, for swap dealers and major swap participants, pursuant to the Dodd-Frank Act. As discussed previously, the final rules establish minimum initial and variation margin requirements. Using data through the second quarter of 2016, we updated the set of indicators that we developed in our December 2013 report and updated in our December 2014 and December 2015 reports to measure changes in the use of margin collateral for over-the-counter derivatives. This set of indicators may shed light on changes in the use of margin collateral associated with Dodd-Frank Act swap reforms as they are implemented, but the indicators have several key limitations, as described later in this section.\nOur margin indicators measure the fair value of collateral pledged by counterparties to secure over-the-counter derivatives contracts as a percentage of net current credit exposure for those counterparties for bank holding companies. To protect itself from the loss it would incur if a counterparty defaulted on a derivatives contract, a swap entity could require counterparties to post margin collateral in an amount equal to or greater than its exposure to the contracts. An increase in collateral as a percentage of credit exposure suggests that holding companies have required their counterparties to post a greater amount of collateral against their credit exposure due to derivatives contracts overall, which would be consistent with the purposes of the act’s swap reforms.\nFigure 2 shows trends in our margin indicators from the second quarter of 2009 through the second quarter of 2016. The rate of collateralization of net current credit exposure for all counterparties has increased from about 71 percent in the third quarter of 2010 to about 91 percent in the second quarter of 2016, suggesting that holding companies generally required their counterparties to post a greater amount of collateral against their derivatives contracts. However, as discussed later, aggregate measures of collateralization rates can mask differences in collateralization rates for different counterparty types.\nCollateral posted by type of counterparty—banks and securities firms, monoline financial guarantors, hedge funds, sovereign governments, and corporate and all other counterparties—increased (as a percentage of net credit exposure) between the second quarter of 2009 and the second quarter of 2016. However, the rate of collateralization consistently differed by the type of counterparty, with hedge funds consistently posting more collateral as a percentage of credit exposure than other types of counterparties. As we reported in December 2013, according to OCC, the rates differ partly because swaps dealers may require certain counterparties to post both initial and variation margin and other counterparties to post only variation margin. Under the prudential regulators’ 2015 final rule and CFTC’s 2016 final rule for uncleared swaps, minimum floors are set for both initial and variation margins and as a result, the final rules may further contribute to higher rates of collateralization.\nOur margin indicators, while suggestive, are subject to important limitations. First, they do not identify causal links between changes in collateralization and the Dodd-Frank Act, including its regulations. Rather, the set of indicators tracks changes in collateralization since the act’s passage to examine if the changes were consistent with the act’s goals for increasing collateralization. Second, both net current credit exposure and the fair value of collateral are as of a point in time because the fair values of derivatives contracts and collateral can fluctuate over time. Third, an average collateralization of 100 percent does not ensure that all current counterparty exposures have been eliminated because one counterparty’s credit exposure may be overcollateralized and another’s undercollateralized. Fourth, our indicators measure the fair value of the collateral held against net current credit exposures but do not necessarily measure the risk of uncollateralized losses. The fair value of net current credit exposure does not fully account for the riskiness of any single swap contract. If a party has entered into riskier swaps, it is possible for the rate of collateralization to increase while the risk of uncollateralized losses also increases. Fifth, our indicators are market aggregates that may not reflect the collateralization rate for any single company. Finally, these indicators do not reflect collateralization rates for companies, such as stand-alone broker-dealers, which have credit exposure to counterparties in over-the-counter derivatives contracts but are not affiliated with a bank holding company.",
"We provided a draft of this report to CFPB, Federal Reserve, FDIC, OCC, NCUA, SEC, and CFTC for review and comment. The regulators provided technical comments, which we have incorporated, as appropriate.\nWe are sending copies of this report to the appropriate congressional committees and members and federal financial regulators. This report will also be available at no charge on our website at http://www.gao.gov.\nShould you or your staff have questions concerning this report, please contact me at (202) 512-8678 or evansl@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 VII.",
"Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), various federal agencies are directed or have the authority to issue hundreds of regulations to implement the act’s provisions. This report discusses the regulatory analyses conducted by federal financial regulators (financial regulators) in their Dodd-Frank Act rulemakings, including their assessments of which rules they considered to be major rules; coordination between and among federal regulators on these indicators of the impact of selected Dodd-Frank Act provisions and their implementing regulations on financial market stability.\nThe financial regulators are the Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau (CFPB), the Board of Governors of the Federal Reserve System (Federal Reserve), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), National Credit Union Administration (NCUA), Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC).\nTo examine the regulatory analyses conducted by the regulators, we focused our analysis on final rules issued pursuant to the Dodd-Frank Act that were effective between July 22, 2015, and July 23, 2016, a total of 30 rules (see app. II). We compiled these rules from a website maintained by the Federal Reserve Bank of St. Louis that tracks Dodd-Frank Act regulations, which we corroborated with officials from the agencies under review. In examining the regulatory analyses of the agencies in our review, we reviewed federal statutes, regulations, GAO studies, and other material to identify the regulatory analyses the agencies had to conduct as part of their Dodd-Frank rulemakings, focusing on those analyses required under the Paperwork Reduction Act (PRA) and the Regulatory Flexibility Act (RFA). We reviewed Federal Register notices of final rules for the agencies’ determinations of the applicability of PRA and RFA. In some instances, the regulators determined that the analysis was not required or not applicable and indicated this in their final rulemaking. Two analysts recorded the agencies’ determination of whether PRA and RFA were required in a spreadsheet. Using GAO’s Federal Rules database, we found that 9 of the 30 rules were identified as major rules, per the Office of Management and Budget (OMB) guidance, under the Congressional Review Act because they resulted in or are likely to result in an annual impact on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of U.S.- based enterprises to compete with foreign-based enterprises in domestic and export markets. For agencies subject to Executive Order (E.O.) 12,866, such major rules would be considered significant regulatory actions and subject to formal cost-benefit analysis.\nWe also developed a data collection instrument to compare and assess the regulatory analysis conducted for the major rules against the principles outlined in OMB Circular A-4, which provides guidance to federal agencies on the development of regulatory analysis. To conduct our analyses, we reviewed Federal Register releases of the final rules and the cost-benefit analyses they included in the final rules, and we interviewed agency staff from CFPB, CFTC, SEC, Federal Reserve, FDIC, NCUA, and OCC. We selected five rules for in-depth review, comparing the cost-benefit or similar analyses to specific principles in OMB Circular A-4. To narrow the list from 9 major rules to the 5 rules subject to in-depth review, we selected rules that were from a variety of agencies, including one joint rule, and that covered varied topics. In conducting each individual analysis, we reviewed Federal Register notices prepared by agencies during the course of the rulemaking.\nTo examine interagency coordination among the regulators, we reviewed the Dodd-Frank Act, Federal Register releases, and GAO reports to identify the interagency coordination and consultation requirements for the 30 rules in our scope. As part of this review, analysts looked for key words relating to consultation and coordination in the Federal Register releases and recorded this information in a spreadsheet. An attorney then independently evaluated each determination documented in the spreadsheet to reach concurrence on the assessment. (See app. III for a list of rules and determination of whether coordination was required). We also interviewed officials or staff from CFPB, CFTC, SEC, FDIC, NCUA, the Federal Reserve, and OCC to identify changes in the nature of interagency coordination and consultation. We also asked the financial regulators’ staff to identify any instances of interagency coordination not specified in the Federal Register releases, and if they did not coordinate, to discuss the reasons why. We did not examine the effects of noncoordination on rulemakings, which was beyond the scope of our review.\nWe also selected three rules for in-depth review of interagency coordination: CFTC’s and the prudential regulators’ respective rules on margin requirements for uncleared swaps and CFPB’s rule on integrated mortgage disclosures. We selected these rules based on the opportunity for extensive interagency coordination. We selected the rules on margin requirements for uncleared swaps because the prudential regulators and CFTC issued rules that required coordination among the prudential regulators as well as between the prudential regulators and CFTC. We selected the integrated mortgage disclosure rule because of CFPB’s requirement to consult with the appropriate prudential regulators and other federal agencies on consistency with prudential, market, or systemic objectives administered by such agencies before proposing a rule. We interviewed the responsible agencies to discuss the outcomes of coordination and specific areas where coordination or harmonization of rules was a priority and obtained documentation of specific examples of interagency coordination and consultation.\nTo analyze the impact of the Dodd-Frank Act on financial market stability, we updated several indicators developed in our prior reports with data through the second quarter of 2016. The indicators display trends in both banks that are systemically important financial institutions (bank SIFI) and nonbank financial institutions designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve. We updated indicators monitoring changes in size, interconnectedness, complexity, leverage, and liquidity of bank SIFIs. Since we began developing and tracking indicators for bank SIFIs, FSOC has designated three nonbank institutions for enhanced supervision by the Federal Reserve. As such, we updated indicators developed in our December 2015 report that are associated with the size, interconnectedness, leverage, and liquidity of these institutions. Finally, we updated our indicators that monitor the extent to which certain swap reforms are consistent with the act’s goals of reducing risk. For those parts of our methodology that involved the analysis of computer- processed data from Bloomberg, the Federal Reserve Bank of Chicago, the Federal Reserve, the National Information Center, and the Bureau of Economic Analysis, we assessed the reliability of these data by reviewing relevant documentation and electronically testing the data for missing values, outliers, and invalid values. We determined the data were sufficiently reliable for our purposes of monitoring changes in bank SIFIs and designated nonbanks and assessing the amount of margin collateral that over-the-counter derivatives counterparties used.\nWe conducted this performance audit from June 2016 to December 2016 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.",
"The following table lists the 30 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank-Act) rules that we identified as having effective dates during the scope of our review,—from July 23, 2015 through July 22, 2016. Nine rules were major.",
"The following table lists the 30 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) rules that we identified as having effective dates during the scope of our review (from July 23, 2015, through July 22, 2016), whether we found evidence of coordination during the rulemaking process, whether the Dodd-Frank Act required interagency or international coordination, and the nature of coordination, if any.",
"The Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) contains several provisions—including designation by the Financial Stability Oversight Council (FSOC) for supervision by the Board of Governors of the Federal Reserve System (Federal Reserve) and enhanced prudential standards—that apply to nonbank financial companies if FSOC determines that material financial distress at the company or the nature, scope, size, scale, concentration, interconnectedness, or mix of activities at the company could pose a threat to U.S. financial stability. Enhanced prudential standards also apply to bank holding companies with $50 billion or more in total consolidated assets. For this report, we refer to those nonbank financial companies as designated nonbanks and bank holding companies as systemically important banks (bank SIFIs), respectively. Table 8 summarizes some of the Dodd-Frank Act provisions and the rulemakings, including their status, to implement those provisions as of July 22, 2016.",
"We updated indicators to monitor changes in the size, interconnectedness, complexity, leverage, and liquidity of bank holding companies with $50 billion or more in total consolidated assets—bank systemically important financial institutions or bank SIFIs). As we first reported in December 2012, some provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and related rules may result in adjustments to the these characteristics of bank SIFIs over time. The size, interconnectedness, and complexity indicators are intended to capture the potential for a bank SIFI’s financial distress to affect the financial system and economy (spillover effects). The leverage and liquidity indicators are intended to capture a bank SIFI’s resilience to shocks or its vulnerability to financial distress.",
"We used the following data to construct our indicators: quarterly data on the price index for gross domestic product, which we obtained from the Bureau of Economic Analysis for the period from the second quarter of 2006 to the second quarter of 2016; annual data on numbers and locations of legal entities for holding companies obtained from the Board of Governors of the Federal Reserve System (Federal Reserve) for the period from the second quarter of 2010 to the second quarter of 2016; quarterly data on second-tier bank holding companies, which we obtained from the Federal Reserve via the National Information Center for the period from the second quarter of 2009 to the second quarter of 2016; quarterly balance sheet and income statement data that bank holding companies report on Form FR Y-9C, which we obtained from the Federal Reserve Bank of Chicago for the period from the second quarter of 2009 to the second quarter of 2016; and quarterly data on gross notional amounts of credit default swaps outstanding by reference entity, which we obtained from Bloomberg for the period from the third quarter of 2010 to the second quarter of 2016.",
"Our analysis for our size, leverage, liquidity, and one of our interconnectedness indicators generally includes all top-tier U.S. bank holding companies, including any U.S.-based bank holding company subsidiaries of foreign banking organizations, with total consolidated assets of $1 billion or more that filed Form FR Y-9C for one or more quarters during the period from the first quarter of 2006 to the second quarter of 2016. We chose the threshold of $1 billion in assets to match the threshold for reporting Form FR Y-9C starting in the first quarter of 2015. For our complexity indicators and one interconnectedness indicator, we used data on top-tier U.S. bank holding companies with total consolidated assets of $50 billion or more. We defined bank SIFIs as bank holding companies with total assets of $50 billion or more. We defined large bank SIFIs as bank holding companies with total assets of $500 billion or more, and we defined other bank SIFIs as bank holding companies with total assets of at least $50 billion but less than $500 billion. We defined non-SIFI bank holding companies as bank holding companies with less than $50 billion in total assets.",
"We calculate each of our indicators for each bank holding company in our sample for each quarter from the first quarter of 2006 to the second quarter of 2016, with the exceptions of our complexity indicators, which we calculate only for bank SIFIs as of the second quarter of each year from 2006 to 2016, and one of our interconnectedness indicators, which we calculate only for bank SIFIs for the period from the third quarter of 2010 to the second quarter of 2016. We then calculate the median value of each indicator for each group of bank holding companies—large bank SIFIs, other bank SIFIs, all bank SIFIs, non-SIFI bank holding companies, and all bank holding companies, to the extent possible—and track the median values over time. Finally, we assess the changes in the median values of the indicators for large bank SIFIs and other banks SIFIs between the second or third quarter of 2010 and the second quarter of 2016, depending on the indicator. We say that an indicator has increased or decreased if it has changed by 5 percent or more, depending on the direction of the change, and we say that an indicator has remained about the same if it has changed by less than 5 percent. When stating the implications of the indicator on potential spillover effects, we assume all other things are held equal.",
"Our indicators analysis has limitations. For example, the indicators do not identify causal links between changes in bank SIFI characteristics and the act. Rather, the indicators track changes in the size, interconnectedness, complexity, leverage, and liquidity of bank SIFIs since the Dodd-Frank Act was passed to examine whether the changes were consistent with the act. However, other factors—including the economic downturn, international banking standards agreed upon by the Basel Committee on Banking Supervision (Basel Committee), and monetary policy actions— also affect bank holding companies and, thus, the indicators. These factors may have a greater effect on bank SIFIs than the Dodd-Frank Act. In addition, some rules implementing provisions related to bank SIFIs have not yet been finalized or fully implemented. Thus, changes in our indicators include the effects of these rules only insofar as bank SIFIs have changed their behavior in response to issued rules and in anticipation of expected rules. In this sense, our indicators provide baselines against which to compare future trends. Furthermore, each indicator has its own specific limitations, which we expand on in the following sections.",
"",
"An institution’s size is associated with the potential for its financial distress to affect the financial system and the broader economy (spillover effects). We developed three indicators of size: (1)—the number of bank holding companies with assets of $50 billion or more, (2) total assets of the consolidated bank holding company as reported on its balance sheet (adjusted for inflation and measured in billions of second quarter 2016 dollars), and (3) the market share of the bank holding company (equal to its total assets as a percentage of the total assets of all of the holding companies we analyzed).\nThese indicators do not include an institution’s off-balance-sheet activities and thus may understate the amount of financial services or intermediation an institution provides. Also, asset size alone is not an accurate determinant of systemic significance because an institution’s systemic significance also depends on other factors, such as its complexity and interconnectedness. Furthermore, some bank SIFIs are U.S.-based bank holding company subsidiaries of foreign banking organizations, and the size of these bank SIFIs may not reflect the potential for the parent company’s financial distress to affect the financial system and the economy.\nWe observed the following changes in our size indicators over the period from the third quarter of 2010 to the second quarter of 2016 (see table 9):\nThe number of bank SIFIs decreased by one between the third quarter of 2010 and the second quarter of 2016. The number of large bank SIFIs decreased by one, and the number of other bank SIFIs was the same.\nMedian assets of bank SIFIs decreased by about 16 percent. Median assets of large bank SIFIs increased by about 38 percent, while median assets of other bank SIFIs decreased by about 10 percent.\nMedian market shares of bank SIFIs decreased by about 13 percent.\nMedian market shares of large bank SIFIs increased by about 42 percent while median market shares of other bank SIFIs decreased by about 7 percent.\nInterconnectedness reflects direct or indirect linkages between financial institutions that may transmit distress from one financial institution to another (spillover effects). We developed two indicators of interconnectedness based on those that the Financial Stability Oversight Council uses in the first stage of its process for designating nonbank SIFIs (1)—gross notional amount of credit default swaps outstanding for which the institution is the reference entity (adjusted for inflation and measured in millions of second quarter 2016 dollars) and (2) total debt outstanding (adjusted for inflation and measured in second quarter 2016 dollars). We measure total debt outstanding as the difference between total liabilities and total deposits.\nWe observed the following changes in our interconnectedness indicators over the period from the third quarter of 2010 to the second quarter of 2016 (see table 10):\nMedian credit default swaps gross notional amounts among bank SIFIs that are reference entities decreased by about 65 percent. Median credit default swaps gross notional amounts for large bank SIFIs that are reference entities have decreased by about 62 percent, while median credit default swaps gross notional amounts for other bank SIFIs that are reference entities decreased by about 80 percent. We note that few bank SIFIs are reference entities—only six or seven large bank SIFIs are reference entities, and only three or four other bank SIFIs are reference entities in any one quarter.\nMedian total debt outstanding for bank SIFIs decreased by about 19 percent. Median debt outstanding for large bank SIFIs decreased by about 23 percent, while median debt outstanding for other bank SIFIs remained about the same.\nInstitutions that are more complex are likely to be more difficult to resolve and therefore cause significantly greater disruption to the wider financial system and economic activity if they fail (spillover effects). Resolution via a bankruptcy or under the backstop orderly liquidation authority in Title II of the Dodd-Frank Act may be more difficult if a large number of legal entities or legal systems are involved. For example, a SIFI with a large number of legal entities—particularly foreign ones operating in different countries under different regulatory regimes—may be more difficult to resolve than a SIFI with fewer legal entities in fewer countries. We developed three indicators of this type of complexity (1)—the number of a bank SIFI’s legal entities, (2) the number of a bank SIFI’s foreign legal entities, and (3) the number of countries in which a bank SIFI’s foreign legal entities are located.\nA key limitation of our indicators is that they may not capture all relevant aspects of the complexity of a SIFI, such as complexity that could result from being a subsidiary of a foreign company.\nWe observed the following changes in our complexity indicators over the period from the second quarter of 2010 to the second quarter of 2016 (see table 11):\nMedian numbers of legal entities for bank SIFIs decreased by 37, or about 28 percent. Median numbers of legal entities for large bank SIFIs decreased by 1016, or about 37 percent, and median numbers of legal entities for other bank SIFIs decreased by 26, or about 24 percent.\nMedian numbers of foreign legal entities for bank SIFIs decreased by 1, or about 11 percent. Median numbers of foreign legal entities for large bank SIFIs increased by 131, or about 20 percent, and median numbers of foreign legal entities for other bank SIFIs decreased by 2, or about 33 percent.\nMedian numbers of countries in which foreign legal entities are located for bank SIFIs decreased by 1, or about 20 percent. Median numbers of countries in which foreign legal entities are located for large bank SIFIs remained about the same (increased by 1, or about 2 percent), and median numbers of countries in which foreign legal entities are located for other bank SIFIs decreased by 1, or about 25 percent.\nLeverage generally captures the relationship between an institution’s exposure to risk and capital that can be used to absorb losses from that exposure (resilience). Institutions with more capital to absorb losses are less likely to fail, all else being equal. We track two indicators of leverage—(1) a bank SIFI’s tangible common equity as a percentage of total assets and (2) a bank SIFI’s total bank holding company equity as a percentage of total assets. Tangible common equity is calculated by subtracting the sum of intangible assets and perpetual preferred stock (net of related Treasury stock) from the company’s equity capital.\nA limitation of both indicators is that they may not fully reflect an institution’s exposure to risk because total assets do not reflect an institution’s risk exposure from off-balance-sheet activities and generally treat all assets as equally risky.\nWe observed the following changes in our leverage indicators over the period from the third quarter of 2010 to the second quarter of 2016 (see table 12):\nMedian tangible common equity as a percentage of assets for bank SIFIs increased by about 34 percent. Median tangible common equity as a percentage of assets for large bank SIFIs increased by about 23 percent, and median tangible common equity as a percentage of assets for other bank SIFIs increased by about 32 percent.\nMedian total equity as a percentage of assets for bank SIFIs increased by about 15 percent. Median total equity as a percentage of assets for large bank SIFIs increased by about 27 percent, and median total equity as a percentage of assets for other bank SIFIs increased by about 11 percent.\nLiquidity represents the ability to fund assets and meet obligations as they become due, and liquidity risk is the risk of not being able to obtain funds at a reasonable price within a reasonable time period to meet obligations as they become due. Institutions with more liquidity (and less liquidity risk), are less likely to fail, all else being equal (resilience). We developed two indicators of liquidity: (1)—short-term liabilities as a percentage of total liabilities and (2) liquid assets as a percentage of short-term liabilities. Short-term liabilities reflect an institution’s potential need for liquidity in the immediate future. We measure short-term liabilities as the sum of federal funds purchased and repurchase agreements, trading liabilities (less derivatives with negative fair value), other borrowed funds, deposits held in foreign offices, and jumbo time deposits (deposits of $100,000 or more) held in domestic offices. Liquid assets are assets that can be sold easily without affecting their price and, thus, can be converted easily to cash to cover debts that come due. Accordingly, liquid assets as a percentage of an institution’s short-term liabilities are a measure of an institution’s capacity to meet potential upcoming obligations. We measure liquid assets as the sum of cash and balances due from depository institutions, securities (less pledged securities), federal funds sold and reverse repurchases, and trading assets.\nA limitation of both indicators is that they do not include off- balance-sheet liabilities, such as callable derivatives or other potential derivatives- related obligations. The second indicator also does not include off- balance-sheet liquid assets, such as short-term income from derivative contracts. Because these limitations affect both the numerator and the denominator of our indicators, we cannot determine whether the exclusion of off-balance-sheet items results in an under- or overstatement of an institution’s liquidity need and access.\nWe observed the following changes in our liquidity indicators over the period from the third quarter of 2010 and to the second quarter of 2016 (see table 13):\nMedian short-term liabilities as a percentage of total liabilities for bank SIFIs decreased by about 12 percent. Median short-term liabilities as a percentage of total liabilities for large bank SIFIs decreased by about 26 percent, and median short-term liabilities as a percentage of total liabilities for other bank SIFIs decreased by about 20 percent.\nMedian liquid assets as a percentage of short-term liabilities for bank SIFIs increased by about 66 percent. Median liquid assets as a percentage of short-term liabilities for large bank SIFIs increased by about 54 percent, and median liquid assets as a percentage of short- term liabilities for other bank SIFIs increased by about 61 percent.",
"The following tables list select rules that implement sections of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) related to central clearing requirements for swaps and security-based swaps, and margin and capital requirements for swaps entities, as of July 22, 2016.",
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"In addition to the contact named above, Stefanie Jonkman (Assistant Director), Janet Fong (Analyst-in-Charge), Farrah Graham, Donald Hirasuna, Courtney LaFountain, John McGrail, Marc Molino, Jennifer Schwartz, and Shannon Smith made key contributions to this report."
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"How was the implementation of regulations ensured throughout the Dodd-Frank Wall Street Reform and the Dodd-Frank Act?",
"How was the analysis process conducted?",
"Were all of the rules analyzed equally?",
"Why were some rules not analyzed?",
"How did GAO review rules to check if they generally follow OMB guidance?",
"How does GAO believe the guidance of OMB be used by regulators?",
"To what extent did regulators coordinate throughout the review process?",
"What rulemakings did GAO mainly focus on?",
"How did regulators coordinate for the CFTC's swaps rules?",
"How did regulators coordinate for the integrated mortgage disclosure rule?",
"What effects has the Dodd-Frank Act had?",
"To what extent have the rules been finalized?",
"How is GAO monitoring the effects of the act?",
"How have financial institutions changed since monitoring began?",
"How does the Dodd-Frank Act ensure its regulations are upheld?",
"Why has GAO been monitoring the effects of the rules?",
"What does GAO's annual report consist of?"
],
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"Federal financial regulators reported conducting the required regulatory analyses for rules issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) as part of the rulemaking process.",
"For example, of the 30 rules GAO reviewed, which became effective between July 2015 and July 2016, the regulators analyzed the paperwork burden imposed for 12 rules for which they determined this analysis was required.",
"For the remaining 18 rules, they determined that this analysis was not required or applicable.",
"For instance, in some cases they determined that no new collection of information was required.",
"GAO reviewed five of the nine rules considered major—that is, rules likely to result in an annual impact on the economy of $100 million or more, among other things—and found that regulators addressed most key elements of OMB guidance in their regulatory analyses.",
"In 2011, GAO recommended that the regulators more fully incorporate OMB's regulatory guidance into their written rulemaking policies, but not all regulators have implemented this recommendation.",
"Regulators reported coordinating, as required or voluntarily, on 19 of the 30 rules GAO reviewed. The Dodd-Frank Act and the rulemaking process did not require regulators to coordinate on the remaining 11 rules.",
"GAO focused in particular on coordination efforts involving three rulemakings: the Commodity Futures and Trade Commission's and the prudential regulators' rules on margin requirements for over-the-counter swaps, and the Bureau of Consumer Financial Protection's (CFPB) rule on integrated mortgage disclosures.",
"For the swaps rules, regulators coordinated domestically and internationally and, according to regulators, they largely harmonized their respective rules.",
"For the integrated mortgage disclosure rule, CFPB followed its internal guidance for coordinating with relevant agencies throughout the rulemaking process.",
"The full impact of the Dodd-Frank Act remains uncertain because some of its rules have not been finalized and insufficient time has passed to evaluate others.",
"As of December 2016, regulators had issued final rules for about 75 percent of the 236 provisions of the act that GAO is monitoring.",
"Using recently released data, GAO updated indicators from its prior reports, including those that monitor systemic risk characteristics of large U.S. bank holding companies. These indicators track changes in characteristics of these companies such as size, interconnectedness, leverage, and liquidity since the passage of the act to examine if the changes have been consistent with the goals of the act.",
"While changes in the indicators are not necessarily evidence of the impacts of the act's provisions, trends in indicators suggested large bank holding companies have become larger but less vulnerable to financial distress.",
"The Dodd-Frank Act requires or authorizes various federal agencies to issue hundreds of rules to implement reforms intended to strengthen the financial services industry.",
"Congress included a provision in statute for GAO to study these financial services regulations annually.",
"This sixth annual report discusses (1) the regulatory analyses federal agencies conducted for the 30 rules issued pursuant to the Dodd-Frank Act that became effective between July 2015 and July 2016, (2) coordination among the regulators on these rules, and (3) indicators of the impact of select Dodd-Frank Act rules on financial market stability."
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"title": [
"",
"Introduction",
"Unutilized and Underutilized Building Data",
"Disposal of Unneeded Building Space",
"Limitations of Data Available on the Disposal Process",
"Building Utilization",
"Operating Costs",
"Disposition",
"Leased Space Data",
"Limitations on the Data Available for Oversight of Leased Space",
"Amount and Cost of Leased Space",
"High-Value Leases",
"Long-Term Leases",
"Concluding Observations: Options for Congress",
"FRPR Data",
"Database Access",
"Comparative Cost Data"
],
"paragraphs": [
"",
"The federal executive branch controls an extensive real property portfolio that includes more than a quarter of a million owned and leased buildings. These buildings have been acquired over a period of decades to help federal agencies fulfill their unique missions. Agencies hold buildings with a range of uses, including offices, warehouses, barracks, laboratories, and hospitals. The cost of operating and maintaining these diverse properties, which total more than 2.8 billion square feet, exceeded $21 billion in FY2014.\nOversight of the federal real property portfolio has been a priority for oversight committees in recent congresses, with committees in both the House and the Senate holding hearings and introducing legislation to improve, in particular, the management of federal buildings. Congressional oversight has focused in large part on four building management issues identified by the Government Accountability Office (GAO), which has put real property on its annual \"high-risk list\" since 2003. In recent testimony before the Senate Committee on Homeland Security and Governmental Affairs, David Wise, the Director of Physical Infrastructure Issues for GAO, identified three key challenges that agencies face when managing their real property portfolios:\nMaintaining more real property than it needs (including unutilized and underutilized buildings); Relying on leasing when ownership of new space would be more cost efficient; and Making real property management decisions using unreliable data.\nThis report focuses on the challenges to effective oversight posed by the lack of accurate and reliable real property data, particularly as it relates to the disposal of unneeded buildings and the government's overreliance on costly leases. The balance of this report consists of three sections. The first section analyzes potential weaknesses in the data available to Congress on unutilized and underutilized buildings. The second section examines the nature of the government's reliance on costly leases and discusses which data elements might enhance oversight of leased building space. The final section of the report discusses options for policymakers to consider should they seek to address these data issues.",
"As noted, the federal executive branch agencies hold more than 250,000 buildings with a range of purposes, suited to the unique mission of each agency. As agencies' missions change over time, so do their real property needs, thereby rendering some assets less useful or unneeded altogether. Healthcare provided by the Department of Veterans Affairs (VA), for example, has shifted in recent decades from predominately hospital-based inpatient care to a greater reliance on clinics and outpatient care, with a resulting change in space needs. Similarly, the Department of Defense (DOD) decreased its force by 36% after the Cold War ended, and has engaged in several rounds of base realignments and installation closures. In response to these changes, agencies have housed fewer employees in certain facilities, and have shifted other personnel into new space, leaving behind thousands of buildings that are vacant (unutilized) or only partially occupied (underutilized).",
"To reduce the amount of unneeded space in the government's portfolio—and its associated costs—agencies are required to continuously survey their real property assets and identify buildings they can dispose of in their entirety (transfer, donate, or sell), and unoccupied space within buildings that could be filled by new tenants. Agencies are then required to report those properties as excess to the General Services Administration (GSA), which is responsible for the disposition of unneeded space for all executive branch agencies, except those with their own independent statutory disposal authority. To that end, GSA seeks out both federal and nonfederal tenants to fill empty space in underutilized federal buildings, and follows a statutorily -prescribed process for disposing of unutilized buildings, which is described briefly below.\nAgencies must first offer to transfer excess properties to other federal agencies, which generally pay market value for excess properties they wish to acquire. If no federal agency wants an unneeded property, then it is declared \"surplus\" and made available to state and local governments, and nonprofits. These entities may have surplus property transferred to them for a discount of up to 100% of fair market value, provided they use the property for a public benefit. This type of transfer is called a public benefit conveyance, and to qualify, the property must be used for one of the following purposes:\nHomeless services Corrections Law enforcement Public health Drug rehabilitation Education Parks and recreation Seaport facilities Wildlife conservation Highways Emergency management response Historic monuments Public airports Housing\nPursuant to Title V of the McKinney-Vento Homeless Assistance Act, surplus properties must be made available for serving the homeless before being made available for other public benefit uses. The Department of Housing and Urban Development (HUD) is responsible for reviewing surplus property to determine if it is suitable for homeless use. If a property is determined to be unsuitable for homeless use, then it becomes available for other public uses at that time.\nSurplus properties not conveyed for public benefit are then available for sale at fair market value or are demolished if the property could not be sold due to the condition or location of the property.",
"Given that, by one estimate, the government spends more than $1.6 billion dollars operating and maintaining unutilized and underutilized buildings each year, oversight of the disposal process has been of ongoing interest to Congress. Access to comprehensive, reliable data on federal buildings is crucial to congressional oversight, because that information may be used to determine if the disposal process is operating efficiently and effectively, identify obstacles to timely disposition, and accurately assess the costs and benefits of different real property policies, among other things.\nThe primary source of real property data available to Congress is the Federal Real Property Report (FRPR), an annual report that provides aggregate data on agency real property portfolios. The report, which is published by an interagency group of real property officials known as the Federal Real Property Council (FRPC), draws on information stored in a database maintained by the General Services Administration (GSA), the Federal Real Property Profile (FRPP). The Council establishes data definitions and determines what data to collect and report, while GSA actually collects and maintains the data. GSA's database, which is populated with detailed information about executive branch agency properties, holds a wide range of data that could be useful to congressional oversight—but its usefulness is limited by two factors. First, the data are unreliable. Poor quality data is one of the primary reasons GAO has put real property management on its high-risk list for the past 12 years. Moreover, the annual real property report does not include some data that GSA has collected which might be considered important to oversight committees, particularly data related to unutilized and underutilized buildings. Second, without direct access to GSA's database—which Congress currently lacks—policymakers only see the data that GSA and the real property council choose to publish. The balance of this section is a discussion of these issues as they pertain to specific data elements that many argue are necessary for effective congressional oversight.",
"Aggregate data on the number of unutilized and underutilized buildings is often seen as key to effective oversight because it can enable policymakers to understand the scale of the problem and its costs. The larger the problem, the higher the costs and the more time policymakers may choose to devote to the issue.\nThe reliability of the data available to Congress, however, has been characterized as poor on several counts. The FRPR, the only comprehensive source of information about unutilized and underutilized buildings, has numerous limitations. First, the source of the report's data, GSA's FRPP database, has been criticized repeatedly by GAO for its inability to provide accurate, consistent information on unneeded property. GAO found, for example, that some buildings reported to the FRPP as underutilized were fully occupied, while others reported as occupied were, in fact, vacant. GAO asserted that because these data are not reported uniformly, they \"can have no collective meaning when amassed in a single database.\" The inconsistent quality of utilization data contributed to GAO's opinion that the FRPP data—which come to policymakers through the annual real property report—may not \"provide an adequate tool for decision making or measuring performance.\"\nChanges to building utilization definitions have also limited the usefulness of reported real property data. In FY2011, and again in FY2013, the FRPR used different definitions of unutilized and underutilized space, resulting in very different totals for each category. The FY2010 FRPR identified 6,700 buildings as unutilized buildings and 71,000 as underutilized. The definitions used in the FY2011 and FY2012 FRPRs did not categorize properties as unutilized or underutilized, and so cannot be compared to prior or subsequent years. In FY2013, after the definitions changed again, agencies reported 3,100 buildings as unutilized and 2,400 as underutilized. Under the latest space utilization definitions, the number of buildings categorized as unutilized decreased by 54%, and the number categorized as underutilized decreased by 97%. With such significant changes in the numbers of buildings in each category, it is unclear which definition gives the more accurate picture of the scale of the problem, and therefore how policymakers can best address it.",
"The scale of the problem of unutilized and underutilized building space may be described in terms of cost. The amount of funding spent operating and maintaining buildings that are empty or only partially occupied may help policymakers determine whether addressing the problem should be a priority. Cost data may also help policymakers evaluate the cost-effectiveness of various policy alternatives—the greater the potential for savings, the wider the range of policy options that could provide net fiscal benefits to the government.\nThe FRPR does not include the cost of operating unneeded building space. The data are collected, and, in fact, were included in the FRPR as recently as FY2010, when the government spent $112 million operating unutilized buildings and another $1.6 billion operating underutilized buildings. It has not been reported since. Operating cost data are broken out in several ways in the FRPR, such as the cost per square foot of leased and owned buildings, and the cost per square foot of different building types (e.g., offices, warehouses), so it is unclear why the data on the cost of operating unutilized and underutilized buildings have been omitted. The omission does, however, limit policymakers' understanding of the impact of the problem on the government's finances, and the ability to conduct effective cost-benefit policy analyses.",
"There are several data elements that may be useful in evaluating the efficiency and effectiveness of the disposal process itself. Accurate data on the number of unutilized buildings each agency has, and the number of such buildings each agency disposes of in a given fiscal year, could help policymakers identify agencies that are properly managing their unneeded space, and those that are not. Data on the net proceeds from the disposal of unutilized buildings—the sale price less the cost of disposition—could assist Congress in evaluating the potential revenue to be realized from selling unneeded federal buildings, and in planning how to use that revenue. Data on savings realized from reduced annual operating costs could also be helpful for evaluating the potential fiscal benefits of enhanced disposition.\nThe FRPR does provide some data specific to the disposal of federal buildings, such as the number of buildings disposed of by each agency. The data on annual operating costs saved by disposing of those properties, however, are only reported at the \"asset\" level, which means the total includes land and structures, as well as buildings. Therefore, it is not possible to determine the savings in operating costs realized by disposing of unutilized buildings.\nThe FRPR does not include data on net proceeds from the sale of unutilized buildings. The FY2014 report provides the \"disposition value,\" which is the sale price, and does not reflect the costs to the government of the disposition. Moreover, the disposition values reported are aggregated at the asset level, which means, like annual operating costs, they combine data from land and structures, along with buildings. The actual revenue realized from the sale of unneeded buildings cannot be identified using the current FRPR format.",
"An issue that has gained increased attention from lawmakers in recent years is the government's growing reliance on leased space. The total amount of square feet leased by the government grew from 334 million square feet in FY2003, to 556 million square feet in FY2011, an increase of 67%. One of the driving forces of this trend is the way in which leases are scored. When an agency wishes to enter into an operating lease—a lease that will not result in the government owning the building—only the amount needed to cover the first year's lease payments plus cancellation costs must be recorded in the budget. For GSA, which self-insures its leases, only the first year's lease payment must be recorded. When an agency wishes to construct or purchase a building, however, the full cost of the project must be recorded in the budget in the year in which the budget authority is to be made available. Under these rules, agencies have found it more feasible to obtain funding for one year of rent than for the entire cost of a building.\nThe increased reliance on leased space generally brings with it increased operating costs. Leased space is generally less cost efficient than owned space, both measured in terms of current market rates and over the long-term. This finding is reinforced by data in the FRPR, which shows that leased space, on average, costs more than four times as much per square foot as owned space. In FY2014, a square foot of owned space cost the government $5.77, while a square foot of leased space cost $24.04. This means even a relatively small amount of leased space can consume a substantial amount of real property resources. To return to FY2014, the executive branch owned 2.51 billion square feet that year, at a cost of $14 billion, and it leased another 294 million square feet of building space at a cost of $7 billion. Leased space thus represented about 10% of total building space that year, but consumed about 33% of the total funding Congress appropriated for operating costs. As discussed below, however, the data used for these calculations is of questionable quality.",
"The FRPR, the primary source for government-wide information on leased space, may not provide accurate data on the amount and cost of leased space. In addition, the FRPR does not provide some data which might assist Congress in understanding the scope and impact of executive branch leasing practices. In particular, the FRPR does not include data on high-value leases and long-term leases, which represent the greatest fiscal exposure to the government.",
"As with data on unutilized and underutilized buildings, the FRPR has been inconsistent in its reporting of leased space data. Most notably, the FY2014 data are inconsistent with historical trends. According to the FY2013 FRPR, the government leased 548 million square feet of building space at a cost of $9.2 billion—data in line with what was reported in previous years. The FY2014 FRPR data, however, showed a 45% decrease in the amount of leased space from the previous year, and $2.1 billion reduction in leased operating costs. Moreover, the FY2014 FRPR provided revised figures for previous years, including FY2013 leased space data. According to the FY2014 report, the government leased 306 million square feet in FY2013—a 44% decrease from what it previously reported for that year—and the total cost of that leased space was $6.8 billion, a $2.4 billion decrease from the previously reported total of $9.2 billion. It is not clear why the data for previous years have been revised, or whether the FY2014 data reflect an actual reduction of leased space or simply changes in data collection or reporting.",
"The government's largest lease-holder is GSA, which is required to handle leases for any executive branch agency that does not have independent leasing authority. As a consequence, GSA controls two-thirds of the leased space in the executive branch, as measured in terms of square footage. When GSA wishes to enter into a lease, it must seek congressional authorization if the projected cost of that lease exceeds a certain threshold, known as the \"prospectus threshold.\" The threshold is established each year by GSA, and in FY2014 it was $2.85 million. To obtain authorization, GSA must submit a prospectus—a detailed description of the proposed lease—to two authorizing committees, the House Committee on Transportation and Infrastructure, and the Senate Committee on Environment and Public Works. Each committee must separately pass a resolution approving the prospectus before the project may receive appropriations. GSA does not need congressional approval to enter into leases with estimated costs that fall below the prospectus threshold.\nIn an effort to look for root causes of the government's overreliance on costly leases, GAO examined GSA's prospectus-level leases—which it designated as \"high-value\" leases—and found that while they comprised just 3% of GSA's total lease portfolio, they represented 36%, or $1.5 billion, of its total operating costs. Oversight of these leases is limited by the fact that the FRPR does not include any information specific to them. GSA does, however, report data on individual leases in monthly spreadsheets, which are available to the public online, and that data could be aggregated and reported in the FRPR. Key data that could be culled from the spreadsheets includes the number, total annual rent, length of term, and total square feet of high-value leases, categorized by occupying agency. Transparency might be further increased if similar data on high-value leases at agencies with independent leasing authority were also included in the FRPR, although it is not clear whether those data are currently available, or would require new collection methods.",
"Research has shown that long-term operating leases are especially likely, among all high-value leases, to expose the government to unnecessary costs. One audit found, for example, that a 30-year lease for the Federal Bureau of Investigation (FBI) building in Chicago, IL, will cost $40 million more than owning the same amount of space. Similarly, an analysis of 89 GSA leases, many of which had 30-year terms, found that the government could have saved almost $1 billion if it had constructed rather than leased that space. A relatively high prevalence of long-term leases in an agency's real property portfolio is considered by GAO a management weakness, as it is an indication that the agency's capital planning strategy has not \"systematically prioritized which high-value leases have the most cost-saving potential\" as construction projects. Policymakers are thus unable to take the potential savings into account when appropriating funds for real property projects.\nThe FRPR does not provide any information on the length of agency leases. Some data on the length of GSA leases are available through the agency's lease inventory spreadsheets, including the lease start and expiration years, and annual rent. Oversight might be enhanced if the FRPR provided data on the number of leases GSA held that were 10 years or longer, the annual rent of those leases, and perhaps their total cost. These data would enable Congress to gain perspective on the scale of agency reliance on long-term leases, and the opportunities for cost-savings that could result from funding construction projects instead of operating leases, in some cases.",
"Throughout this report, several potential limitations to congressional oversight of agency real property portfolios have been discussed. This section provides additional thoughts on those issues and how they might be addressed by Congress.",
"Expanding the data reported might enhance oversight and policymaking. As discussed, GSA's annual summary report omits data that Congress might find valuable. The FRPR no longer contains, for example, the annual operating costs of unutilized and underutilized buildings—it only provides the annual operating costs of disposed assets, thereby providing the \"good news\" of future costs avoided through disposition while omitting the \"bad news\" of the ongoing operating costs associated with unneeded properties the government maintains. Similarly, agencies estimate a dollar amount for the repair needs of their buildings and structures as part of their FRPP reporting, but the estimate is then folded into a formula for calculating a \"condition index\" for each building, which is not reported. Given that repair needs are an obstacle to disposing of some properties, Congress may find it useful to have agency repair estimates reported separately to help inform funding decisions. Finally, Congress may wish to have data on leases included in the FRPR, including the cost and number of long-term leases.\nAddressing real property data quality at GSA might also improve oversight. An audit by GAO, for example, could assess the impact of the change in the definitions of utilized and underutilized buildings, and could include a recommendation of the most appropriate definitions going forward. GAO might also be able to assess the validity of GSA's revision of prior year lease data, which resulted in a significant decline in the total amount of leased space reported in the FRPR.",
"Obtaining direct access to the FRPP might enhance congressional oversight of agency real property activities. The FRPP contains data such as the number of excess and surplus properties held by major landholding agencies, the annual costs of maintaining those properties, and agency disposition actions. GSA, however, maintains tight control over access to the FRPP, and does not permit direct access to the public and most federal employees, including congressional staff. GSA does consider requests for real property data from congressional offices, but GSA staff query the database and provide the results to the requestor.\nSome FRPP data are made public through the annual FRPR, but these summary reports are of limited use for several reasons. Most of the data are highly aggregated (e.g., the total number of unutilized and underutilized buildings held by executive branch agencies), and limited information is provided on an agency-by-agency basis. It is not possible, therefore, for Congress to monitor the performance of individual agencies through the summary reports. Nor is it possible to compare the performance of various agencies, which in turn limits the ability of Congress to study the policies and practices at the most successful agencies and hold poorly performing agencies accountable. Without access to agency-level data, Congress cannot answer basic questions, such as whether the aggregate amount of unneeded space is spread out across agencies, or concentrated with a few? This, in turn, limits the ability of policymakers to ask further questions that drill down deeper into the root causes of the problem. Do the agencies with the most unneeded space share any similarities, such as a change in mission, which might have caused the problem? Or should policymakers look at cumbersome regulations or ineffective management practices at individual agencies as a root cause?\nThe FRPP also provides data on individual properties that might be useful to policymakers. For example, the database can pull up a \"profile\" of an underutilized building that includes its annual operating costs, the condition it is in, and the cost of needed repairs, among other information.",
"Information comparing the cost of leasing to the cost of building or buying space might enhance oversight of long-term operating leases. As discussed earlier in this report, one of the primary reasons GAO has listed federal real property management as a high-risk area since 2003 is that the government increasingly acquires space through leases rather than by constructing or purchasing buildings. The prospectus approval process provides Congress with an opportunity to exercise oversight of GSA's lease decisions. Given the size of its portfolio, and its role as the procurer of space for numerous other agencies, congressional oversight of GSA's prospectus-level lease proposals has broad implications. The usefulness of the prospectus approval process as an oversight tool, however, may be limited by the fact that GSA is not required to present data that directly compare the cost of leasing versus owning space. This means that Congress is unable to determine whether it is being asked to approve the most cost-effective option for meeting an agency's real property needs.\nOne option for improving oversight of GSA leases would be to mandate that GSA include comparative cost data in its prospectuses. This would not be a completely new step for GSA to take: in the 1980s and throughout the early part of the 1990s, GSA's lease prospectuses included a comparison of the costs of leasing space to constructing or buying it. GSA discontinued reporting comparative cost data in the mid-1990s, it said, because funding for construction and purchase alternatives was so limited that they were not considered realistic alternatives. Legislation requiring GSA to resume reporting comparative cost data would not, therefore, necessarily result in a significant administrative burden for the agency."
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{
"question": [
"How large are the real-estate holdings of the federal executive branch?",
"To what extent is management of these holdings a concern for Congress?",
"Why is the management of these holdings potentially concerning?",
"How does this report analyze the attempted oversight process?",
"How does Congress acquire real property data?",
"To what extent are the data reliable?",
"How has the data been unreliable in the past?",
"How has the amount data reported to Congress changed?",
"Why can't Congress access the data directly (without the report)?",
"How does Congress obtain data on real property leases?",
"To what extent are the data reliable?",
"How has the data failed to reflect real-world situations before?",
"What are areas which the data does not report on?",
"How does the lack of data affect Congressional action?",
"How can the shortcomings of the data be worked around?",
"How can Congress specifically mitigate the data weaknesses?",
"How could access to the raw data benefit Congressional oversight?",
"What kind of oversight could Congress better implement with access to the real property database?"
],
"summary": [
"The federal executive branch owns and leases more than 275,000 buildings, with annual operating costs in excess of $21 billion.",
"Oversight of this portfolio of buildings has been a priority for recent congresses, particularly since real property management has been identified as a \"high-risk\" area by the Government Accountability Office (GAO), every year since 2003.",
"Key potential weaknesses in real property management include agencies holding empty or only partially occupied buildings; relying on leases for new space even when ownership would be cheaper; and making decisions using real property data of questionable quality.",
"This report examines the challenges to oversight posed by the lack of accurate and reliable real property data, particularly as it relates to the disposal of unneeded building space and the government's overreliance on costly leasing.",
"The primary source of real property data available to Congress is the Federal Real Property Report (FRPR), which provides aggregate data on executive branch agency portfolios.",
"The data, which are drawn from a database managed by the General Services Administration (GSA), can be unreliable and incomplete, which limits the effectiveness of the FRPR as an oversight tool.",
"After building utilization definitions were revised in FY2013, for example, the number of properties categorized as \"unutilized\" declined 54% and the number of properties categorized as \"underutilized\" declined 97%.",
"The FRPR also discontinued reporting the annual operating costs of underutilized and unutilized buildings after FY2010—data that could help Congress understand the full costs of inefficiencies in the building disposal process.",
"GSA does not permit Congress direct access to its real property database, so there is currently no way to obtain that data should GSA opt not to report it in the FRPR.",
"The FRPR is also the primary source of data available to Congress on real property leases.",
"The data on leased space, however, can also be unreliable and incomplete.",
"In FY2014, for example, GSA reported a 45% decline in the amount of leased space held by the executive branch, and it revised data from FY2013, so that the new figures showed the government held 44% less leased space than it had previously reported for that year.",
"Similarly, while long-term operating leases are most likely to expose the government to financial loss, the FRPR does not provide any data specifically on them. Neither does the FRPR provide data on high-value leases—those leases which, although small in number, often account for a disproportionately large percentage of an agency's operating costs.",
"Key components of agency real property portfolios—notably their long-term and high-value leases—are subject to limited scrutiny from Congress due to the lack of accessible data.",
"Some of the weaknesses in real property data may be mitigated by congressional action.",
"The FRPR could be expanded to include data Congress believes has important oversight value, such as, perhaps, data on the annual operating costs of unutilized and underutilized buildings, and data on long-term and high-value leases.",
"In addition, obtaining access to GSA's real property database would enable Congress to look at all of the information GSA collects, and to analyze it in a variety of ways—in aggregate, by agency, or by individual building—as policy needs dictate.",
"Agency lease prospectuses—detailed descriptions of the size, cost, and need for high-value leases that must be authorized by Congress—might be required to include the cost of constructing or buying the space which an agency proposed leasing, so that Congress knows if it is being asked to approve the most cost-effective method of space acquisition."
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CRS_R42821
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{
"title": [
"",
"Executive Order 12866 and the IRCs",
"Cost-Benefit Analysis Requirements Under Executive Order 12866",
"OMB Circular A-4",
"Executive Orders 13563 and 13579",
"Cost-Benefit Analysis by the IRCs: Current Requirements and Practices",
"Cross-Cutting Analytical Requirements",
"Agency-Specific Analytical Requirements",
"Analysis of Possible Extension of CBA Requirements to IRCs",
"Potential Effects of Extending CBA Requirements to IRCs",
"The Debate Over Cost-Benefit Analysis",
"OIRA Review of Regulations Under Executive Order 12866",
"Analysis of Possible Extension of OIRA Review to IRCs",
"Additional Analysis of S. 3468"
],
"paragraphs": [
"When Congress enacts a statute, it often delegates rulemaking authority to federal agencies to implement the statute. When issuing regulations, agencies are required to follow certain procedures. The first and arguably most significant requirements of the rulemaking process were established by the Administrative Procedure Act (APA) of 1946. The APA set up the basic framework for rulemaking: agencies are required to publish a notice of rulemaking in the Federal Registe r , take comments on the proposed rule, and publish a final rule in the Federal Register . Since the passage of the APA, additional procedures have been established in various statutes, executive orders, and guidance documents. Potential additional changes to the rulemaking process have been discussed and proposed, including many proposals in the 112 th Congress.\nThis report discusses one potential change to the rulemaking process that has been discussed over the past three decades and proposed in legislation in the 112 th Congress: extension of the requirements of Executive Order (E.O.) 12866 to the independent regulatory agencies, also known as independent regulatory commissions (hereafter referred to as IRCs). E.O. 12866 contains two major requirements: First, it requires that agencies complete cost-benefit analysis (CBA) of \"economically significant\" rules, considering the potential costs, benefits, and feasible alternatives to proposed and final rules. Second, the order requires centralized review of \"significant\" rules in the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA). Historically, the IRCs have been exempted from requirements for CBA and centralized review. Senator Rob Portman introduced a bill in the 112 th Congress, S. 3468 , which would authorize the President to extend to the IRCs, through the issuance of an executive order, E.O. 12866's requirements for CBA and OIRA review.\nIf the requirements of E.O. 12866 were extended to the IRCs, there could be significant implications for those agencies. Proponents of extending the requirements argue that subjecting the IRCs to CBA requirements and OIRA review could improve the quality of regulations issued by those agencies. On the other hand, extending CBA requirements and OIRA review to the IRCs could grant OIRA (and by extension, the President) the potential authority to influence or delay rulemaking proceedings, and such a requirement could potentially decrease the independence of the IRCs.\nThis report begins with a brief overview of E.O. 12866 and the IRCs. The report then provides a detailed discussion of the two major requirements of the order and analyzes the potential changes to the order that have been proposed in the 112 th Congress.",
"President William Clinton issued E.O. 12866 in 1993. The executive order, which still remains in place today, replaced E.O. 12291, which was issued by President Ronald Reagan in 1981. E.O. 12291 had similar requirements for agencies to conduct CBA and send their rules to OIRA for review, but its requirement for centralized review applied to all rules, not just \"significant\" rules.\nThe parts of E.O. 12866 that require agencies to complete CBA and to submit their rules to OIRA for review do not currently apply to statutorily designated \"independent regulatory agencies,\" nor did they under President Reagan's order. The details of these two requirements are discussed more below (see sections entitled \" Cost-Benefit Analysis Requirements Under Executive Order 12866 \" and \" OIRA Review of Regulations Under Executive Order 12866 \"). The exemption of IRCs from various requirements provides them with an element of independence from presidential control.\nE.O. 12866 uses the definition of an independent regulatory agency established in 1980 by the Paperwork Reduction Act (PRA; 44 U.S.C. §3502(5)). The independent regulatory agencies listed are as follows:\nThe Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Consumer Product Safety Commission, the Federal Communications Commission, the Federal Deposit Insurance Corporation, the Federal Energy Regulatory Commission, the Federal Housing Finance Agency, the Federal Maritime Commission, the Federal Trade Commission, the Interstate Commerce Commission, the Mine Enforcement Safety and Health Review Commission, the National Labor Relations Board, the Nuclear Regulatory Commission, the Occupational Safety and Health Review Commission, the Postal Regulatory Commission, the Securities and Exchange Commission, the Bureau of Consumer Financial Protection, the Office of Financial Research, Office of the Comptroller of the Currency, and any other similar agency designated by statute as a Federal independent regulatory agency or commission.\nThe current exemption for the IRCs from presidential review of agency rulemaking is one of the indicia of agency independence. Other elements of independence that provide various degrees of insulation from presidential intrusion into the budgetary, regulatory, and litigation processes are (1) \"for cause\" removal protections for the agency heads; (2) structural designs; (3) exemptions from OMB clearance requirements for legislative proposals, testimony, and comments; (4) authority to bypass OMB when submitting the agency's budget, or to submit the agency's budget to OMB and Congress concurrently; and (5) independent litigation authority.\nThe remainder of this report discusses the two main requirements of E.O. 12866 in greater detail and analyzes the possible implications of extending those requirements to the IRCs.",
"The primary cross-cutting requirement for agencies to consider costs and benefits when issuing rules is found in E.O. 12866, which requires agencies to assess costs and benefits for \"significant\" rules, both at the proposed rule and final rule stage. \"Significant\" rules are defined in the executive order as follows:\nAny regulatory action that is likely to result in a rule that may (1) have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive order.\nRules falling into the first category of this definition are considered \"economically significant\" rules. When issuing \"economically significant\" rules, Section 6(a) of E.O. 12866 requires agencies to perform a much more detailed CBA, assessing the costs, benefits, and \"reasonably feasible alternatives\" to the planned rule.\nOther provisions of E.O. 12866 also make reference to the consideration of costs and benefits during the rulemaking process for all rules, not just \"significant\" rules. Section 1(b)(5) requires an agency to \"design its regulations in the most cost-effective manner to achieve the regulatory objective\" and to \"consider incentives for innovation, consistency, predictability, the costs of enforcement and compliance (to the government, regulated entities, and the public), flexibility, distributive impacts, and equity.\" Section 1(b)(6) requires agencies to \"assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.\" Finally, Section 1(b)(11) requires agencies to \"tailor [their] regulations to impose the least burden on society,\" while \"obtaining the regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.\"",
"In September 2003, OMB finalized Circular A-4 on \"Regulatory Analysis,\" which refined and replaced an earlier OMB guidance document providing good-guidance practices to agencies for conducting their CBAs. The circular states that it was \"designed to assist analysts in the regulatory agencies by defining good regulatory analysis ... and standardizing the way benefits and costs of Federal regulatory actions are measured and reported.\" The document provides some specific information that agencies should generally include in their analyses, such as the statutory or judicial directives that authorize the action; the underlying problem or market failure prompting the regulation; consideration of a \"reasonable number\" of regulatory alternatives; and both a cost-benefit analysis and a cost-effectiveness analysis. Circular A-4 remains the current OMB guidance for agencies preparing CBAs.",
"In January 2011, President Barack Obama issued E.O. 13563 to supplement and re-emphasize the general requirements of E.O. 12866. E.O. 13563, like E.O. 12866, stressed the importance of cost-benefit considerations in the rulemaking process. Specifically, Section 1(b)(2) of E.O. 13563 encouraged agencies to \"tailor [their] regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations\"; and to \"select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity).\" E.O. 13563 also instituted a retrospective review of regulations, under which agencies were required to \"consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.\"\nE.O. 13563 used the same definition of \"agency\" as E.O. 12866, thereby excluding the IRCs. However, on July 14, 2011, President Obama issued E.O. 13579, entitled \"Regulation and Independent Regulatory Agencies.\" In that order, President Obama encouraged the IRCs to voluntarily comply with the provisions of E.O. 13563, including the retrospective reviews of regulations as well as other general considerations, including \"economic growth, innovation, competitiveness, and job creation.\"",
"The IRCs are exempt from many of the analytical requirements and guidance documents that are applicable to executive agencies, including E.O. 12866, E.O. 13563, and OMB Circular A-4. However, the IRCs may be required to conduct CBA or other regulatory analyses under cross-cutting statutes, such as the Regulatory Flexibility Act of 1980 (RFA), or under the underlying statutes that provide them with rulemaking authority. In addition, the IRCs may conduct CBA or similar analyses as part of their internal rulemaking process, even if they are not statutorily or otherwise required to do so.\nThe following section summarizes select statutory provisions that require the IRCs to analyze the potential effects of their rules. This section covers nine IRCs: the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve, the Nuclear Regulatory Commission (NRC), the National Labor Relations Board (NLRB), and the Consumer Product Safety Commission (CPSC).",
"The following statutes contain analytical requirements that apply to all agencies of the federal government, including the IRCs:\nthe National Environmental Policy Act (NEPA) of 1969 requires federal agencies to provide a detailed environmental impact statement for all major federal actions that will significantly affect the quality of the human environment; the RFA requires all federal agencies to assess the impact of their proposed regulations on \"small entities\" (e.g., small businesses, small governmental jurisdictions, and certain small not-for-profit organizations) and conduct a \"regulatory flexibility analysis\" at the time certain proposed and final rules are issued; and the PRA requires all federal agencies to assess and minimize the paperwork burden for individuals, small businesses, and others resulting from the collection of information (from 10 or more nonfederal persons) by or for the federal government.",
"Additionally, the IRCs may be subject to analytical requirements contained within the underlying statutes that provide them with rulemaking authority. This section provides select examples of statutory agency-specific requirements.\nSecurities and Exchange Commission. The Securities Exchange Act of 1934 (15 U.S.C. §§78a et seq .), the National Securities Markets Improvement Act of 1996 ( P.L. 104-290 ; 11 Stat. 3416), and the Investment Company Act of 1940 (15 U.S.C. §§80a-1 et seq .) each provide the SEC with authority to promulgate rules, and each has provisions requiring the SEC to consider whether a proposed regulatory action will \"promote efficiency, competition, and capital formation.\"\nThe Securities Exchange Act states that\nThe Commission and the Secretary of the Treasury, in making rules and regulations pursuant to any provisions of this chapter, shall consider among other matters the impact any such rule or regulation would have on competition. The Commission and the Secretary of the Treasury shall not adopt any such rule or regulation which would impose a burden on competition not necessary or appropriate in furtherance of the purposes of this chapter. The Commission and the Secretary of the Treasury shall include in the statement of basis and purpose incorporated in any rule or regulation adopted under this chapter, the reasons for the Commission's or the Secretary's determination that any burden on competition imposed by such rule or regulation is necessary or appropriate in furtherance of the purposes of this chapter.\nThe National Securities Markets Improvement Act of 1996 requires the SEC to consider whether an action \"will promote efficiency, competition, and capital formation\" whenever it is \"engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest.\" Under the Investment Company Act of 1940, when engaging in rulemaking pursuant to the act, the SEC is required to consider (1) \"whether an action is consistent with the public interest\"; (2) \"the protection of investors\"; and (3) \"whether the action will promote efficiency, competition, and capital formation.\"\nIn 2011, in Business Roundtable v. SEC , the D.C. Circuit vacated an SEC rule that would have required public companies to disclose information to shareholders regarding shareholder-nominated candidates for board of director positions. The court noted that the SEC has an obligation to \"determine as best it can the economic implications of the rule\" and ultimately vacated the rule, finding the SEC's action arbitrary and capricious under the Administrative Procedure Act (5 U.S.C. §§551 et seq .).\nCommodity Futures Trading Commission. The Commodity Exchange Act (7 U.S.C. §§1 et seq .) provides the CFTC with rulemaking authority and requires the CFTC to consider costs and benefits before issuing certain regulations. Section 15(a) of the act states the following:\nBefore promulgating a regulation under this chapter ... the Commission shall consider the costs and benefits of the action of the Commission. The costs and benefits of the proposed Commission action shall be evaluated in light of - (A) considerations of protection of market participants and the public; (B) considerations of the efficiency, competitiveness, and financial integrity of futures markets; (C) considerations of price discovery; (D) considerations of sound risk management practices; and (E) other public interest considerations.\nTitle IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 , hereafter the Dodd-Frank Act) amended certain provisions of the Commodity Exchange Act and expanded the rulemaking responsibilities of the CFTC. According to the CFTC Office of the Inspector General, in light of its existing analytical requirements, the CFTC Office of General Counsel and Office of Chief Economist created a template for cost-benefit analysis processes that should be followed when proposing rules under the Dodd-Frank Act. The template requires the CFTC to consider, but not monetize or quantify, costs and benefits. The template also allows the CFTC to use discretion to determine that, notwithstanding its costs, a particular rule is necessary or appropriate to protect the public interest.\nConsumer Financial Protection Bureau. Title X of the Dodd-Frank Act created the CFPB and provided it with the authority to \"administer, enforce, and otherwise implement the provisions of Federal consumer financial law.\" The act also established certain standards of rulemaking that the CFPB must adhere to when issuing rules. Specifically, the Dodd-Frank Act states that\nthe Bureau shall consider - (i) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule; and (ii) the impact of proposed rules on covered persons, as described in section 1026, and the impact on consumers in rural areas.\nTherefore, it appears that the CFPB is required to consider potential costs and benefits before issuing certain rules, but it is unclear how much detail would be required in the analysis.\nFederal Deposit Insurance Corporation. The FDIC has rulemaking authority under Section 209 of the Dodd-Frank Act. While some provisions of the Dodd-Frank Act require consideration of certain benefits and costs, it does not appear that the FDIC would be required to conduct such analyses under its rulemaking authority.\nThe FDIC is also provided rulemaking authority by the Riegle Community Development and Regulatory Improvement Act (Riegle Community Act, P.L. 103-325 ; 108 Stat. 2160). The Riegle Community Act requires federal banking agencies, including the FDIC, to consider the burden and benefits their regulations will have on depository institutions. A report prepared by the FDIC Office of the Inspector General noted that Section 302 of the Riegle Community Act states,\nIn determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, each Federal banking agency shall consider, consistent with the principles of safety and soundness and the public interest - (1) any administrative burdens that such regulations would place on depository institutions, including small depository institutions and customers of depository institutions; and (2) the benefits of such regulations.\nTherefore, it appears that the FDIC is required to consider the potential benefits and administrative burden prior to issuing certain rules. However, based on the language of this statutory provision, the level of detail that would be required in the analysis is not clear.\nOffice of the Comptroller of the Currency. Section 315 of the Dodd-Frank Act amended the PRA and designated the OCC as an IRC. Previously, the OCC had been part of the Department of the Treasury, and therefore was subject to E.O. 12866 and OMB Circular A-4. As a listed IRC, the OCC is no longer subject to those requirements. As a federal banking agency (as designated by 12 U.S.C. §1813), however, the OCC is subject to the same analytical requirements of the Riegle Community Act as the FDIC.\nBoard of Governors of the Federal Reserve System. The Board of Governors of the Federal Reserve System (hereafter referred to as the Board) has rulemaking authority under multiple statutes, including the Federal Reserve Act (12 U.S.C. §§221 et seq. ) and the Bank Holding Company Act of 1956 (12 U.S.C. §§1841 et seq. ). According to the Office of Inspector General for the Board, statutes related to the Board's rulemaking authority \"generally do not require economic analysis as part of the agency's rulemaking activities.\" However, as a federal banking agency, the Board is subject to the same analytical requirements of the Riegle Community Act as the FDIC and the OCC.\nNuclear Regulatory Commission. The NRC is provided rulemaking authority under the Atomic Energy Act of 1954 (42 U.S.C. §§2201 et seq .) as well as the Energy Reorganization Act of 1974 (42 U.S.C. §5841). The Atomic Energy Act, as amended, provides the NRC with the authority to \"establish by rule, regulation, or order, such standards and instructions to govern the possession and use of special nuclear material, source material, and byproduct material as the Commission may deem necessary or desirable to promote the common defense and security or to protect health or to minimize danger to life or property.\" According to an NRC issue paper, \"courts have interpreted the AEA to mean that costs must not be considered by the NRC when it determines that a given regulatory action is necessary for adequate protection.\"\nHowever, the act also provides the NRC with the authority to adopt regulations that go beyond \"adequate\" protection and the NRC's internal rulemaking procedures permit more extensive CBA of those rules. For example, the NRC is subject to regulatory analysis requirements under the \"backfit rule,\" which establishes procedures for the development of modifications to power reactors and/or selected nuclear materials facilities that are licensed by the NRC. Under the backfit rule, the NRC must perform detailed cost-benefit analysis of all proposed modifications to nuclear facilities that go beyond \"adequate\" protection and provide a \"substantial increase in the overall protection of public health and safety.\"\nIt appears that the NRC must adopt the regulations it determines are necessary to adequately protect the public from the risks posed by the materials and facilities it is regulating, notwithstanding the cost. However, it seems that the NRC also conducts more extensive CBA of regulations that go beyond \"adequate\" protection; and according to the NRC's FY2011 Regulatory Plan, the NRC \"routinely conducts comprehensive regulatory analyses that examine the costs and benefits of contemplated regulations\" based on \"internal procedures and programs to ensure that it imposes only necessary requirements on its licensees.\"\nNational Labor Relations Board. Generally, NLRB rules are promulgated under the authority in Section 6 of the National Labor Relations Act (29 U.S.C. §156), which does not mention a requirement to conduct cost-benefit analysis as part of the NLRB rulemaking process. A preliminary examination of NLRB rules submitted to GAO over the past year found that only one was considered a \"major\" rule. For this rule, the NLRB estimated costs but not benefits.\nConsumer Product Safety Commission. The CPSC is provided rulemaking authority under at least nine statutes, including the Consumer Product Safety Act (CPSA), the Federal Hazardous Substances Act (FHSA), the Child Safety Protection Act (CSPA), and the Poison Prevention Packaging Act (PPPA). These statutes contain varying degrees of requirements for CBA and other regulatory analyses. For example, the CPSA requires the CPSC to conduct a preliminary regulatory analysis prior to publication of a proposed rule, which must be published in the Federal Register with the proposed rule. The regulatory analysis must contain, in part,\na preliminary description of the potential benefits and potential costs of the proposed rule, including any benefits or costs that cannot be quantified in monetary terms and.... a description of any reasonable alternatives to the proposed rule, together with a summary description of their potential costs and benefits.\nIn contrast, the PPPA states that the CPSC should consider the \"reasonableness\" of packaging standards of specified household substances, but it specifically states the CPSC is not required to conduct cost benefit analysis. \"Nothing in this Act shall be construed to require the Consumer Product Safety Commission, in establishing a standard under this section, to prepare a comparison of the costs that would be incurred in complying with such standard with the benefits of such standard.\"\nIn sum, the IRCs may be required to conduct some form of CBA or other regulatory analyses of certain rules under cross-cutting statutes or the underlying statutes that provide them with rulemaking authority. In some cases, the analysis required may be less rigorous or less detailed than that which would be required under E.O. 12866 and Circular A-4. The IRCs may also conduct CBA or similar analyses as part of their internal rulemaking process, even if they are not statutorily or otherwise required to do so. Finally, the IRCs may be exempted or statutorily prohibited from conducting CBA as part of their rulemaking process.\nTable 1 summarizes the cost-benefit analyses of \"major\" rules that were conducted by selected IRCs in FY2010, FY2011, and FY2012. In some cases, the IRCs \"monetized\" or in other ways quantified costs, benefits, or both. According to an OMB report, however, the IRCs are more likely to discuss and consider costs and benefits without monetizing or quantifying them.\nIn FY2010, FY2011, and FY2012, a total of 57 \"major\" rules were promulgated by the nine IRCs included in this analysis. Of those, 43 \"major\" rules contained some information on benefits or costs, though only 26 included monetized estimates of costs. None of the \"major\" rules included monetized estimates of benefits.\nThe SEC issued 25 \"major\" rules, more than any other IRC. The SEC provided information on costs and benefits for all but one rule. Fourteen of the 25 rules promulgated by the SEC monetized costs but not benefits. The CFTC promulgated 15 \"major\" rules. The CFTC monetized costs for five of their \"major\" rules, and provided some information on costs and benefits for 12 rules. The Board of Governors of the Federal Reserve promulgated 12 rules, two of which monetized costs. The remaining IRCs each issued fewer than five \"major\" rules. The OCC and NRC each issued three \"major\" rules. The NRC monetized costs for each of its rules, while the OCC monetized costs for two rules. The CFPB and NLRB each issued one \"major\" rule. The NRLB rule monetized costs. The CFPB did not monetize costs, but did include some information on costs and benefits.\nThere are several possible reasons why the cost-benefit analysis currently conducted by IRCs may not be as rigorous as the full analytical requirements contained in E.O. 12866 and Circular A-4. First, the statutory provisions that require the IRCs to conduct cost-benefit analysis vary in scope, and the analysis they require may be less rigorous than that which would be required under E.O. 12866. As shown previously, some agency-specific statutes require cost-benefit analysis, including monetized or quantified estimates of costs and benefits whenever possible. Others require consideration of potential costs and benefits, but do not require quantified or monetized estimates. Others require little or no analysis at all.\nIn addition, the internal rulemaking practices of each IRC vary in scope. Some may require or encourage staff to follow the cost-benefit procedures in Circular A-4. Other IRCs may integrate some, but not all, of OMB's guidance into their internal rulemaking procedures.\nGenerally, the nature of the rules being promulgated by the IRCs may make it difficult to conduct rigorous, quantitative, cost-benefit analysis. Some rules, for example, may involve costs and/or benefits that are more difficult for the agency to quantify or monetize. In such cases, E.O. 12866 and Circular A-4 instruct covered agencies to conduct cost-effectiveness analysis (CEA), which involves qualitative discussion of costs and benefits, as opposed to the more rigorous cost-benefit analysis, which typically requires monetized estimates of both costs and benefits.\nFinally, the resources and capacity to conduct cost-benefit analysis may vary from agency to agency. For example, concerns have been raised over whether agencies have a sufficient number of staff who are qualified to perform extensive, quantitative cost-benefit analysis. This, in turn, may be impacted by the number of rules promulgated by the agency each year; particularly those rules that are subject to cross-cutting or statutory analytical requirements. As shown in Table 1 , the number of \"major\" rules promulgated each year varies from agency to agency. The SEC, which issued highest number of rules between FY2010 and FY2012, created the Division of Risk, Strategy, and Financial Innovation (Risk Fin) in 2009 to enhance its capability to conduct economic analysis as part of their rulemaking process. However, comparatively smaller agencies and agencies that promulgate fewer rules may not have a sufficient number of staff with the expertise to conduct extensive quantitative cost-benefit analysis.",
"The main argument in favor of extending E.O. 12866's CBA requirements to the IRCs is generally that such review would encourage agencies to produce higher-quality rules. Proponents have argued that through the executive orders establishing such review, Presidents have encouraged the executive branch agencies to consider more carefully the burdens associated with regulations; extending the requirements to the IRCs may bring those considerations to those agencies as well. A previously mentioned proposal in the 112 th Congress, S. 3468 , would authorize the President to extend CBA requirements through the issuance of an executive order.\nSome advocates for extending the executive order's CBA requirements maintain that it may lead the agencies to produce higher quality rules. For example, former OIRA Administrator Sally Katzen has suggested that extending the requirements for CBAs to the IRCs and having OIRA review of those CBAs would provide incentives to agencies to produce high-quality analyses, since \"nothing focuses the mind like knowing that someone will be reading\" their analyses. Susan Dudley, another former OIRA administrator, expressed disappointment in congressional testimony that President Obama has not extended the requirement for analytical requirements or OIRA review to the IRCs. Among the reasons she identified for this concern was that most financial regulations, including regulations issued by the new Consumer Financial Protection Bureau, will not be \"constrained by the sound principles and procedures outlined by the President.\" Indeed, many of the regulations that have been and will be issued pursuant to the Dodd-Frank Act will be issued by IRCs.\nIt is not entirely clear how and whether extending E.O. 12866's CBA requirements to the IRCs would change their current practices, given that many of the IRCs already have statutory requirements for various forms of CBA, even if they are not subject to E.O. 12866. To the extent that the agencies are already fulfilling statutory requirements for CBA, extending the E.O.'s requirements may create duplicative requirements for some of those agencies. The following section of this report examines more closely the potential effects of extending CBA requirements to the IRCs.",
"If enacted, S. 3468 would authorize the President to extend, through executive order, the requirements for CBA that are currently found in E.O. 12866. The potential effects that this change may have on the CBAs conducted by each IRC would vary depending on (1) the agency's current analytical practices, (2) the agency's mandatory and discretionary rulemaking responsibilities, (3) the number of \"significant\" and \"economically significant\" rules the agency issues each year, and (4) the agency's analytical resources, such as the technical expertise of staff who are responsible for conducting their cost-benefit analysis.\nThe effects of S. 3468 may be minimal for IRCs that currently have cost-benefit analysis procedures similar to those of E.O. 12866 and Circular A-4. For example, a 2011 report by the Office of the Inspector General (OIG) of the SEC stated that \"the Commission's current rulemaking procedures are closely aligned with the requirements of E.O. 12866, E.O. 13563, and OMB Circular A-4.\" The OIG noted that the analysis conducted by the SEC did not always consider the costs and benefits of regulatory alternatives, but the SEC sought comments on the costs and benefits of alternatives to their proposed rules whenever possible.\nSimilarly, the report by the OIG of the OCC noted that, prior to adoption of the Dodd-Frank Act, the OCC had been part of the Treasury Department and had been subject to E.O. 12866 as well as other OMB guidance. According to the OIG, \"accordingly, the requirements for economic analysis defined in OCC's rulemaking guide generally mirror those of EO 12866 and OMB Circular A-4.\" For IRCs with current analytical practices similar to those of E.O. 12866 and Circular A-4, the additional requirements that could be imposed under S. 3468 may already be met by the analyses they are currently conducting.\nFor agencies whose current procedures are less rigorous than those of E.O. 12866 and Circular A-4, the effects of S. 3468 may depend on the other three factors listed above. For example, an independent agency with fewer mandatory or discretionary rulemaking responsibilities that issues relatively fewer \"significant\" rules each year may find the additional requirements of S. 3468 minimally burdensome, even if their current cost-benefit practices are less rigorous. Those agencies may also find that their current staff and other analytical resources will remain adequate, even if they are subject to the executive order and OMB guidance.\nConversely, the additional cost-benefit requirements may be more burdensome for agencies with relatively greater regulatory responsibilities and for agencies with recently expanded regulatory responsibilities. These agencies may not have the staff with the technical expertise necessary to conduct cost-benefit analysis that is more extensive than their current requirements. For example, in light of the increased regulatory responsibilities some IRCs face pursuant to the Dodd-Frank Act, some have suggested that IRCs should consult OIRA when conducting cost-benefit analyses. In May 2012, Commissioner O'Malia announced that the CFTC had recently signed a Memorandum of Understanding with OIRA to obtain technical expertise when conducting regulatory analyses of rules it plans to issue pursuant to the Dodd-Frank Act .\nThe potential effects of S. 3468 may also be mitigated for IRCs whose rulemaking activities would be exempt from some or all of the requirements of E.O. 12866. Under E.O. 12866, agencies are exempt from certain analytical requirements if (1) measures of costs and benefits are difficult to quantify or monetize, (2) the rule is being promulgated under an emergency situation, or (3) the agency is under a statutory or judicially imposed deadline that makes full compliance with the executive order impossible. For example, the report from the OIG of the Board of Governors of the Federal Reserve noted that the executive orders provide agencies with exemptions to the cost-benefit analysis requirements in \"emergency situations or when an agency is obligated by law to act more quickly than normal review procedures allow.\" The report did not specifically state whether, or how often, the Federal Reserve might qualify for such exemptions.",
"In addition to the debate over the appropriate role for the use of cost-benefit analysis in the IRCs, a broader debate over the value of CBA has also taken place over the past several decades.\nOn one hand, former OIRA Administrator Cass Sunstein, an administrative law professor, has been a strong advocate of CBA, and he has written many articles and books examining its rise and defending its use. In his book The Cost-Benefit State: The Future of Regulatory Protection, written prior to his tenure at OIRA, Sunstein examined the increase in use and requirements for CBA, arguing that the use of CBA can lead to a much stronger regulatory system and better regulations in general. Throughout the book, Sunstein made many arguments in favor of the use of CBA. For example, he suggested that CBA can be used not only to ensure that the benefits of regulation justify the costs and that \"government action is worthwhile,\" but that it can serve as a check against interest group influence over regulations. Interest groups, according to Sunstein, are capable of \"fending off desirable regulation or pressing for regulation when the argument on its behalf is fragile. Here CBA, taken as an input into decisions, can protect democratic processes by exposing an account of consequences to public view.\"\nSimilarly, some economists and others have argued that CBA \"can be a powerful tool in informing regulatory decisions. Regulation uses a sizable amount of resources, so it is relevant to ask whether the benefits of regulation are worth the costs\" and that \"centralized oversight can help with interagency coordination, setting priorities, and implementing most cost-effective regulation.\"\nOn the other hand, some have argued that the use of CBA does not necessarily improve agencies' regulatory decisions. For example, one scholar testified before the House Judiciary Committee in 2011 that\ncost-benefit analysis is itself a flawed technique for distinguishing between useful and counterproductive regulations … the existing regulatory process already allows those affected by regulations to identify flaws in agency regulatory proposals and affords both regulated entities and agencies opportunities to fix problems such as overly costly or unfair regulation.\nThe witness stated further that while estimates of costs and benefits can be useful in regulatory decision making, such estimates are full of uncertainty and should not be the sole basis for determining regulatory outcomes. He suggested that agencies can use comment periods, as enforced by the courts under the Administrative Procedure Act, to obtain information and identify the best regulatory alternatives.\nAdditionally, CBA requirements may have the potential to slow down rulemaking, which may at times be contrary to the public interest. For example, the SEC has come under criticism recently because the pace of issuing rules appears to have slowed, particularly rules that are required pursuant to the Dodd-Frank Act. One reason cited for the slow pace of rules is that the SEC was attempting to fulfill its statutory requirements for CBA, particularly after a court recently struck down one of the Dodd-Frank Act's rules for having an inadequate analysis in the Business Roundtable case mentioned earlier. A related hesitation about the use of CBA is that adding further requirements to a rulemaking process that is viewed by some as already too burdensome and time-consuming could put an unnecessary strain on agencies to meet statutory and/or judicial deadlines and other requirements.\nAnother concern that has been raised over the use of CBA is that it may be more difficult to estimate costs and benefits stemming from certain types of rules—particularly for those in which costs and/or benefits may be difficult to quantify or monetize. This criticism has often been voiced in response to proposals that would require banking agencies to measure costs and benefits, where the potential benefits involve things such as lowering financial risk or reducing fraud in securities markets. In addition, one recently issued report stated that costs tend to be easier to monetize than benefits, especially when dealing with market risk, which may cause costs to be overestimated in general.\nIn the early 1990s, administrative law scholars began to write about the \"ossification\" of the rulemaking process. The argument behind the \"ossification\" thesis states that agencies are subject to so many requirements in the rulemaking process that they generally take longer to issue rules and may require more resources to do so, resulting in uncertainty for the agency or agencies involved and for the regulated industry. One unintended consequence is that as the number of rulemaking requirements increases, agencies may have more incentive to seek out other vehicles for policy implementation, such as through the issuance of guidance documents and other less formalized means of executing policy changes. Proponents of the ossification thesis may argue that if Congress or the President institutes additional CBA requirements for the IRCs, those agencies may attempt to find other less participatory and transparent means for implementing policy. In other words, the ossification of rulemaking can incentivize agencies to preserve their resources by avoiding the rulemaking process and instead taking other administrative actions, such as the issuance of guidance documents and non-legislative rules.\nOn the other hand, President George W. Bush's OIRA Administrator John Graham testified before Congress that his experience and a review of the literature demonstrates that the ossification theory may be exaggerated, and that agencies continue to issue regulations in a timely manner, despite the numerous procedural and judicial requirements. Some academic studies have also called into question the ossification thesis. One study, for example, found that there was little evidence that additional procedural requirements cause substantial delay in rulemaking.",
"The second major requirement of E.O. 12866, in addition to the requirement for agencies to conduct CBAs for \"economically significant\" rules, is centralized OIRA review of regulations. Under the order, agencies are required to submit proposed and final \"significant\" regulations to OIRA, at which time OIRA has up to 90 days to complete its review.\nDuring the review process, OIRA examines each regulation to ensure that the agency followed the principles and procedures outlined in E.O. 12866, including the applicable requirements for conducting CBA, and that the regulation is consistent with the policy preferences of the President. As former OIRA Administrator nominee James Blumstein discussed in an article on centralized regulatory review, E.O. 12866 made very clear that one of its main objectives was to make agency regulations consistent with presidential policy. According to Blumstein, this was illustrated by the frequent usage of the phrase \"the President's priorities,\" which appears ten times in the order.\nE.O. 12866's requirements for OIRA review of \"significant\" regulations supplanted and somewhat scaled back the requirements of President Reagan's E.O. 12291, which required that agencies submit all proposed and final rules to OIRA for review. Since President Reagan issued E.O. 12291, scholars of the administrative process have expressed both support for and concern over OIRA's role, and by extension, the role of the President, in the rulemaking process. Some of this discussion, especially in recent years, has focused on the issue of whether rules by the IRCs should be subjected to OIRA review. S. 3468 would authorize the President to extend the requirements for OIRA review to the IRCs.",
"Many administrative law scholars and other observers of the rulemaking process have expressed support for OIRA review, and some have spoken directly in support of extending the requirement for review to the IRCs. Much of this support for OIRA review relies on the underlying premise that increased presidential control, through OIRA review, of rulemaking could improve the both rulemaking process within agencies and the quality of the regulations themselves.\nSally Katzen has suggested that centralized review of regulations \"facilitat[es] political accountability (the President takes the credit and gets the blame for what his agencies decide)\" and can \"enhance regulatory efficacy (that is, decisions that take into account the multitude of disciplines and the multitude of perspectives that can and should be brought to bear in solving problems in our complex and interdependent society).\" Others have suggested that the White House is in a unique position to identify rules under development that may conflict with a rule or rules under development in another agency; centralized oversight may provide a mechanism for coordination between and among agencies.\nSome organizations have also expressed support for the extension of OIRA review to the IRCs. The Administrative Conference of the United States (ACUS) has supported presidential review of IRC rulemaking. In 1988, ACUS expressed its opinion that presidential review should apply generally to federal rulemaking: \"As a matter of principle, presidential review of rulemaking should apply to independent regulatory agencies to the same extent it applies to the rulemaking of Executive Branch departments and other agencies.\"\nThe American Bar Association (ABA) has also endorsed extending presidential review to the IRCs. In 1990, the ABA House of Delegates adopted a recommendation endorsing ACUS's guidelines President Reagan's executive orders establishing presidential review of agency rulemaking. The resolution declared that \"presidential review should apply generally to all informal federal rulemaking, including that by independent regulatory agencies.\" In 2009, the Section of Administrative Law and Regulatory Practice of the ABA provided comments to OIRA regarding presidential supervision of agency rulemaking and declared that the \"White House should extend Executive oversight to independent agencies.\" In October 2011, the ABA also submitted comments on H.R. 3010 , the Regulatory Accountability Act of 2011 (RAA). Various provisions of the RAA would have extended OIRA oversight to IRC rulemaking. The ABA declared that it \"strongly support[s] this feature of the bill\" and noted that it has \"long favored extension of the oversight orders to independent agency rulemaking.\"\nWhile many administrative law scholars and other students of the regulatory process support the extension of some OIRA review of regulations to the IRCs, other individuals and organizations have expressed hesitation or opposition. Many of the criticisms echo those that arose immediately following the establishment of centralized OIRA review under President Reagan in 1981. The main concerns of critics of Reagan's initial decision to establish centralized OIRA review of regulations were two-fold. First, some critics felt that OIRA review was a mechanism through which President Reagan would institute a deregulatory agenda. However, that concern has largely receded, in part because every President since Reagan has continued the practice of OIRA review. Second, critics charged that Reagan was asserting too much power, potentially violating the U.S. Constitution's separation of powers doctrine by asserting too much control over executive agencies' regulations. That objection has also largely receded since the 1980s.\nHowever, a similar concern has recently been raised over the possible extension of E.O. 12866's requirements to the IRCs, which have been considered at times to be quasi-legislative in function. Because the IRCs generally possess elements of independence such as \"for cause\" removal protection for their commission members and agency heads, it has been widely interpreted that Congress intended to insulate the agencies from presidential control.\nPerhaps the most primary current concern about the possible extension of presidential review to the IRCs is that such a practice could compromise the independence of those agencies, and that it may give the President an inappropriate amount of power or influence over the rulemaking decisions of the IRCs. Because OIRA is part of OMB and is, by extension, an agent of the President, the concern is that subjecting regulations to OIRA review may politicize the rulemaking process. As explained by Katzen and others, \"past presidents have been reluctant to extend OIRA's role to the IRCs out of deference to Congress.\"\nSunstein has also written in strong support of presidential review of regulations. In one article, for example, Sunstein and administrative law scholar Peter Strauss argued that \"time has not undermined the ABA's conclusion in Roads to Reform that greater presidential control over the regulatory process is desirable\" and that there was a \"growing professional consensus\" on the matter. Strauss and Sunstein identified three factors in support of OIRA review:\nFirst, the President is in a good position to centralize and coordinate the regulatory process…. Second, the President is electorally accountable…. Third, the President, by virtue of his accountability and capacity for centralization, is able to energize and direct regulatory policy in a way that would be impossible if that policy were to be set exclusively by administrative officials.\nBased upon those three premises, Strauss and Sunstein argued that OIRA review should be expanded to the IRCs:\nFrom the standpoint of sound regulatory policy, fashioned in a process of informal rulemaking, we believe that there is no meaningful difference between the \"independent\" agencies and those agencies to which the executive orders are currently applicable. The two categories of agencies engage in regulatory activities that are, from a functional standpoint, indistinguishable. Indeed, often those activities concern the same or similar subject areas; consider the overlapping work of the Department of Justice and the Federal Trade Commission in the area of antitrust. The same considerations that justify a coordinating presidential role with respect to \"executive\" agencies apply with full force to those characterized as \"independent.\" For these reasons, we believe that Executive Orders 12291 and 12498 should be applied to the latter set of agencies.\nWere centralized OIRA review of regulations instituted, the question arises as to what the consequences of that review should be. Many scholars have offered suggestions as to how to extend the requirements and protect the independence of the agencies by limiting the ability of OIRA to stop an IRC from issuing a rule. For example, Katzen has said that presidential review should be extended to the IRCs, but it should be done cautiously:\nWhile the way the Executive Branch agencies and IRCs conduct rulemaking is for all practical purposes the same, the differences between the two types of agencies in terms of their structure and their relationship to the President suggests that the review process of the \"enforcement\" of any requirement for economic analysis should not—possibly, cannot—be the same without compromising the independence of the IRCs when they do not acquiesce in OIRA's assessment.\nIn a 2002 article, two administrative law scholars suggested that while subjecting IRCs to OIRA review would be a beneficial change to the nation's regulatory system,\nNone of this suggests that the President, or OIRA, should be permitted to displace the decisions of the independent regulatory agencies. But it does suggest that a supervisory rule, leaving the ultimate decision to those agencies, would be entirely acceptable. To those who are skeptical of this conclusion, it might make sense to create a special, weaker system of oversight for the independent agencies, limited to procedural matters (and hence allowing no room for return letters). But we think that it would be desirable to keep a single system in place for all agencies, retaining the idea that if an independent agency ultimately seeks to issue a regulation notwithstanding OIRA objection, it is entitled to do so.\nThe establishment of limited OIRA oversight of agency CBAs, through means such as allowing non-binding feedback from OIRA that can only be advisory, may assuage some concerns, particularly if the authority is clearly delineated. This appears to be the approach taken by sponsors of S. 3468 . If enacted, the bill would authorize the President to issue an executive order requiring IRCs to submit their rules to OIRA review. OIRA would have the opportunity to provide a non-binding statement assessing the agency's compliance with the relevant CBA requirements. The statement would be placed into the administrative record for the rule and could be reviewed by a court if the rule, once promulgated, were ever to be challenged. OIRA would not have the authority to stop an IRC from issuing a rule with which the President does not agree. Furthermore, the bill explicitly states that compliance or noncompliance with the executive order's requirements for CBA or OIRA review would not be subject to judicial review.\nAnother question that arises is whether it is appropriate for the President to assert a requirement for OIRA review, as the past several presidents have clearly been hesitant to do, or whether it would be more appropriate for Congress to institute centralized review. Katzen has suggested that while Presidents have been reluctant to extend OIRA's influence over the IRCs out of deference to Congress and over concerns about the independence of those agencies, congressional authorization of such an extension would \"go a long way to ameliorate any concerns in that regard.\" Through enacting a statutory requirement or authorization for OIRA review of rules and/or CBAs, Congress would be giving its explicit approval.\nIn a similar argument about the desirability for congressional authorization of the President to make such a change, one administrative law scholar said in testimony before Congress that\nPresidents have not brought the commissions fully into the tent of their executive orders, on my understanding, only because they fear that the political costs to their relationship with Congress would exceed the benefits of their doing so. In the Paperwork Reduction Act, Congress can be thought to have drawn that line. You can, and perhaps should, erase it.\nWhile the main criticism of the potential of subjecting IRCs to OIRA review is that the independence of the agencies could be compromised, other criticisms have been raised as well. A separate issue that has at times frustrated critics of OIRA review is that the OIRA review process may actually favor the interests of industry. Immediately after the issuance of E.O. 12291, critics expressed apprehension that OIRA review would serve as a \"conduit\" for private industry's interests. Some studies and media reports have suggested that industry plays a significant role in the outcome of regulations. The extension of that argument would suggest that OIRA could potentially serve as another access point for industry to influence rulemaking at the IRCs.\nA final concern that has been raised over the idea of subjecting IRC rules to OIRA review is that OIRA may lack the technical expertise that is often considered to be a strength of regulatory agencies, and that increasing the number of regulations to come under OIRA's purview could put a strain on its resources. Regulatory agencies have individuals who become subject matter experts in very narrow areas in which they regulate. Given the size and scope of OIRA's responsibilities, officials at OIRA tend to be issue generalists, not necessarily specialists. On the other hand, OIRA may not have substantive expertise in a particular regulatory field, but its general understanding and focus on regulations makes employees at OIRA properly suited to distinguish between regulations that \"may lead to unintended and undesirable consequences.\"",
"While S. 3468 would authorize the President to make the two changes discussed and analyzed above, there are additional points worth emphasizing.\nThe scope of the rules that could be covered by an executive order issued pursuant to S. 3468 is slightly different that the scope of what E.O. 12866 currently covers. The bill has a narrower definition for \"significant\" rules. The definition of \"significant\" in S. 3468 omits two categories that are included in the definition of \"significant\" in E.O. 12866. Those categories are rules that \"materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof;\" or rules that \"raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive order.\" In other words, rules that fall into those categories that are issued by IRCs would not be authorized by S. 3468 to be subject to OIRA review.\nHowever, the definition of \"rule\" in S. 3468 is broader than the definition of \"rule\" in E.O. 12866, and could possibly include some guidance documents. S. 3468 references the definition of a rule as defined in Section 551 of title 5 (the Administrative Procedure Act), rather than the definition used in 553, which is the section that defines \"rule\" for the purposes of notice and comment requirements.\nFurthermore, as mentioned above, the bill clearly states that the compliance or noncompliance of an IRC with the requirements of an executive order issued pursuant to the bill could not be subject to judicial review. The potential consequences of what could occur if an IRC and OIRA disagree on the analysis or substance of a particular rule also are unclear."
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"question": [
"How does the government ensure that new regulations are properly implemented?",
"How do these procedures ensure that the regulation is published and reviewed?",
"How has the APA led to further review of regulations?",
"How could Congress change the rulemaking process?",
"How does E.O. 12866 affect the rulemaking process?",
"Why didn't the Executive Order include IRCs?",
"Why may the IRCs be reluctant to accept the change?",
"How do supporters of extending the requirements defend their stance?",
"How do opponents of extending the requirements defend their stance?",
"How would the extended regulations affect IRCs?",
"Would extending requirements put any IRCs under undue duress?",
"How did the Executive Order ensure that regulations follow the mandated process?",
"How does OIRA review the regulations to ensure compliance?",
"To what extent is the potential extension of the EO to IRCs supported?",
"On what premise does the support of OIRA review lie?",
"On what premise does the opposition of OIRA review lie?"
],
"summary": [
"When issuing regulations that have the full force and effect of law, agencies are required to follow certain procedures.",
"The Administrative Procedure Act (APA) of 1946 set up the basic framework for rulemaking: agencies are required to publish a notice of rulemaking in the Federal Register, take comments on the proposed rule, and publish a final rule in the Federal Register.",
"Since the passage of the APA, additional procedures have been established in various statutes, executive orders, and guidance documents.",
"One potential change to the rulemaking process that has been discussed over the past three decades and proposed in legislation in the 112th Congress is the extension of the requirements of Executive Order (E.O.) 12866 to the independent regulatory agencies, also known as independent regulatory commissions (hereafter referred to as IRCs).",
"E.O. 12866 contains two major requirements: first, it requires that agencies complete cost-benefit analysis (CBA) of \"economically significant\" rules, considering the potential costs, benefits, and feasible alternatives to proposed and final rules. Second, the order requires centralized review of \"significant\" rules in the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA).",
"Historically, the IRCs have been exempted from requirements for CBA and centralized review.",
"If the requirements of E.O. 12866 were extended to the IRCs, there could be significant implications for those agencies.",
"Proponents of extending the requirements argue that subjecting the IRCs to CBA requirements and OIRA review could improve the quality of regulations issued by those agencies.",
"On the other hand, extending CBA requirements and OIRA review to the IRCs could grant OIRA (and by extension, the President) the potential authority to influence or delay rulemaking proceedings, and such a requirement could potentially decrease the independence of the IRCs.",
"The IRCs with fewer regulatory responsibilities that issue relatively fewer \"significant\" rules each year may find the additional requirements of S. 3468 minimally burdensome, even if their current cost-benefit practices are not as rigorous as what would be required under E.O. 12866. Conversely, the IRCs with greater regulatory responsibilities or the IRCs with recently expanded regulatory responsibilities may find the additional CBA requirements more burdensome.",
"It is also possible that some IRCs may not have the staff with the technical expertise necessary to conduct cost-benefit analysis that is more extensive than their current requirements.",
"The second major element of E.O. 12866 is OIRA review of \"significant\" regulations.",
"During the review process, OIRA examines each regulation to ensure that the agency followed the principles and procedures outlined in E.O. 12866, including the applicable requirements for conducting CBA, and that the regulation is consistent with the policy preferences of the President.",
"Numerous individuals, including former OIRA officials and several administrative law scholars, have spoken in support of potential OIRA review of regulations issued by IRCs.",
"Much of this support for OIRA review relies on the underlying premise that increased presidential control, through OIRA review, of rulemaking could improve both the rulemaking process within agencies and the quality of the regulations themselves.",
"On the other hand, some have expressed hesitation or opposition to the extension of OIRA review to the IRCs, suggesting that the independence of the IRCs could be compromised and that OIRA review of IRCs' rules could lead to delay."
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GAO_GAO-15-524
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{
"title": [
"Background",
"Electricity Generation and Consumption in the United States",
"Federal and State Actions That Have Influenced Electricity Generation and Consumption",
"Electricity Reliability",
"Federal and State Regulation of Electricity",
"The Electricity Generation Mix Has Shifted Toward More Natural Gas, Wind, and Solar Sources, and Growth in Electricity Consumption Has Slowed",
"Electricity-Generating Capacity and Actual Generation Have Changed in Several Key Ways",
"Contribution of Wind and Solar Have Increased",
"Contribution of Nuclear Has Declined",
"Contributions of Other Sources Has Varied",
"Generating Capacity under Construction and Planned for Retirement Suggest Trends May Continue",
"Growth in Electricity Consumption Slowed",
"Changes in Generation and Consumption Require System Operators to Take Additional Actions to Maintain Reliability and Affect Electricity Prices to Varying Extents",
"Changes in Generation and Consumption Require System Operators to Take Additional Actions to Maintain Reliability",
"Changes in Generation and Consumption Influence Electricity Prices, but the Net Effect Is Unclear",
"Agency Comments",
"Appendix I: Scope and Methodology",
"Appendix II: Stakeholders Interviewed",
"Appendix III: Additional Information on Electricity-Generating Capacity and Actual Generation",
"Appendix IV: Additional Information on Electricity Consumption",
"Appendix V: Additional Information on Electricity Prices",
"Appendix VI: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"This section describes (1) electricity generation and consumption in the United States, (2) federal and state actions that have influenced electricity generation and consumption, (3) electricity reliability, and (4) federal and state regulation.",
"The electricity system includes four distinct functions: generation, transmission, distribution, and system operations (see fig. 1). Electricity may be generated at power plants by burning fossil fuels; through nuclear fission; or by harnessing renewable sources such as wind, solar, geothermal energy, or hydropower. Once electricity is generated, it is sent through the electricity grid, which consists of high-voltage, high- capacity transmission systems, to areas where it is transformed to a lower voltage and sent through the local distribution system for use by industrial, commercial, residential, and other consumers.process, system operations are managed by a system operator, such as a local utility, that must constantly balance the generation and consumption of electricity. To do so, system operators monitor electricity consumption from a centralized location using computerized systems and send minute-by-minute signals to power plants to adjust their output to match changes in consumption.",
"Various federal and state actions have influenced electricity generation. Regarding federal actions, in April 2015, we found that from fiscal year 2004 through 2013, federal programs aided the development of new electricity-generating capacity through various means, including outlays, loan programs, and tax expenditures. In more recent years, federal actions have been targeted toward renewable sources such as wind and solar, although there has also been federal support for coal, nuclear, and natural gas-fueled generation. For example, two tax credits—the Production Tax Credit (PTC) and the Investment Tax Credit (ITC)—and a related program that provided payments in lieu of these tax credits supported wind and solar electricity by lowering the costs associated with electricity generation and providing an incentive to those firms engaged in the construction and operation of wind and solar projects. The Department of the Treasury estimated that these two tax credits resulted in almost $12 billion in revenue losses for the federal government from fiscal year 2004 through 2013. In addition, the related payment program provided almost $17 billion in outlays from fiscal year 2004 through 2013. EIA recently estimated that wind, solar, and other renewables, accounted for about 72 percent of all electricity-related direct federal financial interventions and subsidies in fiscal year 2013.\nRegarding state actions, our April 2015 report found that key state supports aided the development of electricity generation projects— particularly renewable ones—in most states, from fiscal year 2004 For example, we found that as of September 2014, 38 through 2013.states and the District of Columbia had established renewable portfolio standards or goals.service providers obtain a minimum portion of the electricity they sell from renewable sources, creating additional demand for renewables. Retail service providers meet these requirements in various ways, such as by building renewable generating capacity or purchasing renewable generation from other producers through long-term contracts known as power purchase agreements.\nSuch policies mandate or set goals that retail Federal and state activities have also encouraged energy efficiency, which can reduce the consumption of electricity. For example, Treasury estimated that energy-efficiency-related federal tax expenditures, such as for household energy efficiency improvements and the purchase of energy efficient equipment, amounted to over $15 billion in forgone revenue for the federal government from fiscal year 2000 through 2013. State governments have also played an important role in encouraging energy efficiency. According to the American Council for an Energy- Efficient Economy, as of April 2014, 25 states had fully funded policies in place that establish specific energy savings targets that utilities or nonutility program administrators must meet through customer energy efficiency programs. In March 2014, we found that the federal government has also made efforts to facilitate activities that encourage customers to reduce demand when the cost to generate electricity is high, known as demand-response activities. These efforts have included actions to fund the installation of advanced electricity meters that facilitate these demand-response activities, as well as regulatory efforts to encourage demand-response activities.",
"Specifically, Treasury estimated that forgone revenue associated with the credit for energy efficiency improvements to existing homes amounted to $10.36 billion, the credit for residential energy efficiency property amounted to $3.08 billion, and the exclusion of utility conservation subsidies amounted to $2.04 billion from fiscal 2000 through 2013. easily and inexpensively stored, electricity generated must be matched with demand, which varies significantly depending on the time of day and year. To maintain a reliable supply of electricity, system operators take steps to ensure that power plants will be available to generate electricity when needed. In doing so, system operators typically ensure available capacity exceeds estimated demand so that any unexpected increases in demand or power plant or transmission outages can be accommodated without consumers losing access to electricity.\nMaintaining a reliable supply of electricity is a complex process requiring the system operator to coordinate three broad types of services as follows:\nCapacity: Operators procure generating capacity—long-term commitments to have available specific amounts of electricity- generating capacity to ensure that there will be sufficient electricity to reliably meet expected future electricity needs. Procuring capacity may involve operators of power plants committing that existing or new power plants will be available to generate electricity in the future, if needed.\nEnergy: Operators schedule which power plants will generate electricity throughout the day—referred to as energy scheduling—to maintain the balance of electricity generation and consumption.\nAncillary services: Operators procure several ancillary services to maintain a reliable electricity supply. Ancillary services generally involve resources being available on short notice to increase or decrease their generation or consumption. These and other services are needed to ensure supply and demand remain in balance so that electricity can be delivered within technical standards—for example, at the right voltage and frequency—to keep the grid stable and to protect equipment that needs to operate at specific voltage and frequency levels.",
"Responsibility for regulating electricity prices is divided between the states and the federal government. Most electricity consumers are served by retail markets that are regulated by the states, generally through state public utility commissions or equivalent organizations. As the primary regulator of retail markets, state commissions approve many aspects of utility operations, such as the siting and construction of new power plants, as well as the prices consumers pay and how those prices are set. Prior to being sold to retail consumers, electricity may be bought, sold, and traded in wholesale electricity markets by a variety of market participants, including companies that own power plants, as well as utilities and other retail service providers that sell electricity directly to retail consumers. Wholesale electricity markets are overseen by the Federal Energy Regulatory Commission (FERC).\nDuring the last 2 decades, some states and the federal government have taken steps to restructure electricity markets with the goal of increasing competition. The electricity industry has historically been characterized by utilities that were integrated and provided the four functions of electricity service—generation, transmission, distribution, and system operations— to all retail consumers in a specified area. In much of the Western, Central, and Southeastern United States, retail electricity delivery continues to operate under this regulatory approach, and these regions are referred to as traditionally regulated regions. In parts of the country where states have taken steps to restructure retail electricity markets, new entities called retail service providers compete with utilities to provide electricity to retail consumers by offering electricity plans with differing prices, terms, and incentives. Beginning in the late 1990s, FERC took a series of steps to restructure wholesale electricity markets, and wholesale electricity prices are now largely determined by the interaction of supply and demand rather than regulation. In addition, FERC encouraged the voluntary creation of new entities called Regional Transmission Organizations (RTO) to manage regional networks of electric transmission lines as system operators—functions that had traditionally been carried out by local utilities.\nIn addition to its role in regulating aspects of the electricity market, FERC is also responsible for approving and enforcing standards to ensure the reliability of the bulk power system—generally the generation and transmission systems. FERC designated the North American Electric Reliability Corporation (NERC) to develop and enforce these reliability standards, subject to FERC review. These standards outline general requirements for planning and operating the bulk power system to ensure reliability. For example, one reliability standard requires that system planners plan and develop their systems to meet the demand for electricity even if equipment on the bulk power system, such as a single generating unit or transformer, is damaged or otherwise unable to operate.",
"According to our analysis of SNL data, the mix of energy sources used to generate electricity has generally shifted to include more natural gas, wind, and solar, but less coal and nuclear, from 2001 through 2013, though the extent of these changes varied by region. Growth in electricity consumption has generally slowed, with key differences among different types of consumers and regions.",
"Natural gas, wind, and solar sources provided larger portions of the nation’s electricity mix from 2001 through 2013 in terms of both generating capacity and actual generation, while coal and nuclear sources provided smaller portions, according to our analysis of SNL data (see fig. 2). At the time of our analysis, 2013 was the most recent year with complete data for both generating capacity and generation. The growth or decline in specific energy sources varied over this time period and across U.S. regions. (See app. III for additional information on electricity-generating capacity and actual generation by region.) SNL data on power plants under construction and planned for retirement suggest that these recent trends are likely to continue.\nGenerating capacity and actual generation from natural-gas-fueled power plants increased across the nation from 2001 through 2013, with different regions seeing varying levels of growth, according to our analysis of SNL data. Natural-gas-fueled generating capacity increased by about 181,000 MW during this period, and accounted for 72 percent of the new generating capacity added from all sources.capacity resulted from the construction of about 270,000 MW during this period offset by a smaller amount of retirements. Regarding actual generation, electricity generated from natural-gas-fueled power plants generally increased throughout this period, with a pronounced jump from 2011 through 2012 when generation increased by about 21 percent (see This increase in gas-fueled fig. 3). The average utilization of natural-gas-fueled capacity—a measure of the intensity with which capacity was operated—varied over this period, declining from about 30 percent in 2001 to a low of about 20 percent in 2003 before generally increasing to about 27 percent in 2013.Increases in gas-fueled capacity and generation led to natural gas accounting for a larger share of the nation’s electricity mix, increasing from 17 percent of generation in 2001 to 26 percent in 2013.\nAll but one region of the country experienced increases in the amount of electricity generated from natural gas over this period. Specifically, electricity generated from natural gas declined in Alaska and increased in the rest of the United States, ranging from an increase of 5 percent in Texas to almost 200 percent in some regions in the East. In some regions, natural gas became an increasingly significant energy source in the generation mix. For example, in New England, natural gas increased from 31 percent of the region’s electricity generation in 2001 to 42 percent in 2013. According to EIA, lower natural gas prices, regional environmental initiatives, and other factors have contributed to increases in gas-fueled electricity generation.\nAs the use of natural gas to generate electricity has increased since 2001, the mix of technologies used in gas-fueled power plants has also changed. Specifically, combined-cycle plants, which use a combustion turbine in conjunction with a steam turbine to generate electricity, have become an increasingly common technology for generating electricity— growing from 7 percent of total electricity generation in 2001 to 23 percent in 2013, according to SNL data (increasing from 42 percent of electricity generated from gas in 2001 to 86 percent in 2013).expensive to build initially, such plants are more fuel-efficient than simpler combustion turbine plant designs. This efficiency can make it economically feasible to generate electricity with natural gas for sustained periods. As a result, these plants can be economically operated like traditional baseload generation such as coal and nuclear plants, which often run continuously for long periods of time. Trends in the utilization of combined-cycle and other gas-fueled power plants differed over this period. Utilization decreased for all gas-fueled capacity in the early 2000s, but while it has increased since 2003 for combined-cycle capacity (from 34 percent in 2003 to almost 44 percent in 2013), utilization has declined somewhat for other gas-fueled technologies (from 12 percent in 2003 to 8 percent in 2013).",
"Generating capacity and actual generation from wind and, to a lesser extent, solar power plants increased from 2001 through 2013, with most of the increase occurring since 2007. (See fig. 4.) We have previously found that various federal and state actions have contributed to increases in wind and solar power plant capacity, including financial supports and state renewable portfolio standards. These increases led to wind and, to a lesser extent, solar accounting for a larger share of the nation’s energy mix, increasing from just over 0 percent of electricity generation in 2001 to 4 percent in 2013.\nRegarding wind, generating capacity increased about sixteen fold over this period, with 57,000 MW of capacity added from 2001 through 2013 and wind’s share of total generating capacity increasing from just over 0 percent in 2001 to 5.4 percent in 2013. However, these plants operate less intensively than some other sources because wind power plants only generate electricity when the wind is blowing. As such, wind’s share of the nation’s actual generation increased from just over 0 percent in 2001 to about 4 percent in 2013. Generation from wind increased by over 160 million MWh from 2001 through 2013, the second largest increase in actual generation of all energy sources after natural gas. Most of this increase, 136 million MWh (or 84 percent of the total increase), occurred since 2007. The average utilization of wind power plants fluctuated over this period between 26 and 33 percent.\nElectricity generated from wind is concentrated in a few states; as shown in table 1, 74 percent of total electricity generated from wind came from 10 states in 2013. In addition, wind can contribute a substantial portion of generation in some areas. For example, in the Upper Midwest region of the country, including states such as Minnesota and Iowa, about 14 percent of the region’s electricity came from wind power plants. In addition, representatives from one utility told us they have had hours where 60 percent of the electricity produced on their system came from wind sources, and their system has experienced longer periods with over 50 percent wind generation. By contrast, other regions of the country, such as the southeastern United States, produced less than 1 percent of their total electricity from wind in 2013.\nRegarding solar, generating capacity increased by about 7,000 MW, or about eighteen-fold, from 2001 through 2013 at larger power plants with capacities of at least 1 MW. This trend accelerated in 2014 with the addition of over 3,000 MW of solar generating capacity, and total solar generating capacity reached about 10,000 MW. Regarding actual generation, electricity generated at large solar power plants increased about 7 fold—by about 5 million MWh—from 2001 through 2013. The average utilization of solar power plants fluctuated over this period between 16 percent and 25 percent. Despite the growth in solar capacity and generation, large solar power plant generation contributed less than 0.2 percent of total electricity generation nationwide in 2013. More so than wind generation, generation from solar power plants was concentrated in a small number of states. For example, California and Arizona accounted for over half of electricity generation from large solar power plants in 2013.\nAssociation, Solar Market Insight Report 2014 Q4 (Mar. 4, 2015). In addition, since 2010, EIA has collected data on solar and other generating capacity that is “net metered”— when consumers can use electricity they generate that is in excess of their consumption at some times to offset consumption at other times. Though these data have limitations, they suggest that distributed net-metered solar capacity has been a large portion of total solar capacity.\nGenerating capacity and actual generation from coal-fueled power plants declined from 2001 through 2013 as plants retired and in some cases, witnessed changes in their usage patterns, according to our analysis of SNL data. Coal-fueled electricity-generating capacity was stable for most of this period, but declined over the last couple years as aging plants retired and little new capacity was added. Specifically, from 2001 through 2013, about 29,500 MW of coal-fueled generating capacity retired, with about 75 percent of those retirements occurring from 2009 through 2013. In our October 2012 and August 2014 reports, we found that a number of factors have contributed to companies retiring coal-fueled power plants, including comparatively low natural-gas prices, the potential need to invest in new equipment to comply with environmental regulations, increasing prices for coal, and low expected growth in demand for electricity. We found that the facilities that power companies have retired or plan to retire are generally older, smaller, and more polluting, and some had not been used extensively.\nActual generation from coal declined—in particular since 2008—as natural gas prices fell and made coal-fueled power plants comparatively less competitive (see fig 5). Generation from coal declined in most regions of the country. Several regions, such as New England, experienced large decreases as they shifted away from coal. As coal- fueled generation has declined, coal-fueled power plants have, in general, been utilized less intensively. The average utilization of coal-fueled capacity fluctuated around 70 percent from 2001 through 2008 and then began a general decline to about 59 percent in 2013. For example, representatives from the system operator ISO New England told us that their region no longer regularly uses its coal-fueled power plants to generate baseload electricity. plants are more often used to generate electricity during peak periods or when other resources are not available. Retirements of some coal- fueled power plants and the decrease in usage among others led to coal accounting for a smaller share of the nation’s generating capacity and generation.\nISO New England serves Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.",
"Generating capacity and actual generation from nuclear power plants both increased from 2001 through 2013, but the share of nuclear in the national electricity mix declined because other sources increased by a larger amount, according to our analysis of SNL data. No new nuclear power plants were built during this period, and four nuclear power plants retired in the last 2 years, accounting for about 4,200 MW of capacity. However, nuclear generating capacity increased by 5 percent from 2001 through 2013 because of capacity increases at some existing plants as owners upgraded equipment or undertook other changes. Regarding actual generation, electricity generated at nuclear power plants increased by 3 percent. The average utilization of nuclear power plants fluctuated around 90 percent throughout this period. Since nuclear plants tend to be larger capacity plants that run continuously for long periods of time, the retirement of a single plant can have significant effects on a regional power system. For example, representatives at ISO New England said that the Vermont Yankee nuclear power plant, which retired in December 2014, had generated about 5 percent of total electricity generation in their region in 2014. Since nuclear generating capacity and generation did not increase as much as gas, wind, and solar, nuclear accounted for a slightly smaller share of the national electricity mix, decreasing from 21 percent of generation in 2001 to 20 percent in 2013.",
"The contributions of other energy sources to the nation’s energy mix have also changed according to our analysis of SNL data, as follows:\nHydropower: Generating capacity and actual generation from hydropower plants increased from 2001 through 2013, by 3,600 MW and 68 million MWh respectively. Generation from hydropower plants varies from year to year based on a region’s weather, particularly the amount of rain or snow, according to EIA. The western region generates more electricity from hydropower than any other region and accounted for 57 percent (about 39 million MWh) of the increase in generation during this period. The average utilization of hydropower capacity fluctuated between 28 percent and 38 percent throughout this period. While hydropower generating capacity increased in absolute terms through new construction and increases in capacity at existing hydropower plants, its share of capacity declined because hydropower generating capacity did not increase as much as other sources, such as natural gas and wind.\nOther sources: Generating capacity and actual generation from other sources—including oil, biomass, and geothermal together—declined overall from 2001 through 2013. This decline was primarily driven by declines in oil-fueled power plants, where generation declined by over 80 percent and average utilization declined over the period. Two regions, New England and Florida, accounted for a large portion of the decline in oil-fueled power plant generation. Although oil was a relatively small portion of overall generation in the beginning of the period, its share of generation declined further as oil prices rose in the mid-2000s. Generating capacity and actual generation from biomass, geothermal, and other sources increased overall from 2001 through 2013. These changes had little effect on the overall national electricity generation mix, as these other sources represent a small and stable portion of generation—about 2 percent of the national total in both 2001 and 2013.",
"Our analysis of SNL data on generating capacity currently under construction and companies’ plans to retire generating capacity suggests that these general changes in the electricity generation mix are likely to continue. Figure 6 shows the amount of generating capacity under construction, the amount planned for retirement from 2015 through 2025, and the net change (capacity under construction minus planned for retirement), and highlights that natural gas, wind, and solar capacity may continue to increase. There is no coal capacity under construction, and while about 6,000 MW of nuclear capacity is under construction, more nuclear capacity (about 15,000 MW) is planned for retirement than is under construction.construction-planning stages or that has not formally announced retirement.",
"Continuing a long-term trend, growth in electricity consumption slowed from 2001 through 2014. According to EIA data on annual national electricity retail sales—a proxy for end-use consumption—the rate of growth of electricity consumption has slowed in each decade since the 1950s, from growing almost 9 percent per year in the 1950s, to over 2 percent per year in the 1980s and 1990s. This decreasing growth trend continued in the 2000s, with electricity retail sales growing by over 1 percent per year from 2001 through 2007, and fluctuating, but remaining largely flat from that time through 2014.\nThese overall trends mask differences in consumption patterns for different types of consumers, in different regions, and during peak periods of consumption. Regarding consumers, industrial electricity consumption has decreased since 2001, while commercial and residential consumption have increased. Specifically, industrial consumption decreased by 4 percent over the period from 2001 through 2014, and the sector’s share of total electricity consumption declined from 29 percent to 26 percent. Meanwhile, residential electricity consumption increased 17 percent, and commercial consumption increased 25 percent over this period. Regarding regional differences, consumption patterns have varied across the country. For example, consumption declined by almost 5 percent in the Northeast (Mid-Atlantic and New England states) since the recession of 2007 and through 2014, while it increased by over 9 percent in the West South Central states of Texas, Louisiana, Oklahoma and Arkansas over that same period. (See app. IV for additional information on consumption by consumer type and region.)\nIn contrast to the slowdown in the growth of overall electricity consumption, peak consumption has, in some cases, increased. Peak consumption refers to the level of electricity consumed when the overall system usage is at its highest, such as during hot days when air conditioning usage is high.in some instances, differed from changes in total consumption over the course of a year. For example, in New England, while overall consumption has declined, peak consumption has risen according to EIA.\nDistributed generation and electricity consumption data Growth in distributed generation such as rooftop solar may have also contributed to changes shown in EIA’s data on retail electricity sales. Households and commercial facilities that generate some of their own electricity displace some electricity sales. Therefore, actual electricity consumption may be higher than suggested by retail electricity sales data. According to EIA, this effect is difficult to measure because data on electricity generated from distributed generation sources are not readily available.\nChanges in the economy: Changes in electricity consumption are often closely linked to the economy, according to EIA.the economic recession from late 2007 through 2009 was associated with a large drop in electricity consumption in the industrial sector. Since many industrial operations operate more evenly throughout the year, declines in industrial operations could lead to reduced electricity consumption throughout the year.\nEfficiency improvements: Overall improvements in the efficiency of technologies powered by electricity—such as household appliances and others—have slowed the growth of electricity consumption, according to EIA. For example, according to EIA, a new refrigerator purchased today uses less than a third as much electricity as one purchased in the late 1970s, despite the larger size of today’s refrigerators.\nChanges in the uses of electricity: Consumer uses of electricity have changed over the last decades, affecting the nature of electricity consumption. For example, the growing use of computers and home entertainment devices has increased the use of electricity. In addition, air conditioning has become more widely used in U.S. households. As a result, a heat wave—often associated with peak levels of electricity consumption—may lead to more electricity consumption during peak periods than in the past.\nDemand-response activities: Another factor that may have affected consumption trends, particularly peak consumption, is the increasing use of demand-response activities—steps taken to encourage consumers to reduce consumption during periods of high demand when the costs to generate electricity are high. For example, system operators may call on industrial consumers to reduce their electricity usage during periods of high demand in exchange for a payment or other financial incentive. In March 2014, we cited FERC data suggesting that the extent of demand-response activities had increased overall—more than doubling from 2005 to reach about 8.5 percent of potential reduction in peak consumption in 2011.",
"According to literature we reviewed and stakeholders we interviewed, changes in electricity generation and consumption have required system operators to take additional actions to maintain reliability. Changes in generation and consumption, together with additional actions system operators have taken to maintain reliability, have affected consumer electricity prices to varying extents, though the net effect on prices is unclear.",
"According to several stakeholders we interviewed and literature we reviewed,operators to take additional actions to reliably provide electricity to consumers, as follows: changes in generation and consumption have led system Increased reliance on natural gas: The increased reliance on natural gas to generate electricity in some regions of the country has sometimes required system operators to take additional actions to maintain reliability. Although all fuel-based electricity generation can face fuel supply challenges, natural-gas-fueled power plants face different challenges than sources such as coal, oil, and nuclear. For example, natural gas is not easily stored on site, so the ability of a natural-gas-fueled power plant to generate electricity generally depends on the real-time delivery of natural gas through a network of pipelines. Some regions have recently experienced challenges in maintaining the delivery of natural gas supplies to power plants. For example, in January 2014, a severe cold weather event know as a “polar vortex” affected much of the central and eastern United States, causing significant outages at plants using various fuel sources and leading to higher than normal demand for natural gas for both electricity generation and home heating. According to FERC, there were no widespread electricity outages. However, challenges delivering fuel to natural-gas-fueled power plants posed significant concerns and resulted in outages at some natural-gas-fueled power plants. System operators took various steps to limit the effect of this event, including relying on power plants that utilize other fuel sources that were more readily available at that time, such as coal and oil, issuing public appeals for conservation, utilizing demand-response resources, and implementing certain emergency procedures. Going forward, several stakeholders raised concerns about the sufficiency of natural gas pipeline capacity in some regions to meet potential greater future needs. However, FERC has reported that actions taken since the 2013–2014 winter—including improved communications between the electricity and natural gas industries and additional cold-weather preparation—led to better operational performance during the 2014– 2015 winter, which also presented extremely challenging cold-weather conditions. In addition, a recent Department of Energy (DOE) study suggests that the future needs for interstate natural gas pipelines may be modest relative to the historical level of pipeline capacity additions.\nEffects of distributed generation on system operations to maintain reliability The addition of distributed generation such as rooftop solar can present unique challenges that system operators must manage to maintain reliability. Several stakeholders told us that because distributed generation occurs behind a consumer’s meter, such as at an individual residence or business, changes in generation are not visible to or controllable by the system operator without the installation of specialized technology. Regarding the lack of visibility, increases in distributed generation would be seen by the system operator as decreases in demand, since the electricity generated is used on-site and displaces electricity that would have been provided through the grid. Because system operators only see the net effect of these changes, it is more difficult for them to understand and predict demand. Regarding lack of control, if distributed generation results in more electricity than customers can use on site, electricity flows can exceed equipment technical specifications, which could require equipment upgrades. Additionally, if there is more distributed generation than can be used by all customers, the imbalance of supply and demand could put the stability of the grid at risk. Accommodating increased distributed generation may therefore require system operators to, among other things, use models to predict distributed generation patterns or install advanced controls to make distributed generation visible to and controllable by the utility in order to maintain electric reliability.\nGAO-12-635. the polar vortex. According to ISO New England’s system plan, preserving the reliable operation of the system will become increasingly challenging as a result of expected retirements, and the region is in a precarious position for the next several winters as retirements continue and actions to address retirements—such as investments in the addition of new transmission and power plants— are years away from completion.\nChanges in electricity consumption. Changes in electricity consumption may require system operators to take additional actions to maintain reliability both in the long and short-term. Over the long- term, system operators need to ensure they have sufficient generating and transmission capacity to meet forecasted consumer electricity needs. This means that a system operator may need to continually add more transmission or generation capacity when peak demand is rising, even if average consumption is stable or declining. In the short- term, system operators may need to take actions to increase or decrease the use of power plants and demand-response resources to address deviations between forecasted and actual consumption. According to NERC, the electricity industry faces several challenges in forecasting electricity consumption, because conservation programs, distributed generation, and other changes in electricity consumption have increased the uncertainty of traditional forecasting methods used in long-term and short-term planning.\nThe degree to which system operators have had to take additional actions to maintain reliability in response to changes in generation and consumption varies regionally based on the extent of these changes and other characteristics. For example, the extent to which system operators manage the grid in response to wind and solar growth will depend on factors such as the relative amount of generation from wind and solar power plants compared to traditional power plants, the size of a region’s grid and how interconnected it is with neighboring grids, and other factors. In this regard, representatives of Midcontinent Independent System Operator said they have been able to reliably accommodate larger amounts of wind generation without major operational challenges or the need for significant additional ancillary services because the large size of their grid and its extensive connections to neighboring grids provide a broad base of power plants that system operators can use to balance variations in the output of wind power plants.literature we reviewed and representatives of the largest utility in Hawaii, while that state has been able to reliably integrate high levels of wind and solar, its isolated island grids means it has no neighboring grids to turn to for balancing variations in the output of wind and solar electricity generation. Therefore, system operators there have fewer backup resources to turn to in the event of an unexpected change in wind and solar output than system operators managing larger, more integrated grids.",
"Changes in generation and consumption, together with associated actions system operators have taken to maintain reliability, have influenced consumer electricity prices in complex, interrelated, and sometimes contradictory ways, and the net effect of these changes on consumer prices is unclear, based on our review of literature and discussions with stakeholders. National average real consumer electricity prices were nearly 11 percent higher in 2014 than 2001, but prices over this period fell in 5 years, rose in 6 years, and were relatively stable in 2 years (see fig.7). Prices and trends vary by consumer type and region. (App. V provides additional information on prices by consumer type and region.)\nSeveral stakeholders we interviewed and literature we reviewed highlighted several ways changes in generation and consumption, together with associated actions system operators have taken to maintain reliability, have influenced electricity prices. In many cases, these changes in generation and consumption affect prices at the wholesale level. The extent to which and how quickly such wholesale price changes flow through to retail consumer prices depends on a region’s regulatory structure, individual retail contracts, consumer type, and other factors. A complete assessment of these factors and their net effect was outside the scope of this report. Nevertheless, literature and stakeholders highlighted the following ways changes have influenced prices:\nWholesale electricity prices and natural gas prices have tended to move in tandem. Increases in gas-fueled generation have influenced electricity prices, and average annual prices of natural gas and wholesale electricity—electricity for resale—at key hubs have generally moved in tandem since 2002, the earliest year for which data are available. (Fig. 8 shows real annual average natural gas prices and electricity prices at a key wholesale gas hub and a key electricity hub.) Specifically, natural gas prices more than doubled from 2002 to a peak in 2005, declined somewhat, and peaked again in 2008. According to EIA, these increases in prices were initially due to increasing demand for natural gas and hurricanes that disrupted Gulf Coast natural gas production, among other factors. Natural gas prices dropped in 2009 and have remained low since—the result of lower demand due to the economic recession and increasing natural gas production from development of shale gas resources, among other factors. These changing natural gas prices generally contributed first to higher and then lower wholesale electricity prices since 2002. Additionally, as discussed previously, pipeline constraints and competing demands have affected the delivery of natural gas in some regions. This situation has influenced natural gas and wholesale electricity prices during the winter months. For example, during January 2014, the month a polar vortex occurred, monthly natural gas and wholesale electricity prices in New England—a region heavily dependent on natural gas for generating electricity—reached their highest levels, according to available historical data. Prices moderated the following winter, with January 2015 wholesale electricity prices in New England around 60 percent lower than prices the previous January. More generally, FERC reported that wholesale electricity prices were more moderate in January and February 2015 compared to January and February 2014, helped by more stable and less volatile natural gas prices.\nNegative wholesale electricity prices In some instances, wholesale electricity markets experience negative prices—that is, power plant owners paying consumers to take their electricity. For example, owners of certain power plants are sometimes unwilling or unable to reduce their generation even if there is little or no demand for the electricity they generate. This can be the case for owners of wind plants, which may receive $23 per MWh of electricity generated from the federal Production Tax Credit, sometimes making it economically beneficial for these wind plants to pay consumers to take their electricity so they can continue to receive the credit. It can also be the case for power plants that are costly to shut down and restart, such as nuclear plants. Owners of these power plants may be willing to accept negative prices for a short time in order to avoid the cost of shutting the plant down. Our analysis of available hourly data at electricity hubs within U.S. regional transmission organizations indicates that negative prices occurred on average 0.7 percent of the time from 2005 through 2014.\nSpecific trends in instances of negative prices varied by electricity hub, and the annual percent of negative prices varied across the hubs, ranging from 0 percent to 9.8 percent over that time period. In most cases, any payment consumers might receive as a result of these negative prices is more than offset by the cost of purchasing electricity in other hours. However, negative prices could affect the profitability of individual power plants in areas where negative prices occur. expected to contribute to lower prices.regionally and over time based on, among other things, what alternative power plants exist in a region, the cost of those alternatives, and the amount of federal and state financial support for wind and solar development. For example, according to a DOE study published in 2014, the average cost of procuring electricity from wind power plants was lower than the cost of purchasing electricity through the wholesale markets in 2005—a time of high natural gas and wholesale electricity prices. Conversely, in 2009, after the price of natural gas and wholesale electricity had dropped, the average cost of procuring electricity from wind power plants was higher than the cost of purchasing electricity through the wholesale markets. Some of the costs of wind and solar projects are paid for by taxpayers, which can offset the prices that some retail consumers may have otherwise had to pay for electricity generated from wind and solar. According to this DOE study, prices for procuring wind have been lower as a result of federal and, in some cases, state tax incentives. Second, as with the addition of other new power plants, the effect of new wind and solar sources on consumer prices also depends on the relative costs of any transmission and ancillary services system operators determine are needed to reliably integrate wind and solar sources into the grid. To the extent that additional ancillary services and transmission upgrades are needed, these costs may be passed on to consumers, contributing to higher electricity prices. For example, Texas recently completed a significant transmission project primarily designed to move electricity generated by wind power plants in remote parts of the state to population centers, such as Dallas and Austin. The project has cost close to $7 billion, which will be recovered from Texas electricity consumers through retail electricity prices. Traditional power plants also face grid integration costs. Taken all together, the addition of wind and solar sources could have contributed to higher or lower consumer electricity prices at different times and in different regions.\nFinancial viability of baseload power plants Lower utilization and lower electricity prices have affected the financial viability of some power plants that have traditionally operated as baseload plants in restructured regions, according several stakeholders we interviewed and literature we reviewed. In some instances, baseload plants have been utilized less often in recent years as natural gas-fueled plants have become more cost competitive and the levels of wind and solar generation have increased. Additionally, lower annual wholesale electricity prices starting in 2009 have reduced the revenue power plants earn when they are operating. According to several stakeholders and literature, these factors have sometimes made it difficult for baseload power plants to recover their costs and earn a profit. These difficulties can be exacerbated if additional investment is needed to continue to operate the power plant, for example, the installation of pollution controls to comply with environmental regulations. Some baseload coal and nuclear plants have retired in recent years, with these factors reportedly influencing their decision. For example, Entergy retired its 604 MW Vermont Yankee nuclear plant in 2014, which company financial filings attributed to sustained low natural gas and wholesale electricity prices and high power plant costs, among other factors. According to several stakeholders and literature, if plant utilization and wholesale prices remain low, owners could choose to retire more unprofitable plants in the future, which could raise reliability and price concerns.\nThe effect of retirements on prices may vary. The effect of power plant retirements on prices may vary, depending on the cost of the retiring power plant compared to the costs of existing power plants and power plants built to replace retiring power plants, among other things. If retiring plants are less expensive than existing and replacement power plants, their retirement would generally be expected to raise prices. For example, according to EIA, after the initial shutdown of San Onofre Nuclear Generation Station in 2012—a large nuclear power plant in Southern California that produced low- cost electricity—prices in Southern California increased in 2012 and 2013, a change that EIA said is likely attributable in part to the need for more expensive generation in that region to fill the shortage from San Onofre’s closure. Alternately, if retiring power plants are replaced by power plants with similar or lower costs, prices could remain unchanged or decline in some hours. The relative cost of retiring and new power plants depends on the specific circumstances of the retiring and potential replacement plants, and may change over time with changing fuel prices and other market factors.\nLower electricity consumption could reduce prices. Lower consumption of electricity—whether in all hours or, particularly, at peak times—can lower the price of electricity in wholesale markets, a decline that may translate into lower prices for retail consumers. Electricity consumption could decline in a given hour, for example, because of demand-response activities in which consumers reduce their electricity consumption in response to prices or other incentives. Electricity consumption could also decline over a longer time period— for example because of reduced consumption due to a slowdown in economic growth or increased adoption of energy efficient technologies. These declines in consumption could lower prices in some or all hours by reducing use of the highest cost plants. According to PJM Interconnection, demand-response activities served as an alternative to generating additional electricity during a heat wave in 2012, which lowered prices.",
"We provided drafts of this product to DOE and FERC for review and comment. The agencies provided technical comments on early or final drafts, which we incorporated as appropriate.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, the Chairman of FERC, and other interested parties. In addition, the report will be 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) 512-3841 or ruscof@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 VI.",
"This report examines changes in electricity markets. Our objectives were to describe what is known about (1) how electricity generation and consumption have changed since 2001, and (2) the implications of these changes on efforts to maintain reliability, and on electricity prices. To conduct this work, we analyzed data on electricity generation and consumption; reviewed literature, including studies by federal agencies, electricity grid operators, and consultants; and summarized the results of interviews with a nonprobability sample of 21 stakeholders.\nTo describe changes in electricity generation, we primarily used data from SNL Financial (SNL), current as of April 3, 2015. We generally present data on changes from 2001 through 2013 because 2013 is the most recent year for which complete data are available, though in some instances we present more recent data. We obtained SNL data on power plants with capacities of at least 1 megawatt that are connected to the grid and intend to sell electricity to retail customers or retail service providers. We used the SNL-identified primary energy source for the most recent year for each generating unit at a given power plant and used data for each generating unit for our calculations, where available.these generating unit level data to calculate total generating capacity and percentage of total generating capacity for each year from 2001 through 2014 (the most recent year with complete data).\nWe calculated similar totals and percentages for actual generation for each year from 2001 through 2013 (the most recent year with complete data). However, some power plants provide generation data at the more detailed generating unit level, while others only provide data for the entire plant.generation calculations, and this unit data accounted for 71 percent of total generation in 2013. When generating unit data were not available, we identified the total actual generation for the year at a given plant and divided it among the units based on share of total generating capacity for each generating unit. These plant level data accounted for the remaining 29 percent of actual generation in 2013. This approach implicitly assumes that all units at a given plant are used with the same intensity to generate electricity, an assumption that may not be appropriate on average. To examine changes in the intensity with which power plants are operated, or their utilization, we analyzed annual capacity factor data—the ratio of actual generation to the maximum potential to generate electricity.\nWhere available, we used the generating unit data for our actual To describe changes in electricity consumption and electricity prices, we examined EIA data on retail sales of electricity to consumers. Retail electricity prices can be difficult to determine, according to EIA, as they depend on a customer’s rate structure, which can differ from utility to utility. EIA does not directly collect data on retail electricity rates. However, using data collected on revenues and electricity sold, EIA calculates average retail revenue per kilowatt hour as a proxy for retail electricity prices.\nTo determine the frequency that negative prices occurred in markets of regional transmission organizations, we analyzed price data from hubs at each of the seven regional transmission organizations.hubs and starting-time periods for the data varied with each regional transmission organization. We obtained hourly wholesale electricity prices The number of from SNL for each regional transmission organization and calculated the number and percentage of occurrences of negative prices in each.\nWe took several steps to assess the reliability of SNL and EIA data. We reviewed relevant documentation, interviewed EIA and SNL representatives, and compared some data elements to those available from other sources. We determined the data were sufficiently reliable for the purposes of this report.\nTo identify the implications of changes, we reviewed literature and interviewed stakeholders. We identified literature by conducting a literature search and obtaining suggestions from the stakeholders we interviewed. Specifically, we searched sources including Proquest Environmental Science Professional, PolicyFile, Web of Science, and the web sites of system operators and federal agencies from December through March 2015. Stakeholders included power plant owners, grid operators, a state regulator, non-governmental organizations, and federal agencies. We identified stakeholders through our research and analysis of changes in generation and consumption, using our past work, and by considering the suggestions of other stakeholders. We selected stakeholders to represent different perspectives and experiences regarding changes in the industry, and to maintain balance with respect to sources of electricity and stakeholders’ roles in the market. Because this was a nonprobability sample, the views of stakeholders we selected are not generalizable to all potential stakeholders, but they illustrate a range of views. Throughout the report we use the indefinite quantifier, “several” when three or more stakeholder and literature sources combined supported a particular idea or statement. Identifying and examining federal agency actions to address the challenges identified was beyond the scope of this review.\nWe conducted this performance audit from November 2014 to May 2015 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.",
"",
"Figure 9 shows the territories of eight regional reliability entities that set and enforce reliability standards for the electricity industry and four sub- regions for the Western Electricity Coordinating Council. Table 2 provides generating capacity and annual generation by source in these regions as well as Alaska and Hawaii for select years.\nRegional Transmission Organizations (RTO) manage regional networks of electric transmission lines as system operators, including operating organized markets for buying and selling electricity and other needed services to operate the grid, such as ancillary services. Figure 10 shows the RTOs in the United States, and table 3 provides generating capacity and actual generation by source for each RTO and generating capacity and actual generation by source outside of RTO regions.\nTable 4 provides annual generating capacity and generation by regulatory status and source for select years.\nTable 5 provides generating capacity additions and retirements by source.",
"Table 6 below shows retail electricity sales—a proxy for electricity consumption—by consumer type, and table 7 shows retail electricity sales by region.",
"Table 8 shows average retail revenue per kilowatt hour—a proxy for electricity prices—by consumer type, and table 9 shows average retail revenue per kilowatt hour by region.",
"",
"",
"In addition to the individual named above, Jon Ludwigson (Assistant Director), Eric Charles, Philip Farah, Quindi Franco, Cindy Gilbert, Paige Gilbreath, Michael Kendix, Armetha Liles, Alison O’Neill, MaryLynn Sergent, Maria Stattel, and Barbara Timmerman made key contributions to this report.",
"Electricity Generation Projects: Additional Data Could Improve Understanding of the Effectiveness of Tax Expenditures. GAO-15-302. Washington, D.C.: April 28, 2015.\nEnergy Policy: Information on Federal and Other Factors Influencing U.S. Energy Production and Consumption from 2000 through 2013. GAO-14-836. Washington, D.C.: September 30, 2014.\nEPA Regulations and Electricity: Update on Agencies’ Monitoring Efforts and Coal-Fueled Generating Unit Retirements. GAO-14-672. Washington, D.C.: August 15, 2014.\nElectricity Markets: Demand-Response Activities Have Increased, but FERC Could Improve Data Collection and Reporting Efforts. GAO-14-73. Washington, D.C.: March 27, 2014.\nWind Energy: Additional Actions Could Help Ensure Effective Use of Federal Financial Support. GAO-13-136. Washington, D.C.: March 11, 2013.\nElectricity: Significant Changes Are Expected in Coal-Fueled Generation, but Coal is Likely to Remain a Key Fuel Source. GAO-13-72. Washington, D.C.: October 29, 2012.\nSolar Energy: Federal Initiatives Overlap but Take Measures to Avoid Duplication. GAO-12-843. Washington, D.C.: August. 30, 2012.\nEPA Regulations and Electricity: Better Monitoring by Agencies Could Strengthen Efforts to Address Potential Challenges. GAO-12-635. Washington, D.C.: July 17, 2012.\nElectricity Grid Modernization: Progress Being Made on Cybersecurity Guidelines, but Key Challenges Remain to be Addressed. GAO-11-117. Washington, D.C.: January 12, 2011.\nElectricity Restructuring: FERC Could Take Additional Steps to Analyze Regional Transmission Organizations’ Benefits and Performance. GAO-08-987. Washington, D.C.: September 22, 2008."
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"question": [
"How have energy sources changed over time?",
"Have these changes been observed \"across the board\" (universally)?",
"To what extent are the changes due to the energy production of a few regions?",
"How has electricity consumption changed?",
"Why has caused system operators to expand electricity service reliability?",
"How widespread is this issue?",
"To what extent do these challenges affect energy production?",
"How are system operators attempting to mitigate this risk?",
"How has the increase of gas-fueled electricity generation impacted electricity prices?",
"Has the increase in wind and solar electricity generation likewise affected electricity prices?",
"How do the electricity costs of wind and solar vary, and which factors affect this most?",
"What overall impact on electricity prices has the increase of wind and solar sources had?",
"How has the United States traditionally generated electricity?",
"How have policies shifted to support alternative energy sources?",
"How have these policies affected electricity consumption?"
],
"summary": [
"As shown in the figure below, from 2001 through 2013, natural gas, wind, and solar became larger portions of the nation's electricity generation, and the share of coal has declined.",
"These changes have varied by region.",
"For example, the majority of wind and solar electricity generation is concentrated in a few states—in 2013, California and Arizona accounted for over half of electricity generated at solar power plants.",
"Regarding consumption, national retail sales of electricity grew by over 1 percent per year from 2001 through 2007 and remained largely flat from that time through 2014.",
"For example, some regions have experienced challenges in maintaining the delivery of natural gas supplies to power plants.",
"In particular, severe cold weather in the central and eastern U.S. in 2014 led to higher than normal demand for gas for home heating and to generate electricity.",
"Challenges delivering fuel to natural-gas-fueled power plants resulted in outages at some plants.",
"System operators took various steps to limit the effect of this event, including relying on power plants that utilize other fuel sources that were more readily available at the time, such as coal and oil-fueled power plants, and implementing certain emergency procedures.",
"Prices : Increased gas-fueled generation has influenced electricity prices, with wholesale electricity prices and gas prices generally fluctuating in tandem over the past decade.",
"The effect of the increased use of wind and solar sources on consumer electricity prices depends on specific circumstances.",
"Among other things, it depends on the relative cost of wind and solar compared with other sources, as well as the amount of federal and state financial support for wind and solar development that can offset some of the amount that consumers might otherwise pay.",
"Taken together, the addition of wind and solar sources could have contributed to higher or lower consumer electricity prices at different times and in different regions.",
"Electricity in the United States has traditionally been generated largely from coal, natural gas, nuclear, and hydropower energy sources.",
"More recently, various federal and state policies, tax incentives, and research and development efforts have supported the use of renewable energy sources such as wind, solar, and geothermal.",
"In addition, consumption of electricity has been affected by federal efforts to improve energy efficiency, changes in the economy, and other factors."
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GAO_GAO-14-145T
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{
"title": [
"Trends in DOD’s Portfolio of Major Acquisitions",
"One Side of the Acquisition Process: Stated Policy",
"Another Side of Acquisition: Incentives",
"Several Factors Create Incentives to Deviate from Sound Acquisition Practices",
"Conflicting Demands",
"Where Do We Go from Here?"
],
"paragraphs": [
"There can be little doubt that we can—and must—get better outcomes from our weapon system investments. As seen in table 1, the value of these investments in recent years has been on the order of $1.5 trillion or more, making them a significant part of the federal discretionary budget.\nLarge programs have an outsized impact on the aggregate portfolio. For example, Joint Strike Fighter costs have now consumed nearly a quarter of the entire portfolio. Yet, as indicated in table 1, 39 percent of programs have had unit cost growth of 25 percent or more. Recently, we have seen some modest improvements. For example, cost growth has declined between 2011 and 2012.programs have improved their buying power by finding efficiencies in We have also observed that a number of development or production, and requirements changes. On the other hand, cost and schedule growth remain significant when measured against programs’ first full estimates. The performance of some very large programs are no longer reflected in the latest data as they are no longer acquisition programs. For example, the Future Combat Systems program was canceled in 2009 after an investment of about $18 billion and the F- 22 Raptor program has completed aircraft procurement. In addition, the Ballistic Missile Defense System are not included in any of the analysis as those investments have proceeded without a baseline of original estimates, so the many difficulties experienced in the roughly $130 billion program are not quantifiable.\nThe enormity of the investment in acquisitions of weapon systems and its role in making U.S. fighting forces capable, warrant continued attention and reform. The potential for savings and for better serving the warfighter argue against complacency.",
"When one thinks of the weapon systems acquisition process, the image that comes to mind is that of the methodological procedure depicted on paper and in flow charts. DOD’s acquisition policy takes the perspective that the goal of acquisition is to obtain quality products that satisfy user needs at a fair and reasonable price. The sequence of events that comprise the process defined in policy reflects principles from disciplines such as systems engineering, as well as lessons learned, and past reforms. The body of work we have done on benchmarking best practices Recent, significant changes has also been reflected in acquisition policy.to the policy include those introduced by the Weapon Systems Acquisition Reform Act of 2009 and the department’s own “Better Buying Power” initiatives which, when fully implemented, should further strengthen practices that can lead to successful acquisitions. The policy provides a framework for developers of new weapons to gather knowledge that confirms that their technologies are mature, their designs are stable, and their production processes are in control. These steps are intended to ensure that a program will deliver the capabilities required utilizing the resources—cost, schedule, technology, and personnel—available. Successful product developers ensure a high level of knowledge is achieved at key junctures in development. We characterize these junctures as knowledge points. While there can be differences of opinion over some of the specifics of the process, I do not believe there is much debate about the soundness of the basic steps. It is a clear picture of “what to do.”\nTable 2 summarizes these steps and best practices, organized around three key knowledge points in a weapon system acquisition.\nOur work over the last year shows that, to the extent reforms like the Weapon Systems Acquisition Reform Act and DOD’s Better Buying Power initiatives are being implemented, they are having a positive effect on individual programs. For example, several programs we have reviewed are: making early trade-offs among cost, schedule, and technical developing more realistic cost and schedule estimates; increasing the amount of testing during development; and placing greater emphasis on reliability.\nThese improvements do not yet signify a trend or suggest that a corner has been turned. The reforms themselves still face implementation challenges such as staffing and clarity of guidance and will doubtless need refining as experience is gained. We have made a number of recommendations on how DOD can improve implementation of the Weapon Systems Acquisition Reform Act.\nTo a large extent, the improvements we have seen tend to result from external pressure exerted by higher level offices within DOD on individual programs. In other words, the reforms have not yet been institutionalized within the services. We still see employment of other practices—that are not prescribed in policy—such as concurrent testing and production, optimistic assumptions, and delayed testing. These are the same kinds of practices that perpetuate the unsatisfactory results that have persisted in acquisitions through the decades, such as significant cost growth and schedule delays. They share a common dynamic: moving forward with programs before the knowledge needed to make decisions is sufficient.\nWe have reported that most programs still proceed through the critical design review without having a stable design, even though we have made a number of recommendations on the importance of this review and how to prepare for it. Also, programs proceed with operational testing before they are ready. Other programs are significantly at odds with the acquisition process. Among these I would number Ballistic Missile Defense System, Future Combat Systems (since canceled), Littoral Combat Ship, and airships. We recently reported on the Unmanned Carrier-Launched Airborne Surveillance and Strike program which proposes to complete the main acquisition steps of design, development, testing, manufacturing, and initial fielding before it formally enters the acquisition process.\nThe fact that programs adopt practices that run counter to what policy and reform call for is evidence of the other pressures and incentives that significantly influence program practices and outcomes. I will turn to these next.",
"An oft-cited quote of David Packard, former Deputy Secretary of Defense, is: “We all know what needs to be done. The question is why aren’t we doing it?” To that point, reforms have been aimed mainly at the “what” versus the “why.” They have championed sound management practices, such as realistic estimating, thorough testing, and accurate reporting. Today, these practices are well known. We need to consider that they mainly address the mechanisms of weapon acquisitions. Seen this way, the practices prescribed in policy are only partial remedies. The acquisition of weapons is much more complex than policy describes and involves very basic and strongly reinforced incentives to field weapons. Accordingly, rival practices, not normally viewed as good management techniques, comprise an effective stratagem for fielding a weapon because they reduce the risk that the program will be interrupted or called into question.\nI will now discuss several factors that illustrate the pressures that create incentives to deviate from sound acquisition management practices.",
"",
"The process of acquiring new weapons is (1) shaped by its different participants and (2) far more complex than the seemingly straightforward purchase of equipment to defeat an enemy threat. Collectively, as participants’ needs are translated into actions on weapon programs, the purpose of such programs transcends efficiently filling voids in military capability. Weapons have become integral to policy decisions, definitions of roles and functions, justifications of budget levels and shares, service reputations, influence of oversight organizations, defense spending in localities, the industrial base, and individual careers. Thus, the reasons “why” a weapon acquisition program is started are manifold and acquisitions do not merely provide technical solutions.\nWhile individual participants see their needs as rational and aligned with the national interest, collectively, these needs create incentives for pushing programs and encouraging undue optimism, parochialism, and other compromises of good judgment. Under these circumstances, persistent performance problems, cost growth, schedule slippage, and difficulties with production and field support cannot all be attributed to errors, lack of expertise, or unforeseeable events. Rather, a level of these problems is embedded as the undesirable, but apparently acceptable, consequence of the process. These problems persist not because they are overlooked or under-regulated, but because they enable more programs to survive and thus more needs to be met. The problems are not the fault of any single participant; they are the collective responsibility of all participants. Thus, the various pressures that accompany the reasons why a program is started can also affect and compromise the practices employed in its acquisition.\nI would like to highlight three characteristics about program funding that create incentives in decision making that can run counter to sound acquisition practices. First, there is an important difference between what investments in new products represent for a private firm and for DOD. In a private firm, a decision to invest in a new product, like a new car design, represents an expense. Company funds must be expended that will not provide a revenue return until the product is developed, produced, and sold. In DOD, new products, in the form of budget line items, can represent revenue. An agency may be able to justify a larger budget if it can win approval for more programs. Thus, weapon system programs can be viewed both as expenditures and revenue generators.\nSecond, budgets to support major program commitments must be approved well ahead of when the information needed to support the decision to commit is available. Take, for example, a decision to start a new program scheduled for August 2016. Funding for that decision would have to be included in the fiscal year 2016 budget. This budget would be submitted to Congress in February 2015—18 months before the program decision review is actually held. DOD would have committed to the funding before the budget request went to Congress. It is likely that the requirements, technologies, and cost estimates for the new program— essential to successful execution—may not be very solid at the time of funding approval. Once the hard-fought budget debates put money on the table for a program, it is very hard to take it away later, when the actual program decision point is reached.\nThird, to the extent a program wins funding, the principles and practices it embodies are thus endorsed. So, if a program is funded despite having an unrealistic schedule or requirements, that decision reinforces those characteristics, not sound acquisition processes. Pressure to make exceptions for programs that do not measure up are rationalized in a number of ways: an urgent threat needs to be met; a production capability needs to be preserved; despite shortfalls, the new system is more capable than the one it is replacing; or the new system’s problems will be fixed in the future. It is the funding approvals that ultimately define acquisition policy.\nDOD has a unique relationship with the defense industry that differs from the commercial marketplace. The combination of a single buyer (DOD), a few very large prime contractors in each segment of the industry, and a limited number of weapon programs constitutes a structure for doing business that is altogether different from a classic free market. For instance, there is less competition, more regulation, and once a contract is awarded, the contractor has considerable power. Moreover, in the defense marketplace, the firm and the customer have jointly developed the product and, as we have reported previously, the closer the product comes to production the more the customer becomes invested and the less likely they are to walk away from that investment. While a defense firm and a military customer may share some of the same goals, important goals are different. Defense firms are accountable to their shareholders and can also build constituencies outside the direct business relationship between them and their customers. This relationship does not fit easily into a contract.\nJ. Ronald Fox, author of Defense Acquisition Reform 1960-2009: An Elusive Goal, sums up the situation as follows. “Many defense acquisition problems are rooted in the mistaken belief that the defense industry and the government-industry relationship in defense acquisition fit naturally into the free enterprise model. Most Americans believe that the defense industry, as a part of private industry, is equipped to handle any kind of development or production program. They also by and large distrust government ‘interference’ in private enterprise. Government and industry defense managers often go to great lengths to preserve the myth that large defense programs are developed and produced through the free enterprise system.” But neither the defense industry nor defense programs are governed by the free market; “major defense acquisition programs rarely offer incentives resembling those of the commercial marketplace.”\nDr. Fox also points out that in private industry, the program manager concept works well because the managers have genuine decision-making authority, years of training and experience, and understand the roles and tactics within government and industry. In contrast, Dr. Fox concludes that DOD program managers lack the training, experience, and stature of their private sector counterparts, and are influenced by others in their service, DOD, and Congress. managers indicated to us that the acquisition process does not enable them to succeed because it does not empower them to make decisions on whether the program is ready to proceed forward or even to make relatively small trade-offs between resources and requirements as unexpected problems are encountered. Program managers said that they are also not able to shift personnel resources to respond to changes affecting the program.\nFox, Defense Acquisition Reform. for their position or forced into the near-term perspective of their tenures. In this environment, the effectiveness of management can rise and fall on the strength of individuals; accountability for long-term results is, at best, elusive.",
"In my more than 30 years in the area, I do not know of a time or era when weapon system programs did not exhibit the same symptoms that they do today. Similarly, I do not subscribe to the view that the acquisition process is too rigid and cumbersome. Clearly, this could be the case if every acquisition followed the same process and strategy without exception. But they do not. We repeatedly report on programs approved to modify policy and follow their own process. DOD refers to this as tailoring, and we see plenty of it.\nAt this point, we should build on existing reforms—not necessarily by revisiting the process itself but by augmenting it by tackling incentives. To do this, we need to look differently at the familiar outcomes of weapon systems acquisition—such as cost growth, schedule delays, large support burdens, and reduced buying power. Some of these undesirable outcomes are clearly due to honest mistakes and unforeseen obstacles. However, they also occur not because they are inadvertent but because they are encouraged by the incentive structure. I do not think it is sufficient to define the problem as an objective process that is broken. Rather, it is more accurate to view the problem as a sophisticated process whose consistent results are indicative of its being in equilibrium. The rules and policies are clear about what to do, but other incentives force compromises. The persistence of undesirable outcomes such as cost growth and schedule delays suggests that these are consequences that participants in the process have been willing to accept.\nDrawing on our extensive body of work in weapon systems acquisition, I have four areas of focus regarding where to go from here. These are not intended to be all-encompassing, but rather, practical places to start the hard work of realigning incentives with desired results.\nReinforce desirable principles at the start of new programs: The principles and practices programs embrace are determined not by policy, but by decisions. These decisions involve more than the program at hand: they send signals on what is acceptable. If programs that do not abide by sound acquisition principles win funding, then seeds of poor outcomes are planted. The highest point of leverage is at the start of a new program. Decision makers must ensure that new programs exhibit desirable principles before they are approved and funded. Programs that present well-informed acquisition strategies with reasonable and incremental requirements and reasonable assumptions about available funding should be given credit for a good business case. As an example, the Presidential Helicopter, the Armored Multi Purpose Vehicle, the Enhanced Polar System, and the Ground Combat Vehicle are all acquisitions estimated to cost at least a billion dollars, in some cases several billions of dollars, and slated to start in 2014. These could be viewed as a “freshman” class of acquisitions. There is such a class every year, and it would be beneficial for DOD and Congress to assess them as a group to ensure that they embody the right principles and practices.\nIdentify significant program risks upfront and resource them: Weapon acquisition programs by their nature involve risks, some much more than others. The desired state is not zero risk or elimination of all cost growth. But we can do better than we do now. The primary consequences of risk are often the need for additional time and money. Yet, when significant risks are taken, they are often taken under the guise that they are manageable and that risk mitigation plans are in place. In my experience, such plans do not set aside time and money to account for the risks taken. Yet in today’s climate, it is understandable—any sign of weakness in a program can doom its funding. This needs to change. If programs are to take significant risks, whether they are technical in nature or related to an accelerated schedule, these risks should be declared and the resource consequences acknowledged. Less risky options and potential off-ramps should be presented as alternatives. Decisions can then be made with full information, including decisions to accept the risks identified. If the risks are acknowledged and accepted by DOD and Congress, the program should be supported.\nMore closely align budget decisions and program decisions: Because budget decisions are often made years ahead of program decisions, they depend on the promises and projections of program sponsors. Contentious budget battles create incentives for sponsors to be optimistic and make it hard to change course as projections fade in the face of information. This is not about bad actors; rather, optimism is a rational response to the way money flows to programs. Aside from these consequences, planning ahead to make sure money is available in the future is a sound practice. I am not sure there is an obvious remedy for this. But I believe ways to have budget decisions follow program decisions should be explored, without sacrificing the discipline of establishing long-term affordability.\nAttract, train, and retain acquisition staff and management: Dr. Fox’s book does an excellent job of laying out the flaws in the current ways DOD selects, trains, and provides a career path for program managers. I refer you to these, as they are sound criticisms. We must also think about supporting people below the program manager who are also instrumental to program outcomes, including engineers, contracting officers, cost analysts, testers, and logisticians. There have been initiatives to support these people, but they have not been consistent over time. The tenure for acquisition executives is a more challenging prospect in that they arguably are at the top of their profession and already expert. What can be done to keep good people in these jobs longer? I am not sure of the answer, but I believe part of the problem is that the contentious environment of acquisition grinds good people down at all levels. In top commercial firms, a new product development is launched with a strong team, corporate funding support, and a time frame of 5 to 6 years or less. In DOD, new weapon system developments can take twice as long, have turnover in key positions, and every year must contend for funding. This does not necessarily make for an attractive career.\nMr. Chairman, this concludes my statement and I would be happy to answer any questions.\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."
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"question": [
"Have the weapon system investments of the DOD had good outcomes for their price?",
"How have the outcomes of the investments changed recently?",
"What aspects of the investments have improved the recent outcomes?",
"How can the DOD further improve its outcomes?",
"How does the acquisition policy of the DOD ensure stability and control of technologies?",
"How have acquisition practices been further strengthened?",
"Have the recent reforms had any significant impact yet?",
"To what extent have the reforms been implemented?",
"Why are procedural overhauls not effective solutions?",
"How are sound practices unintentionally negative?",
"How are these unintended incentives fostered?",
"To what extent does the quick turnover of DOD project management affect the acquisition process?",
"To what extent is GAO concerned about the DOD's acquisition of weapon systems?",
"How is the acquisition process reviewed?",
"How efficient is the review process at fixing problems in the acquisition process?",
"What is the topic of the hearing?",
"How does the hearing aim to review DOD performance?",
"How will the hearing analyze the DOD's acquisition of weapon systems?"
],
"summary": [
"The Department of Defense (DOD) must get better outcomes from its weapon system investments, which in recent years have totaled around $1.5 trillion or more.",
"Recently, there have been some improvements, owing in part to reforms.",
"For example, cost growth declined between 2011 and 2012 and a number of programs also improved their buying power by finding efficiencies in development or production and requirements changes.",
"Still, cost and schedule growth remain significant; 39 percent of fiscal 2012 programs have had unit cost growth of 25 percent or more.",
"DOD's acquisition policy provides a methodological framework for developers to gather knowledge that confirms that their technologies are mature, their designs stable, and their production processes are in control.",
"The Weapon Systems Acquisition Reform Act of 2009 and DOD's recent \"Better Buying Power\" initiatives introduced significant changes that, when fully implemented, should further strengthen practices that can lead to successful acquisitions. GAO has also made numerous recommendations to improve the acquisition process, based on its extensive work in the area.",
"While recent reforms have benefited individual programs, it is premature to say there is a trend or a corner has been turned.",
"The reforms still face implementation challenges and have not yet been institutionalized within the services.",
"Reforms that focus on the methodological procedures of the acquisition process are only partial remedies because they do not address incentives to deviate from sound practices.",
"Weapons acquisition is a complicated enterprise, complete with unintended incentives that encourage moving programs forward by delaying testing and employing other problematic practices.",
"These incentives stem from several factors. For example, the different participants in the acquisition process impose conflicting demands on weapon programs so that their purpose transcends just filling voids in military capability. Also, the budget process forces funding decisions to be made well in advance of program decisions, which encourages undue optimism about program risks and costs.",
"Finally, DOD program managers' short tenures and limitations in experience and training can foster a short-term focus and put them at a disadvantage with their industry counterparts.",
"DOD's acquisition of major weapon systems has been on GAO's high risk list since 1990.",
"Over the past 50 years, Congress and DOD have continually explored ways to improve acquisition outcomes, including reforms that have championed sound management practices, such as realistic cost estimating, prototyping, and systems engineering.",
"Too often, GAO reports on the same kinds of problems today that it did over 20 years ago.",
"The topic of today's hearing is: \"25 Years of Acquisition Reform: Where Do We Go From Here?\"",
"To that end, this testimony discusses (1) the performance of DOD's major defense acquisition program portfolio; (2) the management policies and processes currently in place to guide those acquisitions; (3) the incentives to deviate from otherwise sound acquisition practices; and (4) suggestions to temper these incentives.",
"This statement draws from GAO's extensive body of work on DOD's acquisition of weapon systems."
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GAO_GAO-15-234
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{
"title": [
"Background",
"HUBZone Designations Can Change Relatively Frequently but SBA Communications May Not Reach All Affected Firms",
"Designations for HUBZone Areas Regularly Change",
"SBA’s Communications about HUBZone Program Changes May Not Have Reached All Affected Firms",
"SBA’s Review of the Accuracy of HUBZone Maps",
"SBA Notifications about Program Changes May Not Reach All Affected Firms",
"SBA Has Improved Its Certification Reviews but Actions Related to Recertification Were Limited",
"Revised Certification Process Includes a Full Document Review, Which Helps to Ensure That Only Eligible Firms Participate in the Program",
"SBA May Propose Firms for Decertification If Eligibility Requirements Are Not Met",
"SBA Recertification Process Again Has Become Backlogged and Does Not Require Supporting Documentation",
"Recurring Backlog of Recertifications",
"SBA Relies on Firms’ Attestations of Continued Eligibility",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Characteristics of HUBZones",
"Economic Characteristics of HUBZones",
"Appendix III: Impact of Hypothetical Changes to HUBZone Criteria on HUBZone Designations",
"Impact of Adjustments in the Unemployment Rate Used",
"Impact of Removing Limit in Census Tracts",
"Appendix IV: Summary Data Relating to HUBZone Application Processing",
"Appendix V: Characteristics of HUBZone Certified Firms as of 2014",
"Appendix VI: Comments from the Small Business Administration",
"Appendix VII: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"There are four types of HUBZones. Initially, the HUBZone Act of 1997 (which established the HUBZone program) identified qualifying areas as qualified census tracts, which are determined by the area’s poverty rate or household income; qualified nonmetropolitan counties, which are determined by the area’s unemployment rate or median household income; and lands within the external boundaries of an Indian reservation, based on the areas meeting certain criteria.\nIn subsequent years, Congress expanded the criteria for HUBZones to add bases closed under various base closure acts and include counties in difficult development areas outside of the continental United States as part of the qualified nonmetropolitan counties.\nTo be certified to participate in the HUBZone program, a firm must meet the following criteria: when combined with its affiliates, be small by SBA size standards; be at least 51 percent owned and controlled by U.S. citizens; have its principal office—the location where the greatest number of employees perform their work—located in a HUBZone; and have at least 35 percent of its employees reside in a HUBZone.",
"HUBZone designations can change with some frequency. However, SBA’s communications to firms about programmatic changes, including changes to the HUBZone map (area designations), generally have not been targeted or specific to individual firms that would be affected by the changes.",
"SBA updates the HUBZone designations regularly based on whether they meet statutory criteria (such as having certain income levels or poverty or unemployment rates). SBA generally uses data from other federal agencies to determine if areas still qualify for the HUBZone program. SBA reassesses the status of nonmetropolitan counties more frequently than it reassesses the status of census tracts. For example, SBA updates the nonmetropolitan county designations each January to incorporate median household income data generated from ACS and each May to incorporate updated unemployment rates from BLS. In contrast, SBA historically has reassessed the status of qualified census tracts at multiyear intervals, such as every 5 years, using the census tract designations that the Department of Housing and Urban Development (HUD) uses for another program. See appendix II for more information about the specific criteria for each type of HUBZone area.\nIn 2001, Congress extended the eligibility of census tracts and nonmetropolitan counties that lost HUBZone eligibility because of changes in income levels or poverty or unemployment rates. These areas—labeled redesignated areas—remain eligible for 3 years after “the date on which the census tract or nonmetropolitan county ceased to be so qualified.” During the 3-year period, firms in those areas can continue to apply to and participate in the program and receive contracting preferences. In 2004, Congress revised the definition of redesignated areas to allow areas to retain eligibility for 3 years or until the public release of data from the 2010 decennial census, whichever was later. Consequently, all of the areas that were redesignated between 2001 and October 2008 received an extension of their 3-year redesignation period. With the release of 2010 Census data in October 2011, a large number of previously redesignated HUBZone areas that had received the extensions lost their designation, including 333 nonmetropolitan counties. In total, 2,396 of the more than 8,000 HUBZone certified firms at the beginning of fiscal year 2012 were decertified when these changes took effect because their principal office was no longer located in a HUBZone. (We discuss decertification in more detail later in this report.) The redesignations for 3,417 HUBZones will expire in 2015, largely because of the end of the approximately 3,400 census tracts that were redesignated in 2012. Finally, redesignated areas also may requalify for the program during their extended eligibility period. For example, after receiving the most recent unemployment data from BLS, SBA may change a nonmetropolitan county’s designation from redesignated to qualified.\nQualified and redesignated areas generally are spread throughout the United States (see fig. 1). The map suggests that more qualified HUBZones are in the West and Southwest, but that is in part reflective of the larger geographic size of the nonmetropolitan counties in those regions. The map also suggests a higher concentration of areas within redesignated HUBZones in the East Coast and Midwest. For information about the characteristics of the HUBZones and differences in economic conditions (for example, as indicated by poverty and unemployment rates) among redesignated, qualified, and nonqualified areas, see appendix II.\nAccording to our analysis, 83 percent of certified firms are located in a qualified area (see table 1). Most of the firms (578) that are located in a redesignated HUBZone are located in areas that will have their designations expire in 2015. When the redesignation status of an area expires, HUBZone firms in that area lose their program certification unless they relocate their principal office or, in some cases, their employees move to another HUBZone.",
"Generally, SBA relies on information posted on its website to communicate with interested parties about the HUBZone program. For instance, the HUBZone website includes links to the HUBZone map, frequently asked questions, and guidance to help firms apply for and maintain their certification. Firms can use the map of HUBZone areas to determine if an address or a particular area is designated as a HUBZone. More specifically, the website contains links to underlying data tables for the HUBZone map, and provides a potential applicant or program participant the ability to determine if a specific address is in a qualified HUBZone. Firms also can access a help desk by e-mail to get status information, help in resolving technical difficulties, or individualized assistance; obtain eligibility assistance through a twice-weekly interactive forum; and request a 15-minute appointment with a HUBZone analyst to discuss topics such as HUBZone policies and procedures, initial documents, or HUBZone applications. However, according to SBA officials, firms are primarily responsible for keeping themselves informed about the program so that they can remain eligible.",
"In our June 2008 report, we found that SBA’s HUBZone map contained ineligible areas and had not been updated to include eligible areas. As a result, ineligible small businesses had participated in the program, and eligible businesses had not been able to participate. Consequently, we recommended that SBA take steps to correct and update the map used to identify HUBZone areas and implement procedures to ensure that the map would be updated with the most recently available data on a more frequent basis.\nIn response to our recommendation, SBA modified its contract with its mapping vendor to enable more frequent updating of the HUBZone map (annually). SBA officials stated that the accuracy of the map is checked twice after each upgrade, first by the mapping vendor and second by an SBA employee.",
"SBA’s communications to firms about programmatic changes, including changes to the HUBZone map (area designations), generally have not been targeted or specific to individual firms and may not have reached all affected firms. Since February 2013, SBA has used a broadcast e-mail (which simultaneously sends the same message to multiple recipients) to distribute information about the program, including changes to the HUBZone maps. According to SBA officials, the e-mail list initially included all certified firms, but firms certified since the list was created have not been automatically added to the list. They and other interested parties must sign up (subscribe) to receive the e-mails through SBA’s website, and as a result not all certified firms may have done so.\nThrough fiscal year 2014, SBA sent 13 e-mails through the system, covering topics such as changes made to the maps or the expiration of redesignated nonmetropolitan counties. Of the 13 e-mails, 9 focused on map-related issues. For example, a September 2014 e-mail notified subscribers that redesignations for 102 nonmetropolitan counties would expire on October 1, 2014. SBA also noted that there were 109 firms with principal offices in a county with expiring status. The e-mail included a link to the HUBZone map and a spreadsheet that showed the status of every county in January and May 2014, and encouraged firms to check their area’s status. However, the e-mail did not identify the firms with principal offices in the counties that would lose redesignated status or identify the specific counties.\nFurthermore, according to SBA officials, SBA began using a revised certification letter in October 2014 that includes links to the program’s website and regulations, but unlike the previous certification letter that SBA sent to firms it does not include information on whether the firm is in a redesignated area or when that status will expire. According to HUBZone program policy, the approval letter should include language notifying the newly qualified firm of the possible expiration of the HUBZone. According to SBA officials, the only time that a firm would be directly notified that it was located in a redesignated area would be when it received a notice of proposed decertification after the status of the area expired. (We discuss the certification process later in the report.) Federal internal control standards require that management ensure there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving its goals.\nIn a May 2008 report, SBA’s Office of Advocacy stated that although HUBZone staff had been described as helpful and informative, there did not seem to be any systematic outreach or promotion of the program beyond responding to inquiries. In October 2014, SBA announced the development of a new initiative (Destination: HUB) that is intended to promote and support HUBZone firms in federal contracting opportunities. The initiative will consist of three major components; first, an in-depth examination of successes and needs in the program; second, an analysis of best practices for successful public-private partnerships; and third, the launch of a broad grassroots educational initiative at the regional and national levels.\nSBA officials said that SBA does not include a list of firms in the e-mails it sends because it wants every firm to be proactive and check its eligibility status. According to SBA officials, SBA’s responsibility is to evaluate a firm’s initial compliance and its ongoing eligibility (through recertifications, program examinations, and protests); firms have a responsibility to ensure that they remain eligible for the program. But the combination of relatively frequent changes to HUBZone designations, SBA’s generally nonspecific communications to firms as illustrated by its certification letter, and the incomplete addressee list for the broadcast e-mails have increased the possibility that not all certified firms affected by such changes receive information about the changes or are made aware in a timely fashion of any effects on their program eligibility. We recognize that small businesses participating in the HUBZone program should be responsible for determining their eligibility, and they appear to have the ability to contact SBA to receive information specific to their situation. However, given the information SBA has at its disposal and the large number of HUBZone firms, SBA is in a position to better inform firms of changes affecting program eligibility.",
"",
"SBA revised its certification process in response to our June 2008 recommendation, and now requires firms to provide documentation and reviews this documentation to determine their eligibility for the HUBZone program. As we reported in 2008, at that time SBA relied on data that firms entered in the online application system and performed limited verification of the self-reported information. Although agency staff had the discretion to request additional supporting documentation, SBA did not have specific guidance or criteria for such requests. We recommended that SBA develop and implement guidance to more routinely and consistently obtain supporting documentation upon application. The agency agreed with our recommendation and, according to SBA officials, since fiscal year 2009 SBA has required all firms to provide supporting documentation for information they enter in SBA’s online application system. SBA then performs a full-document review on all applications as part of its initial certification process.\nThe current initial certification process comprises multiple steps (see fig. 2). For instance, after firms verify that the information they entered was complete and accurate, administrative staff request supporting documents from the applicant, including a lease agreement, map of employees’ home addresses, personal and business tax returns, and payroll records. According to SBA officials, one staff reviews and analyzes the documents provided and makes a recommendation for the application and a second staff reviews the analysis and recommendation. Once a recommendation has been made, the HUBZone program director performs a final review before making a final determination. At the end of the process, SBA sends a signed letter to the applicant stating either that the firm is certified, or the basis for denial if the firm did not qualify. See appendix IV for summary statistics related to SBA’s review of initial applications.\nOur review of 39 application files SBA received from October 1, 2012, through September 30, 2013, indicates that SBA conducts full documentation review of the applications submitted by firms seeking certification. For the 29 applications that were approved or denied, SBA staff prepared an analysis to support their recommendation to approve or deny the application. For 18 of the 29 applications, SBA staff followed up with the applicant to obtain additional documentation; 12 of these applicants provided the documents and were approved, and the remaining 6 were denied because they did not. Our review of the approval and denial letters relating to the 29 application files confirmed that the final determination and the effective dates entered into the system were the same.\nWe also found that SBA has not updated its SOP since 2009 when it began making changes to its certification processes, but expects to do so by the end of March 2015. Based on SBA’s response to a recent OIG recommendation, the agency had planned to complete the update by September 2014. The current SOP was last updated in November 2007 and therefore does not contain information about the full document review. According to SBA officials, to guide staff reviewing HUBZone certification packages, SBA currently uses guidance it developed that is specific to addressing situations that may arise during certification reviews. For example, the guidance discusses how to designate an employee of a HUBZone firm as located at a principal office when a person works an equal amount of time in a principal office and a secondary office. The guidance also includes language that should be included in a final e-mail request to the applicant firm when the analyst determines that SBA needs to obtain clarification, additional documents, or both to complete its review of the application package. According to SBA officials, SBA had delayed updating the SOP because the agency intended to revise the HUBZone regulations first and then incorporate those changes into the SOP.\nHUBZone trade association representatives told us that SBA has not always clearly communicated information about its review process to program applicants. They stated that the lack of clarity about SBA’s certification review process likely could be solved through more education and communication. For example, they noted that after SBA changed the definition of an employee in May 2010 from an individual who was required to work 30 hours per week to an individual who worked 40 hours per month, the agency required that applicant firms provide documentation verifying that the employee worked during the previous month. However, according to the representatives, SBA then changed its interpretation to require that the employee worked during the period during which the application was submitted but did not communicate the change to the industry. According to SBA officials, SBA discusses the period that an employee must work in its frequently asked questions. While SBA defined an employee in its frequently asked questions, we did not find information related to the period that an employee must work to meet the eligibility requirement.\nSBA officials told us that the agency again reviews the eligibility of some firms—generally, already certified firms—by conducting site visits to a select number of firms every year. In June 2008, we reported that SBA rarely conducted site visits during program examinations to verify a firm’s information and recommended that the agency conduct more frequent site visits. In response to that recommendation, according to SBA officials, SBA now conducts site visits on 10 percent of its portfolio of certified firms every year. According to the officials, the site visits are based on established criteria (such as the amount of HUBZone contract awards the firm has received) or done on an as-needed basis in connection with the review of an initial certification application or after receipt of a protest. SBA officials told us that SBA uses a pass/fail system to describe the outcome of a site visit. In fiscal years 2013 and 2014, the officials told us that SBA selected 511 and 550 firms, respectively, for site visits. In fiscal 2013, SBA noted that 81 percent of the firms passed the site visit and 19 percent failed. For fiscal year 2014, SBA noted that 88 percent of the firms passed and 12 percent failed. According to SBA officials, SBA sends a notice of proposed decertification to firms that fail a site visit. (We discuss decertification in the next section.)",
"Once a firm is approved for participation in the HUBZone program, SBA may decertify the firm if SBA determines that the firm is no longer eligible for the program or if SBA is unable to verify the firm’s continuing eligibility. For example, firms in redesignated areas are proposed for decertification and are provided an opportunity to establish continued eligibility following the expiration of the area’s redesignated status. For instance, a firm could prove its continued eligibility by showing that it had relocated its principal office to a qualified HUBZone area. These firms are ultimately decertified if they do not respond to the notice of proposed decertification by indicating that they are still eligible. According to SBA officials, the decertification process typically consists of three steps.\nSBA e-mails a notice of proposed decertification to the firm and allows the firm 30 days to respond. If the firm does not respond, SBA sends the notice of proposed decertification to the firm by certified mail. If the firm does not respond to the certified notice within 30 days, SBA then decertifies the firm on the following day.\nDecertification also can occur in two other ways. A firm voluntarily can decertify if the firm determines that it no longer meets the program’s eligibility requirements. SBA also can immediately decertify a firm during the protest process if, according to SBA officials, SBA determines that the firm did not meet the eligibility requirements at the time of bid and award, or at the time of protest if the contract had not yet been awarded. From fiscal year 2010 through fiscal year 2013, SBA reported 124 protests of HUBZone contracts, of which 46 (37 percent) were dismissed, 41 (33 percent) were sustained, and 37 (30 percent) were denied.\nSBA noted that it decertified 4,660 firms from fiscal year 2010 through fiscal year 2013. The vast majority of decertifications occurred from fiscal years 2010 through 2012. According to SBA officials, in fiscal year 2009, before conducting a legacy portfolio review, SBA asked firms to confirm their compliance with the program requirements or to voluntarily withdraw from the program. The officials told us there were approximately 14,000 HUBZone firms that needed to validate their compliance with the program eligibility requirements. At that time, SBA notified the firms that the agency planned to conduct a full document review in 2009 or early 2010 to confirm compliance. According to SBA officials, many firms voluntarily withdrew from the program as a part of this effort. As shown in figure 3, our analysis of SBA data (for applications received from fiscal year 2010 through fiscal year 2013 for firms that were later decertified) showed that firms most frequently were decertified because their principal offices were not located in a HUBZone.SBA also decertified about 2 percent of firms that applied to the program during that period because they did not meet the 35 percent employee residency requirement.\nRepresentatives from the HUBZone trade association noted that the employee residency requirement of 35 percent can make it difficult for a firm to stay in compliance with the program’s regulations. For example, according to the representatives, initiating and obtaining a contract may take a long time and maintaining many employees on the payroll without a contract can become a major overhead expense for firms. Furthermore, for smaller firms, losing one or two employees could result in noncompliance with the residency requirement. If firms do not maintain enough HUBZone-resident employees on payroll, they eventually lose their certification.",
"",
"HUBZone recertifications once again have become backlogged. According to HUBZone regulations, firms wishing to remain in the program without any interruption must recertify their continued eligibility to SBA within 30 calendar days after the third anniversary of their date of certification and each subsequent 3-year period. In June 2008, we reported that many firms were in the program for more than 3 years without being recertified. We recommended that SBA establish a specific time frame for eliminating the backlog of recertifications and take the necessary steps to ensure that recertifications were completed in a more timely fashion in the future. In March 2009, we determined that SBA eliminated the backlog of recertifications by hiring contract staff, but had yet to implement necessary procedures to ensure that future recertifications were completed in a timely fashion. At that time, SBA officials stated that their ongoing business process reengineering would include an assessment of the recertification process. Subsequently, in July 2012 SBA provided data illustrating that the backlog had not reoccurred and that they had recently obtained approval to replace those contract staff with 10 full-time equivalent (FTE) staff who would perform all future recertifications. We believed at that time that these steps would address the intent of our recommendation. However, SBA did not hire the 10 staff that were to replace the contract staff because, according to SBA officials, part of its funding authority was rescinded in 2013. As a result, according to SBA officials, as of September 2014 they faced a 1-year backlog for recertifying firms—that is, the agency was still recertifying firms that had their 3-year anniversaries in 2013.\nSBA’s current backlog indicates that it does not have processes in place to ensure that recertifications are completed in a timely fashion. SBA’s current process for recertifying firms involves manual sorting of data from HCTS to identify firms whose 3-year anniversary is upcoming. Based on our analysis of SBA information for the most recent notification of firms, SBA notified almost 53 percent (375) of the firms past the deadline (that is, more than 30 days past the firms’ 3-year anniversary). We identified three firms that were last recertified in 2009. Similarly, one firm with which we spoke said it received the SBA notification 3 or more months after the 3-year anniversary.\nAccording to SBA officials, the recertification backlog is due in part to limitations with HCTS and resource constraints. According to SBA officials, the recertification module in HCTS was designed to electronically review and approve recertification applications submitted online and alert SBA when it identified significant differences in the information firms submitted for recertification, but has not worked as intended. As a result, the officials said that SBA has to manually identify firms that are due for recertification and only does so twice a year. According to agency officials, SBA began processing recertifications in batches in fiscal year 2013 because the agency lacked sufficient staff to do it more often. As a result of this batching schedule, in some instances SBA has been notifying firms almost 6 months after their 3-year anniversary date. The officials also told us that they have chosen not to allow firms to initiate the recertification process, which would enable firms to recertify in a more timely way. They said that having a process in which firms would submit e-mails within 30 calendar days after their 3-year anniversary date would be inefficient due to the additional steps required. For instance, officials said that they would have to manually sort through the e-mails and remove any firms that were not due for recertification.\nAccording to agency officials, SBA has requested funding in its fiscal year 2016 budget to enhance the current system. With this funding, SBA plans to investigate fixes for the recertification process. For example, these fixes may allow firms to submit recertification applications on their anniversary date and HCTS internal logic would ascertain compliance. For those that were noncompliant, the system could be configured to notify program staff that the recertification had to be reviewed or decertification proposed. However, it is not clear whether SBA will receive additional funding in fiscal year 2016 or changes can be made to HCTS that would allow the system to ascertain compliance with the program requirements. In the interim, SBA officials noted that the agency’s goal in 2015 is to notify firms and process the recertifications on a monthly basis.\nWhile SBA’s intention is to conduct more timely recertifications, its limited efforts since 2008 to prevent backlogs have not been successful. Until SBA makes it a priority to address ongoing challenges with its recertification process and can develop an effective approach to recertify firms in a timely manner, the agency will continue to face reoccurring backlogs and risks associated with ineligible firms participating in the program.",
"SBA relies on firms’ attestations of continued eligibility and generally does not request supporting documentation during recertification. SBA officials told us that SBA currently only requires that firms submit a notarized recertification form stating that their eligibility information is accurate. However, internal control standards for the federal government call for ongoing monitoring of program activity and indicate that federal agencies should have control activities in place, such as verification, to ensure compliance with program requirements. According to SBA officials, they do not believe they need to request supporting documentation from recertifying firms because all firms currently in the program have undergone a full document review, either when the firm initially applied or through the full document review SBA completed of its legacy portfolio review in fiscal year 2012, as previously discussed. While SBA officials noted that they have the authority to ask for supporting documentation when recertifying a firm, they have not done so. The SOP notes that agency staff may request and consider additional information, but it does not specify what circumstances warrant a request for supporting documentation. As previously noted, SBA officials said that the recertification process is affected by resource constraints. But as a result, SBA lacks reasonable assurance that only qualified firms are allowed to continue in the HUBZone program and receive preferential contracting treatment.\nMoreover, while SBA’s review of its legacy portfolio represented a comprehensive effort, it was a one-time review and took place between fiscal years 2010 and 2012. The characteristics of firms and the status of HUBZone areas—the bases for program eligibility—can often change, and need to be monitored. For example, the size of a firm and the residency location of its employees can change in 3 years. In addition, monitoring processes can take resource constraints into account. In March 2009, we found 10 of 19 firms we examined to be egregiously out of compliance with HUBZone program requirements and recommended that SBA consider incorporating a risk-based mechanism for conducting unannounced site visits as part of the screening and monitoring process. Such a risk-based approach could be applied to SBA’s recertification process to review and verify information from firms that appear to pose the most risk to the program.",
"Since we reported on the HUBZone program in 2008, SBA has implemented a number of actions both to better ensure that only eligible firms participate in the HUBZone program and address weaknesses with internal controls that we and the OIG identified. The frequency of changes to HUBZone designations present challenges for both firms and SBA. While SBA uses a number of mechanisms to communicate with firms about changes to HUBZone designations, these methods are insufficient as they are at a general level and not all firms may receive them. The communications are not specific to firms or HUBZone areas (for example, broadcast e-mails). Additionally, not all certified firms may be on the broadcast e-mail subscription list. As a result, not all firms may be aware of changes that would affect their continuing program eligibility.\nSBA has strengthened its internal controls for initial HUBZone certifications but missed opportunities to address weaknesses in controls related to the recertification of firms. The current recertification process has a number of issues that continue to limit its effectiveness. First, SBA again has a significant backlog in processing recertifications and has not implemented a sustainable process. Second, SBA requires firms to wait until being notified before beginning recertification, but routinely notifies firms too late for the firms to meet the deadline established in HUBZone regulations. Finally, the current recertification process requires no supporting documentation—in effect, firms self-certify. SBA officials noted that resource constraints prevent a full documentation review of all recertifications and that staff can request supporting documentation (but SBA does not have guidance on when staff should request or verify documentation). While the backlog and inability of firms to start the process are concerns, the greater issue is the lack of ongoing eligibility review and verification during recertification.",
"To improve SBA’s administration and oversight of the HUBZone program and reduce the risk that firms that no longer meet program eligibility criteria receive HUBZone contracts, the Administrator of SBA should take the following two actions:\nEstablish a mechanism to better ensure that firms are notified of changes to HUBZone designations that may affect their participation in the program, such as ensuring that all certified firms and newly certified firms are signed up for the broadcast e-mail system or including more specific information in certification letters about how location in a redesignated area can affect their participation in the program.\nConduct an assessment of the recertification process and implement additional controls, such as developing criteria and guidance on using a risk-based approach to requesting and verifying firm information, allowing firms to initiate the recertification process, and ensuring that sufficient staff will be dedicated to the effort so that a significant backlog in recertifications does not recur.",
"We sent a draft of this report to SBA for its review and comment. In response, SBA provided written comments, which are reproduced in appendix VI. SBA agreed with our recommendations and outlined steps it has taken or plans to take to address them. SBA stated that it has been analyzing existing resources to implement our recommendation on notifying firms of changes that could affect their participation in the program. SBA also said that by July 2015, it plans to implement an enhanced mechanism to better inform all certified and newly certified firms of HUBZone designation changes or, at least, explain how being in a redesignated area could affect program participation. In response to our recommendation on assessing the recertification process and implementing additional controls, SBA stated that it will assess the current process. In addition, SBA stated that by September 30, 2015, it plans to identify improvements to reduce the risk of fraud, waste, and abuse.\nIf you or your staff have any questions concerning this report, please contact me at (202) 512-8678 or shearw@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 major contributions to this report are listed in appendix VII.",
"This report examines the Historically Underutilized Business Zone (HUBZone) program of the Small Business Administration (SBA). More specifically, the report (1) describes HUBZone designations and how SBA communicates with interested parties about the program, and (2) examines SBA’s certification and recertification processes for firms, including the extent to which SBA has implemented procedures to address recommendations previously made to improve these processes. In addition, we present information about selected characteristics of HUBZones, effects of hypothetical changes to criteria on HUBZone designations, HUBZone application processing, and selected characteristics of HUBZone firms in appendixes II, III, IV, and V, respectively.\nTo address both objectives, including how SBA notifies and communicates with interested parties about the HUBZone program, we reviewed previous GAO and SBA Office of Inspector General (OIG) reports; applicable statutes and regulations; and SBA documents, including Standard Operating Procedures, internal policy guidance for staff, process work guidelines, checklist of required documents, criteria used to select firms to undergo site visits, outreach and communication materials, goaling report, Congressional Budget and Performance report, and a new initiative that SBA created intended to boost HUBZones in the federal marketplace. We interviewed SBA staff and representatives from the HUBZone Contractors National Council—the HUBZone trade association.\nWe also interviewed representatives from local economic development agencies and from HUBZone firms. We selected a purposive sample of16 HUBZone firms. To ensure a range of HUBZone firms, our sample included 8 firms that were currently certified, 4 firms that had been denied entry into the program, and 4 firms that were once certified but had been decertified. Of the 16 firms, we interviewed 8, the findings from which cannot be generalized to the overall population of firms that have applied to the HUBZone program. To identify the firms, we relied on a multistage sampling approach:\nTo select firms that were certified, we first selected four states, one from each of the four regions of the United States—West, Midwest, Northeast, and South. We used 2013 unemployment rates from the Bureau of Labor Statistics to select two states with higher unemployment rates and two states with unemployment rates lower than the U.S. average rate. To ensure a mix of rural and urban states, we used 2010 Census data and calculated the percentage of each state that was rural and picked some states that had higher concentrations of rural areas. We also picked some states that had a large number of HUBZone certified firms, according to the Dynamic Small Business Search (DSBS) database, to ensure we had a sufficient number of firms from which to select firms to interview.\nWe selected one county from each of the four states based on the number of certified firms located in each county that had been awarded federal contracts and firms that had not been awarded contracts in fiscal years 2010 through 2013 based on Federal Procurement Data System-Next Generation (FPDS-NG) data. We also considered the number of contracts awarded to the firms and the dollar amount of the contracts in fiscal year 2013 based on FPDS-NG data. In addition, we selected the county from each state that had a mix of certified firms with and without contracts and that had a high number of contracts awarded to firms in the county in fiscal year 2013, as compared with other counties in the state. For one state, we selected the county with the second-highest number of contracts because it represented a redesignated nonmetropolitan area.\nWithin the selected counties, we selected four certified firms that had been certified in 2009 or later and had been awarded the most contracts among firms in the county from fiscal years 2010 through 2013. Based on the oldest certification date, we also selected four firms that had not received any contracts.\nFinally, we used applicant data from SBA’s HUBZone Certification Tracking System (HCTS) to select four firms that were denied entry into the program and four firms that were decertified. We used the same four U.S. regions and randomly selected two firms from each region, one for each of the two categories.\nTo examine how SBA designates HUBZones, selected characteristics of the areas, and how potential changes to designation criteria would affect HUBZones and firms, we reviewed applicable statutes and regulations, such as the HUBZone Act of 1997. We also reviewed prior GAO, Congressional Research Service, and SBA OIG reports on the HUBZone program. We accessed the list of qualified and redesignated areas from SBA’s HUBZone website and plotted them using Mapinfo. We also downloaded the list of certified firms as of June 16, 2014, and plotted those firms into their corresponding HUBZones. According to SBA officials, firms may have more than one profile and address in DSBS and there is no way within the system to identify which address represents a principal office. Consequently, the numbers we report are based on the addresses in the DSBS profiles. We were unable to plot 573 firms in a HUBZone. For the firms we could plot, we matched these certified firms with federal procurement data from FPDS-NG to identify the number and amount of contracts that the firms received from fiscal year 2010 to fiscal year 2013. We used these data sources to identify characteristics of the different HUBZone types, such as the number of firms in the different HUBZone types as well as the contract dollars those firms received. To identify economic characteristics of the different HUBZone types, we reviewed selected economic indicators, such as the poverty and unemployment rates, and the median housing income and housing value for the different HUBZone types. We used data from the Census Bureau’s American Community Survey (ACS) and unemployment data from the Bureau of Labor Statistics (BLS). After reviewing related documentation or interviewing knowledgeable agency officials, we deemed the DSBS, FPDS-NG, Census Bureau, BLS, and SBA data sufficiently reliable for the purposes of describing the characteristics of HUBZones, participating firms, and their contracting. To determine the impact of hypothetical changes to HUBZone criteria, we reviewed county-level unemployment data from BLS. We applied different criteria to the data to determine the impact that the changes would have on the number of eligible counties, by state. For example, we used a 5- and 10-year average unemployment rate instead of the 1-year rate that SBA currently uses to determine the eligibility for nonmetropolitan counties. To determine the impact of the statutory 20 percent cap imposed on census tracts as part of the Low- Income Housing Tax Credit (LIHTC) program, we analyzed 2014 data from the Department of Housing and Urban Development (HUD) and applied the algorithm that HUD uses to determine if a census tract qualifies, and then stopped applying the criteria prior to the imposition of the 20 percent cap. We compared the number of areas that would qualify under both scenarios.\nTo examine SBA’s certification and recertification processes for firms and the extent to which SBA addressed previous recommendations, we reviewed SBA’s certification and recertification processes for certifying firms, including its policies and procedures for certifying and monitoring firms. To test whether SBA had implemented procedures to help ensure that only eligible firms participate in the program, we reviewed a purposive sample of 39 application case files. To select these files, we used data from HCTS to identify the universe of applications SBA received from October 1, 2012, to September 30, 2013. We grouped these files into four outcome categories—approved, denied, withdrawn, and decertified and randomly selected 10 from each category. We reviewed these case files and collected information using a data collection instrument (DCI) to gather information such as whether SBA staff prepared an analysis summary; analyzed information, including supporting documentation, to determine if the applicants met the program eligibility requirements; sent follow-up communications to request additional documentation; and performed a second review before making a final determination on the application. We also determined the date on which the application was received and the date of final determination. The findings from this limited review of 39 case files cannot be generalized to the overall population of applications received in fiscal year 2013.\nWe developed the DCI after reviewing SBA’s regulations, its description of the HUBZone current certification process, and the HUBZone policy guidance, document request checklist, and process work guidelines. Two GAO team members independently entered information from one sample case file using the DCI and compared the results. After the two team members agreed on the final fields to be used in the DCI, they entered information from the case files into the DCI. A third staff member verified the accuracy of the entries.\nUsing HCTS data, we analyzed data about firms for which applications were received from fiscal years 2008 through 2013, by year of receipt, to determine (1) the number of applications approved, denied, or withdrawn; (2) the number of firms that had been recertified; (3) the number that had been decertified; (4) the length of time it took SBA to approve applications; and (5) the reasons firms were decertified. We also analyzed HCTS data to examine the characteristics of HUBZone applicant firms, including the industry codes and number of employees. A copy of the HCTS data was originally provided to GAO in Oracle format and was the most current version as of July 2014. These data were then read in using SAS software to allow for analysis. Before conducting the analysis, a GAO data analyst reviewed the data for inconsistencies and completeness. As a part of this work, inconsistencies related to the effective dates of different processes were discovered. We determined that the data were sufficiently reliable for the analysis we report by reviewing related documentation, interviewing knowledgeable officials, and electronic testing of the data, but there were internal inconsistencies that limited our reporting. Specifically, in some cases, there were conflicting outcomes or dates that appeared to be out of sequence or illogical. In particular, the dates associated with events in the certification review processes were found to be unreliable. To clarify, GAO met with SBA and learned that the inconsistencies were related to manual data entry processes that were required since fiscal year 2006 because of deficiencies discovered in the software related to the recertification module in HCTS. We concluded that while the actual outcomes were reliable enough to report, the data that relied on the effective dates of these outcomes were not sufficiently reliable to report.\nTo identify the eligibility-related reasons for decertification, we analyzed the reason field contained in HCTS for applications received from 2010 to 2013 that were later decertified. Because a large percentage of these applications had “other” for their recorded reason, we conducted a review of the comments field to code for the possible other reasons. To conduct that review, the GAO data analyst did a string search of the text using keywords such as “35 percent” and “principal office” and identified one additional category and added additional cases to existing reasons. An analyst reviewed a subset of the coding to ensure accuracy.\nTo determine whether SBA implemented procedures to help ensure that only eligible firms continue to participate in the program, we assessed SBA’s recertification process. We reviewed SBA’s regulations on recertification and information from HCTS relating to firms’ certification anniversary dates and SBA’s e-mail notification for firms to recertify. We assessed the reliability of the data on these processes by interviewing officials knowledgeable about the data and performing electronic data testing to detect errors in completeness and reasonableness. We determined that they were sufficiently reliable for the purpose of identifying the amount of time between a firm’s prior certification and SBA’s notice about recertification. We compared SBA’s certification and recertification processes with federal internal control standards for collecting documentation and verifying information.\nWe conducted this performance audit from April 2014 to February 2015 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.",
"There are four different types of qualified HUBZone areas as defined by federal statute.\nQualified census tracts. The qualified census tracts are the same as those determined by HUD for the LIHTC program. The current criteria are any census tract that is designated by HUD and, for the most recent year for which census data are available on household income in such tract, has (1) at least 50 percent of households with income below 60 percent of the median gross income of the MSA (in metropolitan census tracts) or for all nonmetropolitan areas of the state (in nonmetropolitan census tracts) or (2) a poverty rate of at least 25 percent. The LIHTC program limits the amount of qualified census tracts in any MSA or PMSA so that they together do not contain more than 20 percent of the total population of the MSA or PMSA. As such, it is possible for a tract to meet one or both of the criteria, but not be designated as a qualified census tract.\nQualified nonmetropolitan county. A qualified nonmetropolitan county is any county that was not located in an MSA at the time of the most recent census. To qualify, the (1) median household income for the county must be less than 80 percent of the nonmetropolitan state median household income, based on the most recent data available from the Bureau of the Census; or (2) the unemployment rate is not less than 140 percent of the average unemployment rate for the United States or for the state in which such county is located, whichever is less, based on the most recent data available from the Secretary of Labor. SBA uses a 5-year median income, as determined through the ACS. The most recent update reflected data from 2008- 2012. The unemployment rate is derived from data released annually by BLS and is typically sent to SBA during May, June, or July. Additionally, nonmetropolitan counties can qualify if they include a difficult development area, as designated by HUD, within Alaska, Hawaii, or any territory or possession of the United States outside of the 48 contiguous states.\nQualified Indian land. Lands within the boundaries of Indian reservations may qualify as a HUBZone area. The Bureau of Indian Affairs provides data delineating these areas.\nQualified base closure area. HUBZone eligibility is extended for 5 years to lands within the external boundaries of a military installation closed through a privatization process under the authority of various base closure laws. The military base’s HUBZone eligibility commences on the effective date of the law (Dec. 8, 2004) if the military base already was closed at that time, or on the date of formal closure if the military base was still operational at that time. According to SBA officials, no HUBZone firms are located in these areas because it is very difficult for firms to meet the 35 percent residency requirement. Additionally, the SBA officials noted that, according to statute, the areas are only eligible for 5 years from the date of base closure, and it may take several years before the area is able to receive business leases, leaving applicant firms with only 1 to 2 years of eligibility.\nAccording to our analysis, about 2,600 of the approximately 5,200 certified firms were in a qualified or redesignated census tract, as of June 2014 (see table 2). Additionally, about 12 percent of the firms were located simultaneously in at least two types of HUBZones. Most commonly, firms were located in both a qualified census tract and qualified nonmetropolitan county (311 firms) or a qualified census tract and Indian land (107 firms). However, about 88 percent of HUBZones— including all the base realignment and closure areas—did not contain any certified firms (that we could geographically code).\nIn fiscal year 2013, certified firms received, on average, about $789,000 through HUBZone contracts. Firms in qualified census tracts received about $1 million in contracts, with those in redesignated areas receiving about $300,000 more, each. Firms in all redesignated areas were obligated almost $800 million in federal contracts in fiscal year 2013. Overall, 211 firms comprised the top 10 percent, in terms of the size of contracts received, while almost 4,300 comprised the bottom 10 percent.\nAs shown in figure 4, there are certified firms in all 50 states. In general, counties in the West had more certified firms, on average, than counties elsewhere in the United States.\nAs shown in table 3, California, New York, and Texas had the largest number of qualified areas. California, Oklahoma, Texas, and Virginia all had more than 200 certified firms, with California having the most (477).",
"Our analysis of the economic conditions of qualified and redesignated areas as of 2012 found that redesignated areas had, on average, economic conditions between those of qualified and nonqualified areas. For example, as shown in figure 5, qualified census tracts had poverty and unemployment rates of 32 percent and 14 percent, respectively, while nonqualified census tracts had poverty and unemployment rates of 11 percent and 8 percent, respectively. In contrast, the poverty rate in redesignated census tracts was 24 percent while the unemployment rate was 12 percent.\nAs shown in figure 6, a similar pattern exists for qualified, redesignated, and nonqualified nonmetropolitan counties.\nAs shown in table 4, our analysis of various economic indicators for qualified, redesignated, and non-HUBZone areas found that qualified areas had, on average, higher poverty and unemployment rates, and lower median household income and housing values then either redesignated or non-HUBZone areas. Redesignated areas had, on average, economic indicators between those of qualified and not qualified areas.\nAs shown in figure 7, about 55 percent of qualified census tracts had poverty rates of 30 percent or more. In contrast, almost 76 percent of redesignated census tracts had poverty rates between 10 percent and 29.9 percent. Similarly, almost 72 percent of qualified census tracts had unemployment rates greater than 10 percent, whereas about 40 percent of redesignated areas and 70 percent of nonqualified areas had unemployment rates of less than 10 percent.\nSimilarly, our analysis of various nonmetropolitan counties found that redesignated areas had, on average, economic indicators between those of qualified and not qualified areas (see table 5). However, redesignated nonmetropolitan counties had a lower average median housing value than either qualified or not-qualified HUBZone counties.\nAs shown in figure 8, about 16 percent of qualified nonmetropolitan counties had poverty rates of at least 30 percent. In contrast, less than 1 percent of redesignated or nonqualified nonmetropolitan counties had a poverty rate of at least 30 percent. Similarly, 22 percent of qualified areas had an unemployment rate of at least 15 percent, while about 7 percent of redesignated counties and 1 percent of nonqualified counties had a similar level.",
"We applied hypothetical changes to selected statutory criteria for designating HUBZones to illustrate how such changes could affect the number of eligible areas. As we reported in 2008, establishing new HUBZone areas could provide economic benefits to these new areas, but also could result in diffusion—decreased targeting of areas of greatest economic distress—by lessening the competitive advantage upon which small businesses may rely to thrive in economically distressed communities.",
"As discussed earlier in this report, one of the ways in which a nonmetropolitan county can qualify as a HUBZone is based on its unemployment rate. More specifically, the unemployment rate for the nonmetropolitan county must not be less than 140 percent of the average unemployment rate for the United States or for the state in which the county is located, whichever is less, based on the most recent data available from the Department of Labor.Adjustments could make this definition more uniform across all of the states.\nUnder the current definition, two counties in different states with the same unemployment rate would not necessarily both qualify as HUBZones, depending on the unemployment rate of the state in which they are located. In general, every county in a state with an unemployment rate less than the U.S. average would qualify as a HUBZone if its unemployment rate was at least 140 percent of the state’s (even if it was less than the U.S. average). In contrast, counties in states with unemployment rates higher than the U.S. average must have an unemployment rate at least equal to 140 percent of the U.S. average to qualify as a HUBZone.\nWe analyzed the impact on the number of nonmetropolitan counties that could qualify under a variety of adjustments to the current definition.\nCurrent definition. Under the current definition, 424 nonmetropolitan counties would qualify as a HUBZone.\nLowest state unemployment rate. If 140 percent of the lowest state unemployment rate (2.9 percent) was applied to all counties and states, almost 1,700 counties would qualify. Under this scenario, for example, Texas would go from 16 qualified nonmetropolitan counties to almost 150.\nHighest state unemployment rate. If 140 percent of the highest state unemployment rate (9.8 percent) was applied to all counties and states, there would only be 54 qualified nonmetropolitan counties nationwide. Thirty-four states would not have any qualified nonmetropolitan counties, while Kentucky and Mississippi would have the most, with 9 each.\nApplying U.S. average unemployment rate. If 140 percent of the U.S. average unemployment rate (7.4 percent) was applied uniformly to all counties and states, 301 nonmetropolitan counties would qualify.\nAverage of all state unemployment rates. If 140 percent of the average of all state unemployment rates (6.8 percent) was used, about 450 counties would qualify. Under this scenario, states with relatively high unemployment rates would have additional nonmetropolitan counties (such as Georgia, which would have 17 additional qualifying counties), while states with relatively low unemployment rates would have fewer qualifying counties (such as Virginia, which would have 20 fewer).\nIn addition to comparing all nonmetropolitan counties against the same unemployment rate, the qualifying criteria could be changed from the current standard (data from 1 year) to use a 5- or 10-year average unemployment rate to determine if a nonmetropolitan county qualified for the program. Such a change could minimize the wide variations that can occur by using the 1-year rates. For example, the average unemployment rates that equaled 140 percent of the U.S. unemployment rate ranged from 6.4 percent in 2006 and 2007 to 13.4 percent in 2010. Similarly, the difference between the states with the highest and lowest unemployment rates ranged from 6 percentage points in 2004 to about 14 percentage points in 2010. However, using a 5- or 10-year average unemployment rate would result in fewer counties qualifying as a HUBZone.\nUsing a 5-year unemployment rate. If a 5-year average unemployment rate were used, 345 nonmetropolitan counties would qualify. With the change from 1- to 5-year, additional counties in 6 states would become eligible, while the number of eligible counties in 21 states would decrease. The net number of affected counties would range from 6 added to 15 eliminated.\nUsing a 10-year unemployment rate. If a 10-year average unemployment rate were used, 377 nonmetropolitan counties would qualify. Under this adjustment, 10 states would have more counties eligible and 18 would have fewer. See figures 9 and 10 for a summary of the impact of each potential change on the number of qualified nonmetropolitan counties.\nAs shown in table 6, the impact of the hypothetical changes on the number of qualified nonmetropolitan counties in the individual states varies.",
"Currently, HUBZone-qualified census tracts are those census tracts designated by HUD. Statutory provisions governing the LIHTC program limit the amount of qualified census tracts in any MSA or PMSA to no more than 20 percent of the total population of the MSA or PMSA. Consequently, some census tracts that may qualify for the HUBZone program based on the area’s median household income or poverty rate might not be designated as qualified census tracts because of the population cap, and are therefore not included in the HUBZone program.\nOur analysis of data HUD used for its 2014 designations found that about 2,400 more census tracts would qualify as HUBZone areas if the 20 percent cap were not in place, an increase of 15 percent from the current number of qualified tracts. Eight states or territories would have at least 20 percent more qualified areas if all eligible tracts were included.",
"According to our analysis of data for applications received by SBA during fiscal years 2008-2013, the number of applications submitted by firms declined significantly from 2009 through 2011 (from a high of about 4,500 in 2009 to under 1,500 in 2013). Since 2009, the application approval rate also declined. For example, SBA approved about 32 percent of the approximately 4,000 applications submitted in 2010 (shortly after the new process was implemented), while it approved almost 53 percent of the approximately 3,000 applications submitted in 2008 under the previous process (see table 7 and fig. 11). In general, a higher percentage of applications have been withdrawn since SBA implemented the revised process—more than 50 percent of applications for every year except 2013. According to SBA officials, firms can withdraw an application or SBA can close it if it is believed that the firm will not meet program requirements.\nAccording to SBA officials, SBA’s goal is to process an application within 90 days. Our analysis of SBA data found that it took SBA more than 90 days to process most of the applications approved since fiscal year 2008. As shown in table 8, of the applications SBA received in fiscal years 2008-2013, about 27 percent were processed in 90 or fewer days while 73 percent took more than 90 days to process. SBA reported that in fiscal years 2013 and 2014 it took an average of 103 and 123 days, respectively, to process any application regardless of outcome.\nAccording to the officials, SBA has completed a review of its certification process and plans to implement changes to improve and more accurately reflect its processing time. For example, according to SBA officials, SBA has been considering requiring that the program analyst, instead of administrative staff, request supporting documentation from the applicant firms. Furthermore, the official explained that SBA has been considering changing when it starts calculating the processing time. Currently, SBA begins to calculate the processing time when a high-ranking official from the firm electronically validates the application. However, SBA cannot begin its review until it receives supporting documents from the firm, which can take weeks. Consequently, SBA has been considering changing the start date to when it receives the supporting documents.",
"According to our analysis of SBA data for approved applications submitted during fiscal years 2008-2013, HUBZone firms vary in size and types of services and products provided.\nNumber of employees. The number of employees at HUBZone firms ranged from 1 to 496, with a median of 4 employees for all years except 2009 and 2010, in which the median was 5. Industries in which firms operated. Table 9 lists the top 10 industries based on the number and percentage of approved HUBZone firm applications.",
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"In addition to the contact above, Harry Medina (Assistant Director), Daniel Newman (Analyst-in-Charge), Pamela Davidson, Cynthia Grant, Julia Kennon, Yola Lewis, John McGrail, John Mingus, Marc Molino, Caroline Neidhold, Gloria Proa and Barbara Roesmann made key contributions to this report."
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"question": [
"How is the SBA's designation of HUBZones lacking in its communication with the community?",
"How is the designation defined?",
"How is the transition back from a HUBZone status handled?",
"How is the notification process flawed?",
"How has the SBA responded to GAO reports?",
"How is the recertification process flawed?",
"How does the SBA properly implement some aspects of recertification?",
"Why is the lack of proper controls on recertification a risk for the SBA?",
"How does the HUBZone program aim to help distressed areas?",
"Why might a firm want to become HUBZone certified?",
"To what extent is the process of certifying firms controlled?",
"How has oversight over the certification process increased?"
],
"summary": [
"The Small Business Administration (SBA) designates economically distressed areas as Historically Underutilized Business Zones (HUBZone), based on demographic data such as unemployment and poverty rates, but lacks an effective way to communicate program changes to small businesses.",
"The designations apply to areas such as nonmetropolitan counties and census tracts and are subject to periodic changes as economic conditions change.",
"HUBZones that lose their qualifying status due to changes in economic conditions become “redesignated” and undergo a 3-year transition period.",
"SBA relies on website updates and broadcast e-mails to inform firms about program changes, and consequently not all affected may be informed about the changes before their resultant decertification. SBA has initiated efforts to improve notification of program changes, but its communications may not reach all affected firms and do not specify when the status of areas might change or what firms are located in those areas. As a result, some firms in the program lack timely awareness of information that could affect their eligibility.",
"SBA has addressed weaknesses in its certification process that GAO previously identified, but lacks key controls for its recertification process.",
"However, SBA does not require firms seeking recertification to submit any information to verify their continued eligibility or provide guidance on when staff should request or verify documentation for recertification.",
"For instance, to receive certification SBA now requires all firms to provide documentation to show they meet the eligibility requirements. SBA also conducts site visits at selected firms based on, for example, the amount of federal contracts they received.",
"By not routinely requiring and reviewing key supporting documentation from recertification applicants, SBA is missing an additional opportunity to reduce the risk that ineligible firms obtain HUBZone contracts.",
"The program's purpose is to stimulate economic development in economically distressed areas.",
"A certified HUBZone firm is eligible for federal contracting benefits, including limited competition awards such as sole-source and set-aside contracts.",
"GAO previously reported on weaknesses in SBA's internal controls and problems with ensuring that only eligible firms participate in the program.",
"GAO was asked to examine the steps SBA has taken to address these issues. This report (1) describes HUBZone designations and how SBA communicates with interested parties about the program, and (2) examines SBA's certification and recertification processes for firms."
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CRS_RL34036
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{
"title": [
"",
"Overview",
"Milk Income Loss Contract (MILC) Program",
"Background",
"2008 Farm Bill Provisions and Issues",
"MILC Provisions in the 2008 Farm Bill",
"CBO Cost Estimates",
"Administration and Industry Positions",
"MILC Payments and 2008 Farm Bill Implementation",
"Federal Cost of MILC",
"Dairy Price Support Program",
"2008 Farm Bill Provisions and Issues",
"WTO Implications",
"2008 Farm Bill Implementation",
"Federal Milk Marketing Orders",
"Background",
"2008 Farm Bill Provisions and Issues",
"Dairy Forward Contracting",
"2008 Farm Bill Provisions and Implementation",
"Streamlining Rulemaking Procedures",
"2008 Farm Bill Provisions and Implementation",
"Dairy Export Incentive Program",
"2008 Farm Bill Provisions",
"Dairy Import Assessment",
"2008 Farm Bill Provisions",
"Appendix. Summary of Major Dairy Provisions in the Enacted 2008 Farm Bill: Comparison with Previous Law and House- and Senate-Passed Bills"
],
"paragraphs": [
"",
"The Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , the 2008 farm bill) is the most recent omnibus farm bill, authorizing or reauthorizing a wide range of programs for a multi-year period, including commodity price and income support, farm credit, agricultural conservation, research, rural development, and foreign and domestic food programs, among others. The 2008 farm bill became law on June 18, 2008, after the House and Senate successfully voted to override a veto of the measure.\nSubtitle E of the commodity programs title (Title I) of the enacted 2008 farm bill contains the authority for two major ongoing dairy policy tools used by the U.S. Department of Agriculture (USDA) to support the prices and incomes received by dairy farmers—the dairy price support program (DPSP) and the Milk Income Loss Contract (MILC) program. Previous authority for these programs was governed by the 2002 farm bill ( P.L. 107-171 ) through 2007, and extended into 2008 by the enactment of various short-term farm bill extensions. As part of more than one year of hearings and debate on the omnibus farm bill, Congress considered whether to reauthorize these two programs in their current forms or with modifications.\nP.L. 110-246 reauthorizes the MILC program through September 30, 2012, and the DPSP through December 31, 2012, with several modifications as discussed in this report. The DPSP provides indirect price support to dairy farmers through government purchases of surplus dairy products at statutory prices. The MILC program supports farmer income through direct payments to participating dairy farmers when the market price of farm milk in any month falls below a legislatively mandated target price.\nA third federal dairy policy tool, federal milk marketing orders, requires dairy processors to pay a minimum price for farm milk depending on its end use. Federal orders are permanently authorized and hence do not require periodic reauthorization. Instead, changes are generally made administratively by USDA and approved by farmer referendum. However, issues such as the proposed authority for processors to be exempt from federal order minimum prices processors when they forward contract with dairy farmers were brought to the attention of Congress in the farm bill debate. P.L. 110-246 authorizes a forward contract program (through September 30, 2012) and contains safeguards designed to ensure that dairy farmers are not compelled by processors to participate in the program. The 2008 farm bill also authorizes a commission to review and evaluate federal milk marketing order policies and procedures.\nSeparately, the 2008 farm bill reauthorizes the Dairy Export Incentive Program. It also requires Alaska, Hawaii, and Puerto Rico to contribute to an ongoing dairy promotion program that is currently supported by mandatory assessments on dairy producers in the 48 contiguous states. This provision was included to allow USDA to implement a 2002 farm bill-mandated extension of this assessment to imported dairy products. This provision was supported by most milk producer groups, but opposed by dairy importers and processors.\nSee the Appendix at the end of this report for a side-by-side comparison of the enacted 2008 farm bill with previous law and the House and Senate farm bill dairy provisions.",
"",
"In FY1999-FY2001, Congress provided just over $32.5 billion in emergency spending for U.S. Department of Agriculture (USDA) farm commodity support programs, primarily to help farmers recover from low farm commodity prices. The majority of these funds were for supplemental direct farm payments made to producers of certain supported farm commodities, including milk. Of this amount, dairy farmers received total supplemental \"market loss\" payments of $1 billion over three years.\nSome dairy farmer groups sought a permanent direct payment program for dairy farmers to be included in the 2002 farm bill as a means of supplementing dairy farm income when farm milk prices are low. Prior to these emergency payments, dairy farmers generally were not recipients of direct government payments. However, some groups contended that farm milk prices had been volatile in recent years and that dairy farmers needed more income stability.\nSeparately, the Northeast Dairy Compact, which provided price premiums to New England dairy farmers when market prices fell below a certain level, expired on September 30, 2001. These premiums were funded by assessments on fluid milk processors, whenever fluid farm milk prices in the region fell below $16.94 per hundredweight (cwt.). Supporters of the Northeast Compact had sought for an extension of the compact; the southeastern states were seeking new authority to create a separate compact. However, dairy processors and Upper Midwest producers strongly opposed regional compacts.\nIn response, the Farm Security and Rural Investment Act of 2002 ( P.L. 107-171 , the 2002 farm bill) authorized a new counter-cyclical national dairy market loss payment program. (Upon implementation, USDA dubbed the program the Milk Income Loss Contract (MILC) program.) This program was created as an alternative to regional dairy compacts and ad-hoc emergency payments to farmers, by authorizing additional federal payments when farm milk prices fall below an established target price. Authority for the MILC program originally expired on September 30, 2005, as required by the 2002 farm bill. However, several subsequent measures granted short-term extensions of the MILC program and many other expiring farm bill authorities to allow Congress to complete work on the 2008 farm bill.",
"Under the now-expired 2002 farm bill authority for the MILC program, participating dairy farmers nationwide were eligible for a federal payment whenever the minimum monthly market price for farm milk used for fluid consumption (Class I) in Boston fell below $16.94 per hundredweight (cwt.). Eligible farmers then received a payment equal to 34% of the difference between the $16.94 target price and the lower monthly market price. The 2002 law required that payments be limited to the first 2.4 million pounds of annual milk production per dairy operation (which is roughly equivalent to the total annual production of a 130-cow operation).",
"Section 1506 of the 2008 farm bill ( P.L. 110-246 ) extends the authority for the MILC program until September 30, 2012, and retains the base target price at $16.94 per cwt. However, the 2008 farm bill makes significant changes to the MILC payment structure in the following ways:\nPayment Percentage Rate Increased: Until September 30, 2008, a dairy producer continued to receive a payment equal to 34% of the difference between the $16.94 per cwt. target price and the market price, in any month that the Boston market price fell below $16.94. However, from October 1, 2008 through August 31, 2012, the 2008 farm bill raises the payment rate to 45% of the price deficiency, which results in a one-third larger payment to eligible farmers in months when a payment is triggered. The payment percentage rate will revert to the 34% level for the final month of the program (September 2012). This reversion was included to minimize long-term budget outlays, so that the cost of increasing the percentage payment rate does not get built into the baseline budget once the program expires. Production Payment Limit Increased: The 2008 farm bill maintained the payment quantity limit at 2.4 million pounds through September 30, 2008, and then raised the payment limit to 2.985 million pounds of annual production (equivalent to about a 160-cow operation) between October 1, 2008, and August 31, 2012. Like the increase in the percentage payment rate, the eligible production limit will revert to its original level (2.4 million lbs.) for the last month of program authority (September 2012) so that the budget baseline for future years does not include the cost of the increase. Since the inception of the MILC program, large dairy farm operators expressed concern that the 2.4 million lb. payment limit negatively affected their income. For larger farm operations, their annual production is well in excess of the limit, and any production in excess of that receives no federal payments. An increase was not part of the House-passed version of the bill, and the final level of 2.985 million lbs. is below the Senate-passed level of 4.15 million lbs. Payment Level Feed-Price Adjustment: Because of the rapidly rising cost of feed, some dairy farm groups had sought some type of adjustment to federal dairy support programs to soften the impact. The final 2008 farm bill includes a provision that adjusts upward the $16.94 target price in any month when feed prices are above a certain threshold. The law requires USDA to calculate monthly a National Average Dairy Feed Ration Cost based on a formula that USDA currently uses to calculate feed costs. In any month that the average feed cost is above $7.35 per cwt., the $16.94 target price will be increased by 45% of the difference between the monthly feed cost and $7.35. To reduce budget exposure, the threshold feed cost will rise to $9.50 per cwt., effective for the last month of the program (September 2012).",
"In 2008, the Congressional Budget Office (CBO) estimated that the increase in the percentage payment rate to 45%; the increase in the payment limit to 2.985 million lbs. of annual production; and the institution of a new feed cost adjuster would together add $395 million to the cost of the MILC program over the five-year authorization period (FY2008-FY2012). This budget scoring was based on the March 2007 CBO baseline, which was the official benchmark for the scoring of the 2008 farm bill. When scored against the more recent CBO baseline (January 2009), the increased costs associated with changes in the MILC program are, in fact, more than offset by lower overall program costs associated with higher projected milk prices through FY2012, even after incorporating the effect of the recent decline in milk prices.",
"During the farm bill debate, the Bush Administration supported a continuation of MILC payments at the then-current target price of $16.94 per cwt. and the 2.4 million lb. payment cap. However, in order to defray the cost of MILC program extension, the Administration recommended that the percentage payment rate be gradually reduced over a five-year period to 20% by FY2013. The Administration also wanted to base payments on historical production rather than current production in order to forestall potential challenges in the World Trade Organization (WTO).\nThe National Milk Producers Federation (NMPF), the largest trade association representing dairy farmer cooperatives, also supported a direct payment program for farmers. In order to make the program less susceptible to challenges in the WTO, NMPF initially proposed making direct payments of $0.50 per cwt. to dairy farmers (regardless of the level of market prices) on the average production level of 2005 and 2006, up to $40,000 per farm.\nThe International Dairy Foods Association (IDFA), the largest trade association of dairy processors, opposed extension of the MILC program, contending that it works at cross purposes with the dairy price support program and contributes to the overproduction of milk and to high government costs. Instead, IDFA proposed a dairy farm revenue insurance program that it said would provide a better safety net for farmers without distorting milk markets.",
"USDA began accepting applications for the original MILC Program on August 15, 2002. (See Table 1 for MILC payment history.) In September 2007, farm milk prices set a record high as the Class I Boston farm milk price reached $25.16 per cwt., which is $9.22 above the $16.94 per cwt. target price. For the latter half of 2007 and all of 2008, farm milk prices remained well above the MILC trigger price, precluding the need for any MILC payments. Falling milk prices in recent months, however, have raised the likelihood of MILC payments in 2009. While the Class I Boston farm milk price for January 2009 is $18.99 per cwt, or $2.05 per cwt above the trigger (excluding any feed cost adjustment), many dairy economists are projecting that farm milk prices will decline to the point that the MILC payments will be triggered for the balance of 2009. Individual producers must select which month to begin receiving payments, based on their projection of potential payment rates and the possibility of hitting the production payment limit.\nUSDA issued a final rule on December 4, 2008, amending the regulations for the previous MILC program to change the payment rate formula and production limit and include the feed cost adjustment (73 Federal Register 73764-73768). Also, payments are subject to adjusted gross income (AGI) provisions in the 2008 farm bill, which are being implemented through a separate rule (73 Federal Register 79267-79284, issued December 29, 2008). If nonfarm AGI is greater than $500,000, the farm is not eligible to receive MILC payments. USDA began program signup on December 22, 2008. Producers may sign up through the program's expiration on September 30, 2012.",
"Over the more than five years of MILC program payment authority, its cumulative cost has been $2.5 billion. The FY2003 total of $1.8 billion includes two fiscal years worth of payments, since retroactive payments for FY2002 were made over the course of FY2003. Five states have accounted for just over one-half of the total payments made over the time period (see Table 2 ).",
"The Agricultural Act of 1949 first established the dairy price support program (DPSP) by permanently requiring USDA to support the farm price of milk. Since 1949, Congress has regularly amended the program, usually in the context of multi-year omnibus farm acts and budget reconciliation acts. (See Table 3 for a recent history of spending on the dairy price support program and related activities.) Section 1501 of the Farm Security and Rural Investment Act of 2002 ( P.L. 107-171 , the omnibus 2002 farm bill) authorized a 5½-year extension of the program through December 31, 2007, at the then-current support price of $9.90 per hundredweight (cwt.) of farm milk. Several measures were enacted to provide short-term extensions of many expiring USDA programs, including the DPSP, so that Congress could complete work on a new farm bill.\nHistorically, the supported farm price for milk is intended to protect farmers from price declines that might force them out of business and to protect consumers from seasonal imbalances of supply and demand. USDA's Commodity Credit Corporation (CCC) supports milk prices by its standing offer to purchase surplus nonfat dry milk, cheese, and butter from dairy processors. Government purchases of these storable dairy products indirectly support the price of milk for all dairy farmers. Under the 2002 farm bill, prices paid to the processors were set administratively by USDA at a level that would permit them to pay dairy farmers at least the federal support price for their milk.\nPrior to passage of the 2008 farm bill, in order to achieve the support price of $9.90 per cwt. of milk specified in the 2002 farm bill, USDA had a standing offer to processors to purchase surplus manufactured dairy products at the following prices, which were administratively established by USDA: $1.05 per pound for butter, $0.80 for nonfat dry milk, $1.13 per pound for block cheddar, and $1.10 per pound for barrel cheese. Whenever market prices fell to the support level, processors generally made the business decision of selling surplus product to the government rather than to the marketplace. Consequently, the government purchase prices usually served as a floor for the market price, which in turn indirectly supported the farm price of milk at $9.90 per cwt.\nGovernment purchases of surplus dairy products have been relatively small since late 2003, as market prices have remained above the support price. In the early 1980s, the support price was $13.10 per cwt. and government purchases peaked at $2.6 billion in 1983. A gradual decline in the support price to $9.90 significantly reduced the cost of the program from peak levels.\nIn late 2008 and early 2009, after several years of relative inactivity, the price support program resumed purchases following a decline in milk product prices. USDA estimated that it removed 115 million pounds of nonfat dry milk in 2008 and expects to remove 320 million pounds in 2009, along with small amounts of cheese and butter.",
"Section 1501 of the enacted 2008 farm bill ( P.L. 110-246 ) extends the dairy support program for five years (through December 31, 2012), but modifies the program so that it directly supports the prices of manufactured dairy products at mandated levels. The 2008 farm bill renames the program the Dairy Product Price Support Program and requires USDA to purchase products at the following minimum prices: block cheese, $1.13/lb.; barrel cheese, $1.10/lb.; butter, $1.05/lb.; and nonfat dry milk, $0.80/lb. Under previous law, the support price for farm milk was statutorily set at $9.90 per cwt., and USDA was given the administrative authority to establish a combination of dairy product purchase prices that indirectly supported the farm price of milk at $9.90. Although the 2008 law does not specifically state that the overall support price is $9.90 per cwt, each of the mandated product prices in the law is equivalent to the existing product purchase prices, so farm milk prices effectively continue to be supported at $9.90.\nThe shift to a mandated product price support program was based on a proposal submitted by the National Milk Producers Federation (NMPF), which contended that the previous discretion given to USDA to establish purchase prices has \"undermined the program's effectiveness.\" NMPF also contends that a shift to a dairy product price support program would be viewed as less trade distorting in the WTO than the previous support program. (See \" WTO Implications \", below.)\nIn order to minimize program costs and the potential accumulation of excess inventories, the 2008 farm bill allows USDA to temporarily reduce the mandated prices when government purchases of a product exceed a certain specified level. The law allows USDA to reduce (1) the cheese purchase price by up to $0.10 per lb. when government purchases for a consecutive 12-month period are between 200 million and 400 million lbs, and up to $0.20 per lb when purchases exceed 400 million lbs.; (2) the butter purchase price by $0.10 per lb. when 12-month butter purchases are between 450 million and 600 million lbs, and up to $0.20 per lb. when purchases exceed 650 million lbs.; and (3) the nonfat dry milk purchase price by $0.05 per lb. when 12-month nonfat dry milk purchases are between 600 million and 800 million lbs., and up to $0.10 per lb. when purchases exceed 800 million lbs. Also, at any time, USDA can sell inventoried dairy products at prevailing market prices, as long as the selling price is at least 120% of the supported price.\nIn its farm bill proposal, the Bush Administration supported the extension of the dairy price support program, viewing it as a low-cost stabilizing influence on farm milk prices. It stated that many dairy producers see the need for a floor to be kept under farm milk prices to maintain an adequate milk supply and provide a safety net. Dairy processor groups have expressed concern that the dairy price support program in combination with MILC payments work at cross-purposes, by artificially stimulating milk production and causing persistent surpluses. They also question whether having the government as a guaranteed buyer of surplus products discourages investment to produce dairy ingredients (e.g., milk protein concentrates) that are increasingly in demand in the market.",
"Separately, some policymakers have been concerned that because of the way domestic price support programs are viewed under our trade obligations in the World Trade Organization (WTO), modifications to dairy support might be required under a new trade agreement. Although federal outlays for the dairy price support program have been relatively small (under $100 million) in recent years (see Table 3 ), the WTO measures the level of support differently.\nUnder current U.S. trade obligations, the aggregate measure of support for dairy is based on how much higher the domestic support price is set above a fixed world reference price (established in the WTO at a fixed level of $7.25 per cwt.). The imputed subsidy of $2.65 per cwt. (i.e., the $9.90 domestic support price less the $7.25 reference price) is applied to all domestic milk production. Using this formula, the United States has notified the WTO that the aggregate measure of support for the dairy price support program is more than $4.8 billion annually; and it is classified as \"amber box,\" or the most trade-distorting category. The current U.S. proposal in the Doha Round is to reduce its total amber box support from the current $19.1 billion to $7.6 billion. With dairy support representing such a large percentage of the proposed new maximum, some have expressed interest in shifting future policy away from price support to some type of WTO-compliant direct payment that is decoupled from price and production. Supporters of the shift to a dairy product price support program maintain that, under the revised program, only the portion of milk production that goes into the production of the supported products would have to be notified to the WTO, and that fluid-use milk and milk used for unsupported manufactured products such as yogurt and ice cream would be exempt.",
"With product support prices already specified in statute, USDA issued a final rule on December 4, 2009 (73 Federal Register 73764-73768), in conjunction with the MILC program, to adjust milk price support regulations (7 CFR Part 1430). USDA specified that support purchases will only be made from manufacturers and not from third parties such as brokers.",
"",
"The farm price of approximately two-thirds of the nation's fluid milk is regulated under federal milk marketing orders. Federal orders, which are administered by the U.S. Department of Agriculture (USDA), were instituted in the 1930s to promote orderly marketing conditions by, among other things, applying a uniform system of classified pricing throughout the market. Some states, California for example, have their own state milk marketing regulations instead of federal rules. Producers delivering milk to federal marketing order areas are affected by two fundamental marketing order provisions: the classified pricing of milk according to its end use, and the pooling of receipts to pay all farmers a blend price.\nFederal orders regulate dairy handlers (processors) who sell milk or milk products within a defined marketing area by requiring them to pay not less than established minimum class prices for the Grade A milk they purchase from dairy producers, depending on how the milk is used. This classified pricing system requires handlers to pay a higher price for milk used for fluid consumption (Class I) than for milk used in manufactured dairy products such as yogurt, ice cream, and sour cream (Class II products), cheese (Class III), and butter and dry milk products (Class IV products). These differences between classes reflect the different market values for the products.\nBlend pricing allows all dairy farmers who ship to the market to pool their milk receipts and then be paid a single price for all milk based on order-wide usage (a weighted average of the four usage classes). Paying all farmers a single blend price is seen as an equitable way of sharing revenues for identical raw milk directed to both the higher-valued fluid market and the lower-valued manufacturing market.\nManufactured class (Class II, III and IV) prices are the same in all orders nationwide and are calculated monthly by USDA based on current market conditions for manufactured dairy products. The Class I price for milk used for fluid consumption varies from area to area. Class I prices are determined by adding to a monthly base price, a \"Class I differential\" that generally rises with the geographical distance from milk surplus regions in the Upper Midwest, the Southwest, and the West. Class I differential pricing is a mechanism designed to ensure adequate supplies of milk for fluid use at consumption centers. The supply of milk may come from local supplies or distant supplies, whichever is more efficient. However, local dairy farmers are protected by the minimum price rule against lower-priced milk that might otherwise be hauled into their region.\nProponents of federal orders argue that orders are necessary because dairy farmers have a competitive disadvantage vis-à-vis dairy handlers (processors) when it comes to determining prices that farmers receive for their raw, perishable milk. Critics contend that federal orders are arcane and outdated, and that the complexity of the system places dairy processors at a competitive disadvantage in the market.",
"",
"A forward contract is a cash market transaction in which a seller agrees to deliver a specific commodity to a buyer at some point in the future at a mutually agreed to price. A dairy farmer and a proprietary milk handler theoretically can engage in a forward contract, whereby the farmer would deliver milk to the processor at an agreed to price and future date of delivery. However, prior to enactment of the 2008 farm bill, if the monthly federal milk marketing order minimum price was above the forward contract price, the handler was still required to pay at least the federal order price for the milk. Proprietary handlers, therefore, had little incentive to enter into forward contracts, since they were prohibited from paying a price less than the federal milk marketing order minimum price. A pilot dairy forward pricing program was authorized by the FY2000 omnibus appropriations act, which USDA implemented from mid-2000 until its required expiration date of December 31, 2004.",
"Section 1502 of the enacted 2008 farm bill authorizes a dairy forward pricing program that is to be administered in a similar manner as the temporary pilot program in 2000-2004. Like the original pilot program, the forward pricing program allows dairy farmers and cooperatives to voluntarily enter into forward contracts with milk handlers. Any payments made by milk handlers under the contract will be deemed to satisfy the minimum price requirements of federal milk marketing orders. The program applies only to milk purchased for manufactured products (Classes II, III, and IV), and therefore does not include milk purchased for fluid consumption (Class I). The provision allows new contracts to be entered into until September 30, 2012, but no contract can extend beyond September 30, 2015. USDA issued a final rule for the Dairy Forward Pricing Program on October 31, 2008 (73 Federal Register 64868-64872).\nDairy processor groups, primarily the International Dairy Foods Association, sought this provision so that proprietary handlers could be exempt from the minimum pricing requirements of federal orders when they enter into a forward contract with dairy farmers. Proponents contend that proprietary handlers should have the same ability to forward contract as dairy cooperatives. (Under current law, dairy cooperatives are exempt from having to pay the federal order minimum prices to its members.) They also maintain that forward pricing is an effective risk management tool for both farmers and processors, allowing them to insulate themselves from the volatility of farm milk prices. Critics, including the National Milk Producers Federation, were concerned that handlers might compel small farmers to participate in a contract, and possibly use the contract as a means of undermining the federal order pricing system.",
"Unlike the dairy price support program and the milk income loss contract program, federal milk marketing orders are permanently authorized and therefore do not require periodic reauthorization by Congress. Instead, changes to federal milk marketing orders are handled administratively by USDA's Agricultural Marketing Service. The authorizing statute for federal milk marketing orders requires USDA to use formal rulemaking procedures to make changes to orders. Any interested party can petition USDA to create a new order or amend an existing one. The terms of a new or amended order are developed through public participation (producers, processors and consumers) in hearings held by USDA prior to the issuance of the order. USDA analyzes the hearing records and then recommends the terms and provisions of milk marketing orders. If two-thirds of the voting producers approve a new or an amended marketing order, the Secretary then approves and issues the order.\nSome dairy producer groups have expressed concern that this rulemaking procedure can take many months and sometimes years to reach a conclusion and that the process needs to be streamlined. USDA admits that the process is time consuming, but counters that it provides for maximum industry participation and transparency. The International Dairy Foods Association (IDFA) contends that the rulemaking process prevents dairy farmers and processors from competing with other food and beverage industries that are not faced with government intervention. IDFA considers federal milk marketing orders to be outdated and unresponsive to market forces, and proposed that Congress establish a blue ribbon commission of stakeholders and experts to review the federal order system in its entirety.",
"Section 1504 of the enacted 2008 farm bill contains several revisions to federal order amendment procedures that include time limits for USDA to take specific actions. On August 20, 2008, USDA issued a final rule to provide supplemental guidelines, time frames, and procedures for amending federal milk marketing agreements and orders (73 Federal Register 49085-49090). Section 1509 includes the authorization of a blue ribbon commission to examine the future and efficacy of federal milk marketing orders.",
"First authorized in 1985, the Dairy Export Incentive Program (DEIP) provides cash bonus payments to U.S. dairy exporters. The program was initially intended to counter foreign (mostly European Union) dairy subsidies, but subsequent farm bill reauthorizations expanded its purpose to market development. Payments since the program's inception have totaled $1.1 billion, with the most recent expenditures made in FY2004. The program was active throughout the 1990s, peaking in 1993 with $162 million in bonuses (see Table 4 ).\nU.S. dairy product exports made with DEIP bonuses are subject to annual limitations under the WTO Uruguay Round Agreement. The limits are 68,201 metric tons of nonfat dry milk, 21,097 tons of butterfat, and 3,030 tons of various cheeses. Total expenditures under WTO commitments are capped at $117 million per year.",
"Section 1503 of the 2008 farm bill ( P.L. 110-246 ) extends the authority for the DEIP until December 31, 2012.",
"The Dairy Producer Stabilization Act of 1983 (7 U.S.C. 4501-4514) authorized a national dairy producer program for generic dairy product promotion, research, and nutrition education. The program is funded through a mandatory 15-cent per hundredweight assessment on all milk produced and marketed in the 48 contiguous states. Section 1505 of the 2002 farm bill ( P.L. 107-171 ) amended the 1983 act requiring that the 15-cent assessment be collected on all imported dairy products. Section 1505 also required USDA to consult with the Office of the U.S. Trade Representative (USTR) before implementing the assessment on imports to ensure that the new requirement is consistent with U.S. international trade obligations. After consulting with the USTR, the Secretary of Agriculture determined that a mandatory dairy import assessment is not permissible, since Alaska and Hawaii are exempt from the domestic assessment. According to USDA, the exemption treats some domestic producers more favorably than importers, thereby violating U.S. trade obligations. Hence, USDA has never implemented the import assessment.",
"Section 1507 of the enacted 2008 farm bill adopts the Administration's proposal to ensure that the current 15-cent assessment applies to Alaska, Hawaii and Puerto Rico. The Administration contends that the statutory change would make the definition of the United States consistent with the definition used by the USTR and U.S. trading partners, thus allowing them to implement the assessment in imported products. The enacted 2008 farm bill also reduces the assessment on imports from 15 cents to 7.5 cents.\nThe import assessment is supported by most dairy producer groups. However, milk producers in Alaska and Hawaii were opposed to any definition change that required them to contribute to the program. Dairy importers and processors are opposed to the import assessment, contending that it is an unfair tax on imported products which they say could be challenged as trade distorting in the World Trade Organization, regardless of whether Alaska and Hawaii are included.",
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"question": [
"What do participating dairy farmers receive through participation in the MILC program?",
"What flexibilities in payment percentage rates and target prices are there for participating farmers?",
"How do opinions about this program vary between milk producers in the Northeast and Upper Midwest versus large farmers in the West?",
"What recently changed about market prices for farm milk?",
"How did the dairy price support program function under previous farm law?",
"How did the 2008 farm bill alter the dairy support program?",
"What was the purpose of the program's shift?",
"Why do dairy farm groups see this program as a necessary program?",
"How do dairy processors see this program differently?",
"What function do federal milk marketing orders have?",
"How are changes made to these federal orders?",
"How are some of these orders being investigated outside of this rulemaking process?",
"What is an example of one of these bills?"
],
"summary": [
"The MILC program allows participating dairy farmers to receive a government payment when the farm price of milk used for fluid consumption falls below an established target price.",
"The enacted 2008 farm bill extends the MILC program through FY2012 at the existing level of support, but increases the payment percentage rate and the amount of eligible production. The target price also can be increased in any month that feed costs are above a certain threshold.",
"The MILC program is supported by milk producer groups in the Northeast and the Upper Midwest. Large farmers, particularly in the West, contend that the program payment limit is biased against them.",
"Market prices for farm milk have recently declined to levels near the target price, increasing the likelihood of MILC payments in 2009.",
"Separately, under previous farm law, the dairy price support program indirectly supported the farm price of milk at $9.90 per hundredweight (cwt.) through government purchases of surplus dairy products from dairy processors.",
"The 2008 farm bill extends the dairy support program through December 31, 2012, but modifies the program so that it directly supports the prices of dairy products at mandated levels.",
"This program shift was designed to help reduce the program's exposure under World Trade Organization limitations. Most dairy farm groups and the Administration view the program as a necessary safety net in a market that is frequently characterized by volatile prices.",
"Most dairy farm groups and the Administration view the program as a necessary safety net in a market that is frequently characterized by volatile prices.",
"Dairy processors consider the price support and MILC programs to operate at cross-purposes, which they say contributes to surplus milk production. A recent milk product price decline has resulted in government purchases of nonfat dry milk.",
"A third federal dairy pricing policy tool, federal milk marketing orders, requires dairy processors in many regions to pay a minimum price for farm milk depending on its end use.",
"Federal orders are permanently authorized and most changes are made administratively by USDA through the rulemaking process.",
"However, a number of federal order issues were brought to the attention of Congress for the farm bill debate.",
"Included in the final bill is a provision that exempts dairy processors from paying the federal minimum price whenever they forward contract prices with dairy farmers for milk used in manufactured products."
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CRS_R43506
|
{
"title": [
"",
"Introduction",
"Medicaid Financial Eligibility for Long-Term Services and Supports",
"General Asset Rules",
"Home Equity Limits",
"Spousal Impoverishment Protections",
"Asset Transfers",
"Treatment of Certain Types of Assets",
"Annuities",
"Fees for Continuing Care Retirement Communities",
"Life Estates",
"Promissory Notes, Loans, and Mortgages",
"Trusts",
"Post-Eligibility Treatment of Income",
"Estate Recovery"
],
"paragraphs": [
"",
"Long-term services and supports (LTSS) refer to a broad range of health and health-related services and supports needed by individuals who lack the capacity for self-care due to a physical, cognitive, or mental disability or condition. Often the individual's disability or condition results in the need for hands-on assist ance or supervision over an extended period of time. LTSS includes services provided in institutional settings such as nursing homes as well as services provided in home and community-based residential settings such as private homes and assisted living facilities.\nThe cost of obtaining paid LTSS may far exceed many individuals' financial resources. In 2016, the median annual cost of nursing home care was just over $82,000 for a semi-private room and more than $92,000 for a private room. For those receiving paid LTSS at home, the cost for these services can vary depending on the amount and duration of care provided. Assuming full-time care in the home, the median annual cost of home health aide services would have been about $46,000 in 2016. Large personal financial liabilities associated with paying for LTSS may leave some individuals and their families at financial risk. As a result, some individuals may turn to public programs for assistance with the high costs of needed LTSS.\nMedicaid is a means-tested entitlement program that finances the delivery of health care and LTSS to certain eligible low-income individuals. Established under Title XIX of the Social Security Act (SSA), the Medicaid program is state-operated within broad federal guidelines, and is jointly funded by the federal government and states. Medicaid is the largest payer of LTSS in the United States. In 2015, Medicaid paid 42.5% of total LTSS expenditures at $149.4 billion, out of $351.8 billion in 2015. Medicaid LTSS expenditures also represent a significant portion of federal and state Medicaid spending. In 2015, Medicaid LTSS comprised 30.7% of total Medicaid expenditures in 2015. However, Medicaid LTSS users represent a small share of all Medicaid enrollees. It is estimated that 4.1 million Medicaid enrollees (or 5.9%) of the 68.5 million total enrolled Medicaid population received LTSS in FY2013 (the most recent data available). Some states are reexamining their Medicaid programs in an effort to control state LTSS spending.\nHistorically, Medicaid has covered LTSS for individuals who are unable to afford the cost of their care. Moreover, federal and state governments have a financial interest in ensuring that only eligible individuals receive Medicaid coverage for LTSS. In response, Congress has enacted several laws aimed at limiting the ability of individuals to divest financial resources in an effort to protect them (e.g., preserve them for a family member), thereby meeting financial requirements for Medicaid and any applicable LTSS. The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA, P.L. 97-248 ) was the first such legislation enacted to limit the actions of individuals who divest resources for this purpose. The Omnibus Budget and Reconciliation Act of 1993 (OBRA 93, P.L. 103-66 ) included several provisions to restrict access to Medicaid LTSS to only those individuals who were low-income or to those who applied their financial resources toward the cost of their care. The Deficit Reduction Act of 2005 (DRA, P.L. 109-171 ) was the most recent action taken by Congress to amend the SSA by further limiting the ability of individuals to divest their resources for the purpose of qualifying for Medicaid LTSS.\nThis report provides an overview of the financial requirements used for determining eligibility for Medicaid LTSS. It first provides background information on the Medicaid program, including general eligibility requirements. Next, it describes federal statute as well as selected regulations and guidance regarding these financial eligibility requirements, including rules related to spousal impoverishment, asset transfers, treatment of certain assets, post-eligibility treatment of income, and estate recovery.",
"Eligibility for Medicaid is determined by both federal and state law, whereby states set individual eligibility criteria within federal minimum standards. Individuals must meet categorical (e.g., individuals aged 65 and over, individuals with disabilities, children, pregnant women, parents, certain nonelderly childless adults) and financial (i.e., income and sometimes resource standards) criteria. The categorical groups most often associated with the need for Medicaid-covered LTSS are the aged and disabled. Individuals must also meet other non-financial eligibility criteria, including federal and state residency requirements, immigration status, and documentation of U.S. citizenship. In addition to categorical and financial eligibility criteria, individuals in need of Medicaid-covered LTSS must also meet state-based functional eligibility criteria.\nThe rules for determining financial eligibility for individuals who need Medicaid-covered LTSS are complex. Federal Medicaid law requires states to cover certain population groups (mandatory eligibility groups) and gives states the flexibility to cover other population groups (optional eligibility groups). Eligibility for the program's benefits has traditionally been linked to eligibility for cash assistance programs. For example, under federal Medicaid law, states are required to provide coverage to aged and disabled individuals receiving cash-assistance through the Supplemental Security Income (SSI) program. In doing so, Medicaid eligibility for aged and disabled individuals uses SSI program rules as the basis for determining financial eligibility. However, federal law also gives states the option to use financial eligibility criteria that are more restrictive than SSI (i.e., 209(b) states). For 2017, the SSI rules specify that recipients must have monthly countable income at or below $735 for an individual (or $1,103 for a couple), about 74% of the federal poverty level (FPL). SSI rules also limit the countable resources individuals may have to $2,000 for an individual (or $3,000 for a couple).\nStates may also extend Medicaid coverage to other aged and disabled individuals, referred to as optional eligibility groups. For aged and disabled individuals eligible for Medicaid through optional eligibility groups, states may use SSI program rules or they may use more liberal standards for determining financial eligibility than those specified under SSI. Most states use these Medicaid statutory provisions to ignore or disregard certain types of income and/or resources, thereby extending Medicaid eligibility to aged and disabled individuals with higher asset levels. For example, states may extend Medicaid coverage to individuals who have income up to three times the basic SSI payment level (referred to as the 300% rule) and reside in a nursing facility or other institution. Medicaid also provides states the option of covering elderly and disabled persons who are not poor by SSI standards but who need assistance with medical expenses. Under the medically needy pathway, individuals can qualify for Medicaid if they have income and resources that exceed the standards established by the states for the medically needy programs, but only if they incur medical expenses that \"spend-down\" or deplete their income and resources to specified levels.\nIn contrast, the rules for determining financial eligibility for most of Medicaid's non-elderly populations (i.e., parents, children, pregnant women) use modified adjusted gross income (MAGI). These MAGI rules also apply to those individuals eligible under the ACA Medicaid expansion. In this report, individuals who are determined eligible for Medicaid using MAGI rules are collectively referred to as \"MAGI individuals.\" There are no additional resource requirements used to determine Medicaid financial eligibility for MAGI individuals (i.e., no resource standard). According to CMS, in ACA Medicaid expansion states individuals under age 65 with disabilities who have LTSS needs are likely to continue to qualify for Medicaid under optional eligibility groups related to disability. , These \"non-MAGI individuals\" are still subject to the financial eligibility rules associated with those eligibility groups (i.e., both income and resource standards). Nevertheless, some adults with disabilities who need LTSS may still qualify and receive Medicaid-covered LTSS under the ACA Medicaid expansion. These individuals would be subject to MAGI financial eligibility rules (i.e., income limit, but no resource limit). For example, individuals who meet the categorical requirements for disabled and have income under 138% FPL but resources above the level required to otherwise qualify through other optional groups may be eligible under the Medicaid ACA expansion.\nIn general, states are not required to offer LTSS for individuals in the ACA Medicaid expansion group. However, the ACA Medicaid expansion affords states options to include LTSS or otherwise make available state plan Medicaid-covered LTSS to certain newly eligible enrollees. States that chose to implement the ACA Medicaid expansion are required to provide coverage through Alternative Benefit Plans (ABPs), which must include the 10 essential health benefits (EHBs). However, specific groups are exempt from mandatory enrollment in ABPs (e.g., those with special health care needs such as disabling mental disorders or serious and complex medical conditions). These individuals must be offered the option of a benefit plan that includes Medicaid state plan services. For most adult beneficiaries receiving state plan services, they may be eligible for certain mandatory LTSS (e.g., nursing facility services, home health services) and optional state plan LTSS (e.g., personal care services). In addition, some states may choose to include LTSS in their ABPs.\nPrior to the ACA Medicaid expansion, eligibility pathways available to adults with disabilities in need of LTSS required both income and resource standards. Under the ACA Medicaid expansion, adults with disabilities may be able to receive LTSS without specified resource standards. For these MAGI Individuals to potentially retain financial resources that could be applied toward the cost of their care raises beneficiary equity issues within the Medicaid program. CMS guidance to states explains how the LTSS-related resource rules apply to MAGI individuals. This information is included in the report, where applicable.",
"Assessment of an applicant's assets for the purposes of determining Medicaid eligibility can be complicated, depending on how much and what type of assets an individual possesses. Under the Medicaid program, assets fall into one of two categories: (1) income or (2) resources. In general, income includes earned income such as wages, self-employment earnings, and royalties, as well as unearned income, which includes payments from annuities, pensions, and trusts. Resources are generally defined as cash and other liquid assets or personal property that an individual (or a spouse) owns and could convert to cash. States have the flexibility to determine income and resource requirements for different Medicaid eligibility groups within broad federal guidelines. For the SSI-related mandatory eligibility groups, states rely on SSI program rules for determining financial eligibility, with options to use more restrictive requirements in 209(b) states. States have further flexibility to modify SSI program rules in determining income and resource requirements for other optional eligibility groups.\nUnder SSI program rules, resources may be (1) counted based on their entire value, (2) excluded for their entire value, or (3) excluded for part of their value. Resources that are counted for their entire value generally include liquid assets that the applicant owns and could convert to cash (e.g., money in bank accounts, stocks and bonds, mutual fund investments, and certificates of deposit). Resources excluded for their entire value include a primary residence, personal and household items (e.g., furniture, appliances, personal computers, personal jewelry, personal care items, or items of cultural or religious significance), certain property essential to income-producing activity, and the value of a burial space. Further, one automobile, regardless of value, is excluded so long as it is used for transportation of the applicant or a member of the applicant's household. Resources that are excluded for part of their value include burial funds and the \"face value\" of certain life insurance policies (up to $1,500).",
"While a primary residence, regardless of value, is not a countable resource for the purposes of Medicaid eligibility under SSI program rules, the equity value of a home may affect whether or not an individual receives Medicaid covered LTSS. For beneficiaries applying for Medicaid coverage for nursing facility services or other LTSS, federal Medicaid law restricts eligibility if the applicant's equity interest in the home exceeds a statutorily determined amount ($560,000 in 2017). At state option, this limit could be higher (up to $840,000 in 2017). States choosing a home equity threshold above the minimum apply the limit statewide. Such limits do not apply to individuals who have a spouse, child under the age of 21, or a child with a disability of any age residing in the home. Also, states can choose not to apply this rule if it is determined that doing so would cause an undue hardship in a given case. Similarly, MAGI individuals whose home equity exceeds the state limit are not eligible for LTSS coverage.\nFor purposes of qualifying for Medicaid LTSS, individuals who have home equity above the state-specified limit could use a reverse mortgage or home equity loan to reduce their total equity interest in the home. In order for the proceeds of a reverse mortgage or home equity loan to be excluded from countable resources for the purposes of obtaining Medicaid coverage, federal guidance specifies that the Medicaid applicant must either spend the transaction amount or repay it to the lender in the month received. Any amounts not spent or repaid in the following month are counted as resources against the state's limit; therefore, the amount would have to be depleted before qualifying for Medicaid LTSS.",
"Adding to the complexity of determining financial eligibility for Medicaid LTSS is the treatment of the assets of a couple, when one spouse needs institutional care or certain home and community-based services (the qualifying spouse) and the other is able to remain in the community (the community spouse). Medicaid specifies rules for equitably allocating how much income and resources, as well as which resources, are to be credited to each spouse for the purposes of determining Medicaid LTSS eligibility. Commonly referred to as spousal impoverishment rules, they are intended to prevent the impoverishment of the spouse remaining in the community. In general, states must establish income and resource amounts that the community spouse may retain within federal limits. These amounts are not applied toward the qualifying spouse's Medicaid eligibility determination or LTSS costs.\nRegarding income, federal Medicaid law exempts all of a community spouse's income in his or her name from being considered available to the other spouse. That is, for any month the qualifying spouse is residing in an institution or receiving certain home and community-based servcies, income solely attributable to the community spouse is not considered available to the institutionalized spouse. For community spouses with limited income, federal law allows qualifying spouses to transfer income to the community spouse up to a state-determined minimum monthly income threshold, referred to as the minimum monthly maintenance needs allowance, which is set within federal limits. In 2017, the community spouse's minimum monthly maintenance needs allowance must be at least $2,002, but no more than $3,022, as determined by the state. Following a hearing requested by either the qualifying or community spouse, states may raise the minimum amount on income that a community spouse may retain in cases of severe hardship. Finally, Medicaid provides for additional income allowances for excess housing costs and when dependents live with the community spouse.\nIn terms of resources, federal Medicaid law allows states to select the amount of resources a community spouse may be allowed to retain within federal limits. The minimum allowed by federal law is the greater of $24,180 or one-half the couple's resources, up to $120,900. A state may set a minimum as high as $120,900. For purposes of determining the amount of resources the community spouse can retain, all resources of the couple are combined, counted, and split in half, regardless of which of the two spouses has ownership of the individual resources. If the community spouse's resources are less than the state threshold, then the Medicaid applicant must transfer his or her share of the resources to the community spouse until the community spouse's share reaches the threshold. All other non-exempt resources tied to the applicant must be depleted before the applicant can qualify for Medicaid. Similar to the treatment of income, no resources of the community spouse are considered available to the qualifying spouse once the institutionalized spouse is determined to be eligible for Medicaid.\nPrior to enactment of the ACA, spousal impoverishment rules applied only in situations where the Medicaid recipient was receiving LTSS in an institutional setting, such as a nursing facility. Section 2404 of the ACA requires states to extend spousal impoverishment rules to beneficiaries receiving certain home and community-based services (HCBS). Beginning in 2014, the expansion of spousal impoverishment rules apply to individuals who (1) receive HCBS through SSA waiver authorities such as Section 1115 Research and Demonstration waivers, Section 1915(c) HCBS waivers, and the Section 1915(d) HCBS waivers for the elderly; (2) receive services through the Section 1915(i) state plan amendment option to provide HCBS; (3) are determined \"medically needy\"; or (4) receive personal attendant services under the Community First Choice Option under Section 1915(k). This provision remains in effect for a five-year period from January 1, 2014.",
"For persons seeking Medicaid LTSS eligibility, federal Medicaid law requires states to apply rules regarding the transfer of assets prior to qualifying for Medicaid. These rules attempt to ensure that Medicaid applicants apply their assets toward the cost of their care and do not divest them to gain Medicaid eligibility sooner than would occur otherwise. Specifically, Medicaid may require states to delay Medicaid eligibility for applicants seeking institutional and certain home and community-based LTSS who have disposed of certain assets for less than fair market value (FMV) on or after a \"look-back\" period, or period of time prior to application for services. This look-back period is five years prior to application for Medicaid. In other words, transfers for less than FMV may be, but are not always, prohibited during the five-year period prior to application for Medicaid. Federal Medicaid law also prohibits spouses of applicants from transferring assets for less than FMV during this same period. These asset transfer rules apply to MAGI individuals who seek coverage for Medicaid LTSS.\nIn order to determine whether a transfer for less than FMV occurred, applicants are first asked whether they made any transfers of monetary value during the five-year \"look-back\" period. If at least one transfer has occurred during this period, the state must determine whether the transfer was made for FMV. If the transfer was made for less than FMV (often referred to as an improper transfer), a penalty is imposed on the applicant in the form of months of ineligibility. To calculate the penalty period, the monetary value of the transfer, or portion of the transfer, that was made for less than FMV is divided by the average monthly private pay rate for nursing facility services in the state (or at state option, the rate in the community in which the individual resides). For example, an improper transfer of $26,000 divided by an average monthly private pay rate in a nursing facility of $6,500 results in a four-month period of ineligibility for Medicaid LTSS.\nThe penalty period begins either on the first day of the month in which assets have been transferred for less than FMV, or the date on which the individual is eligible for Medicaid and would otherwise be receiving an institutional level of care, whichever is later. In addition, states may waive penalties for asset transfers if the applicant can demonstrate to the state that he or she either (1) intended to transfer assets for FMV; (2) transferred assets for a purpose other than to qualify for medical assistance; or (3) recovered the assets that had been previously transferred. Also, ineligibility for Medicaid coverage is limited to certain LTSS, and individuals may still be eligible for other Medicaid services.\nNot all asset transfers during the five-year look back period are subject to penalties. For example, asset transfers for FMV, transfers to spouses of any value, and certain transfers to other individuals, such as children with disabilities, are not subject to penalties. Also, a home may be excluded from asset transfer penalties if it is transferred to certain individuals, including a spouse, a child under the age of 21, a child who is disabled, or a son or daughter who has resided in the home and has provided care that permitted the individual to delay institutionalization. These rules are intended to ensure that certain family members would not be without housing or lose their homes in order for another family member to obtain Medicaid coverage.",
"For the purposes of Medicaid asset transfer rules, all resources (and income) of an individual or couple are evaluated to determine whether the establishment, purchase, sale, or transfer of an asset has occurred for less than FMV. Generally, states follow SSI program rules concerning the treatment of most asset types that individuals possess at the time of application to Medicaid. Although Medicaid law does not contain provisions specifying how all assets should be treated, it does include special rules about how states must treat certain types of assets, such as annuities, fees for Continuing Care Retirement Communities (CCRCs), life estates, promissory notes, loans, mortgages, and trusts. Also, the Secretary of the Department of Health and Human Services (HHS) has the authority to issue guidance to states on other categories of transactions that may be treated as transfers of assets for less than FMV. States must apply the rules relating to these transactions to MAGI individuals in the same way they are applied to non-MAGI individuals.",
"An annuity is a sum of money that an individual converts into a series of guaranteed future payments for a certain number of years or for the remainder of their life. For the purposes of determining Medicaid eligibility, an individual who establishes an annuity during the look-back period effectively converts a countable asset into countable income. Federal Medicaid law describes when annuities should be treated as countable resources and when they should not. In general, annuities are treated as transfers for less than FMV, and thus subject to penalties, except when\nthe state is named as a beneficiary of the annuity so that the state can recover payments made by Medicaid following the death of the beneficiary; the annuity must be actuarially sound and pay back in equal monthly payments during the term of the annuity (with no deferral and no balloon payments); the annuity must be irrevocable (i.e., the annuitant cannot cancel the annuity) and non-assignable and non-transferable (i.e., the annuitant cannot give the annuity to someone else); and the annuity must be purchased from a commercial insurance company.\nAnnuities that meet these conditions are sometimes referred to as \"Medicaid compliant\" or Medicaid qualified\" annuities. Additional exceptions include annuities that fall into certain categories specified in Section 408 of the Internal Revenue Service Code of 1986 (IRC). Annuities that are defined as individual retirement accounts under federal tax code or purchased with the proceeds of certain retirement accounts and meet certain federal tax code requirements are not considered transfers for less than FMV if purchased by or on the behalf of an individual who applied for Medicaid coverage for LTSS.",
"Continuing Care Retirement Communities (CCRCs) or life care communities offer a range of housing and services, including LTSS, to older individuals as their care needs change over time. Generally, CCRCs provide housing with various levels of LTSS arrangements such as independent living, assisted living, and nursing facility care. CCRCs are paid primarily with private funds, but a number also accept Medicaid payments for certain services, such as nursing facility care. Residents of CCRCs or life care communities are required to spend their resources, declared when applying for admission, on their care before they apply for Medicaid. Federal Medicaid law requires states to consider certain entrance fees for CCRCs or life care communities as countable resources for the purposes of determining an individual's eligibility for Medicaid.",
"Generally, a life estate entitles an individual to possess, use, and obtain profits from a property for as long as he or she lives, even though the actual ownership of the property has passed on to another. For example, an individual may transfer home ownership to a son or daughter, but retain the use of the home throughout their lifetime. Such a transaction would give the child a \"remainder interest\" in the home, while the older individuals retained a \"life estate.\" Upon death, the title of the home automatically passes on to the son or daughter without the need for probate. With respect to Medicaid asset transfer rules, the purchase of a life estate is considered a transfer for less than FMV, and subject to an asset transfer penalty, when the value of the transferred property is greater that the value of the rights conferred by the life estate. The purchase of a life estate is also considered a transfer of assets for less than FMV unless the purchaser resides in the home for at least one year after the date of purchase.",
"Funds used to purchase a promissory note, loan, or mortgage are considered a transfer of assets for less than FMV unless the repayment terms are (1) actuarially sound; (2) provide for payments to be made in equal amounts during the term of the loan (with no deferral or balloon payments); and (3) prohibit the cancellation of the balance upon the death of the lender. Should the promissory note, loan, or mortgage not satisfy the above requirements, the penalty amount is the amount of the outstanding balance due at the time the individual applies for Medicaid.",
"Most trusts are considered assets available to the individual for the cost of their care, and, if transferred, could be considered assets that have been transferred for less than FMV. An individual is considered to have established a trust if the individual's assets were used to form all or part of the trust and if certain persons established the trust, including the individual, the individual's spouse, or a person with legal authority to act on behalf of the individual or spouse. Medicaid law establishes rules for the treatment of assets in two types of trusts: revocable and irrevocable and are further described.\nA revocable trust can be altered after it is established (i.e., assets may be added or new beneficiaries may be named), whereas an irrevocable trust cannot be altered once it is established. In the case of a revocable trust, the assets used to establish the trust are deemed resources available to the individual. Payments from the trust to or for the benefit of the individual must be considered income of the individual. Any other payments from the trust are considered assets disposed of by the individual and subject to asset transfer rules. In the case of an irrevocable trust, if there are any circumstances under which payments can be made from the trust for the benefit of the individual, then the assets used to establish the trust and payments from the trust are considered income and resources of the individual. Any other payments from the trust are considered assets disposed of by the individual and subject to asset transfer rules. An irrevocable trust from which no portion of the trust could be considered payment to the individual shall be subject to asset transfer rules, as of the date of the trust's establishment or date on which payment occurred, whichever is later. States are required to establish procedures for waiving the application of these rules in cases of undue hardship.",
"Medicaid has another set of rules for the treatment of income after a person has become eligible for coverage and is either living in an institution, such as a nursing facility, or is receiving Section 1915(c) HCBS waiver services while living in the community. These rules are commonly referred to as the post-eligibility treatment of income (PETI) rules. In general, beneficiaries qualifying through certain eligibility groups are required to apply their income exceeding specified amounts toward the cost of their care. Within federal guidelines, a beneficiary may retain a certain amount of income for personal use based on the services one receives. The amounts a beneficiary may retain vary by care setting.\nFor beneficiaries receiving Medicaid LTSS in an institutional facility, a monthly personal needs allowance (PNA) is permitted. The PNA is an amount that is considered reasonable to cover various personal care items not included in the institution's basic charge. Beneficiaries may retain a monthly PNA from their income for clothing and other personal expenses. The beneficiary then applies the remainder of his or her income toward the cost of care. When receiving nursing facility services, Medicaid statute requires states to allow individuals to retain a minimum PNA of at least $30 per month for an institutionalized individual, though the amount can be higher and varies by state.\nFor beneficiaries living in the community and enrolled in Section 1915(c) HCBS waivers, a monthly maintenance needs allowance (MMNA) is permitted. The MMNA is an amount that is considered reasonable to cover various living expenses in the community. Beneficiaries may retain an MMNA from their income for housing, food, and other personal expenses. The beneficiary then applies the rest of his or her income toward the cost of care. Federal regulations require states to set a maximum amount for the MMNA based on a reasonable assessment of need.\nCMS guidance regarding the application of PETI rules to MAGI individuals states that such rules are limited to certain eligibility groups that rely on the financial methodologies from the SSI and former Aid to Families with Dependent Children (AFDC) cash assistance programs. Thus, these post-eligibilty rules do not apply to Medicaid beneficiaries whose eligibility is based on MAGI methodologies. CMS states that the statute provides authority to \"expand the reach\" of the post-eligibility regulations to include MAGI individuals who receive LTSS coverage as there are \"equity reasons to consider the application of these rules to MAGI individuals.\" Accordingly, the agency is considering rulemaking on this issue.",
"Other provisions in Medicaid seek to recover Medicaid costs through estate recovery programs. Federal Medicaid law requires states to recover from beneficiary estates any amounts paid for certain LTSS and other related services upon a beneficiary's death. Specifically, states are required to pursue the estates of\nindividuals receiving services in a nursing facility or intermediate care facility for the developmentally disabled (ICF/DD), regardless of age upon the sale of property subject to a lien, and individuals aged 55 and older who received Medicaid assistance in nursing facilities, HCBS, and related hospital and prescription drug services.\nStates also have the option to recover funds spent on other items or services covered under the Medicaid state plan for individuals aged 55 and older.\nEstate recovery is limited to the amounts paid by Medicaid for services received by an individual and is limited to only those assets owned by the beneficiary at the time of recovery. As a result, estate recovery is generally applied to a beneficiary's home, if available, and certain other assets within a beneficiary's estate. For purposes of these estate recovery requirements, Medicaid statute defines an estate as all real and personal property subject to a state's probate law. Under certain circumstances, annuities are included in this definition. States may expand the definition of estate to include other real or personal property and other assets to which the Medicaid beneficiary has legal title or interest at the time of death. Estate recovery may be made only after the death of the individual and his or her surviving spouse, if any, and only at a time when there is neither a surviving child under age 21 nor a child, of any age, who is blind or permanently and totally disabled.\nTo aid in estate recovery, states are authorized to impose liens on the property of certain beneficiaries prior to or after the beneficiary's death. Liens may be imposed only when the individual resides in a nursing facility, ICF/DD, or other medical institution determined by the state; after notice of and opportunity for a hearing is given; and it is determined that the individual cannot reasonably be expected to return to the home. Liens may also be placed on property when, based on a court's judgment, Medicaid payments have been improperly paid on behalf of the individual. States are prohibited from pursuing liens under certain circumstances. For example, the state cannot place a lien on an individual's home if any of the following individuals reside in the home: a surviving spouse; a child under the age of 21 or a blind or permanently disabled child of any age; or a sibling of the individual who has equity interest in the property and has resided in the home at least one year prior to the individual entering an institution. Medicaid law also requires states to dissolve any lien placed on a home if the individual is discharged from the institution and returns home. In addition, liens can apply only to beneficiaries receiving institutional care who are also subject to the post-eligibility treatment of income (PETI) rules described in the previous section. Thus, liens cannot be applied to MAGI individuals who are not subject to PETI rules. However, as previously mentioned, CMS is considering rulemaking to expand PETI rules to include MAGI individuals who receive LTSS coverage.\nFurthermore, federal Medicaid law provides for exemptions from estate recovery in situations when such recovery would create undue hardship. Medicaid guidance allows for state flexibility in establishing procedures for an undue hardship waiver. In addition to exemptions for undue hardship, Medicaid permits states to forgo estate recovery in cases where it would not be cost-effective. Federal Medicaid law also prohibits estate recovery in cases when a lien has been placed on the home when certain individuals reside in the home. Such instances include (1) a sibling of an individual who has resided in the home at least one year prior to the individual entering an institution, and (2) an adult child who has resided in the home for at least two years prior to the parent's institutionalization, has resided there continuously since that time, and can establish to the state's satisfaction that the adult child provided care to the parent that delayed the need for nursing facility services. Special provisions apply to persons who become eligible for Medicaid under a more liberal asset standard used in certain states for those who purchase long-term care insurance.\nMAGI individuals who were 55 years of age or older when they received Medicaid benefits are not exempt from these estate recovery provisions; however, the above exemptions from estate recovery also apply. CMS guidance states that Medicaid estate recovery may create a potential barrier to enrollment for some newly eligible individuals in ACA Medicaid expansion states. It further articulates the agency's intention to explore options and use existing authorities to eliminate estate recovery for MAGI individuals who receive Medicaid benefits other than LTSS. CMS also notes that states have existing authority to limit the scope of estate recovery to Medicaid beneficiaries 55 and older who receive LTSS."
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"question": [
"What is Medicaid?",
"How was Medicaid established?",
"What are the prerequisites to qualify for Medicaid?",
"What are some baseline rules for determining eligibility?",
"What are states required to provide under federal Medicaid law?",
"How can states' criteria differ from the SSI program?",
"How can states determine eligibility for those within optional eligibility groups?",
"Why does the Medicaid program use SSI program rules?",
"What flexibility does Section 1902(r)(2) give to states?",
"How do states use these statutory provisions?"
],
"summary": [
"Medicaid is a means-tested entitlement program that finances the delivery of health care and long-term services and supports (LTSS) to certain eligible low-income individuals.",
"Established under Title XIX of the Social Security Act (SSA), the Medicaid program is state-operated within broad federal guidelines, and is jointly funded by the federal government and states.",
"To qualify for Medicaid, individuals must meet certain categorical and financial requirements. To qualify for Medicaid LTSS, individuals must also meet state-based functional eligibility criteria that determine need for long-term care.",
"The rules for determining financial eligibility for persons who need LTSS under the Medicaid program are complex. Generally, individuals must have assets that are equal to or below established thresholds to be considered eligible for Medicaid. While these financial eligibility rules also vary by state, states must set these limits in accordance with certain federal requirements.",
"Under federal Medicaid law, states are required to provide coverage to aged, blind, and disabled (ABD) persons receiving cash-assistance through the Supplemental Security Income (SSI) program, also referred to as mandatory eligibility groups.",
"However, federal law gives states the option to use eligibility criteria that are more restrictive than SSI. States may also extend Medicaid coverage to other population groups, referred to as optional eligibility groups.",
"For elderly and disabled individuals potentially eligible for Medicaid LTSS coverage through these optional eligibility groups, states may use more liberal standards for determining financial eligibility than those specified under SSI program rules.",
"Thus, in general the Medicaid program uses SSI program rules as the basis for determining financial eligibility.",
"Section 1902(r)(2) of the SSA gives states flexibility to modify SSI program rules with respect to counting assets (both income and resources) for the purposes of determining Medicaid eligibility.",
"Most states use these Medicaid statutory provisions to ignore or disregard certain types of income and/or resources, thereby extending Medicaid coverage to ABD individuals with higher asset levels."
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|
CRS_R45725
|
{
"title": [
"",
"Introduction",
"Legislative Context",
"Shipbuilding Costs Debated",
"Statement of U.S. Maritime Policy",
"What the Jones Act Requires",
"Regulatory Background",
"\"U.S.-Built\" Vessel Defined",
"Passenger Vessel Itineraries",
"Offshore Oil and Gas Vessels",
"Offshore Wind Farms",
"Foreign Blending Ports",
"The Jones Act Since 1920",
"Precedents for Exempting the Jones Act",
"Waivers for Specifically Named Vessels",
"Administrative Waivers in The Interest of National Defense",
"The Jones Act Fleet",
"Oceangoing Ships",
"Ship Designs Missing from the Fleet",
"Seagoing Barges",
"Age of Fleet Raises Safety Concerns",
"The Great Lakes Fleet",
"Inland River Fleet",
"The Dredging Fleet",
"Offshore Supply Vessels",
"The Jones Act and Sealift Capability",
"Sealift Crews",
"Sealift Ships",
"Divergence in Design of Commercial and Sealift Ships",
"Shipbuilding and Repair Industrial Base",
"Appendix. Exemptions and Waivers"
],
"paragraphs": [
"",
"The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection from foreign competition for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it makes domestic ocean shipping relatively expensive, constrains the availability of ships, and contributes to making it much more costly to build merchant vessels in U.S. shipyards than in shipyards abroad.\nThe Jones Act has been an issue in recent Congresses, coming into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the 40-year-old ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability. In May 2018, the Office of Management and Budget requested public comment on federal requirements that could be modified or repealed to increase efficiency and reduce or eliminate unnecessary or unjustified regulatory burdens in the maritime sector.",
"The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. Rather, it was a restatement of a long-standing restriction that was temporarily suspended during World War I by P.L. 65-73, enacted October 6, 1917.\nLaws favoring a U.S.-flag fleet over a foreign fleet were initiated by the third act of the First Congress (1 Stat. 27, enacted July 20, 1789), which assessed lesser duties on vessels built and owned domestically than on those foreign-built and -owned. On September 1 of the same year, Congress specified that only a U.S.-built vessel owned by U.S. citizens and with a U.S. citizen captain could register as a U.S. vessel (1 Stat. 55). In 1817, Congress enacted a precursor to the Jones Act by disallowing any vessel wholly or partially foreign-owned from transporting domestic cargo between U.S. ports (3 Stat. 351). In 1886, this prohibition was extended to vessels transporting passengers domestically (24 Stat. 81).\nThe early United States had a comparative advantage in shipbuilding due to its ample supplies of large timber. During the second half of the 1800s, it lost that advantage as wooden sailing ships gave way to iron steamships, with the advantage shifting to Scotland and England. Congress began debating how to respond to the steep drop-off in the share of U.S. foreign trade carried by U.S. vessels. The fall-off in domestic coastwise transport was less severe, but railroads began offering competition to coastal shipping. Proposals to allow foreign-built vessels to sail under the U.S. flag became known as the \"free ship\" movement. Opponents of the free ship movement argued that the higher cost of U.S. crews in and of itself would prevent a resurgence of trade carried by U.S. vessels even if foreign-built ships were allowed. While bills that would have allowed foreign-built vessels to qualify for U.S.-flag international service were reported by House and Senate committees in the late 1800s, it was in 1912 that Congress enacted such a measure (P.L. 62-33, 37 Stat. 562). Thus, since 1912, the domestic build requirement has principally applied to vessels making domestic voyages.\nIn the late 1800s, Congress considered but did not pass bills that would have allowed foreign-built ships in domestic trade. Rather, Congress tightened the language concerning coastwise transport in response to shippers' attempts to avoid high-cost U.S. vessels. For instance, in 1891 a shipper loaded 250 kegs of nails at the Port of New York with an ultimate destination of Los Angeles (Redondo).The shipper loaded the merchandise on a foreign-flag ship bound for Antwerp, Belgium, where the goods were transferred to another foreign-flag ship bound for Los Angeles. Despite the circuitous routing and extra port charges, the freight charges were apparently less than they would have been using a U.S.-built and U.S.-owned ship to carry the nails directly between New York and Los Angeles. A court found that the shipper had acted legally. Similarly, shipments from Seattle to Alaska often were routed via Vancouver, Canada, so shippers could use foreign-flag ships for both legs. Congress amended the coastwise law in 1893 (27 Stat. 455) and again in 1898 (30 Stat. 248) to prohibit shippers from routing cargo through a foreign port so as to avoid coastwise laws.\nNonetheless, U.S. shippers continued to use foreign-flag vessels in the Alaska trade by moving cargo between the United States and Vancouver, Canada, by rail. In the Merchant Marine Act of 1920, Senator Wesley Jones of Washington, chair of the Commerce Committee, sought to stop this practice by requiring Alaska-bound cargo to move through the Port of Seattle by amending the coastwise language to cover shipments \"by land and water\" and replacing shipments between \"U.S. ports\" with shipments between \"U.S. points.\" These amendments remain current law.",
"The relative cost of building ships in the United States versus foreign countries was part of the debate leading up to passage of the Jones Act. Four years earlier, in the Shipping Act of 1916, Congress had requested annual reports on the subject from the federal agency in charge of maritime transportation. The minority report to a 1919 House committee report to the bill that would become the Jones Act expressed the view that banning foreign-built ships would result in more costly domestically built ships:\n… in order to build up and sustain an American merchant marine it is absolutely necessary to remove every restriction against American merchants acquiring ships, whether built in the United States or out of the United States, at the lowest possible price, in order to enable them to compete with other nations in the transportation of the commerce of the world. If our merchants are allowed to buy ships in the open world market and place them under American registry with the privilege of using them both in the coastwise and overseas trade, it will inevitably follow that ships under the American flag will be bought as cheaply as ships under other flags.\nOn the other hand, if the American merchant shall be permitted to buy ships only from American builders in order to engage in our coastwise trade, it necessarily follows that every ship built in the United States will command a higher price than any foreign-built ship.\nOur American iron and steel manufacturers were unable to compete until they had to. When they had to they did compete successfully. Our shipbuilders can and will do likewise.\nA 1922 government report on shipbuilding indicated that U.S.-built ships cost 20% more than those built in foreign yards. The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a U.S.-built tanker is estimated to be about four times the global price of a similar vessel, while a U.S.-built container ship may cost five times the global price, according to one maritime consulting firm. The cost differential is also an issue for Department of Defense officials in charge of military sealift ships. As discussed later in this report, the military has modified a plan to build sealift ships domestically, finding it unaffordable, and instead will buy more used foreign-built cargo ships. Since U.S. shipyards do not build vessels for export, they are not required to compete with foreign shipyards on price or vessel characteristics.\nHowever, as was argued in the late 1800s, shipbuilding costs are not the only cost factor. U.S. crewing costs are higher than those of foreign-flag vessels. U.S.-flag ships have an operating cost differential estimated to be over $6 million per ship per year compared to foreign-flag ships. While crewing is the primary cost element, this estimate also includes insurance and ship maintenance costs. A 2011 study by the U.S. Maritime Administration (MARAD) found that in 2010, the average operating cost of a U.S.-flag ship was 2.7 times greater than a foreign-flag ship, but MARAD estimates that this cost differential has since increased.",
"A main thrust of the Merchant Marine Act of 1920 concerned the sale of a surplus of government cargo ships constructed for World War I. A second important and enduring aspect of the bill is its statement of maritime policy. The policy goals stated in the 1920 act, which appear in Section 27, have continued to the present day (46 U.S.C. §50101). The law stated the following:\nThat it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in times of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is hereby declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine.\nThis statement reflects the United States' status as an emerging power at that time. When World War I began in 1914, European nations utilized their ships for the war effort or kept them in harbors for fear of submarine attacks, leaving the United States with a shortage of ships for carrying its foreign trade. The Merchant Marine Act therefore emphasized that the United States should have its own merchant marine so as not to be dependent on any other nations' merchant vessels.",
"The Jones Act applies only to domestic waterborne shipments. It does not apply to the nation's international waterborne trade, which is almost entirely carried by foreign-flag ships. The U.S. citizen crewing requirement means that the master, all of the officers, and 75% of the remaining crew must be U.S. citizens. If the U.S. owner of a Jones Act ship is a corporation, 75% of the corporation's stock must be owned by U.S. citizens.\nRegarding U.S. territories, the U.S. Virgin Islands, America Samoa, and the Northern Mariana Islands are exempt from the Jones Act. Therefore, foreign-flag ships can transport cargo between these islands and other U.S. points. Puerto Rico is exempt for passengers but not for cargo. Vessels traveling between Guam and another U.S. point must be U.S.-owned and -crewed but need not be U.S.-built.",
"The Coast Guard is in charge of enforcing the U.S.-build requirement for vessels (46 C.F.R. §§67.95-67.101), U.S. ownership of the carriers (46 C.F.R. §§67.30-67.43), and U.S. crewing (46 C.F.R. §10.221)—essentially, the licensing of Jones Act operators. It enforces these requirements when an operator seeks a \"coastwise endorsement\" (46 C.F.R. §67.19) from the agency. The terms \"coastwise qualified\" and \"Jones Act qualified\" are synonymous. Customs and Border Protection (CBP) is primarily responsible for determining what maritime activity falls under the act, namely defining what constitutes \"transportation\" and whether the origin and destination of a voyage are \"U.S. points\" (19 C.F.R. §§4.80–4.93). Agency interpretations of domestic shipping restrictions have been consistent since the late 1800s and early 1900s, as discussed further below.",
"A significant element of the Jones Act is the requirement to use only \"U.S.-built\" vessels. Competing freight transportation modes have no requirement to purchase only domestically built equipment. Congress has not defined what constitutes a U.S.-built vessel, leaving this determination to the Coast Guard. Coast Guard regulations deem a vessel to be U.S.-built if (1) all \"major components\" of its hull and superstructure are fabricated in the United States, and (2) the vessel is assembled in the United States. The \"superstructure\" means the main deck and any other structural part above the main deck (e.g., the bridge, forecastle, pilot house).\nThe Coast Guard holds that propulsion machinery (the ship's engine), other machinery, small engine room equipment modules, consoles, wiring, piping, certain mechanical systems and outfitting have no bearing on a U.S.-build determination. Consequently, for oceangoing ships, U.S. shipyards typically import engines from foreign manufacturers. This is allowed because engines are deemed components that are attached to the hull rather than an integral part of the hull's structure. A ship part or component that is self-supporting and independent of the vessel's structure and does not contribute to the overall integrity of the vessel or compromise the watertight envelope of the hull can be manufactured in a foreign country. However, the part or component must be attached or joined to the vessel in a U.S. shipyard, not an overseas yard.\nThe Coast Guard's test for \"major components\" of the hull or superstructure is based on weight; up to 1.5% of the steel weight of hull and superstructure components can be manufactured abroad. By this reasoning, the propeller, stern bulb, bulbous bow, some rudders (depending on their design), and watertight closures used in U.S.-built vessels are often imported, as long as they (in the aggregate) do not exceed the steel weight limit. The Coast Guard also permits steel products in standard forms (\"off the shelf\") to be imported with no limit on their weight, but any shaping, molding, and cutting of the steel that is custom to the design of the vessel must be performed in a U.S. shipyard.\nShipyards typically seek confirmation from the Coast Guard that incorporating certain foreign-built components in construction of a vessel will not disqualify the vessel from the Jones Act trade. These \"determination letters\" written by the Coast Guard detail which and to what extent foreign components are permissible. In the Coast Guard Authorization Act of 2018 ( P.L. 115-282 , §516) Congress directed the Coast Guard to publish these letters.\nShipyard unions refer to ships built in this manner as \"kit ships.\" They sued the Coast Guard in 2007, arguing that the Coast Guard's interpretation of the statute violated the Administrative Procedure Act. The U.S. District Court for the Eastern District of Pennsylvania sided with the Coast Guard, noting in part that the Coast Guard's interpretation is rooted and consistent with the Treasury Department's interpretation dating to at least the late 1800s (the Treasury Department was the agency of jurisdiction at that time), as well as U.S. Attorney General interpretations dating to the early 1900s. The shipyard unions' lawsuit was prompted by a Philadelphia shipyard's partnership with a South Korean shipbuilder, begun in 2004, to use the Korean builder's ship designs and other procurement services to build a series of Jones Act tankers. This partnership continues today and also includes container ships built in the Philadelphia shipyard. Since 2006, General Dynamics NASSCO of San Diego, another builder of Jones Act oceangoing ships, has partnered with Daewoo Shipbuilding of South Korea to procure vessel designs, engineering, and some of the materials for the commercial ships it has since built for Jones Act carriers.\nImporting engines and other major ship components would appear to undermine the Jones Act policy objective of a domestic shipbuilding capability independent of foreign yards. In the court case cited above, the shipyards argued that not allowing use of such foreign components would increase the cost of ships further. This would reduce orders for new ships and harm the domestic fleet.",
"The United States is the largest cruise ship market, but most Americans board foreign-flag cruise ships. This is because CBP has determined that a cruise ship serving a U.S. port does not have to be Jones Act-compliant as long as it has visited a distant foreign port (any port outside North and Central America, Bermuda, the Bahamas, and the Virgin Islands). Thus, for example, if a cruise ship includes Aruba or Curacao in its itinerary, it does not need to be Jones Act-compliant. The reasoning is that the main objective of such a cruise itinerary is to visit such foreign ports, not to transport passengers from one U.S. port to another U.S. port. This reasoning was articulated in a 1910 Attorney General's opinion.\nAnother significant regulatory interpretation allowing for the prevalence of foreign cruise ships at U.S. ports is a 1985 rulemaking by the U.S. Customs Service (the predecessor of CBP). In this rulemaking, Customs allowed foreign-flag cruise ships to make round trips from a U.S. port and to visit other U.S. ports as long as they also include a visit to a nearby foreign port (such as those in Canada, Mexico, or Bermuda). All passengers must continue with the cruise until the cruise terminates at the same dock at which it began. Again, the reasoning is based on the primary intent of the cruise voyage; if the main purpose of the voyage is not domestic transportation of passengers then the Jones Act is not violated.\nAnother type of passenger vessel excursion involves visits to no other ports. The purpose of the voyage could be whale watching, recreational diving, gambling, duty-free shopping, or deep-sea fishing, for example. These are so-called \"voyages to nowhere\" since passengers do not visit any other ports besides the one at which they embark and disembark. In these cases, CBP has determined that if such vessels stay within the 3-mile zone of U.S. territorial waters they must be Jones Act-compliant since CBP considers any places within such waters as \"U.S. points.\" This interpretation is based on Treasury Decision 22275, issued in 1900. However, CBP has determined that if the vessel journeys beyond 3 miles from shore (into international waters), then it does not need to be Jones Act-compliant. This determination is based on a 1912 Attorney General opinion. But the policy regarding charter fishing boats differs from that regarding other passenger vessels. If charter fishing boats venture into international waters, they still must be Jones Act-compliant. This determination is by virtue of a 1936 ruling by the Bureau of Navigation and Steamboat Inspection (Circular Letter No. 103, June 3, 1936), and affirmed by Treasury Decision 55193(2) in 1960.\nAnother element of CBP's interpretation of the Jones Act with respect to passenger vessels is its definition of a passenger. According to CBP, a passenger need not be a paying customer (such as a tour boat or cruise ship ticket holder); rather, the term encompasses anyone aboard a vessel who is not a member of the crew or an owner of the vessel. Thus, for example, an owner of a yacht who chooses to entertain business clients aboard his or her vessel must comply with the Jones Act. A construction company transporting construction workers to a construction site must use a Jones Act-compliant vessel.",
"In the offshore oil market, CBP's interpretations have affected \"lightering\" (the transfer of oil offshore from an oil tanker too large to transit a harbor to a smaller vessel) and offshore supply vessels (OSVs) used to supply oil platforms. CBP has determined that if a tanker to be lightered is anchored to the seabed and within 3 nautical miles of shore (which are U.S. territorial waters), it is a \"U.S. point.\" Many lightering areas in the Gulf of Mexico are 60 to 80 miles offshore and therefore the lightering vessels can be foreign-flagged. Lightering operations in the Delaware Bay and elsewhere are within the 3-mile zone, and therefore lightering vessels operating in these areas must be Jones Act-compliant (in which case tank barges rather than ships are typically used as lighters).\nRegarding OSVs, two factors determine whether these vessels must be Jones Act-compliant in servicing offshore oil rigs. By virtue of the Outer Continental Shelf Lands Act of 1953 (P.L. 83-212), U.S. waters extend 200 miles offshore strictly for purposes related to the exploration, development, and production of offshore natural resources. CBP has determined that within this zone, only oil rigs attached to the seabed (anchored or submerged to) are \"U.S. points.\" Another type of oil rig is not attached to the seabed: some mobile offshore drilling units (MODUs) are semisubmerged and can hold their positions with the use of propellers. CBP had determined that MODUs not attached to the seabed are not \"U.S. points,\" and therefore foreign-flagged vessels were permitted to service these units. However, in 2008, Congress required that OSVs servicing MODUs be U.S.-owned and -crewed, but need not be U.S.-built ( P.L. 110-181 , §3525), which is the same requirement applied to U.S.-flag vessels engaged in international voyages.\nA second factor determining whether OSVs must be Jones Act-compliant is whether the OSV is transporting supplies or workers to the oil rig, or if the vessel is involved in installing equipment necessary for the operation of the rig. CBP defines \"vessel equipment\" as anything \"necessary and appropriate for the navigation, operation or maintenance of a vessel or for the comfort and safety of persons on board.\" Consequently, a vessel laying cable or pipeline in U.S. waters does not need to be Jones Act-compliant. Similarly, while OSVs transporting supplies and rig workers must be Jones Act-compliant (if the rig is attached to the seabed), vessels involved in installing rig equipment or conducting geophysical surveying or diving inspections can be foreign-flagged, as well as \"flotels,\" which are vessels that provide living quarters for construction workers. The distinction can be unclear. In 2017, CBP proposed that most or all activities performed by OSVs fall under the Jones Act, but after reviewing comments, the agency withdrew the proposal.",
"Some question whether the Outer Continental Shelf Lands Act, and therefore the Jones Act, applies to offshore wind farms located beyond 3 miles from shore. Currently, wind farm developers are being guided by CBP's interpretations of the Jones Act with respect to OSVs and oil rigs. The Department of Energy has noted that the nonavailability of Jones Act-compliant \"Tower Installation Vessels\" (TIVs) can be a hindrance to offshore wind farm development, especially for installations in deeper water. In Europe, TIVs not only install the towers but also transport the equipment from shore to the offshore site. Since there are no Jones Act-compliant TIVs, U.S. wind developers either transport the equipment from foreign countries or use Jones Act-compliant vessels to transport the equipment to the site from a U.S. port alongside non-Jones Act-compliant TIVs to install the equipment.",
"A third CBP interpretation of the Jones Act has been significant in shaping coastal maritime activity. CBP determined that if merchandise is transformed (manufactured or processed) into a new and different product at an intermediate foreign port, then the vessels transporting the original product from a U.S. port to this foreign port and transporting the transformed product from the foreign port to a U.S. port do not need to be Jones Act-compliant. For example, a Texas oil producer has shipped a gasoline product to a Bahamian storage facility where its product is blended with a different imported petroleum product to produce a final gasoline product that is shipped to New York. Foreign-flag tankers are allowed to make all of these shipments even though it could be argued that a portion of the cargo is being shipped between two U.S. points (Texas and New York). The transformation of the product into a new and different product at an intermediate foreign port distinguishes this case from the 1891 kegs-of-nails case mentioned above. This interpretation has precedent in a 1964 Customs Service ruling involving California rice being processed in the U.S. Virgin Islands (exempt from the Jones Act) before being shipped to Puerto Rico, with both shipment legs involving foreign-flag ships.",
"Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements, as well as provisions that exempt certain maritime activities from the requirements. In 1935, Congress forbade Jones Act-qualified vessels sold to foreign owners or registered under a foreign-flag to subsequently requalify as Jones Act-eligible (P.L. 74-191), meaning that they could never again be used in U.S. domestic trade. This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take two years to construct a new ship. In 1940, Congress expanded the Jones Act to cover towing vessels, such as river tugs that push barge tows and harbor tugs that assist larger ships, and salvage vessels operating in U.S. waters (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material, such as dredge spoil or municipal solid waste, requires use of a Jones Act-qualified vessel ( P.L. 100-329 ).",
"Congress has enacted numerous exemptions or exceptions to the Jones Act. A list of these legislated exemptions and exceptions can be found in the Appendix .\nIt has waived the Jones Act's restrictions when finding that no Jones Act-qualified operator was interested in providing service in a particular market, reasoning that the waiver thus would bring no harm to the domestic maritime industry. For instance, in 1984, Congress exempted passenger travel between Puerto Rico and any other U.S. port as long as no Jones Act-qualified operator was able to provide comparable service ( P.L. 98-563 ). This exemption remains in force, allowing foreign-flag cruise ships to carry passengers between the U.S. mainland and the island. On two occasions, in 1996 ( P.L. 104-324 ) and again in 2011 ( P.L. 112-61 ), Congress has permitted certain foreign-flagged liquefied natural gas (LNG) tankers to provide domestic service because none existed in the Jones Act fleet; no ship owners have made use of these exemptions (see Table A-1 ).\nCongress has also enacted exemptions due to a sudden spike in demand for Jones Act-qualified vessels. To address a vessel shortage, Congress enacted an exemption for iron ore carried on the Great Lakes during the 1940s that was related to a surge in steelmaking for the war effort. It did the same for a bumper grain harvest in 1951 (see Table A-1 ). In 1996, Congress enacted an exemption for vessels participating in oil spill cleanup operations when an insufficient number of Jones Act-qualified vessels are available.\nCongress has enacted Jones Act waivers for two innovations in vessel designs used in foreign trade but whose cargo operations included domestic legs that technically would otherwise fall under the Jones Act. One concerned a ship designed to carry river barges on international voyages, a technology known as Lighter Aboard Ship (LASH). In 1971, Congress exempted these specific barges from the Jones Act (P.L. 92-163). The exemption is no longer relevant, as this type of shipping is not now in use. In 1965, as container ships were about to come into use internationally, Congress exempted the movement of empty containers between U.S. ports from the Jones Act (P.L. 89-194). This exemption is restricted to containers used for international shipments, thus allowing the foreign-flagged container carriers to reposition their empty equipment along U.S. coastlines.\nJones Act-compliant ships are necessary for transshipment of loaded international containers. This distinction between carriage of loaded and unloaded containers has ramifications for the development of marine highways or short sea shipping routes. Transshipment of international containerized cargo by feeder ships is prevalent abroad, but the practice does not exist in the United States. The Jones Act would require such ships be U.S.-built, -crewed, and -owned. Lack of transshipment services increases demand for rail and road connections to ports, as smaller feeder container ships do not play a role in distributing international containerized cargo among U.S. ports.",
"In addition to authorizing exemptions to the Jones Act under certain circumstances, Congress has enacted exemptions for specific vessels identified by name and identification number (a registration number with a state government, the Coast Guard, or International Maritime Organization). Typically, the legislative language does not indicate why a waiver was needed or describe the kind of vessel, its size, or its function. A search of the statutes at large under the terms \"coastwise\" and \"endorsement\" and \"certificate of documentation\" indicates that since 1989, at least 133 specific vessels have been granted Jones Act waivers by Congress in 16 separate legislative acts.\nThese waivers typically appear in maritime-related legislation, such as a Coast Guard authorization bill. One act contains waivers for 67 vessels and another for 35 vessels. It appears in most cases that these vessels are not commercially significant—for instance, that they are not large or even moderately sized cargo or passenger vessels. Some of them are owned by nonprofit entities. One exception was the previously mentioned 2011 granting of waivers to three LNG tankers built in the United States in the late 1970s that subsequently became foreign-registered ( P.L. 112-61 ). In many cases, it appears the vessel needs a waiver because of a technicality in meeting Jones Act requirements; for example, the U.S.-citizen ownership history may be missing some records. In many cases, the statute granting the waiver places specific conditions on how the vessel can be used.",
"As noted, the domestic shipping restrictions were waived during World War I. They were waived again in preparation for World War II (P.L. 77-507, 1942). In 1950, after the Korean War began, Congress enacted a provision allowing the executive branch to issue waivers \"in the interest of national defense\" (P.L. 81-891). This authority is still in effect, as the language did not specify that it was intended only for the conduct of that war. In 1991 and 2011, waivers were granted on national defense grounds to expedite oil shipments from the Strategic Petroleum Reserve in response to the Persian Gulf War and a conflict in Libya, respectively.\nIn addition to military conflicts, the executive branch has waived the Jones Act for fuel resupply in the aftermath of natural disasters. This so-called \"national defense waiver\" authority has been the basis for recent waivers granted in the aftermath of major hurricanes, beginning with Hurricane Katrina in 2005 up to and including Hurricanes Harvey, Irma, and Maria in 2017 (see Table A-2 ). In 2008 ( P.L. 110-417 ), Congress inserted a role for MARAD to check on the availability of any Jones Act-qualified vessel before granting certain waivers.\nThe lack of heavy-lift vessels in the Jones Act fleet has also prompted national defense waivers: in 2005 to allow a foreign-flag heavy-lift vessel to transport a radar system from Texas to Hawaii and in 2006 to allow an oil company to use a Chinese-flagged heavy-lift vessel to transport an oil rig from the Gulf Coast to Alaska. The national defense justification for the oil rig waiver was apparently based on addressing a fuel shortage in that region of Alaska. However, in 1992, Customs denied a waiver request to use a foreign-flag heavy-lift vessel to transport replicas of Christopher Columbus's Niña, Pinta, and Santa Maria vessels from Boston to San Francisco. A specific type of heavy-lift vessel is used in the construction of offshore oil rigs, but CBP has denied Jones Act waivers for these vessels even after Coast Guard and the Bureau of Safety and Environmental Enforcement in the Department of the Interior advised that not granting a waiver created a safety hazard for these operators.\nCBP has stated that the \"national defense\" justification is a high standard and that national defense waivers would not be issued for economic reasons such as commercial practicality or expediency. Consistent with this view, while CBP has issued national defense waivers in circumstances involving fuel shortages, it has not issued waivers that would merely favor domestic supply lines over offshore ones, even though one might argue the latter is a national security issue. For instance, in 1976, arguing that offshore supply lines are more vulnerable, some Members of Congress representing Gulf Coast states sought to have the Jones Act extended to the U.S. Virgin Islands. At the time, the largest refinery in North America was located in the U.S. Virgin Islands, and the refinery supplied petroleum products to the U.S. Northeast on foreign-flagged tankers. In 2014, northeast refineries reportedly contemplated seeking a Jones Act waiver to ship crude oil from Texas. These refineries import much of their crude oil. In 2018, the United States exported between 40 million and 80 million barrels of crude oil per month on foreign-flag tankers, imported about 150 million barrels per month from overseas sources on foreign-flag tankers, and shipped about 15 million barrels per month domestically on Jones Act tankers.\nA similar situation is occurring with liquefied natural gas (LNG): the United States has begun exporting substantial quantities by ship while continuing to import LNG by ship, but no LNG is shipped domestically. There are no LNG tankers in the Jones Act fleet, and it is unclear why shippers have not utilized the 1996 or 2011 waivers for LNG tankers mentioned above. Puerto Rico, which currently imports LNG from Trinidad and Tobago, is seeking a 10-year waiver of the Jones Act to receive bulk shipments of LNG from the U.S. mainland.",
"Recent controversies over the Jones Act have concerned the oceangoing ship and offshore supply vessel sectors. The Jones Act also covers ships on the Great Lakes, river barges, harbor tugs, dredging vessels, and various kinds of passenger vessels. The Jones Act ship fleet, in particular, has shortcomings compared to the merchant fleet desired by the drafters of the 1920 act as they described it in the aforementioned statement of U.S. maritime policy.",
"As of March 2018, there were 99 oceangoing ships in the Jones Act-compliant fleet, employing about 3,380 mariners. The largest category of Jones Act ships is tankers. Of the 57 tankers in the fleet, 11 carry Alaskan crude oil to refineries on the West Coast, 44 are medium-sized product tankers that mostly carry refined products along the Atlantic Coast, and 2 are chemical or asphalt tankers. The dry cargo fleet includes 24 small to medium-sized container ships, 7 ships that have ramps for carrying vehicles (known as roll on/roll off vessels), and 2 dry bulk vessels designed to carry such commodities as grain and coal in bulk form. The fleet also includes 9 relatively small general-cargo vessels supplying subsistence harbors along Alaska's coast.\nAs Figure 1 indicates, the number of oceangoing ships in the Jones Act fleet has shrunk to less than a quarter of what it was in 1950. The ships are much larger today than they were then, but their aggregate carrying capacity (DWT) is still less than in 1950.\nAs shown in the figure, there was a pronounced drop in the size of the fleet in the late 1950s and early 1960s. At a 1967 congressional hearing, Alan Boyd, Secretary of Transportation in the Lyndon B. Johnson Administration, testified that the U.S. merchant marine was \"too small, too old, and too unproductive,\" and stated, \"you do not revitalize an industry by flooding it with Federal dollars and imprisoning it within a wall of protection.\" The Lyndon B. Johnson Administration appears to be the only Administration in the modern era that has called for the repeal of the Jones Act.\nWhile domestic ships are carrying fewer tons of freight today than they did in the 1950s, their most direct competitors, railroads and pipelines, are carrying more. Domestic ships have lost market share to land modes even though ships have economic advantages. Ocean carriers do not need to acquire and maintain rights-of-way like railroads and pipelines. They can move much more cargo per trip and per gallon of fuel than trucks and railroads. Although ships are slower than truck and rail modes, many shippers are willing to sacrifice transit time for substantially lower costs, as long as delivery schedules are reliable.\nThe Jones Act fleet is almost entirely engaged in domestic trade routes where overland modes are not an option, serving Alaska, Hawaii, and Puerto Rico. In other words, it operates in markets where shippers have little alternative. Although the Jones Act can be said to have preserved a nucleus of a U.S. maritime industry, it has not succeeded in meeting the stated policy goal of sustaining a growing merchant marine that carries an increasing proportion of the nation's commerce.\nIn the Merchant Marine Act of 1936 (P.L. 74-835, Section 101), Congress amended the policy goals articulated in the 1920 Act by adding the phrase \"providing shipping service on all routes essential for maintaining the flow [of commerce] at all times,\" and also added the word \"safest\" to the policy goal of having the best equipped and most suitable types of vessels. At present, the Jones Act fleet does not appear to achieve either of these goals",
"One can also question whether the policy objective of having \"the best equipped and most suitable types of vessels\" has been achieved. Not all ship designs are represented in the Jones Act fleet. \"Project cargo\" or \"heavy-lift\" vessels are often used to carry oversized pieces of equipment such as smaller vessels, ship engines and modules, wind turbine parts, and power generation equipment. They would be useful for moving dredging fleets to project sites. There have not been any such vessels in the Jones Act fleet in recent decades. The Department of Defense has used \"national defense\" waivers of the Jones Act (see below) to move radar systems and newly built vessels on foreign-flag heavy-lift vessels. This type of cargo typically does not generate regular shipments in any one region; thus these ships would likely need to extend their market reach beyond the United States to include the international market. However, the higher cost structure of Jones Act operators is an obstacle to competing for international shipments.\nTwo dry bulk ships are in the oceangoing Jones Act fleet, and they appear to be mostly inactive, possibly because they are nearly 40 years old. This is twice the economic life of a ship in the global fleet (where ships are typically sent for scrapping between 15 and 20 years of age). The sole Jones Act-qualified chemical tanker was built in 1968. No LNG tankers are in the Jones Act fleet despite new domestic markets as a result of the shale gas boom. The lack of sufficient Jones Act-qualified tanker capacity to move booming shale oil production coastwise added to pressure for lifting the crude oil export ban in 2015.",
"In response to the high cost of U.S.-built and U.S.-crewed ships, the U.S. market has developed a unique vessel design, a seagoing barge called an articulated tug barge (ATB). MARAD estimates that over 150 ATBs are operating in the Jones Act trades. While ATBs are more capable than flatwater barges in handling sea swells (with a hinge between the tug and barge), they are still less capable than ships in handling heavy sea states. They are less reliable and less efficient over longer voyages because they are slower and smaller than tanker ships, and the notch between the barge and tug creates more resistance through the water than a single hull. Since ATBs sail closer to the coasts, they could pose a higher risk of grounding and provide less time to prevent spilled oil from reaching shorelines. ATB crews are not qualified to sail sealift ships. ATBs now carry more cargo (predominantly oil) on coastal voyages than does the tanker fleet (see Figure 2 ).",
"The El Faro was a Jones Act general cargo ship that sank in a hurricane in 2015. Because the ship was built in 1975, it was required to have only open lifeboats rather than the closed lifeboats with auto launchers required on ships built since 1983. After its sinking, the Coast Guard forbade its sister ship of the same age from sailing, and in congressional testimony noted concern about the condition of the rest of the U.S.-flag fleet:\nWe looked a little further beyond this particular incident, caused us to look at other vessels in the fleet and did cause us concern about their condition.… And the findings indicate that it is not unique to the El Faro . We have other ships out there that are in substandard condition.… You know, some of our fleet—our fleet is almost three times older than the average fleet sailing around the world today. Just like your old car, those are the ones likely to breakdown. Those are the (inaudible) one—the ones that are more difficult to maintain and may not start when I go out, turn the key.\nSubstantiating the Coast Guard's concern, in February 2019, the crew of the 46 year-old Jones Act containership Matsonia found a crack in the hull when looking for the source of an oil sheen in Oakland harbor.\nThe Jones Act fleet today is relatively young compared to its prior composition because of shipbuilding undertaken after the large increase in shale oil production and before the lifting of the oil export ban. In part, new ships were needed to comply with tighter emissions requirements in the newly created North American emission control area. Today, just over one-third of the Jones Act oceangoing fleet (35 ships) is 21 years old or older, down from two-thirds (64 ships) in 2007.",
"Jones Act-compliant vessels operating in the Great Lakes are considerably older than the oceangoing fleet. The Great Lakes fleet consists of 33 dry bulk ships and several large barges carrying mostly iron ore, limestone, and coal used in steelmaking, and cement. The U.S. fleet of 1,000-foot freighters, the largest ships operating on the Great Lakes, was built between 1972 and 1981. The second-largest class of ships, around 700 feet in length, is older, with some of the vessels having originally been built in the 1940s or 1950s; a number of these were rebuilt in the 1970s. According to the U.S. Lake Carriers Association, ships operating in freshwater, such as the Great Lakes, can have longer lives than oceangoing vessels. Jones Act-compliant Great Lakes ships are much narrower for their length compared to the global dry bulk fleet because of the dimensions of the Soo Locks in Michigan. Domestic tonnage on the Great Lakes has declined steadily since the 1950s, and is now about half what it was then.\nThe Canadian Great Lakes fleet illustrates the effect that vessel import policy can have on a domestic fleet. Canada's fleet was of similar age as the Jones Act fleet, with the youngest ship having been built in 1985, before Canada imposed a 25% tariff on newly constructed imported ships. While this import tariff was in effect, no new ships were added to the Canadian fleet. In 2010, Canada repealed the import tariff, and since then over 35 new dry bulk ships have been constructed in other countries specifically for service on the Great Lakes. These vessels cannot carry cargo between U.S. points.",
"Thousands of tugs and barges carry mostly dry and liquid bulk commodities on the nation's inland rivers. The fleet includes several thousand tugs or pushboats that push the barge tows, about 20,000 dry cargo barges, and several thousand tank barges that carry liquid bulk cargoes. Tonnage is dominated by the export of corn and soybeans and domestic movement of coal. Since 1990, overall tonnage on the system has been flat or declining slightly. One of the two leading manufacturers of river barges ceased operation in April 2018 in response to the fall-off in demand for coal deliveries by barge.",
"The Dredging Act of 1906 (P.L. 59-185, 34 Stat. 204) requires that vessels engaged in dredging in U.S. waters be U.S.-built, -operated, and -crewed. The 1906 act was prompted by dredging work then being carried out in Galveston Bay, TX, after a calamitous 1900 hurricane. It required all dredge vessels henceforth to be U.S.-built. In 1988, Congress amended the Jones Act to define \"merchandise\" transported domestically by vessel to also include any valueless material ( P.L. 100-329 ). This change effectively required that dredge spoil be transported in Jones Act-qualified vessels.\nAccording to one study, the ban on foreign-built dredgers and foreign operators raises the cost of dredging U.S. harbors substantially. According to U.S. Army Corps of Engineers figures, while federal spending on navigation dredging has increased over the last decade by several hundred million dollars per year, the spending increase has not resulted in a larger volume of material being dredged from U.S. harbors. In addition to a limited supply of dredging vessels, increases in the cost of fuel, steel, and labor, as well as more stringent environmental requirements, are factors that may be causing cost increases.\nThe U.S. privately owned fleet is much older and smaller, both in terms of the capacity of individual vessels and the total size of the fleet, compared to the four leading European dredging firms that perform work worldwide (except in U.S. waters). Each of the four European firms has a fleet of hopper dredges, the preferred type for dredging coastal harbors, whose total capacity is around three to four times the capacity of the entire U.S. hopper fleet. Three-quarters of the U.S. privately owned hopper dredge fleet is over 20 years of age, while about three-quarters of the European fleet is under 20 years. When the Army Corps bids harbor work requiring a hopper dredge, one of the four U.S. firms is the sole bidder over a third of the time. When the Army Corps schedules dredging projects for an upcoming year, it has periods when an insufficient number of dredges can perform the work. In addition to the dredge vessel, dredging projects involve a number of support vessels. One study found that mobilization and demobilization of the equipment in the U.S. market can amount to more than one-third of total project costs. Foreign firms use heavy-lift vessels to transport their dredge fleets to the next project. As indicated earlier, no such vessels are available in the Jones Act fleet.",
"The size of the OSV fleet can change significantly with changes in the oil market. In 2017, the offshore supply vessel fleet consisted of about 1,800 vessels, working mainly in the Gulf of Mexico. Over the last decade, annual construction averaged 32 vessels, but ranged between 4 and 53 vessels. Foreign-built vessels are relied upon for construction of rigs in deeper waters. These vessels need dynamic positioning propulsion systems to keep the vessel in place while performing the construction work, as the waters are too deep for anchoring. As mentioned above, similar vessels are lacking in the Jones Act fleet for installing wind towers in deeper waters.",
"As with the commercial aspirations stated in the maritime policy of the Jones Act, there are also perceived shortcomings with respect to the domestic fleet's ability to serve as a naval auxiliary in times of war or national emergency. Since 1920, Congress has enacted programs that designate other fleets for sealift support, but the merchant mariners crewing Jones Act ships are still identified as contributing to the pool of mariners available to crew the sealift fleet. The shrinking size of the U.S. mariner pool puts in doubt its ability to sufficiently crew a reserve sealift fleet, as discussed further below. In 2014 ( P.L. 113-76 ), Congress directed the Department of Transportation and the Department of Defense to develop a national sealift strategy. This has yet to be issued.",
"The crews of Jones Act oceangoing ships are arguably the most salient and immediate element that could be called upon to support military sealift. Jones Act mariners typically have six months of shore leave per year, and those mariners on shore leave would be expected to crew a reserve fleet of government-owned cargo ships kept on standby for military sealift purposes (the Ready Reserve Force, or RRF). The Jones Act crew of oceangoing ships consists of about 3,380 merchant mariners, which is about 29% of the total mariner pool of 11,678 mariners that MARAD estimates would be required to crew the government-owned reserve fleet while still concurrently being able to operate the commercial fleet. The remaining pool of mariners would come from (1) the U.S.-flag privately owned international fleet enrolled in the Maritime Security Program (MSP) consisting of 60 ships and 2,386 commercial mariners, and (2) the Military Sealift Command (MSC) fleet of government-owned ships consisting of about 120 ships and 5,576 mariners.\nWhile MARAD estimates that there is a sufficient commercial mariner pool to crew the reserve sealift fleet during a surge lasting up to 180 days, a more prolonged sealift effort would start to entail crew rotations, and MARAD estimates a shortfall of about 1,800 mariners in that scenario. That the mariner pool is barely sufficient to sustain an immediate surge and is insufficient for a longer sealift effort has been a consistent finding of sealift officials for decades, even in previous periods when the mariner pool was much larger than it is today. For instance, this was the same finding by the Department of Defense Transportation Command (TRANSCOM) in 2004, when the RRF consisted of 59 ships and the mariner pool was 16,900. And in 1991, when the RRF consisted of 96 ships and the mariner pool was 25,000 (more than twice the size that it is today), the then MARAD Administrator testified that the mariner pool was barely sufficient to crew the reserve sealift fleet.",
"While the Jones Act's statement of maritime policy indicated a desire for a commercial fleet that also could provide sealift in times of war, since then three other fleets of ships have been established for purposes of military sealift: the RRF, MSC, and MSP. These ships are predominantly foreign-built. The RRF, a concept that originates in a 1954 act of Congress (P.L. 83-608), today consists of 46 ships that can sail upon either 5 or 10 days' notice and are on standby with a skeleton crew of about 600 commercial mariners (13 per ship), but would require an additional 1,200 mariners to sustain its operation once activated. The MSC fleet is controlled by TRANSCOM and has a subset of about 50 ships that carry military cargoes in port-to-port voyages similar to those undertaken by commercial ships. MSC ships are mostly crewed by civilian mariners who are federal employees. The MSP ships, a fleet established by Congress in 1996 ( P.L. 104-239 ), receive an operating subsidy of about $5 million per vessel per year to cover the additional cost of American crews and rely heavily on government cargoes (military and food aid) that pursuant to \"cargo preference\" law are reserved for them. As per long-standing agreements between MARAD, acting as advocate for the U.S. maritime industry, and the Department of Defense, the military is to utilize MSP ships and exhaust that capacity before it utilizes MSC ship capacity.\nWhile Jones Act operators are required to purchase more costly U.S.-built ships, the military sealift fleet is largely composed of more economical foreign-built ships. Jones Act operators are competing in the commercial marketplace while the sealift fleet is not. Instead of relying on the Jones Act commercial fleet to provide oceangoing shipbuilding capability, the sealift fleet could be required to be built domestically. The higher cost of the domestically built sealift fleet would be shared nationally, as is the case with other defense assets. Lower-cost coastwise ships would be more price-competitive with railroads, pipelines, and ATBs, thereby enlarging the mariner pool available for sealift support and increasing repair and maintenance work for U.S. shipyards. The sealift ships could also be designed to military specifications rather than be in conflict with commercial needs (see below).",
"The military seeks cargo ships with flexible capabilities: ships not so large that they could face draft restrictions in some overseas harbors, ships with ramps or onboard cranes so that they can still unload cargo at underdeveloped or damaged ports, and ships that can carry a wide variety of cargo types and sizes. The majority of the military sealift fleet consists of product tankers for carrying fuel and roll-on/roll-off (Ro/Ro) ships that have ramps for moving tanks, trucks, and helicopters. It also consists of container ships used for moving ammunition and other supplies.\nThe military's preference for versatility is in conflict with the commercial fleet's trend toward more specialized and larger ships, a trend driven by the need for ships with the lowest operating cost. General cargo and break-bulk ships capable of carrying a wide variety of cargo types and sizes and that were typically equipped with their own onboard cranes have been largely replaced by container ships without onboard cranes. Thus, commercial mariners may no longer have experience operating cargo cranes, as might be required in foreign ports where shore-based cranes are out of service or are not available.\nThe largest container ships require 45 to 50 feet of water below the waterline, far more depth than many ports can provide. Ro/Ro ships have been replaced by \"pure car carriers\" that maximize the number of passenger cars they can carry, but may be less useful for military purposes. Cost pressures have induced commercial carriers to install engines that minimize fuel costs by operating at lower speeds and cannot achieve the higher speeds desired for military sealift ships. In addition, more stringent sulfur emission regulations recently enacted have prompted ship operators to convert to LNG-fueled engines, a fuel not globally available, or to install scrubbers, equipment that takes up cargo space and has no military utility. Licensing of engine crews is specific to engine type. Thus, a growing disparity exists between the military's ideal vessel designs and those of commercial carriers, as well as in the skill sets of the crew.",
"Besides the deep-sea ship crews, another purported Jones Act contribution to military sealift is preservation of a shipyard industrial base with the knowledge and skills to build and repair ships. The Merchant Marine Act of 1970 (P.L. 91-469) added as an additional objective of U.S. maritime policy to have a merchant marine \"supplemented by efficient facilities for building and repairing vessels.\" U.S. shipyards typically build only two or three oceangoing ships per year, and none for export, so they do not achieve economies of scale. There may be gaps of several years in between orders for container ships. In recent years, the demand has been sufficient to sustain one shipyard that builds only commercial ships. However, this yard stated that its employment had fallen below 100 people and that it had no vessels under construction or on order as of March 31, 2019. The other shipyard that builds commercial ships also relies heavily on Navy orders.\nA larger number of shipyards build smaller vessels such as tour boats, ferries, tugs, barges, and offshore supply vessels. Around 1,000 barges are built in a typical year. These vessels also fall under the Jones Act domestic build requirement and are rarely built for export. However, the shipyards building smaller vessels lack dry docks of sufficient size to repair large ships. The government-owned sealift fleet is 44 years old on average, and many of the vessels are in need of repair. According to the Maritime Administrator, there is an insufficient number of large dry docks to service the sealift fleet, delaying their readiness to sail. Some of the reserve fleet has failed Coast Guard safety inspection, and some ships have too much steel rusted from their hulls to be seaworthy. For example, while sailing to a readiness exercise, a hole was found in the hull of one of the ships. According to TRANSCOM, the Navy's plan to recapitalize the reserve fleet includes building new vessels in domestic shipyards, repairing ships in the current fleet to extend their service life out to 60 years, and purchasing used, foreign-built ships. The Navy has found that repairing the vessels has thus far been three times more expensive and has taken twice as long as originally projected. It therefore is contemplating the need to accelerate the purchase of used, foreign-built ships because building new ships in U.S. yards is estimated to be 26 times more expensive and thus not affordable.\nIn addition to the Jones Act, the Tariff Act of 1930 is intended to support U.S. shipyards by assessing a 50% duty on the price of any nonemergency repairs on U.S. flag ships done in foreign shipyards. A 2011 MARAD study found that many U.S.-flag international trading ships have repairs performed in foreign yards because, even with the 50% duty, the total cost is less than if the repairs were performed in a domestic shipyard. A U.S.-flag operator confirms that this is still the case in 2018.",
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"question": [
"What does the Jones Act mandate?",
"What entities benefit from this act?",
"Why has this act come under fire?",
"What are some recent examples of when this act has been discussed?",
"Why has this act become the subject of attention?",
"What precedent was there before the Jones Act of 1920?",
"How did provisions adjust the restrictions of the Jones Act of 1920 in the following years?",
"What sorts of protections do these new provisions afford those helped by the Jones Act?",
"How has the expansion of the Jones Act in 1940 contributed to debate regarding the act's efficacy?",
"How restrictive is the Jones Act?",
"What exemptions has Congress enacted?",
"How have waivers eased restrictions of the Jones Act?",
"What definitions which have come forth from the Jones Act are the most significant?",
"How does the Coast Guard determine what a U.S.-built vessel is?",
"How do cruise ship voyages fall outside the restrictions of the Jones Act?",
"What industry is effected heavily by the CBP's interpretations?",
"What vessels are the military expected to use?",
"What concern has resulted from mariners being expected to crew sealift ships when necessary?",
"What cost-saving measures does the Department of Defense have regarding foreign-built ships?",
"What has been particularly costly about the current fleet?",
"What is the first concern raised by the commercial fleet?",
"What is the second concern?",
"How have people argued that these situations are contrary to the purposes of the Jones Act?"
],
"summary": [
"The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens.",
"The act provides a significant degree of protection for U.S. shipyards, domestic carriers, and American merchant sailors.",
"It is a subject of debate because some experts point out that it leads to high domestic ocean shipping costs and constrains the availability of ships for domestic use. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability.",
"The Jones Act has come into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas.",
"The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability.",
"The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. It restated a long-standing restriction that was temporarily suspended during World War I.",
"In 1935, Congress forbade Jones Act-qualified vessels that were sold to foreign owners or registered under a foreign flag to subsequently requalify as Jones Act-eligible (P.L. 74-191). In 1940, Congress expanded the Jones Act to include towing and salvage vessels (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material required use of a Jones Act-qualified vessel, such that transport of dredge spoil or municipal waste would fall under the law (P.L. 100-329).",
"This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take around two years to construct a new ship.",
"Generally, dredging and towing vessels, as well as Great Lakes ships, have occasioned less debate about the Jones Act than oceangoing ships and offshore supply vessels.",
"Congress has enacted numerous exemptions or exceptions to the Jones Act.",
"In some cases, Congress has enacted an exemption if there are no Jones Act-qualified carriers interested in providing service in a particular market (for example, passenger travel to and from Puerto Rico).",
"Congress has allowed waivers of the Jones Act for national defense reasons, which most often have been executed to speed fuel deliveries to a region after a natural disaster disrupted normal supply lines.",
"Regulatory interpretations of the Jones Act have been significant in defining what constitutes a \"U.S.-built\" vessel, what constitutes \"transportation\" between two U.S. points, and what are \"U.S. points.\"",
"The Coast Guard has determined that a U.S.-built vessel can be assembled with major foreign components such as engines, propellers, and stern and bow sections.",
"Customs and Border Protection (CBP) has determined that cruise ship voyages that involve visits to foreign ports in addition to a domestic port are not domestic transportation and therefore not subject to the Jones Act.",
"CBP's interpretations of what constitutes domestic transportation and U.S. points are significant to the offshore oil industry, as some of the vessels supporting that industry must be Jones Act-compliant while others need not be.",
"By long-standing agreement, the military is to utilize U.S.-flag commercial ships for sealift before it utilizes government-owned vessels in its reserve fleet.",
"Jones Act mariners are expected to crew sealift ships when needed, and thus the decades-long shrinkage of the oceangoing Jones Act fleet and mariner pool has been raised as a concern.",
"The Department of Defense is planning to buy more used foreign-built ships for sealift rather than building them in the United States for cost reasons.",
"It also has found that repairing its current fleet in U.S. shipyards is three times more expensive and has taken twice as long as estimated.",
"Much of the commercial fleet is relatively old, raising safety concerns.",
"Some useful types of ships are missing from the Jones Act-qualified fleet, such as heavy-lift vessels, liquefied natural gas (LNG) tankers, and deepwater offshore construction vessels.",
"Both situations appear to some observers to be contrary to the policy goal of the Jones Act, which is to \"have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in times of war or national emergency.\""
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{
"title": [
"",
"Recent COOL Developments",
"Overview of COOL",
"Authorizing Legislation",
"USDA Regulations and Secretary's Statement to Implement COOL",
"Costs and Benefits",
"Key Provisions of COOL",
"Defining and Labeling Origin for Meats",
"Changes Made from Interim Rule to Final Rule",
"Vilsack Letter",
"Defining Origin for Other Covered Commodities",
"Scope of Coverage",
"Record-Keeping, Verification, and Penalties",
"Administrative Enforcement and Audits",
"COOL Challenged by Canada and Mexico in WTO",
"Dispute Settlement Panel Established",
"Dispute Settlement Panel Ruling",
"Reaction to the WTO DS Panel Findings",
"United States",
"Canada",
"U.S. Appeal of the WTO Panel Ruling",
"Appellate Body Report Determinations",
"WTO Adoption of Dispute Settlement Reports",
"Bringing COOL into Compliance",
"USDA's Revised COOL Rule",
"Implementation of the COOL Rule",
"Costs and Benefits of the Revised Rule",
"Mixed Views from Livestock Industry Stakeholders",
"Response from Canada and Mexico",
"Canada's Preliminary Retaliation List",
"Damage Estimates",
"Compliance Panel",
"Appeal of the Compliance Report",
"Reactions to the Compliance Panel Report",
"Suspension of Concessions (Retaliation)",
"Arbitration Panel Decision on Retaliation",
"Congressional Action on COOL",
"Congress Repeals COOL for Beef and Pork",
"House Repeals COOL for Beef, Pork, and Chicken",
"Senate Introduces Repeal and a Voluntary COOL",
"Appropriations",
"Farm Bill"
],
"paragraphs": [
"",
"On May 18, 2015, the World Trade Organization's (WTO) Appellate Body confirmed the findings of previous panels that U.S. country-of-origin labeling (COOL) for beef and pork violated U.S. WTO obligations by discriminating against imported livestock. In June 2015, Canada and Mexico requested permission from the WTO to impose about US$3 billion in concessions, in the form of retaliatory tariffs, against products imported from the United States. The United States objected to the request, and an arbitration panel was established to determine the appropriate level of concessions.\nOn July 23, 2015, Senator Hoeven introduced the Voluntary Country of Origin Labeling (COOL) and Trade Enhancement Act of 2015 ( S. 1844 ), which, like H.R. 2393 , repeals mandatory COOL for beef, pork, chicken, and their ground products. In addition, S. 1844 amends the Agricultural Marketing Act (7 U.S.C. §1621 et seq.) requiring USDA to establish a label designation that enables meat processors to voluntarily use a U.S. label for beef, pork, and chicken from livestock exclusively born, raised, and slaughtered in the United States.\nAlso, during debate on the vehicle for the Senate transportation reauthorization bill ( H.R. 22 ), Senator Roberts, Chairman of the Agriculture Committee, introduced an amendment ( S.Amdt. 2302 ) to repeal mandatory COOL for beef, pork, and chicken using language from H.R. 2393 . On July 26, 2015, Senator Hoeven also introduced S. 1844 as an amendment ( S.Amdt. 2371 ) to the transportation bill. Neither amendment was considered for inclusion in the final Senate-passed bill.\nCanada and Mexico have stated that the only way to resolve the WTO case is to repeal COOL. In response to Senator Hoeven's proposed voluntary program, Canada's Agriculture Minister said such a program would \"guarantee Canadian retaliation\" because it would continue to discriminate against imported livestock through segregation.\nIf a voluntary COOL program was implemented, and Canada or Mexico opposed it, the United States could request that a WTO compliance panel determine if the new program is compliant with WTO requirements. Canada and Mexico could implement retaliation even if mandatory COOL is repealed and is replaced with a voluntary program. U.S. products would face higher tariffs while the compliance panel reviews the new voluntary program.\nThe WTO arbitration panel met on September 15-16, 2015, to hear arguments to determine the level of concessions for Canada and Mexico. On December 7, 2015, the arbitration panel released its report, which found that Canada could request retaliation of C$1.055 billion (US$781 million) and Mexico US$228 million.\nAs many stakeholders expected, the enacted Consolidated Appropriations Act, 2016 ( P.L. 114-113 , Div. A, Sec. 759) repealed COOL for beef and pork and ground beef and pork by amending the COOL statute. After COOL was repealed by Congress, the Secretary of Agriculture said that USDA would immediately halt enforcement of COOL and rewrite the COOL regulations to reflect the repeal of beef and pork. Unlike the House COOL repeal bill (Country of Origin Labeling Amendments Act of 2015; H.R. 2393 ) passed in June 2015, the repeal language in P.L. 114-113 did not include chicken and ground chicken products. Also, the legislation did not include any voluntary COOL provisions similar to what Senator Hoeven introduced in the Voluntary Country of Origin Labeling (COOL) and Trade Enhancement Act of 2015 ( S. 1844 ) in July 2015.\nCongressional repeal of COOL for beef and pork brings the United States into compliance with its WTO obligations and effectively ends the COOL case. On December 21, 2015, Canada and Mexico took the procedural step of formally requesting authorization to retaliate, and the DSB granted the request (see \" Suspension of Concessions (Retaliation) \" below for more information). Canada and Mexico have stated that they are pleased with the repeal of COOL. Although the threat of retaliation now has been removed, Canada and Mexico are likely to retain the authority to retaliate until USDA formally rescinds existing COOL regulations for beef and pork, and until Canada and Mexico are assured that cattle and hog trade is unimpeded as the repeal of COOL is implemented.\nOn March 2, 2016, USDA issued the final rule to amend COOL regulations for beef, pork, and ground beef and pork by striking all references to beef and pork. The rulemaking brings COOL regulations into conformity with the repeal amendment in Section 759 of P.L. 114-113 .",
"Since the 1930s, U.S. tariff law has required almost all imports to carry labels so that the \"ultimate purchaser,\" usually the retail consumer, can determine their country of origin. However, certain products, including a number of agricultural commodities in their \"natural\" state, such as meats, fruits, and vegetables, were excluded. (See Appendix A for a description of this and two other food labeling laws covering the display of country of origin on imported products.) For almost as many decades, various farm and consumer groups have pressed Congress to end one or more of these exceptions, arguing that U.S. consumers have a right to know where all of their food comes from and that given a choice they would purchase the domestic version. This would strengthen demand and prices for U.S. farmers and ranchers, it was argued.\nOpponents of ending these exceptions to COOL contended that there was little or no real evidence that consumers want such information and that industry compliance costs would far outweigh any potential benefits to producers or consumers. Such opponents, including some farm and food marketing groups, argued that mandatory COOL for meats, produce, or other agricultural commodities was a form of protectionism that would undermine U.S. efforts to reduce foreign barriers to trade in the global economy. COOL supporters countered that it was unfair to exempt agricultural commodities from the labeling requirements that U.S. importers of almost all other products already must meet, and that major U.S. trading partners impose their own COOL requirements for imported meats, produce, and other foods.",
"With passage of the 2002 farm bill, retail-level COOL was to become mandatory for fresh fruits and vegetables, beef, pork, lamb, seafood, and peanuts, starting September 30, 2004 ( P.L. 107-171 , §10816). Continuing controversy over the new requirements within the food and agricultural industry led Congress to postpone full implementation. The FY2004 Omnibus Appropriations Act ( P.L. 108-199 ) postponed COOL—except for seafood—until September 30, 2006; the FY2006 Agriculture Appropriations Act ( P.L. 109-97 ) further postponed it until September 30, 2008.\nDuring deliberations on the 2008 farm bill, the interest groups most affected by COOL reached consensus on various changes intended to ease what they viewed to be some of the more onerous provisions of the 2002 COOL law. Provisions dealing with record-keeping requirements, the factors to be considered for labeling U.S. and non-U.S. origin products, and penalties for noncompliance were modified. These amendments were incorporated into P.L. 110-246 , Section 11002. The enacted 2008 farm bill required that COOL take effect on September 30, 2008, and added goat meat, chicken, macadamia nuts, pecans, and ginseng as commodities covered by mandatory COOL. (See Appendix B for a timeline of key COOL developments.)",
"The final rule to implement the COOL requirements for all covered commodities was issued by the U.S. Department of Agriculture's (USDA's) Agricultural Marketing Service (AMS) during the final days of the Bush Administration in January 2009. It included changes to the interim rule published in August 2008 that some had criticized as watering down the COOL statute (see \" Changes Made from Interim Rule to Final Rule \"). In February 2009, Secretary of Agriculture Vilsack announced that the final rule would take effect as planned on March 16, 2009. At the same time, he also urged affected industries to voluntarily adopt additional changes that, he asserted, would provide more specific origin information to consumers and more closely adhere to the intent of the COOL law (see sections \" Vilsack Letter \" and \" Vilsack Letter Is Not a Technical Regulation \" for details).",
"COOL supporters argued that numerous studies show that consumers want country-of-origin labeling and would pay extra for it. Analysis accompanying USDA's interim and final rules concluded that, while benefits are difficult to quantify, it appears they will be small and will accrue mainly to consumers who desire such information. A Colorado State University economist suggested that consumers might be willing to pay a premium for \"COOL meat\" from the United States, but only if they perceive U.S. meat to be safer and of higher quality than foreign meat. USDA earlier had estimated that purchases of (i.e., demand for) covered commodities would have to increase by 1% to 5% for benefits to cover COOL costs, but added that such increases were not anticipated. Data from several economic studies that aimed to model COOL impacts appear to fall within this range.\nCritics of mandatory COOL argued that large compliance costs will more than offset any consumer benefits. USDA's analysis of its final rule estimated first-year implementation costs to be approximately $2.6 billion for those affected. Of the total, each commodity producer would bear an average estimated cost of $370, intermediary firms (such as wholesalers or processors) $48,219 each, and retailers $254,685 each. The USDA analysis also included estimates of record-keeping costs and of food sector economic losses due to the rule.",
"Mandatory country-of-origin labeling (7 U.S.C. §1638 et seq.):\napplies to ground and muscle cuts of beef (including veal), lamb, and pork, fish and shellfish, peanuts, \"perishable agricultural commodities\" as defined by the Perishable Agricultural Commodities Act (i.e., fresh and frozen fruits and vegetables), goat meat, chicken, pecans, macadamia nuts, and ginseng (these are referred to as \"covered commodities\"); requires method of production information (farm-raised or wild-caught) for fish and shellfish to be noted at the final point of sale to consumers; exempts these items if they are an ingredient in a processed food; covers only those retailers that annually purchase at least $230,000 of perishable agricultural commodities, and requires them to inform consumers of origin \"by means of a label, stamp, mark, placard, or other clear and visible sign on the covered commodity or on the package, display, holding unit, or bin containing the commodity at the final point of sale\"; and exempts from these labeling requirements such \"food service establishments\" as restaurants, cafeterias, bars, and similar facilities that prepare and sell foods to the public.",
"In designating country of origin, difficulties arise when products—particularly meats—are produced in multiple countries. For example, beef might be from an animal that was born and fed in Canada, but slaughtered and processed in the United States. Likewise, products from several different countries often are mixed, such as for ground beef. For covered red meats and chicken, the COOL law:\npermits the U.S. origin label to be used only on meats from animals that were exclusively born, raised, and slaughtered in the United States, with an exception for those animals present here before July 15, 2008; permits meats or chicken with multiple countries of origin to be labeled as being from all of the countries in which the animals may have been born, raised, or slaughtered; requires meat or chicken from animals imported for immediate U.S. slaughter to be labeled as from both the country the animal came from and the United States; requires products from animals not born, raised, or slaughtered in the United States to be labeled with their correct country(ies) of origin; and requires , for ground meat and chicken products, that the label list all countries of origin, or all \"reasonably possible\" countries of origin.\nBecause these statutory requirements are at the heart of the ongoing WTO dispute case, Table 1 traces the progression of statutory language from the initial implementing regulations to the retail labels to be used for each of these five categories. Subsequent changes to these rules as now seen at the retail level are shown in Table 2 .",
"The meat labeling requirements have proven to be among the most complex and controversial areas of rulemaking, in large part because of the steps that U.S. feeding operations and packing plants must adopt to segregate, hold, and slaughter foreign-origin livestock separately from U.S. livestock. After AMS issued the interim rules in August 2008, many retailers and meat processors reportedly planned to use the \"catch-all\" multiple countries of origin label on as much meat as possible—even products that would qualify for the U.S.-only label, because it was both permitted and the easiest requirement to meet. COOL supporters objected that the label would be overused, undermining the intent of COOL (i.e., to distinguish between U.S. and non-U.S. meats). In an effort to balance the concerns of both sides, USDA issued a statement attempting to clarify its August 2008 interim rule, stating that meats derived from both U.S.- and non-U.S.-origin animals may carry a mixed-origin claim (e.g., \"Product of U.S., Canada, and Mexico\"), but that the mixed-origin label cannot be used if only U.S.-origin meat was produced on a production day.\nThe final (January 2009) rule attempted to further clarify the \"multiple countries of origin\" language. For example, muscle cut products of exclusively U.S. origin along with those from foreign-born animals, if commingled for slaughter on a single production day, can continue to qualify for a combined U.S. and non-U.S. label. \"It was never the intent of the Agency [AMS] for the majority of product eligible to bear a U.S. origin declaration to bear a multiple origin destination. The Agency made additional modifications for clarity,\" AMS stated in material accompanying the rule.\nThe clarifying changes failed to mollify some. The National Farmers Union (NFU) continued to view this portion of the rule as a \"loophole that would allow meat packers to use a multiple countries, or NAFTA [North American Free Trade Agreement] label, rather than labeling U.S. products as products of the United States\" and stated \"[t]his is misleading to consumers.\" Seven Senators highlighted similar concerns, stating that it would allow \"meatpackers to put a multiple country of origin label on products that are exclusively U.S. products as well as those that are foreign.\" They characterized the final rule as defeating COOL's primary purpose to provide \"clear, accurate and truthful information\" to U.S. consumers, and hoped the rules will be revised \"to close these loopholes.\"",
"To address these views to comply with an Obama White House directive that all agencies review recent regulations issued by the outgoing Administration, Secretary of Agriculture Vilsack in a February 20, 2009, letter urged industry representatives to voluntarily adopt three suggested labeling changes in order to provide more useful information to consumers than the final rule itself might imply, and to better meet congressional intent. These dealt with the labeling of meat products with multiple countries of origin, a reduction in the time allowance for labeling ground meat held in inventory, and exemptions to the rules for processed products.\nOn labeling for multiple countries of origin, he stated that\nprocessors should voluntarily include information about what production step occurred in each country when multiple countries appear on the label. For example, animals born and raised in Country X and slaughtered in Country Y might be labeled as \"Born and Raised in Country X and Slaughtered in Country Y.\" Animals born in Country X but raised and slaughtered in Country Y might be labeled as \"Born in Country X and Raised and Slaughtered in Country Y.\"\nVilsack's letter noted that the final rule allows a label for ground meat to bear the name of a country even if the meat from that country was not present in a processor's inventory in the preceding 60-day period. Noting that this allows for labeling this product \"in a way that does not clearly indicate [its] country of origin,\" the Secretary asked processors to reduce this time allowance to 10 days, stating that this \"would enhance the credibility of the label.\"\nSecretary Vilsack also stated that USDA would closely monitor industry compliance to determine whether \"additional rulemaking may be necessary to provide consumers with adequate information.\" His letter was widely viewed as an effort to address the concerns of COOL adherents without reopening the rule and thereby attracting renewed criticism from the meat industry and U.S. trading partners.",
"For perishable agricultural commodities, ginseng, peanuts, pecans, and macadamia nuts, retailers may only claim U.S. origin if the product was exclusively produced in the United States. However, a U.S. state, region, or locality designation is a sufficient U.S. identifier (e.g., Idaho potatoes). For farm-raised fish and shellfish, a U.S.-labeled product must be derived exclusively from fish or shellfish hatched, raised, harvested, and processed in the United States; wild fish and shellfish must be derived exclusively from those harvested either in U.S. waters or by a U.S. flagged vessel, and processed in the United States or on a U.S. vessel. Also, labels must differentiate between wild and farm-raised fish and shellfish.",
"Consumers may not find country-of-origin labels on much more of the food they buy, due to COOL's statutory and regulatory exemptions. First, as noted, all restaurants and other food service providers are exempt, as are all retail grocery stores that buy less than $230,000 a year in fresh fruits and vegetables. Second, \"processed food items\" derived from the covered commodities are exempt, and USDA, in its final rule, defined this term broadly (at 7 C.F.R. §65.220). Essentially, any time a covered commodity is subjected to a change that alters its basic character, it is considered to be processed. Although adding salt, water, or sugar do not, under USDA's definition, change the basic character, virtually any sort of cooking, curing, or mixing apparently does. For example, roasting a peanut or pecan, mixing peas with carrots, or breading a piece of meat or chicken all count as processing. As a result, only about 30% of the U.S. beef supply, 11% of all pork, 39% of chicken, and 40% of all fruit and vegetable supplies may be covered by COOL requirements at the retail level. Whole peanuts are almost always purchased in roasted form, and will not have to be labeled. Some critics argued that AMS overstepped its authority, and congressional intent, by excepting such minimally processed commodities.\nAMS countered that in fact many imported items still must carry COOL under provisions of the Tariff Act of 1930. \"For example, while a bag of frozen peas and carrots is considered a processed food item under the COOL final rule, if the peas and carrots are of foreign origin, the Tariff Act requires that the country of origin be marked on the bag,\" AMS argued, citing similar regulatory situations for roasted nuts and for a variety of seafood items.\nVilsack's letter, however, acknowledged that the \"processed foods\" definition in the final rule \"may be too broadly drafted. Even if products are subject to curing, smoking, broiling, grilling, or steaming, voluntary labeling would be appropriate,\" he wrote.",
"The COOL law prohibits USDA from using a mandatory animal identification (ID) system, but the original 2002 version stated that the Secretary \"may require that any person that prepares, stores, handles, or distributes a covered commodity for retail sale maintain a verifiable record-keeping audit trail that will permit the Secretary to verify compliance.\" Verification immediately became one of the most contentious issues, particularly for livestock producers, in part because of the potential complications and costs to affected industries of tracking animals and their products from birth through retail sale. Producers of plant-based commodities, as well as food retailers and others, also expressed concern about the cost and difficulty of maintaining records for commodities that are highly fungible and often widely sourced. The 2008 law eased these requirements somewhat by stating that USDA \"may conduct an audit of any person that prepares, stores, handles, or distributes a covered commodity\" in order to verify compliance. Such persons must provide verification, but USDA may not ask for any additional records beyond those maintained \"in the course of the normal conduct of business.\"\nIn its final rule, AMS stated that covered persons generally would have to keep records for one year that can identify both the immediate previous source and the immediate subsequent recipient of a covered commodity; certain exceptions are provided for pre-labeled products. Also, a slaughter facility can accept a producer affidavit as sufficient evidence for animal origin claims.\nAlso, potential fines for willful noncompliance are set for retailers and other persons at no more than $1,000 per violation. The 2002 law had set the fine at no more than $10,000 (and for retailers only), but the 2008 farm bill lowered this amount.",
"USDA's AMS oversees COOL through a retail and supplier surveillance program. AMS has cooperative agreements with all 50 states to conduct audits of retailers and suppliers that are covered under COOL. In 2014, the COOL program conducted 2,982 retail surveillance reviews and 570 follow-up reviews to ensure compliance with COOL requirements. About 37,000 individual retail stores are subject to COOL regulations. In 2014, AMS found that retailer COOL compliance was at 91%, compared to 96% in both 2012 and 2013. AMS conducted audits on 113 products in the supplier chain. Compliance from supplier to retailer was 98%. In 2014, muscle cuts of meat were not audited. The AMS COOL program was funded at about $5 million in FY2014, with funding of $4.8 million expected in FY2015 and FY2016.\nUSDA's Office of Inspector General (OIG) audited the operations of the COOL program during 2010. Its report noted that \"AMS made significant strides implementing the final rule\" but found the need for improvements in its controls and processes to ensure that retailers and suppliers fully comply with COOL regulations. The OIG identified the need for AMS to strengthen its process to select retailers to be reviewed and the review process itself, and to more quickly evaluate the documentation kept by retailers and issue noncompliance letters. Auditors also pointed out that AMS needs to be more vigorous in enforcing COOL requirements, provide better oversight of the state agencies that conduct retailer reviews, and improve how it communicates with and provides program guidance to retailers. AMS agreed with all of the OIG recommendations, and by late 2012, had incorporated 11 of them into program operations.",
"Meat labeling proved to be the most contentious of COOL requirements, leading Canada and Mexico to challenge COOL using the World Trade Organization's (WTO's) dispute settlement process. Canada and Mexico are major suppliers of live cattle and hogs that are fed in U.S. feeding facilities and/or processed into beef and pork in U.S. meat packing plants. As the U.S. meat processing sector geared up to implement COOL in mid-2008, Canada and Mexico expressed concern that COOL would adversely impact their livestock sectors. Indeed, U.S. cattle imports from Canada and Mexico and hog imports from Canada dropped in both 2008 and 2009 from year-earlier levels. Some analyses supported claims that COOL hampered livestock imports. Other analyses pointed out that factors such as exchange rates and inventory levels were also affecting import levels and that declines could not be entirely attributed to COOL (see Appendix C for background on livestock trade in North America).\nCanada and Mexico requested consultations with the United States in December 2008 and June 2009 about their concerns. Not satisfied with the outcome of these consultations with U.S. officials, both countries in early October 2009 requested the establishment of a WTO dispute settlement (DS) panel to consider their case. In response, the U.S. Trade Representative (USTR) and the Secretary of Agriculture commented that they \"regretted that the formal consultations\" did not resolve concerns, and stated their belief that U.S. implementation of COOL provides consumers with information that is consistent with WTO commitments. They noted that countries worldwide had agreed that the principle of country-of-origin labeling was legitimate policy long before the WTO was created, and that other countries also require goods to be labeled with their origin.\nBoth the Canadian and Mexican governments, in requesting a panel, asserted that COOL is inconsistent with U.S. obligations under certain WTO agreements—the General Agreement on Tariffs and Trade 1994, the Agreement on Technical Barriers to Trade, and the Agreement on Rules of Origin. These obligations include treating imports no less favorably than like products of domestic origin; making sure that product-related requirements are not more trade restrictive than necessary to fulfill a legitimate public policy objective; ensuring that compliance with laws on marks of origin does not result in damaging imports, reducing their value, or unreasonably increasing their cost; and ensuring that laws, rules, and procedures on country of origin do not \"themselves create restrictive, distorting, or disruptive\" international trade, among others.",
"On November 19, 2009, the WTO's Dispute Settlement Body (DSB) established a panel to consider both countries' complaints. In proceeding with this WTO case, Canadian officials stated that the COOL requirements are \"so onerous\" that when they were implemented, Canadian exporters of cattle and hogs were discriminated against in the U.S. market. The Canadian beef and pork industries, led by the Canadian Cattlemen's Association (CCA) and the Canadian Pork Council, actively pushed their government to initiate a WTO challenge. The CCA argued that COOL cost its producers C$92 million over the two months following the publication of the interim rule in August 2008, and could cost C$500 million per year. CCA estimated that slaughter steers and heifers were losing C$90 per head, because U.S. meat establishments did not want to assume the increased costs of complying with new labeling requirements by segregating, holding, and then slaughtering Canadian cattle separately from U.S. cattle. The losses included lower prices for all Canadian cattle due to decreased U.S. demand, as well as the cost of shipping those that are sold further distances to the fewer number of U.S. plants willing to take them. Canadian pork producers expressed similar concerns.\nUSTR's request for public comment on this pending WTO case generated responses that reflected the heated debate on mandatory COOL seen earlier among key players in the livestock sector. The American Meat Institute (AMI), representing U.S. meat processors and packers, stated that the U.S. law, in addition to violating WTO commitments, also violates NAFTA commitments. AMI argued that COOL discriminates against imports in favor of domestic meat.\nThe National Cattlemen's Beef Association (NCBA) expressed concern that Canada's decision to pursue its case against U.S. COOL rules has the potential for retaliatory action to be taken against U.S. beef. It noted that \"COOL has damaged critically important trading relationships [i.e., the import of Canadian and Mexican livestock, the value added as they pass through U.S. feedlots and are processed into meat, and the export of finished meat products back to Mexican and Canadian consumers], and is not putting additional money into the pockets of cattlemen.\"\nIn opposition, the U.S. Cattlemen's Association (USCA) and the National Farmers Union (NFU) argued that COOL is \"fully consistent\" with the General Agreement on Tariffs and Trade and the Agreement on Technical Barriers to Trade (key WTO commitments). Both stated that COOL \"does not discriminate between domestic and imported beef ... [and] operates neutrally in the market place,\" and noted that COOL does not impose any domestic content requirements (i.e., does not stipulate what share of value or quantity determines country of origin). The Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF), presented similar comments.",
"On November 18, 2011, the WTO dispute settlement (DS) panel ruled that certain COOL requirements violate two articles of the WTO Agreement on Technical Barriers to Trade (TBT) and the requirement for impartial administration of regulations laid out in the General Agreement on Tariffs and Trade 1994 (GATT 1994). The panel first concluded that the COOL \"measure\"—the statute and the final rule—constituted a \"technical regulation\" under the TBT Agreement and was thus subject to TBT obligations. It then found that the COOL measure (1) treated imported livestock less favorably than \"like domestic livestock,\" particularly in the labeling of muscle cut meats (beef and pork), in violation of the national treatment obligation in the TBT's Article 2.1; and (2) failed to meet the legitimate objective of providing information to consumers on the origin of meat products, and thus violated the TBT's Article 2.2. The panel also found that the Vilsack letter's \"suggestions for voluntary action\" went beyond COOL's obligations and, while not a \"technical regulation,\" constitute unreasonable administration of COOL itself, thus violating Article X:3(a) of the GATT 1994. The panel concluded that the United States has \"nullified or impaired benefits\" to which Canada and Mexico are entitled, and recommended that the WTO's DSB request the United States to conform these \"inconsistent measures\" with its obligations under the TBT Agreement and GATT 1994. (See Appendix D for more discussion of the WTO findings.)",
"",
"With the WTO's release of the DS panel's report, USTR welcomed its affirmation of \"the right of the United States to require country of origin labeling for meat products.\" Acknowledging that the panel disagreed with the details on how the U.S. COOL requirements were designed, it expressed the U.S. commitment to provide \"consumers with accurate and relevant information [on] the origin of meat products that they buy at the retail level.\" USTR stated that it would consider all options going forward, including an appeal.\nThe U.S. meat sector expressed mixed reactions. Those in favor of making changes to COOL to address the panel's conclusions include NCBA, AMI, and the National Pork Producers Council (NPPC). The NCBA advised against appealing this ruling. Instead, it urged USTR to work \"to apply pressure on Congress to bring the United States into WTO compliance across the board\" and to act quickly before Canada and Mexico—two important trading partners—impose \"unnecessary and unfortunate tariffs\" on U.S. agricultural exports. NPPC \"will be working with lawmakers to craft a legislative fix so that [COOL] is WTO-compliant\" to avoid risking \"retaliation from and a trade war with Canada and Mexico.\" AMI commented that the ruling \"was not surprising,\" stating that it had \"contended for years ... that [COOL] was not just costly and cumbersome, but a violation of our country's WTO obligations.\"\nAmong other groups that opposed COOL, the Food Marketing Institute (FMI) agreed with the panel's conclusion that COOL \"fails to provide information in a meaningful way\" and highlighted that \"COOL enforcement has become more burdensome than ever ... for retailers.\" Its spokesman stated that COOL \"will need to be repealed or rewritten for the U.S. to meet its [trade obligations]\" and that FMI will work with Congress and USDA \"to develop an alternative system\" that informs consumers with useful information.\nLivestock groups that support COOL as now implemented include R-CALF and USCA. R-CALF responded that \"the WTO is trying to usurp our nation's sovereignty,\" questioning \"when do we allow an international tribunal to dictate to our U.S. Congress what is or is not a legitimate objective of providing information to United States' citizens?\" USCA strongly disagreed with the panel's findings, but was pleased that the report \"affirmed the right of the U.S. to label meat for consumers.\" Its president expressed support for USTR's efforts to defend U.S. rights, pledging to assist \"with the appeal process\" and to work \"with our allies in the Administration and Congress to ensure that COOL continues.\"\nAmong others supporting COOL, the NFU responded that it will work with USTR and USDA \"to ensure that COOL is implemented to the fullest extent of the law and in accordance with WTO.\" Its statement concluded that \"if these results are unsatisfactory, then NFU will push to appeal the decision and continue to fight ... to ensure COOL is allowed to continue for as long as it takes to get this done.\" Public Citizen commented that the WTO's ruling against COOL for meats \"make[s] it increasingly clear to the public that the WTO is leading a race to the bottom in consumer protection\" by its second-guessing \"the U.S. Congress, courts and public by elevating the goal of maximizing trade flows over consumer and environmental protection.\" Food and Water Watch urged the Administration to appeal the ruling, noting that the WTO \"should not get to decide what U.S. consumers get to know about their food and should not be able to undermine rules put in place by U.S. elected officials.\"\nMembers of Congress also hold diverse views on COOL's future. Some did not expect the WTO panel's decision on COOL to be favorable and view more \"unwinnable\" WTO cases as not in the \"best interest\" of U.S. agricultural producers. At a regional livestock meeting, Senator Pat Roberts, then ranking Member of the Senate Agriculture Committee, stated that he does not know of any market study that \"shows American consumers will buy more American products with labels in the store\" and hoped \"we can change people's minds.\" By contrast, 19 Senators requested that the Obama Administration appeal the panel's ruling and \"work to ensure that our COOL program both meets our international trade obligations while continuing to provide such information to consumers.\" Their letter expressed concern about the ruling's impact \"on our ability to continue providing [COOL] information to consumers\" and noted that congressional intent behind the 2008 statutory changes was for \"such labeling [to] be nondiscriminatory in its treatment of imported products by requiring the labeling of both domestic as well as imported products.\" The letter further stated that the final COOL rule \"appropriately establishes a labeling system which provides important and useful information to consumers while not placing an undue burden on the industry\" and which \"continues to provide the same opportunity for imported livestock to compete in the domestic marketplace as was the case prior to USDA's implementation of COOL.\"",
"The Canadian government welcomed the panel's ruling as a \"clear victory for Canada's livestock industry.\" Its Minister of Agriculture stated that the WTO decision \"recognizes the integrated nature of the North American supply chain in this vitally important industry\" and that \"[r]emoving onerous labelling measures and unfair, unnecessary costs will improve competitiveness, boost growth and help strengthen the prosperity of Canadian and American producers alike.\" He expressed the hope this ruling \"will open the door to a negotiated settlement of the dispute\" and stressed Canada's commitment to work with the United States to \"create a stronger more profitable livestock industry on both sides of the 49 th parallel.\"\nThe Canadian Pork Council (CPC) stated that the panel's report \"vindicates [the] objections\" the pork industry had to COOL legislation, which it believes restricts market access (i.e., the movement of live swine to the U.S. market) and constitutes a technical barrier. The CPC plans to work \"with like-minded groups in the U.S. to find a meaningful solution without further litigation\" (referring to a possible U.S. appeal and the process that would follow). The Canadian Cattlemen's Association (CCA) stated the ruling confirms Canada's position that COOL discriminates against live cattle shipped to the United States to the detriment of Canadian cattle producers. In particular, it noted that since taking effect, COOL \"has increased costs for U.S. companies that import live Canadian cattle,\" which has reduced \"the competiveness of those Canadian cattle in the U.S. market.\" The CCA plans to continue working with the U.S. industry \"not ... for the outright repeal of COOL but [to] seek only those regulatory and statutory changes necessary to eliminate the discrimination that COOL has imposed to the comparative disadvantage of livestock imported into the U.S. vis-a-vis U.S. livestock.\"",
"Under WTO rules, the United States had various options available to respond to the dispute panel's adverse ruling on certain aspects of U.S. COOL. One was to accept the decision and make changes to the COOL statute and/or regulations to comply with the WTO findings. Another was to appeal the panel report on legal issues.\nOn March 23, 2012, the United States appealed two findings of the DS panel's report to the WTO Appellate Body (AB). A USTR spokeswoman restated its position that the report had confirmed the U.S. right to adopt rules to inform consumers of the country of origin in their purchasing decisions, but expressed disappointment that the panel \"disagreed with the way that the United States designed its COOL requirements\" for beef and pork. USTR's chief counsel stated that the U.S. appeal is \"a signal of our commitment\" to ensure that consumers \"are provided with accurate and relevant information\" on the origin of beef and pork, and \"to fight for the interests of U.S. consumers at the WTO.\"\nInterest groups that had urged the Obama Administration to appeal the WTO report (R-CALF, USCA, NFU, Food and Water Watch, Public Citizen) supported this decision. Those that advocated resolving this dispute (NCBA, NPPC, AMI) expressed disappointment, and noted that the appeal jeopardizes strong trading relationships with Canada and Mexico and invites the prospect of retaliation by these two countries against U.S. meat exports.\nCanada's Agriculture Minister expressed disappointment that the United States appealed, stating his confidence that the WTO findings \"will be upheld so that trade can move more freely, benefiting producers and processors on both sides of the border.\" Mexico's Economic Ministry declared that it would defend Mexico's interests in the appeal process, and that it plans to file its own notice of appeal seeking a review of some issues in the panel's report that it says reflect inadequate legal analysis.",
"On June 29, 2012, the WTO's AB upheld the DS panel's finding that the COOL measure treats imported Canadian cattle and hogs, and imported Mexican cattle, less favorably than like domestic livestock, due to its record-keeping and verification requirements. The AB, however, reversed the DS panel's finding that COOL does not fulfill its legitimate objective to provide consumers with information on origin. The AB found that the DS panel's interpretation of TBT Article 2.2 was too narrow, and that the U.S. COOL measure partially met its legitimate objective to provide country of origin information. However, the AB did not determine if COOL was more trade restrictive than necessary. (See Appendix D for more discussion of the WTO findings.)",
"On July 23, 2012, the Dispute Settlement Body (DSB) adopted the AB's report and the DS panel's report, as modified by the AB, under the reverse consensus rule. Under this rule, both reports are adopted unless all WTO member countries present at the meeting vote not to do so. This rule makes adoption virtually automatic. In turn, the United States, Canada, and Mexico were required to unconditionally accept the AB's decision. The DSB, as is the practice, did not specify what the United States must do to comply with these reports' findings.",
"The WTO's Dispute Settlement Understanding (DSU) lays out a multi-step process for a country to comply with the adopted WTO findings. Once WTO findings are adopted by the DSB, a compliance deadline is established. If a party or parties to a dispute believe compliance measures fail to meet WTO obligations, the process may move into a compliance panel phase. If that does not resolve disagreements among parties, the dispute could move into a retaliation phase. A resolution to a WTO case may be delayed for months as the parties work through the compliance and/or retaliation processes.\nAfter the adoption of the dispute settlement reports, the United States had up to 30 days to inform the DSB of its plans to implement the WTO findings. If a country is unable to comply immediately, the DSU allows for a \"reasonable period of time\" for this to occur. Often, WTO members are given approximately one year from the date of adoption of the panel report to comply. If the disputing countries fail to agree on a compliance deadline, as occurred in this case, an arbitrator may determine the deadline.\nBecause the United States, Canada, and Mexico could not agree on a timetable or an arbitrator, the WTO Director-General appointed one. In the arbitration hearing, the United States argued that 18 months were needed to pursue the steps required to adopt a regulatory response. Canada argued that six months would be sufficient. Mexico argued for an eight-month compliance period, but would welcome six. On December 4, 2012, the arbitrator determined that 10 months from the reports' adoption (July 23, 2012) was a reasonable period of time for the United States to comply. The United States was given until May 23, 2013 to bring COOL into WTO compliance.\nFacing the deadline of May 23, 2013, the United States began the process of deciding how to modify those features of COOL targeted by the WTO panels' findings to bring them into compliance. This continued USTR's reported engagement in late 2012 and early 2013 with Congress and interest groups on how to proceed. (See Appendix E for discussion of options for bring COOL into compliance.)\nOn March 12, 2013, USDA released a proposed rule to amend COOL regulations. According to USDA, the proposed rule would improve the operation of the COOL program and bring it into compliance with WTO trade obligations. There was a 30-day public comment period. The department issued the revised final rule on May 23, 2013, and published it in the Federal Register on May 24, 2013. The revised final rule was not significantly different from the proposed rule issued in March. On May 24, 2013, the United States notified the WTO Dispute Settlement Body (DSB) that it had complied with the WTO findings on COOL.",
"USDA's revised COOL rule for covered meat products was intended to address the WTO's finding that COOL regulations are not enforced in an evenhanded manner. The WTO found that COOL requirements result in much more information being collected upstream than is passed on to consumers on labels, and that the information on labels may be confusing and incomplete.\nUnder the revised COOL rule, the retail labeling of covered meat commodities must include the country of origin of each production step. That is, meat labels have to include where the animals were born, where raised, and where slaughtered. The rule also prohibits the practice of commingling muscle meat produced during a single production day and the use of multi-country labels for muscle meat.\nUnder the revised COOL rule, meat from animals that are exclusively born, raised, and slaughtered in the United States has to be labeled \"Born, Raised, and Slaughtered in the United States.\" Under the previous rule, meat exclusively from U.S. animals was labeled as \"Product of the United States.\" (See Table 2 for comparison of the initial labels and revised labels at the retail level.)\nThe revised rule also eliminates the previous use of mixed origin labels, such as \"Product of the United States, and Country X, and/or Country Y\" and \"Product of Country X, and/or Country Y and the United States.\" Under the rule, each production stage must be included on the label. For example, beef from cattle that were originally imported into the United States as feeder cattle require a label stating \"Born in Country X, Raised and Slaughtered in the United States.\" For cattle that were imported for immediate slaughter, the label is required to read \"Born and Raised in Country X, Slaughtered in the United States.\" Previously the label would have read \"Product of Country X and the United States.\"\nIn addition, the revised COOL rule no longer allows meat that is processed during a single production day from animals of different origins to be commingled and labeled with a mixed label such as \"Product of the United States, and Country X, and/or Country Y.\" Meat labels, as noted above, now must include each production step (born, raised, and slaughtered) for the processed animals. The labeling requirement for imported muscle cuts of meat is unchanged; however, the labels may include the production steps if there is supporting documentation for them.\nLast, the revised rule also amends the definition of retailer to extend it to any person that meets the definition of retailer in the Perishable Agricultural Commodities Act of 1930 (PACA; 7 U.S.C. §499a et seq.), whether or not the retailer has a PACA license. This provision clarifies who is subject to COOL regulations.",
"The revised COOL rule went into effect on May 23, 2013, and did not apply to muscle cuts produced or packaged before that date. USDA recognized that meat processors would not be able to implement new labeling requirements immediately. During the first six months after the rule was published, USDA planned to conduct industry education and outreach activities. The six-month period also provided time for existing stocks of muscle meat labeled under old regulations to clear the pipeline. USDA also allowed meat processors to use their existing stock of old labels until they were completely used. However, under this allowance, retailers had to provide in-store signs or placards that notify country of origin according to the revised rule.",
"In the proposed rule, USDA estimated the cost for implementing new labeling at $32.8 million (range of $17.0 million to $47.3 million), and estimated that 33,350 establishments owned by 7,181 firms would need to rework labels. However, the proposed rule did not calculate costs from prohibiting commingling. The final rule estimated the cost of losing commingling flexibility at $90.5 million, with a range of $36.1 million to $144.8 million. When labeling costs are added to the cost of lost commingling flexibility, total implementation costs range from $53.1 million to $192.1 million. USDA noted that it is not possible to specify how often packers use commingling flexibility, and therefore difficult to estimate. But USDA believed the cost of losing commingling flexibility would fall towards the lower end of the range, resulting in a likely total cost of $53.1 million to $137.8 million.\nMost of the labeling costs are expected to be borne by packing and processing facilities as they add new production steps to labels. USDA noted that it does not believe additional recordkeeping will be necessary under the new rule. As for the economic benefits of this change, USDA says it was unable to quantify benefits from adding production steps to labels, but noted they were likely \"comparatively small\" relative to benefits discussed in the final 2009 COOL rule. In previous analysis of COOL, USDA found the economic benefits to be positive but difficult to quantify.",
"U.S. farm and ranch groups that have been long-time supporters of COOL responded positively to USDA's revised rule. The NFU said, \"We are very pleased that the USDA has decided to stand strong and keep COOL. The decision to bring the law into compliance with the WTO's ruling is a win-win situation for all interested parties. We further applaud the administration for deciding to take a proactive approach in bringing COOL into compliance by providing more information on the origins of our food, instead of simply watering down the process.\" USCA also commended USDA for finalizing the COOL rule, which \"will not only strengthen the overall program, but will also bring the U.S. into compliance with our international trade obligations. Consumers will have even more information on labels with which they can make informed purchasing decisions.\" When the proposed rule was issued, USCA, as well as NFU, noted that the rule was similar to the proposals presented in the legal analysis commissioned by USCA and NFU.\nR-CALF also supported USDA's revised rule because it would provide accurate information to consumers about the origin of their meat. R-CALF noted that, \"Without COOL it is the meatpacker and not the consumer that decides from what country cattle will be sourced to satisfy consumer demand for beef. Only with COOL can consumers trigger a demand signal for cattle sourced from U.S. farmers and ranchers, which they can do simply by consistently choosing to purchase a USA product.\"\nU.S. livestock groups that have opposed mandatory COOL requirements also weighed in on the revised rule. AMI said, \"It is incomprehensible that USDA would finalize a controversial rule that stands to harm American agriculture, when comments on the proposal made clear how deeply and negatively it will impact U.S. meat companies and livestock producers.\" NCBA called the rule shortsighted, and said it would increase discrimination against imported product, and increase recordkeeping burdens. NCBA noted that \"any retaliation against U.S. beef would be devastating for our producers.\" In July 2013, the meat industry challenged USDA and the COOL rule in U.S. District Court. (See Appendix F for a discussion on the meat industry lawsuit.)\nIn October 2013, Tyson Foods, Inc. announced that it would stop buying direct-to-slaughter cattle from Canada. According to the company, the COOL rule raised costs due to the need for additional product codes and product segregation. Tyson Foods will continue to purchase Canadian-born cattle that are fed in U.S. feedlots.",
"Canadian cattle and hog industry representatives stated their belief that the revised COOL rule would not bring the United States into compliance, with both groups noting that it would increase discrimination. The Canadian Cattlemen's Association (CCA) said the new rule will increase the impact of COOL on Canadian cattle because it \"will require additional segregation by eliminating the ability to commingle cattle of different origins.\" The Canadian Pork Council (CPC) also issued a similar statement: \"The new rule does nothing to reduce discrimination against Canadian feeder pigs and slaughter hogs.... The new rule will strip away any flexibility to commingle Canadian and US live swine at processing plants. This will make a very bad situation of the last four years much worse.\" Both the CCA and CPC are plaintiffs on the meat industry lawsuit to halt the implementation of the COOL rule.\nThe governments of both Canada and Mexico rejected the USDA revised rule as a solution to the WTO dispute. Canada's Minister of International Trade and Minister of Agriculture stated: \"Canada is extremely disappointed with the regulatory changes put forward by the United States today with respect to COOL. These changes will not bring the United States into compliance with its WTO obligations. These changes will increase discrimination against Canadian cattle and hogs and increase damages to industry on both sides of the border. Canada will consider all options at its disposal, including, if necessary, the use of retaliatory measures.\" Mexico also stated that USDA's \"new rule does not meet the requirements of the WTO and will further damage Mexican cattle exports. The U.S. COOL program has created severe trade distortions as it has unnecessarily increased costs for the cattle industry.\"",
"On June 7, 2013, Canada's Minister of International Trade and Minister of Agriculture issued a press release stating that the revised COOL rule did not meet the WTO requirements. At the same time, Canada released a list of products imported from the United States that could be targeted for retaliation. The list includes 38 harmonized tariff codes that cover a range of food and agricultural commodities and products, as well as a few manufactured products (see Appendix G ). The list was officially published in the Canada Gazette (Canada's Federal Register ) for public comment. The press release states that Canada expects to consult with stakeholders to resolve the COOL dispute over the next 18 to 24 months, and that the Canadian government will abide by its WTO obligations and not take retaliatory measures until the WTO provides authorization. Mexico has not released a list of products that could be subject to retaliation, although it points to its list of products targeted during the U.S.-Mexico trucking dispute during 2009 to 2011 as an example of the types of products likely to be targeted for COOL.",
"Initial estimates of damage claims could fall between $1 billion and $2 billion based on studies conducted in 2012 and 2013. According to a CPC study, COOL harms the Canadian hog industry by $500 million per year. For the Canadian cattle industry, annual losses from COOL have been estimated at $639 million. Mexico's claim on damages to its cattle sector could also be substantial. In the last three years, U.S. imports from Mexico have topped more than 1 million head, and per-head discounts on imported Mexican cattle due to COOL reportedly have been estimated by some analysts at as much as $60 per head. In addition, Mexico's cattle industry would likely argue that COOL has led to economic losses throughout the Mexican cattle sector beyond the discounted prices on cattle shipped to the United States. If the COOL dispute moves into the retaliation phase, the WTO would have to approve the level of retaliation, and the United States would be able to contest it.",
"Canada and Mexico have the right under WTO rules to confirm whether or not they accept the substance of compliance taken by the United States. If either or both countries assert that the United States had not complied or had only partially complied with the WTO's findings, Canada and Mexico could request that a compliance panel investigate whether the United States had in fact adopted a compliance measure or whether any measure that it had adopted was consistent with the WTO decision.\nBoth Canada and Mexico argued that USDA's May 23, 2013 revised COOL rule fails to bring the United States into compliance with its WTO obligations. On June 10, 2013, the United States, Canada, and Mexico communicated to the DSB that they had agreed to procedures for proceeding under WTO rules to establish a compliance panel and to address compensation or suspension of concessions. It was agreed that Canada and Mexico could request a compliance panel at any time, and consultations with the United States were not necessary prior to the request.\nOn August 19, 2013, Canada and Mexico informed the DSB that they would request the establishment of a compliance panel. The United States objected to Canada's and Mexico's first request at the August 30, 2013, DSB meeting. At the September 25, 2013, DSB meeting, Canada and Mexico again requested the establishment of a compliance panel and the DSB accepted the request and referred the dispute to the original COOL dispute settlement panel. The compliance panel heard the COOL dispute February 18-19, 2014.\nThe compliance panel issued its report on October 20, 2014. Although the panel found that COOL is a legitimate objective, it found that the manner in which COOL is implemented treats imported livestock unfavorably. The panel could not determine if the COOL rule was more trade restrictive than necessary. (See Appendix D for more discussion of the WTO findings.)",
"Based on an agreement among the parties of the dispute, once the compliance report was released, the WTO DSB had 20 to 60 days to adopt it. The DSB granted a request by Canada and Mexico for a special meeting on November 28, 2014, to adopt the compliance panel report, and the United States appealed at that time. The United States asked the Appellate Body to review the finding that COOL discriminates against imported livestock. In addition, Canada and Mexico asked the Appellate Body to review the finding on whether COOL regulations were more trade restrictive than necessary.\nAccording to agreed-upon procedures, the Appellate Body report was to be released within 90 days of appeal. However, due to a heavy workload, the Appellate Body heard the appeal on February 16 and 17, 2015, and announced that its report would be released no later than May 18, 2015. The Appellate Body released its report on May 18 and upheld the findings of the compliance panel that COOL regulations violated U.S. WTO obligations. After the release of the appellate report, any party may request that the DSB adopt the compliance report and any Appellate Body modifications at a DSB meeting within 30 days of the report's circulation. The vote on adoption is conducted by \"reverse consensus,\" requiring all members to vote against the reports in order for adoption to fail.\nAt the request of Canada and Mexico, the DSB met on May 29, 2015, and adopted the reports. After the DSB adopted the reports, Canada and Mexico may request WTO authorization to suspend concessions with the United States, that is, retaliate.",
"The reaction of supporters and opponents of COOL to the compliance panel findings are similar to those expressed about the dispute panel and Appellate Body findings. Supporters view the compliance panel findings as a win because the WTO again confirmed that it is a legitimate objective for a government to provide origin information about beef and pork to consumers. COOL supporters, such as NFU and USCA, have called on the United States to appeal the compliance panel ruling, and have strongly objected to calls for repeal of the COOL law. Supporters believe that the WTO process should proceed, and that the deficiencies the WTO found in the COOL rule could be corrected through revised regulations. On January 22, 2015, the National Farmers Union issued a new study that counters claims that COOL caused the decline in cattle exports to the United States.\nOpponents of COOL continue to believe that revised regulations will not successfully allow the United States to comply with the WTO findings and that the COOL law must be repealed. The COOL Reform Coalition, a group of more than 100 business and agribusiness organizations concerned about the potential effects of Canada and Mexico retaliation, have urged Congress to direct USDA to immediately rescind parts of COOL that violate WTO obligations. This would act as an interim step to provide Congress the time to repeal the COOL law.\nHowever, congressional views on COOL are mixed. In July 2014, 112 House members signed a letter to USDA recommending that the Secretary rescind the revised COOL rule if the WTO found against the United States. But on October 6, 2014, 32 Senators sent a letter to the Senate Appropriations Committee, asking that no appropriations action be taken on COOL until the WTO process was completed.\nCanada and Mexico issued a joint statement calling for the reintegration of the North American cattle and hog market through the repeal of the COOL law. They reiterated that both countries would seek authorization to retaliate against U.S. agricultural and nonagricultural products if the COOL case was not satisfactorily resolved.",
"On June 4, 2015, Canada requested that the DSB authorize the suspension of concessions in the amount of C$3.068 billion (US$2.4 billion) and Mexico requested authorization of US$653.5 million. Mexico subsequently revised its request to $713 million at the June 17, 2015, DSB meeting. The United States objected to the requests, and Canada and Mexico's requests were referred to an arbitration panel.\nOn July 30, 2015, USTR released a public version of its WTO submission to the arbitration panel refuting the value of damages claimed by Canada and Mexico. In total, USTR estimated damages from COOL at about $91 million, $43.2 million for Canada and $47.6 for Mexico. The arbitration panel heard the case for the suspension of concessions on September 15 and 16, 2015.\nRetaliation would be in the form of raising tariffs on U.S. products that Canada and Mexico import. Retaliation must not exceed the value of impairment, or losses, suffered by Canada and Mexico due to COOL. (See Appendix G for a list of commodities, both agricultural and non-agricultural, that could be targeted for tariff increases.) The arbitrator's (or arbitration panel's) role is to determine that the retaliation request is equivalent to the losses by Canada and Mexico. Once arbitration is requested, the WTO arbitrator has 60 days to issue a decision, although previous cases that went to arbitration took about six months before a decision was released. Once the decision is released, it is final.\nThe WTO DSU provides that a country cannot suspend WTO concessions or other obligations as retaliatory measures in a dispute unless authorized by the WTO DSB. Canada and Mexico will formally request authorization from the DSB, and they may then implement the decision. Retaliation is terminated once the United States brings COOL into compliance or the parties reach an agreement that resolves the case. If unauthorized retaliation were to occur, the United States could challenge such retaliation in a separate WTO dispute settlement proceeding.",
"On December 7, 2015, the arbitration panel released its report, which valued Canada's annual trade losses due to COOL at C$1.055 billion (US$781 million) and Mexico's losses at $228 million. The total amount of approved retaliation was slightly more than $1 billion, about one-third of the amount requested by Canada and Mexico. The arbitration panel based the level of retaliation on direct export losses for Canada and Mexico caused by COOL. The panel did not consider indirect losses. These were losses included in the retaliation requests that accounted for reduced prices received by Canadian and Mexican domestic livestock sectors due to the negative effects of COOL on exports.\nOn December 21, 2015, the DSB granted concessions to Canada and Mexico, authorizing them to retaliate against imports of products from the United States. Although COOL for beef and pork was repealed on December 18, 2015, Canada and Mexico's formal request for authorization completed one of the last procedural steps of the dispute settlement process.",
"As the WTO COOL case winds its way to conclusion, there have been increased calls for Congress to act on COOL. Some lawmakers agree with criticisms of COOL and could offer legislation to limit its scope and impacts, or outright repeal. Others remain strongly supportive of COOL as enacted and oppose any rollback. Efforts to modify COOL were also part of the 2014 farm bill debate but ultimately not included in the enacted law.\nIn November 2014, Secretary of Agriculture Vilsack said that USDA analysis shows that there is no regulatory fix that would allow COOL regulations to be consistent with the COOL law and also satisfy the WTO rulings. Vilsack said that Canada and Mexico would need to specifically say what measures would be acceptable, or Congress would have to provide, in the law, \"different directions\" to USDA to allow for WTO compliance.\nOn May 1, 2015, USDA delivered to Congress the economic study of COOL as required by Section 12104 of the 2014 farm bill (see \" Farm Bill \" below). Results of the study were similar to earlier studies of COOL and USDA's Regulatory Impact Analysis performed during the rulemaking process. USDA found that COOL information may be of some benefit to consumers that want the information, but there is insufficient evidence to conclude that demand for beef and pork will increase from the benefit. The study concluded that without an increase in demand for beef and pork, the costs of implementing COOL results in losses for producers (livestock producers, packers, processors, and retailers) along the supply chain.\nThe FY2015 appropriations act ( P.L. 113-235 ) directed USDA to submit a report with recommendations for addressing COOL. As directed, on May 1, 2015, USDA Secretary Vilsack sent letters to the leadership of the House and Senate Agriculture Committees and the House and Senate Appropriations Subcommittees on Agriculture suggesting that the COOL statute be repealed or a generic label be established that might satisfy U.S. WTO obligations.",
"On December 18, 2015, in response to the WTO arbitration panel's decision to allow Canada and Mexico to retaliate against imported products from the United States, Congress used the annual appropriations process to permanently repeal COOL for beef and pork and their ground products. Section 759 of the enacted Consolidated Appropriations Act, 2016 ( P.L. 114-113 , Division A) removed references to muscle cuts of beef and pork and ground beef and pork from the COOL statute (7 U.S.C. §1638 et seq.). On the same day, Secretary Vilsack stated that USDA would immediately halt the enforcement of COOL requirements for beef and pork and amend the COOL regulations as soon as possible to reflect the change in COOL law.\nThe repeal provision differed from the House repeal bill (see \" House Repeals COOL for Beef, Pork, and Chicken \" below) in that chicken and ground chicken were not included in the repeal. Also, some stakeholders had hoped that Congress would have considered repealing mandatory COOL for beef and pork and enacting a voluntary COOL provision at the same time (see \" Senate Introduces Repeal and a Voluntary COOL \" below). The continued threat of retaliation by Canada and Mexico over a voluntary program likely made this scenario unfeasible under the tight timeline that the United States faced on retaliation.",
"On May 18, 2015, House Agriculture Committee Chairman Conaway introduced the Country of Origin Labeling Amendments Act of 2015 ( H.R. 2393 ) that would repeal beef, pork, and chicken from the COOL statute. COOL for other covered commodities would remain in place. On May 20, 2015, the House Agriculture Committee marked up H.R. 2393 and, by a vote of 38-6, favorably reported it to the full House. On June 10, 2015, the House passed H.R. 2393 by a vote of 300 to 131.\nDuring the House Committee on Rules hearing on H.R. 2393 , Representative Massie (KY) submitted an amendment that would have established a voluntary country-of-origin labeling law to replace a repealed mandatory law for beef, pork, and chicken. The amendment would have allowed meat to be labeled \"Product of US\" if the livestock from which it is processed is exclusively born, raised, and slaughtered in the United States. The amendment was not considered by the Rules Committee.",
"Support for COOL repeal has been less certain in the Senate. Senator Roberts, Chairman of the Senate Agriculture Committee, has noted that the views of Agriculture Committee members vary on COOL and that they are considering alternatives that would enable the United States to meet its WTO obligations.\nOn July 23, 2015, Senator Hoeven introduced the Voluntary Country of Origin Labeling (COOL) and Trade Enhancement Act of 2015 ( S. 1844 ), which also repeals mandatory COOL for beef, pork, chicken, and their ground products. In addition, S. 1844 amends the Agricultural Marketing Act (7 U.S.C. §1621 et seq.) requiring USDA to establish a label designation that enables meat processors to voluntarily use a U.S. label for beef, pork, and chicken from livestock exclusively born, raised, and slaughtered in the United States.\nAlso, during debate on the vehicle for the Senate surface transportation reauthorization bill ( H.R. 22 ), Senator Roberts introduced an amendment ( S.Amdt. 2302 ) to repeal mandatory COOL for beef, pork, and chicken using language from H.R. 2393 . On July 26, 2015, Senator Hoeven also introduced S. 1844 as an amendment ( S.Amdt. 2371 ) to the transportation bill. Neither amendment was considered for inclusion in the final Senate-passed bill. The Senate is expected to take up COOL repeal legislation after the August recess.\nSupporters of S. 1844 believe that a voluntary program would successfully address the WTO case by fully repealing mandatory COOL, provide integrity to the U.S. label for meat, and enable consumers to know about the origin of some of their meat purchases. Supporters also note that Canada already has a similar program in place for meat.\nCanada and Mexico have stated that the only way to resolve the WTO case is to repeal COOL. In response to Senator Hoeven's proposed voluntary program, Canada's Agriculture Minister said such a program would \"guarantee Canadian retaliation\" because it would continue to discriminate against imported livestock through segregation.\nIf a voluntary COOL program was implemented, and Canada or Mexico opposed it, the United States could request that a WTO compliance panel determine if the new program is compliant with WTO requirements. However, once the arbitration panel determines the amount applicable in the ongoing case, Canada and Mexico could implement retaliation even if mandatory COOL is repealed and is replaced with a voluntary program. U.S. products would face higher tariffs while the compliance panel reviews the new voluntary program.",
"COOL was addressed in the explanatory statement accompanying the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 , Division A, December 16, 2014). In the statement, Congress directed USDA, in consultation with the U.S. Trade Representative, to submit to the House and Senate Appropriations Committees a report with recommendations on how to change the COOL law to make certain it \"does not conflict with or is in any manner inconsistent with\" U.S. WTO obligations. The report is due to the committees within 15 days of final resolution (assumed to mean when the WTO issues an appellate ruling on the COOL compliance report) or May 1, 2015, whichever comes first. Secretary Vilsack has repeated his comments from November stating that there is no \"regulatory fix\" for COOL and maintains that Congress has to \"fix\" the law.\nFor FY2014, in the explanatory statement for the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ) the House Committee on Appropriations expressed disapproval of USDA's May 2013 COOL rule, pointing to its high costs to the livestock industry and the potential of retaliation in the WTO case. The committee recommended that USDA delay implementing the COOL rule until the WTO case is completed. On January 23, 2014, Representative DeLauro, a member of the House Committee on Appropriations, sent a letter to Secretary Vilsack urging that USDA continue to implement and enforce COOL regulations.\nOn December 18, 2015, mandatory COOL for muscle cuts of beef and pork and ground beef and pork were repealed in Section 759 of the enacted Consolidated Appropriations Act, 2016 ( P.L. 114-113 , Division A). The provision removed all references to beef and pork in the COOL statute (7 U.S.C. §1638 et seq.).",
"In the 113 th Congress, House and Senate conferees completed work on the farm bill without making any major changes to COOL's statutory language.\nEarlier, in May 2013, during the Senate Agriculture Committee markup of the Senate farm bill ( S. 954 ), Senator Mike Johanns offered and then withdrew an amendment to repeal COOL for beef, lamb, and pork. Senator Johanns noted that he believed the rule USDA had proposed to address the WTO findings would be a regulatory nightmare and would not satisfy the U.S. WTO obligations. But instead of asking for a roll call vote on the amendment, he withdrew it in recognition that the committee's opinion on COOL was divided. S. 954 , the Senate-passed farm bill, contains no provisions on COOL.\nThe House-passed farm bill ( H.R. 2642 , passed July 11, 2013) contained a provision (Section 11105) that would have required USDA to conduct an economic analysis of USDA's March 2013 proposed COOL rule (78 Federal Register 15645). The analysis was to include the impact on consumers, producers, and packers of the COOL law and rule. The report on COOL would have been due to Congress within 180 days of farm bill enactment. During the first farm bill conference meeting on October 30, 2013, several conferees from both the House and Senate raised concerns about the COOL rules. While the farm bill conference leaders worked, reports speculated that conferees would repeal the COOL law or perhaps modify it. COOL opponents encouraged conferees to find a WTO-compliant resolution to the WTO COOL dispute. Reportedly, one proposal considered called for a \"North American\" meat label, which COOL proponents strongly oppose. USDA's Secretary Vilsack weighed in on COOL with the view that Congress should let the WTO process resolve the issue.\nThe farm bill conference report to H.R. 2642 , released on January 27, 2014, did not contain any language or provision to repeal or modify the COOL law. The only COOL-pertinent provision (Section 12104) includes the economic analysis provision found in the House-passed farm bill. The conference report clarifies that the economic analysis is to be of the May 2013 final rule (78 Federal Register 31367) instead of the March 2013 proposed rule. In addition, the COOL provision adds venison as a covered commodity. In a letter to conference leadership, COOL opponents expressed their disappointment that conferees did not alter COOL in a way that would resolve the WTO COOL dispute.\nAppendix A. Other Laws with Food Labeling Provisions\nThe COOL provisions of the 2002 and 2008 farm bills do not change the requirements of the Tariff Act or the food safety inspection statutes described below. Instead, they were incorporated into the Agricultural Marketing Act of 1946 (Sections 281-285).\nTariff Act\nUnder Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. §1304), every imported item must be conspicuously and indelibly marked in English to indicate to the \"ultimate purchaser\" its country of origin. The U.S. Customs and Border Protection generally defines the \"ultimate purchaser\" as the last U.S. person to receive the article in the form in which it was imported. So, articles arriving at the U.S. border in retail-ready packages—including food products, such as a can of Danish ham, or a bottle of Italian olive oil—must carry such a mark. However, if the article is destined for a U.S. processor where it will undergo \"substantial transformation,\" the processor is considered the ultimate purchaser. Over the years, numerous technical rulings by Customs have determined what is, or is not, considered \"substantial transformation,\" depending upon the item in question.\nThe law has authorized exceptions to labeling requirements, including articles on a so-called \"J List,\" named for Section 1304(a)(3)(J) of the statute. This empowered the Secretary of the Treasury to exempt classes of items that were \"imported in substantial quantities during the five-year period immediately preceding January 1, 1937, and were not required during such period to be marked to indicate their origin.\" Among the items placed on the J List were specified agricultural products including \"natural products, such as vegetables, fruits, nuts, berries, and live or dead animals, fish and birds; all the foregoing which are in their natural state or not advanced in any manner further than is necessary for their safe transportation.\" Although J List items themselves have been exempt from the labeling requirements, Section 304 of the 1930 act has required that their \"immediate container\" (essentially, the box they came in) have country-of-origin labels. But, for example, when Mexican tomatoes or Chilean grapes were sold unpackaged at retail in a store bin, country labeling had not been required by the Tariff Act.\nMeat and Poultry Products Inspection Acts\nUSDA's Food Safety and Inspection Service (FSIS) is required to ensure the safety and proper labeling of most meat and poultry products, including imports, under the Federal Meat Inspection Act, as amended (21 U.S.C. §601 et seq .), and the Poultry Products Inspection Act, as amended (21 U.S.C. §451 et seq .). Regulations issued under these laws have required that country of origin appear in English on immediate containers of all meat and poultry products entering the United States (9 C.F.R. §327.14 and 9 C.F.R. §381.205). Only plants in countries certified by USDA to have inspection systems equivalent to those of the United States are eligible to export products to the United States.\nAll individual, retail-ready packages of imported meat products (for example, canned hams or packages of salami) have had to carry such labeling. Imported bulk products, such as carcasses, carcass parts, or large containers of meat or poultry destined for U.S. plants for further processing also have had to bear country-of-origin marks. However, once these non-retail items have entered the country, the federal meat inspection law has deemed them to be domestic products. When they are further processed in a domestic, FSIS-inspected meat or poultry establishment—which has been considered the ultimate purchaser for purposes of country-of-origin labeling—FSIS no longer requires such labeling on either the new product or its container. FSIS has considered even minimal processing, such as cutting a larger piece of meat into smaller pieces or grinding it for hamburger, enough of a transformation so that country markings are no longer necessary.\nMeat and poultry product imports must comply not only with the meat and poultry inspection laws and rules but also with Tariff Act labeling regulations. Because Customs generally requires that imports undergo more extensive changes (i.e., \"substantial transformation\") than required by USDA to avoid the need for labeling, a potential for conflict has existed between the two requirements.\nFederal Food, Drug, and Cosmetic Act\nFoods other than meat and poultry are regulated by the U.S. Department of Health and Human Services' Food and Drug Administration, primarily under the Federal Food, Drug, and Cosmetic Act (FFDCA; 21 U.S.C. §301 et seq.). This act does not expressly require COOL for foods. Section 403(e) of the FFDCA does regard a packaged food to be misbranded if it lacks a label containing the name and place of business of the manufacturer, packer, or distributor (among other ways a food can be misbranded). However, this name and place of business is not an indicator of the origin of the product itself.\nAppendix B. Timeline of COOL\nAppendix C. North American Livestock Trade\nOverview\nAfter COOL took full effect in March 2009, Canada and Mexico continued to question the trade legality of mandatory COOL, and claimed that COOL disrupted normal live cattle and hog trade patterns and caused large financial losses to their livestock industries. Canada and Mexico were concerned that labeling requirements and the need to segregate imported and domestic animals to assure proper labeling would raise the cost of handling and processing imported animals. The increased cost would ultimately lead U.S. livestock buyers to reduce live animal imports or to offer lower prices for imported animals.\nThe cattle and hog industries of Canada, Mexico, and the United States have become increasingly integrated over the last two decades, particularly after NAFTA took effect in 1994 and, before that, the Canada-U.S. Free Trade Agreement in 1988. These agreements, along with the global Uruguay Round Agreements under the WTO that reduced tariff and non-tariff barriers to trade, have enabled animals and animal products to move across borders more freely, based on market demand.\nA number of animal health incidents have disrupted this market integration from time to time. The most significant event was the discovery of bovine spongiform encephalopathy (BSE or mad cow disease) in 2003, first in Canada and later in the United States, which halted most cross-border movement of cattle from Canada to the United States from mid-2003 through mid-2005. The predominance of BSE cases in Canada rather than in the United States may have contributed to wider support for the mandatory COOL law, some analysts believe, although government officials assert that both countries now have strong, scientifically defensible safeguards in place to ensure that BSE is controlled and that its infectious agent does not enter the human food supply.\nProximity, abundant feed supplies, and established feeding operations in the United States have resulted in an increase in live cattle and hog imports from Canada and Mexico. Imports may fluctuate year to year as factors such as relative animal and feed prices, inventory levels, currency exchange rates, and weather conditions influence the movement of cattle and hogs into the United States.\nValue of North American Livestock Trade\nCanada and Mexico are important U.S. trading partners for live animals. The value of U.S. cattle and hog exports to Canada and Mexico was about $76 million in 2014 ( Table C-1 ), accounting for about 47% of the total value of U.S. cattle and hog exports. The United States primarily exports breeding stock, and in recent years, U.S. cattle and hogs have been shipped to more than 70 foreign markets. Prior to 2011, Canada and Mexico accounted for a majority of the value of cattle and hog exports, but from 2011-2013 Russia and Turkey were leading markets for breeding cattle, and China was a leading market for breeding hogs. Shipments to those markets declined sharply in 2014, thus boosting the share of U.S. cattle and hogs moving to Canada and Mexico.\nOn the import side, the value of trade with Canada and Mexico is much greater. In 2014, the United States imported more than $2.9 billion worth of cattle and hogs from Canada and Mexico, a record value for cattle and hog imports ( Table C-1 ). Almost all U.S. live cattle imports come from Canada and Mexico and almost all live hog imports come from Canada.\nU.S. Cattle Imports\nU.S. cattle imports plunged in 2004 after the discovery of BSE in Canada in May 2003 and the subsequent U.S. ban on Canadian cattle imports. In 2004, all U.S. cattle imports came from Mexico. But once the border was reopened to Canadian cattle in 2005, imports steadily increased and reached near pre-BSE levels by 2007 due to the steady rebound in imports from Canada. In 2008, cattle imports dropped 8% to 2.3 million head, and fell 12% to 2 million head in 2009 ( Figure C-1 ).\nU.S. cattle imports during the first half of 2008 were almost 9% higher than the previous year, but import growth slowed during the second half of 2008, and by December cattle imports had fallen 8% below 2007. Imports from Canada continued to grow during 2008 and imports of Canadian feeder cattle were particularly strong in the first half of the year. Under COOL regulations, cattle that were in the United States before July 15, 2008, were considered U.S. origin cattle, which likely encouraged feeder imports from Canada during the first part of the year. Canadian feeder imports through June 2008 were 72% higher than the previous year, but ended the year only 16% higher. However, during 2008 cattle imports from Mexico were 35% lower than 2007, and the lowest imports since 1998. Good range and forage conditions in Mexico likely allowed producers to keep cattle on grass and resulted in reduced U.S. imports.\nIn 2009, U.S. cattle imports continued to decline, dropping 12%. But contrary to 2008, imports from Canada fell, while imports from Mexico increased. USDA's Economic Research Service (ERS) indicated that weaker U.S. cattle prices and weaker demand for beef in the United States, combined with a stronger Canadian dollar, reduced Canadian returns and incentives to send cattle to the United States. On the other hand, imports from Mexico started rising due to worsening drought conditions in Mexico during the latter part of 2009 that encouraged Mexican producers to ship cattle to the United States.\nSome analyses attribute the import decline during the last part of 2008 and all of 2009 to COOL, but differ on the extent currency exchange rates may have contributed to this development. CattleFax, an industry-funded data and analysis service based in Colorado, observed that the 2008 decline in cattle imports was due to mandatory COOL regulations, and that imports would \"face a big wild card in 2009\" for the same reason. Livestock sector analysts with the Chicago Mercantile Exchange (CME), examining cattle import trends through year-end 2008, commented that the COOL law \"has been quite effective, if you measure effectiveness by the degree to which it has been able to stifle cattle trade in North America.\" They wrote that reductions in imports from both Mexico and Canada \"came at a time when a significant devaluation in the value of the Peso and Canadian dollar normally would have been conducive of increased imports from these two countries. Under normal circumstances, one would expect cattle imports to actually increase rather than be cut by almost 40%.\" However, USDA's ERS suggested that the currency exchange factor may be somewhat more involved and that Canada's available supplies of slaughter cattle were reduced by earlier strong shipments of feeder cattle.\nSince 2009, U.S. cattle imports have been in the 2.1 million-2.4 million head range. In 2014, cattle imports increased 16% to nearly 2.4 million head, the highest level of imports since 2007. Imports from Canada were 19% higher and from Mexico 13% higher. Record high U.S. cattle prices provided ample incentive to pull Canadian and Mexican cattle into the United States.\nCattle Imports from Canada\nIn 2014, U.S. imports of cattle from Canada increased 19% to surpass 1.2 million head, the highest since 2008 ( Figure C-2 ). A majority of Canadian cattle shipped to the United States are for immediate slaughter—58% in 2014. Most of the remaining imports are feeder cattle that are usually destined for U.S. feedlots to be fed out to slaughter-ready weights. Dairy cows and breeding stock account for a small share of imports from Canada.\nIn 2014, slaughter cattle imports from Canada increased 7% to 724,000 head from the previous year. Increases in slaughter cattle imports have been supported by larger shipments of cows coming into the United States for immediate slaughter. High U.S. cow prices and the closure of a cow slaughter plant in Quebec in 2012 have contributed to increases in slaughter cow imports. Feeder cattle imports increased 38% to 493,000 head. The share of feeder cattle imports—40% in 2014—has been steadily rising over the last several years. Record high U.S. feeder cattle prices supported the southern movement of Canadian feeders.\nCattle Imports from Mexico\nAlmost 100% of Mexican cattle shipped to the United States are stocker or feeder cattle that are usually raised in the northern states of Mexico, then shipped to the United States and placed on pasture or into feedlots ( Figure C-3 ). Cattle imports from Mexico are often influenced by prevailing precipitation conditions in northern Mexico. Persistent drought from 2009-2012 led to an increasing number of cattle imports from Mexico, reaching nearly 1.5 million head in 2012.\nReduced cattle inventory and improved pasture conditions in Mexico in 2013 resulted in a decline of 33% in feeder cattle shipments to the United States. In 2014, imports from Mexico increased 13% as the record high feeder cattle prices encouraged Mexico's cattle producers to send more animals to the United States.\nU.S. Hog Imports\nU.S. hog imports from Canada started to rise sharply in the mid-1990s. U.S. hog imports were a record 10 million head in 2007, growing more than 13% per year on average during the previous 10 years. Furthermore, the composition of U.S. hog imports significantly shifted from hogs for immediate slaughter to feeder pigs. At one time the U.S. hog industry was composed of many small operations that raised hogs from birth to slaughter-ready weight (farrow-to-finish operations), but from the mid-1980s the hog industry moved toward vertical integration. With vertical integration there came increased demand for feeder pigs to meet the needs of finishing operations. Some Canadian producers focused their production on providing feeder pigs for shipment to the United States where access to abundant and cheaper supplies of grain made it more economical to feed pigs to slaughter weight. The feeder pig share of hog imports increased steadily from the mid-1990s, peaking at 85% in 2012. The feeder pig share of imports was 83% in 2014.\nU.S. imports of Canadian hogs dropped sharply from the 2007 peak. U.S. hog imports from Canada fell 7% in 2008 on a 30% drop in hogs for immediate slaughter. In 2009, hog imports dropped another 32% as both feeder pigs and hogs for immediate slaughter declined ( Figure C-4 ).\nAn early 2009 USDA analysis suggested that COOL's implementation likely \"made U.S. swine finishers reluctant to import Canadian finishing animals, in light of some major U.S. packers' stated unwillingness to process Canadian-origin animals.\" Another report suggested that COOL was affecting the U.S. hog sector, particularly in Iowa, as packers moved to process only U.S.-born hogs. With many Iowa producers operating finishing operations that source feeder pigs from Canada, a USDA document on COOL implementation cited that some producers' barns are \"empty because of a lack of an assured outlet for slaughter hogs of mixed country of origin\" (i.e., Product of Canada and United States). USDA also reported that some lenders were not extending credit to operations that finish mixed-origin pigs, and that lower prices at times were \"being paid for mixed origin slaughter hogs compared to hogs of exclusively U.S. origin.\"\nAfter the sharp decline in 2009, U.S. hog imports were stable at about 5.7 million-5.8 million head for 2010-2012. In 2013, hog imports declined 12% to about 5 million head, and remained at that level in 2014. Canadian hog inventories have declined from the mid-2000s level resulting in tighter hog supplies available for export to the United States. However, as with the cattle markets, record high hog prices in 2014 encouraged feeder pig imports.\nAppendix D. WTO Findings\nThe key WTO findings that U.S. COOL regulations violated U.S. WTO obligations centered on Article 2.1 and Article 2.2 of the Technical Barriers to Trade (TBT) agreement. Article 2.1 states that \"Members shall ensure that... products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin.... \" Article 2.2 states that \"technical regulations [such as COOL] shall not be more trade-restrictive than necessary to fulfil a legitimate objective.\"\nThis section summarizes key WTO findings of the dispute settlement panel, the Appellate Body, the compliance panel, and the Appellate Body on the compliance panel. The first two sections describe the key rulings on Articles 2.1 and 2.2 of the Technical Barriers to Trade (TBT). The last two sections summarize issues that were before the dispute settlement panel, but were not key in the appeal and compliance processes.\nCOOL Treats Imported Livestock Less Favorably Than Domestic Livestock\nDispute Panel\nThe DS panel found that Canada and Mexico demonstrated that COOL is a technical regulation governed by, and in violation of, Article 2.1 of the TBT. The AB upheld this finding, but for different reasons (see below). This TBT article states: \"Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.\" The panel first found that the COOL statute and the final rule (but not the Vilsack letter) are a \"technical regulation\" because they are legally enforceable requirements governing the labeling of meat products offered for sale. The panel further found that Canadian and U.S. cattle, Canadian and U.S. hogs, and Mexican and U.S. cattle are \"like products,\" and the muscle cut labels used to implement COOL affect competitive conditions for these products in the U.S. market to the detriment of imported livestock. According to the panel, COOL creates this \"competitive advantage\" by creating an incentive for \"processing exclusively domestic livestock and a disincentive against handling imported livestock.\" More specifically, the panel found that to comply with COOL, processors need to segregate imported from domestic livestock to an extent that discourages them from using imported livestock at all. In turn, this reduces the competitive opportunities for imported livestock relative to those for domestic livestock.\nThe panel based this conclusion on its assessment of the compliance requirements of COOL. It first reviewed the four statutory definitions used to label the origin of beef and pork muscle cuts (see Table 1 ), noting that \"origin is determined by the country in which specific livestock production and processing steps took place (i.e., birth, raising and slaughtering),\" and highlighted the distinctions between the exclusive U.S. origin label and the other three labels that identified livestock with an imported element (i.e., at least one step took place outside the United States). It observed that \"there was ... major flexibility\" under COOL's interim final rule (August 2008) to use \"multiple countries of origin\" (Category B) for muscle cuts eligible for the U.S.-origin only label (Category A) \"without limitations.\" However, in response to public comment, COOL's final rule (January 2009) ended this flexibility, allowing the multiple countries declaration (Category B) to be used to label U.S.-origin meat only if U.S. and foreign livestock were commingled for slaughter \"on a single production day.\"\nThe panel then examined what is involved in segregating livestock and meat between domestic and foreign origin under five business scenarios. It determined that \"the least costly way\" to comply with COOL \"is to rely on exclusively domestic livestock\" rather than imported livestock. Accepting evidence provided by Canada and Mexico that major U.S. slaughterhouses are \"applying a considerable COOL discount of [US$] 40-60 per head for imported livestock\" but not to domestic livestock, the panel observed that COOL creates an incentive to process domestic rather than imported livestock because it is less costly to do so. It pointed out that several U.S. meat processors indicated they plan to move to use Category A (U.S. origin) \"for the vast majority of their beef and pork products\" and to ensure segregation by origin (i.e., minimize commingling). Other evidence presented confirmed that the U.S.-origin label accounts for a large share of the meat marketed. The United States indicated that 71% of the beef, and 70% of the pork, sold at the retail level carries the exclusive U.S. label. Canada showed that close to 90% of meat sold at retail carries this U.S. label.\nBased on the above, the panel \"preliminarily\" concluded that COOL \"creates an incentive to use domestic livestock—and a disincentive to handle imported livestock—by imposing higher segregation costs on imported livestock than on domestic livestock.\" The panel's report also showed that some U.S. plants and companies \"are simply refusing to process any imported livestock anymore,\" and that fewer U.S. processing plants are accepting cattle and hog imports than before. It also noted that certain suppliers had to transport imported livestock longer distances than before COOL, and that they also faced logistical problems and additional costs for timing delivery to specific times or days when processing is scheduled. Although the panel took these into account, it decided it also was important to make findings on COOL's actual trade effects. To do this, it considered data, economic analyses, and econometric studies submitted by Canada, Mexico, and the United States.\nIn reviewing two economic studies on COOL's livestock segregation costs submitted by Canada, the panel stated \"both studies shed some light on the different types of segregation and compliance costs encountered at different stages of the supply chain.\" Noting that such costs need to be absorbed somewhere in the marketing system, it concluded that \"economic competition pressure\" will dictate how these costs are allocated. Whether this involves processing only U.S.-origin livestock because it is the cheapest way to comply with COOL and because many U.S. consumers are not willing to pay a price premium for country-of-origin labeling, or incurring the additional costs associated with segregating imported livestock before processing, either option \"is likely to cause a decrease in the volume and price of imported livestock.\"\nThe panel also reviewed econometric analyses submitted by Canada and the United States that purported to assess COOL's impacts on prices and shares of imported livestock. Whereas the Canadian study concluded that COOL caused reduced competitive opportunities for Canadian livestock in the U.S. market, the U.S. study concluded that the economic recession was the primary cause. Rather than seeking to reconcile these disparate conclusions, the panel instead assessed \"the robustness of each study.\" It considered Canada's study to be \"sufficiently robust\" because it included other economic variables that confirmed that COOL—not the economic recession that began in 2008, the 2004-2005 U.S. import ban due to the discovery of BSE in Canada's cattle herds, or transport costs—\"had a negative and significant impact on Canadian import shares and price basis.\" Conversely, the panel found the U.S. study did not sufficiently show that the economic recession rather than COOL accounted for the negative impacts experienced in the cattle sector, did not fully analyze what occurred in both countries' hog sectors, and thus did not refute what Canada's study laid out.\nAppellate Body on the Dispute Panel Report\nThe United States appealed the DS panel's finding that COOL treats imported livestock less favorably than domestic livestock (i.e., that COOL is inconsistent with TBT's Article 2.1). Its main argument was that COOL did not change the \"conditions of competition\" to the detriment of Canadian and Mexican cattle and hog producers. The U.S. legal brief acknowledged that though private market participants incur costs in complying with COOL, \"any country of origin labeling will necessarily introduce compliance costs\" and governments cannot control how participants respond to these costs. The brief argued that market forces, rather than the COOL measure in and of itself, increased the cost of selling Canadian and Mexican livestock into the U.S. market, and that COOL cannot be faulted for being discriminatory.\nIn reviewing the U.S. appeal, the Appellate Body found that the panel's analysis of the finding of unfavorable treatment was incomplete in not considering whether or not the detrimental impact on imports was due exclusively to a \"legitimate regulatory distinction\" (i.e., a legally valid reason for similar products to be treated differently), which the TBT allows. The AB found that the COOL measure:\nlacks even-handedness because its recordkeeping and verification requirements impose a disproportionate burden on upstream producers and processors of livestock as compared to the information conveyed to consumers through the mandatory labelling requirements for meat sold at the retail level. That is, although a large amount of information must be tracked and transmitted by upstream producers for purposes of providing consumers with information on origin, only a small amount of this information is actually communicated to consumers in an understandable or accurate manner, including because a considerable proportion of meat sold in the United States is not subject to the COOL measure's labelling requirements at all.\nBased on these findings, the AB concluded that COOL's \"regulatory distinctions\" (i.e., the prescribed labels and labeling exemptions) \"amount to arbitrary and unjustifiable discrimination against imported livestock, such that they cannot be said to be applied in an even-handed manner,\" rather than being based upon a \"legitimate regulatory distinction.\" It thus upheld the DS panel's finding, but for different reasons, that COOL's requirements on labeling beef and pork accord \"less favorable treatment to imported livestock than to domestic livestock.\"\nCompliance Panel\nThe compliance panel found that the revised (May 2013) COOL rule violated Article 2.1 of the TBT. Like the dispute panel and the Appellate Body, the panel found that the revised rule was a technical regulation and that Canadian and Mexican cattle and hogs were like products. The compliance panel determined that the revised COOL rule required increased segregation and recordkeeping due to the ban on commingling and raises the possibility of needing more labels compared with the original rule, both of which increase the disincentive to use imported livestock. Therefore, it was found that the revised rule afforded less favorable treatment to imported livestock. The panel found that less favorable treatment was not due exclusively to a legitimate regulatory distinction—the need to inform consumers where livestock was born, raised, and slaughtered—because there still existed the possibility of inaccurate label information and a large amount of beef and pork was still exempt under the revised COOL rule. The compliance panel concluded that\nthe amended COOL measure violates Article 2.1 because it accords imported Canadian livestock treatment less favourable than that accorded to like domestic livestock, in particular because the amended COOL measure increases the original COOL measure's detrimental impact on the competitive opportunities of imported [Canadian and Mexican] livestock, and this detrimental impact does not stem exclusively from legitimate regulatory distinctions.\nAppellate Body on the Compliance Report\nThe Appellate Body upheld the findings of the compliance panel report that COOL violated Article 2.1 through increased recordkeeping and verification requirements that burden imported livestock. The panel found that the legitimacy for COOL is undermined because a large amount of beef and pork is exempt under COOL, placing imported livestock at a competitive disadvantage to domestic livestock for no reason. The panel notes between 57.7% and 66.7% of beef and 83.5% and 84.1% of pork do not provide origin information to consumers.\nCOOL Does Not Meet Objective of Providing Consumers with Information on Origin of Meats\nDispute Panel\nCanada and Mexico also alleged that COOL violates Article 2.2 of the TBT by being more trade-restrictive than necessary to fulfill a legitimate policy objective. Article 2.2 reads:\nMembers shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective , taking account of the risks non-fulfillment would create. Such legitimate objectives are, inter alia : national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health, or the environment. In assessing such risks, relevant elements of consideration are, inter alia : available scientific and technical information, related processing technology or intended end-uses of products. (italics added for emphasis)\nThe panel accepted the U.S. position that COOL's objective is to inform consumers of the country of origin of meat products, and it agreed with the United States that this is a \"legitimate\" policy objective under TBT's Article 2.2 to pursue. However, it concluded that COOL's implementation is more trade restrictive than is necessary to fulfill its objective because it does not meaningfully inform consumers about the countries of origin of meat products.\nIn reaching its conclusion that COOL does not achieve its objective, the DS panel agreed with Canada and Mexico that the labels identifying multiple countries of origin could confuse or mislead, rather than inform, consumers. It noted that a consumer could not readily distinguish the origins of meat products listed on a Category B label as coming from multiple countries, from the origins of meat products shown on a Category C label as coming from those same multiple countries (e.g., Product of the United States, Canada [Category B], compared to Product of Canada, United States [Category C]—see Table 1 ). The panel added that because processors have the flexibility to use both types of labels interchangeably for commingled meat (i.e., meat processed from animals of different origins on the same day), the labels not only fail to inform the average consumer of the distinction between them but could also mislead a fully informed consumer about the precise origins of some meat products.\nAppellate Body on the Dispute Panel Report\nThe United States appealed the DS panel's finding that COOL does not meet the objective of providing consumers with meaningful information on the origin of meats. It challenged the two-step approach the panel followed to determine whether COOL is consistent with TBT's Article 2.2. Its brief pointed out that the panel first looked at whether COOL fulfills a legitimate policy objective, and if it had been found to do so, would have examined whether COOL is more trade-restrictive than necessary compared to other possible less trade-restrictive measures that could have just as well met the policy objective. The United States argued that the panel took the wrong approach and instead should have focused only on whether COOL is more trade-restrictive than necessary. It argued that the panel went beyond the scope of Article 2.2 to make an \"intrusive and far-ranging judgment\" on whether COOL \"is effective public policy.\"\nIn its analysis, the Appellate Body found that the DS panel erred in interpreting and applying Article 2.2. Although it agreed with the panel that COOL's objective is to provide consumers with information on origin and that this is a legitimate objective, the AB viewed the panel's finding as too narrow. The AB found that the panel\nappeared to have considered, incorrectly, that a measure could be consistent with Article 2.2 only if it fulfilled its objective completely or exceeded some minimum level of fulfilment, and to have ignored its own findings, which demonstrated that the COOL measure does contribute, at least to some extent, to achieving its objective.\nThe AB reversed the panel's finding that COOL is inconsistent with Article 2.2, but was not able to determine whether COOL is more trade-restrictive than necessary to meet the TBT requirement that it be a legitimate objective.\nCompliance Panel\nThe compliance panel agreed with the dispute panel and Appellate Body that COOL is a legitimate objective providing U.S. consumers information on the country of origin of beef and pork. The panel found that the revised COOL rule contributes more than the original rule to the objective of providing origin information to consumers, but still exempted large portions of beef and pork from labeling. The panel also found that the revised rule increased trade restrictiveness compared with the original rule, but could not determine if the revised rule was more trade restrictive than necessary. To determine if the revised rule was more trade restrictive than necessary, the panel examined the risks of not fulfilling the objective of COOL and examined four alternative labeling schemes, provided by Canada and Mexico, that would demonstrate that the revised COOL rule was more trade restrictive than necessary. The panel could not determine the gravity of not fulfilling the legitimate objective, and found shortcomings in each alternative. The compliance panel found that Canada and Mexico had not made a prima facie case that the revised COOL rule was more trade restrictive than necessary, thus violating Article 2.2 of the TBT.\nAppellate Body on the Compliance Report\nThe Appellate Body overturned the compliance panel's conclusion that Canada and Mexico did not make a prima facie case that COOL was more trade restrictive than necessary. However, like the compliance panel, the Appellate Body found there are not enough undisputed facts in the record to complete the legal analysis on whether or not COOL violated Article 2.2.\nGround Meat Label Does Not Result in Less Favorable Treatment for Imported Livestock\nDispute Panel\nThe DS panel determined that, unlike the muscle cut labels, the ground meat labels were consistent with Article 2.1 of the TBT. It found that the 60-day \"inventory allowance\" gives significant flexibility to processors (e.g., beef grinders) in labeling country of origin. This rule is based on the statutory requirement that ground meat labels list all actual or \"reasonably possible\" countries of origin. In practice, the rule allows a processor to use the same label for all of its ground meat so long as the label lists all countries of origin of the meat in the processor's inventory for the last 60 days. Moreover, the 60-day \"inventory allowance\" flexibility is available not only for meat processors, but for market participants at every stage of meat supply and distribution. The panel determined that, contrary to Canada and Mexico's assertions, the rule's flexibility \"limits any additional costs of implementing\" the ground meat labeling requirements. It noted that Canada and Mexico did not present any evidence that, despite this flexibility, compliance with COOL for ground meat affected imported livestock less favorably than domestic livestock.\nAppeal Status\nCanada and Mexico did not appeal the DS panel's finding to the AB.\nVilsack Letter Is Not a Technical Regulation\nDispute Panel\nAlthough the panel recognized that the Vilsack letter is not a technical regulation within the scope of the TBT Agreement, the panel agreed with Canada and Mexico that the Vilsack letter constitutes \"unreasonable administration\" of COOL and thus violates Article X:3(a) of GATT 1994 (see \" Vilsack Letter \" for details). This article states that \"[e]ach contracting party shall administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions and rulings ...\" Specifically, the panel found that the letter is an unreasonable act of administering COOL because (1) it could not find any \"justifiable rationale\" for simultaneously permitting the final rule to enter into force and suggesting stricter practices than the ones the rule requires, (2) the language of the letter may have caused uncertainty and confusion as to its force and effect, and (3) its timing relative to the final rule's entry into force may have caused confusion about whether processors should comply with the final rule or the Vilsack letter. The letter, it wrote, did not meet the minimum standards for transparency and procedural fairness in the administration of trade regulations.\nAppeal Activity\nThe United States did not appeal this finding. Canada, in its appeal, requested that the AB make certain rulings on the Vilsack letter. Subsequently, Canada stated that it no longer sought a finding on this matter because the United States asserted that this measure had been withdrawn on April 5, 2012.\nAppendix E. Options to Bring COOL into Compliance\nWith the WTO arbitrator establishing May 23, 2013, as the deadline for the United States to comply with the findings of the dispute settlement (DS) panel and Appellate Body (AB) reports, the case moved to the compliance stage. The WTO found that the COOL regulations treated imported livestock in an unfavorable manner by altering the conditions of competition in a way that favored domestic livestock over imported livestock. The United States has said it will bring COOL into compliance with its WTO obligations. Stakeholders have two views about how the United States should comply with the WTO findings. One is to amend the COOL legislation; the other is to change the COOL regulations to bring the United States into compliance.\nLegislative Approach\nSome U.S. stakeholders have argued that, for the United States to comply with the WTO findings, the COOL law would have to be changed, because the law requires that meat derived from foreign-born, or foreign-born and -raised, animals has to have a different label than meat from animals born, raised, and slaughtered in the United States. The National Cattlemen's Beef Association (NCBA), the National Pork Producers Council (NPPC), the American Meat Institute (AMI), and the Food Marketing Institute (FMI) have opposed mandatory COOL from its inception. They have advocated that Congress change the law to enable the United States to meet its WTO obligations, and warn that retaliation by Canada and Mexico will harm U.S. livestock and meat markets.\nThese industry groups point to research conducted by Kansas State University, which found that consumers valued meat with a \"Product of North America\" label about the same as meat with a \"Product of the United States\" label. A \"Product of North America\" label could apply to any meat from imported livestock from Canada and Mexico that is substantially altered through slaughtering and processing in a U.S. meatpacking plant. A single label for meat that is from any animal slaughtered in the United States could eliminate the extra cost associated with segregating and recordkeeping for imported livestock, thus ending discriminatory pricing of imported livestock. Some in the meat industry argue that the \"Product of the United States\" label should apply to any meat being processed in a U.S. meatpacking plant. This approach would require a change in the COOL legislation.\nCanadian stakeholders have consistently contended that a change in legislation will be required. According to the Canadian Pork Council (CPC):\nfor the U.S. to come into compliance with the WTO ruling will require legislative action to eliminate the conditions that give rise to the discrimination against live animals born outside of the U.S.—the discrimination arising from the requirement of COOL that there be different labels for animals processed in a U.S. plant (that are) born, raised and slaughtered in the U.S. from those not born raised and slaughtered in the U.S. Those labeling requirements are explicit in the legislation; thus, a legislative or statutory change will be needed.\nA representative from the Canadian Cattlemen Association (CCA) agreed with the CPC assessment. In the view of the CPC and CCA, mandatory COOL labels are acceptable, but the law would have to be amended to require that all meat processed from imported livestock in a U.S. meatpacking plant be labeled the same as meat processed from domestic livestock.\nDuring the WTO arbitration process over the compliance timeline, Canada expressed the view that a regulatory change is unlikely to bring the United States into compliance and that a legislative change could be necessary. In presenting their arguments for quicker compliance, Canada and Mexico argued that the United States had adequate time to take a legislative approach to compliance, especially because the ongoing 2012 farm bill debate would have provided a legislative vehicle for addressing COOL. Some U.S. stakeholders also have suggested that the farm bill would be an appropriate vehicle to legislatively comply with WTO obligations. Taking advantage of the placeholder provision inserted into the House-passed farm bill (Section 11105 of H.R. 2642 ), COOL was one of the outstanding issues placed on the agenda of farm bill conferees. The conference agreement sent to the floor did not include any major changes to COOL (see \" Congressional Action on COOL \").\nRegulatory Approach\nOther stakeholders advocated that USDA rework the COOL regulations to bring the United States into compliance with the WTO ruling. Reportedly, at the beginning of 2012, USTR considered but did not follow through with making changes to COOL regulations. The change would have allowed for more flexibility for commingling imported and domestic cattle and using a multi-country label. This approach was dropped as supporters of COOL believed such a change would undermine the COOL law. Others argued that the change would not go far enough.\nInterest Group Support for Regulatory Fix\nIn August 2012, the Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF) sent a letter to Secretary Vilsack and U.S. Trade Representative Kirk that proposed regulatory changes to simplify the recordkeeping requirements of COOL. Because U.S. animal health regulations require that imported cattle have a foreign mark and that cattle imported for immediate slaughter be shipped in sealed conveyances to slaughter plants, R-CALF proposed that any cattle arriving at a slaughter plant without a mark or seal be considered U.S. cattle. The WTO found that more information was collected on imported cattle compared with what was passed on to consumers on labels. According to R-CALF, its proposed presumption for U.S. cattle would reduce additional documentation and recordkeeping for imported cattle. Currently, hogs are exempt from a country-of-origin mark under the Tariff Act of 1930. R-CALF suggested that this livestock exemption be removed, thus requiring a country-of-origin mark on hogs. Once the exemption is lifted, the presumption of domestic hogs would become workable.\nR-CALF also called on USDA to eliminate the use of a mixed label (Labels B or C; see Table 1 on meat from an animal that is exclusively of U.S. origin). R-CALF also suggested that ground beef labeling be revised to not allow for a country to be listed on a label if meat from that country is not included in the ground product (see Ground Beef label, Table 1 ). Lastly, R-CALF's proposal calls for the expanded coverage of minimally processed products, such as cooked, smoked, or cured meats, that are currently exempt from COOL regulations.\nOn February 4, 2013, the National Farmers Union (NFU) and the United States Cattlemen's Association (USCA) released an analysis of proposed options to bring COOL into WTO compliance. This analysis laid out their case for how the United States could comply with its WTO obligations if USDA required more information to be added to labels about where cattle were born, raised, and slaughtered. The proposal also called for USDA to halt the commingling of meat from animals of different origin. For minimally processed products, such as smoked, cured, or cooked products, which are exempt from labeling, USDA could revise the regulations to require that these products be labeled. The proposal also suggested that COOL should be extended to food service, which the COOL statute currently exempts. The proposal noted this would require a change in law and could not be accomplished through a change in regulations.\nCongressional Support for a Regulatory Fix\nSome Members of Congress have expressed the view that USDA and USTR should bring the United States into WTO compliance through regulatory means. In a January 31, 2013, letter to the Secretary of Agriculture and the U.S. Trade Representative, 31 Senators asked that USDA and USTR find a regulatory solution. The Senators asked that a regulatory fix make the COOL regulations consistent with WTO rules, provide accurate origin information for all meat cuts to consumers, engage industry stakeholders in the rulemaking process, and keep Congress informed.\nAppendix F. Meat Industry Lawsuit\nOn July 8, 2013, a group of eight meat industry organizations, led by the American Meat Institute (AMI), filed a lawsuit in the U.S. District Court for the District of Columbia to block USDA's revised COOL rule. The plaintiffs challenged the COOL rule for three reasons. They contend first, that COOL violates the U.S. Constitution because it compels speech in the form of a label that does not advance a government interest; second, that the rule violates the COOL statute, which does not allow for detailed labels; and third, that the rule is arbitrary and capricious, violating the Administrative Procedure Act, because it is burdensome for industry but provides little or no benefit to consumers.\nAccording to the plaintiffs, USDA's final rule is more complex and discriminatory against foreign meat and livestock than the previous rule because stricter segregation will be necessary to meet the requirements. They say that the rule would be particularly onerous for U.S. meat processors that are located near the border of Mexico or Canada who often use imported livestock. Furthermore, the plaintiffs do not believe the rule will meet U.S. WTO obligations.\nThe National Farmers Union, which supports COOL, characterized the lawsuit as a tactic to delay the implementation of a stronger COOL rule by groups that do not support COOL. In response to the lawsuit, R-CALF started a petition requesting that USDA stop NCBA, one of the plaintiffs in the lawsuit, from receiving mandated beef checkoff funds. R-CALF claims that it is a conflict of interest for NCBA to receive those funds while suing USDA to halt the implementation of the popular COOL program that provides U.S. consumers information about the source of their beef.\nOn July 25, 2013, the plaintiffs requested that the U.S. District Court for the District of Columbia grant a preliminary injunction against the implementation of the final COOL rule. The plaintiffs argued that they would likely succeed in challenging USDA on the final rule, and that they would suffer irreparable harm if USDA continued to implement the rule during the challenge. On August 9, 2013, supporters of COOL, led by the United States Cattlemen's Association (USCA), filed a motion to intervene in the meat industry lawsuit, and the court granted the request on August 20. The district court heard the plaintiffs' arguments for a preliminary injunction on August 27.\nOn September 11, 2013, the court denied the plaintiffs' request. The court found that the plaintiffs were unlikely to succeed on their constitutional, statutory, or arbitrary and capricious claims. Furthermore, the court found that the plaintiffs did not demonstrate they would suffer irreparable harm if an injunction was not granted. AMI disagreed with the court's decision and appealed the decision. Supporters of COOL that intervened in the case will continue to oppose AMI's court challenge to the COOL rule.\nThe plaintiffs' appeal was heard on January 9, 2014, before a three judge panel of the U.S. Court of Appeals for the District of Columbia Circuit. On March 28, the court denied the injunction request on COOL, but then vacated the ruling the following week and ordered that the case be reheard en banc (all judges of the court) in May to reexamine the constitutional issue of compelled speech, and whether or not COOL requirements violated the plaintiffs free speech rights.\nOn July 29, 2014, the Court of Appeals ruled 8-3 against the meat industry plaintiffs. The court denied a request for a preliminary injunction to block USDA from implementing COOL, ruling that the COOL requirements do not amount to impermissible government-compelled speech under the First Amendment. In September 2014, AMI petitioned for a rehearing on the case arguing that the segregation requirements of COOL amounted to USDA dictating the day-to-day operations of the livestock industry. On October 31, 2014, the court denied the plaintiffs petition for a rehearing on free speech claims and a rehearing on other claims from the March ruling on non-free speech claims. (See Appendix A for a timeline of key lawsuit developments.)\nAppendix G. Retaliation Lists\nIn June 2013, Canada released a list of products ( Table G-1 ) that could be targeted for retaliation if the United States fails to bring COOL into compliance with WTO obligations. Mexico has not published a similar list for the COOL case. However, Mexico has indicated that its retaliation list for COOL would be similar to products ( Table G-2 ) targeted during the trucking dispute with the United States during 2009 to 2011. That list, as provided by the Embassy of Mexico, is in the second table."
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{
"question": [
"How have retail stores been forced to respond since the final rule to implement country-of-origin labeling (COOL) took effect?",
"How were the rules legalized?",
"What dispute settlement case happened as a result of COOL for beef and pork?",
"What did Canada and Mexico argue when they challenged U.S. COOL in the WTO?",
"What did the WTO find as they responded to these concerns?",
"How did the U.S. contest the ruling?",
"What was the WTO's Appellate Body's decision on the panel's findings regarding the treatment of imported livestock?",
"What was the Appellate Body's decision on COOL fulfilling its objectives?",
"How did the U.S. respond to this partial reversal?",
"How did participants in the U.S. livestock sector react?",
"What was the purpose of the compliance panel created in 2013?",
"What were the panel's findings?",
"How did the U.S. respond to these findings?",
"What did the report in 2015 indicate?",
"How did Canada and Mexico retaliate?",
"What panel was set up after the U.S. objected to this request?",
"What were the results of the arbitration panel?"
],
"summary": [
"Since the final rule to implement country-of-origin labeling (COOL) took effect in March 2009, most retail food stores have been required to inform consumers about the country of origin of fresh fruits and vegetables, fish, shellfish, peanuts, pecans, macadamia nuts, ginseng, and ground and muscle cuts of beef, pork, lamb, chicken, and goat.",
"The rules were required by the 2002 farm bill (P.L. 107-171) as amended by the 2008 farm bill (P.L. 110-246).",
"COOL for beef and pork resulted in a World Trade Organization (WTO) dispute settlement case with Canada and Mexico that started in 2009 and finally concluded in 2015.",
"Canada and Mexico challenged U.S. COOL in the WTO, arguing that COOL had a trade-distorting impact by reducing the value and number of cattle and hogs shipped to the U.S. market, thus violating WTO trade commitments.",
"In November 2011, the WTO dispute settlement panel found that COOL treated imported livestock less favorably than U.S. livestock, and did not meet its objective to provide complete information to consumers on the origin of meat products.",
"In March 2012, the United States appealed the WTO ruling.",
"In June 2012 the WTO's Appellate Body (AB) upheld the panel's finding that COOL treated imported livestock less favorably than domestic livestock.",
"But the AB reversed the finding that COOL did not fulfill its legitimate objective to provide consumers with information on origin.",
"The United States welcomed the WTO's affirmation of the right to adopt labeling requirements to inform consumers on the origin of their meat.",
"Participants in the U.S. livestock sector had mixed reactions, reflecting the ongoing heated debate on COOL.",
"In September 2013, a compliance panel was formed to determine if the revised COOL rule complied with WTO agreements.",
"On October 20, 2014, the panel found that the revised COOL rule treated imported livestock less favorably than domestic livestock. The panel confirmed that COOL was a legitimate objective, but could not determine if the rule was more trade restrictive than necessary.",
"The United States appealed the compliance panel findings in November 2014, and the AB heard the appeal in February 2015.",
"The AB report, released in May 2015, again found that COOL violated U.S. WTO obligations.",
"On June 4, 2015, Canada and Mexico requested authorization to retaliate against U.S. imported products in the amount of US$3 billion.",
"The United States objected to the requests, and on September 15-16, 2015, an arbitration panel met to determine the appropriate level of retaliation.",
"On December 7, 2015, the arbitration panel set the retaliation levels at C$1.055 billion (US$781 million) for Canada and at US$228 million for Mexico."
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CRS_R42077
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{
"title": [
"",
"What Are the Unified Command Plan (UCP) and Combatant Commands (COCOMs)?",
"Introduction",
"Unified Command Plan (UCP)",
"Combatant Command (COCOM)",
"Functional Combatant Commands",
"Geographic Combatant Commands",
"Origins of the UCP",
"Outline Command Plan 1946—The First UCP10",
"National Security Act of 1947 (P.L. 80-253)",
"DOD Reorganization Act of 1958 (P.L. 85-599)13",
"Goldwater-Nichols DOD Reorganization Act of 1986 (P.L. 99-433)14",
"What Laws Govern the UCP?",
"UCP Update Cycle16",
"Other Agency Involvement19",
"Congressional Involvement20",
"The Current UCP",
"Change One to the 2011 UCP22",
"Origins of the COCOMs",
"What Laws Govern COCOMs?",
"General Discussion of Provisions27",
"Command Authority",
"COCOM Commander's Responsibilities",
"COCOM Funding",
"COCOM Budgetary Provisions",
"Functional and Geographic Combatant Commands",
"Basic Organizational Principles28",
"Interagency Representation in COCOMs29",
"Functional Combatant Commands",
"U.S. Special Operations Command (USSOCOM)30",
"Website: http://www.socom.mil",
"Mission31",
"History32",
"Subcomponents33",
"U.S. Army Special Operations Command (USASOC)",
"Naval Special Warfare Command (NSWC)",
"Air Force Special Operations Command (AFSOC)",
"Marine Special Operations Command (MARSOC)",
"Joint Special Operations Command (JSOC)34",
"Other Components",
"Joint Special Operations University (JSOU)36",
"Special Operations Command–Joint Capabilities (SOC-JC)37",
"Ongoing Operations",
"Selected Current Issues39",
"SOF Support to Combatant Commanders",
"Efforts to Address \"Fraying\" of the Forces",
"Continued Efforts to Expand USSOCOM Authorities and Control of Deployed SOF",
"U.S. Strategic Command (USSTRATCOM)",
"Website: http://www.stratcom.mil",
"Mission42",
"History43",
"Subcomponents",
"Service Subcomponents44",
"Air Force Global Strike Command (AFGSC)",
"Air Force Space Command (AFSPC)",
"U.S. Army Forces Strategic Command (ARSTRAT)",
"Fleet Forces Command",
"Marine Corps Forces U.S. Strategic Command (MARFORSTRAT)",
"Functional Components45",
"U.S. Cyber Command (USCYBERCOM)",
"Joint Functional Component Command-Global Strike (JFCC-GS)",
"Joint Functional Component Command– Integrated Missile Defense (JFCC-IMD)",
"Joint Functional Component Command-Intelligence, Surveillance and Reconnaissance (JFCC-ISR)",
"Joint Functional Component Command- Space (JFCC-Space)",
"Joint Information Operations Warfare Center (JIOWC)",
"USSTRATCOM Center for Combating Weapons of Mass Destruction (SCC-WMD)",
"Ongoing Operations46",
"Selected Current Issues47",
"Nuclear Weapons Sustainment48",
"Possible Shortfalls in Intelligence, Surveillance, and Reconnaissance (ISR) Analysts49",
"USCYBERCOM Workforce50",
"U.S. Transportation Command (USTRANSCOM)",
"Website: http//:www.transcom.mil",
"Mission51",
"History52",
"Subcomponents53",
"Surface Deployment and Distribution Command (SDDC)",
"Military Sealift Command (MSC)",
"Air Mobility Command (AMC)",
"Ongoing Operations54",
"Selected Current Issues55",
"Ground Supply to Afghanistan",
"Guam and Building Toward USTRANSCOM's Future56",
"Geographic Combatant Commands",
"U.S. Africa Command (USAFRICOM)57",
"Website: http://www.africom.mil",
"Mission",
"A Different Kind of Combatant Command60",
"History61",
"Subcomponents",
"U.S. Army Africa (USARAF)65",
"U.S. Naval Forces, Africa (NAVAF)66",
"U.S. Air Forces, Africa (AFAFRICA)67",
"U.S. Marine Corps Forces, Africa (MARFORAF)",
"Combined Joint Task Force-Horn of Africa (CJTF-HOA)",
"Special Operations Command-Africa (SOCAFRICA)",
"Ongoing Operations",
"U.S. Deployment to Central Africa71",
"Operation Enduring Freedom-Trans Sahara (OEF-TS)",
"Exercises73",
"Selected Current Issues",
"Regional Threats74",
"Intelligence, Surveillance and Reconnaissance (ISR) Challenges",
"Additional Forces Allocated to USAFRICOM77",
"U.S. Central Command (USCENTCOM)",
"Website: http://www.centcom.mil",
"Mission",
"History",
"Subcomponents",
"U.S. Army Central (ARCENT)80",
"U.S. Naval Forces Central Command (NAVCENT)81",
"U.S. Air Forces Central (AFCENT)82",
"U.S. Marine Corps Forces Central Command (MARCENT)83",
"Special Operations Command Central (SOCCENT)84",
"Ongoing Operations85",
"Selected Current Issues86",
"Middle East Unrest",
"Iranian Interference87",
"U.S. European Command (USEUCOM)",
"Website: http://www.eucom.mil",
"Mission88",
"USEUCOM Commander and NATO",
"History90",
"Subcomponents91",
"U.S. Army Europe (USAEUR)",
"U.S. Naval Forces Europe (NAVEUR)",
"U.S. Air Forces in Europe (USAFE)",
"U.S. Marine Corps Forces Europe (MARFOREUR)",
"Special Operations Command Europe (SOCEUR)",
"Ongoing Operations92",
"Support to NATO's International Security Assistance Force (ISAF) in Afghanistan93",
"Multi-National Joint and Interagency Exercises",
"Exercises in the Baltics, Balkans, and Caucasus",
"Selected Current Issues94",
"Afghanistan",
"The Balkans",
"Missile Defense95",
"U.S. Northern Command (USNORTHCOM)",
"Website: http://www.northcom.mil",
"Mission96",
"North American Aerospace Defense Command (NORAD)97",
"Missile Defense",
"Unique Civil Support Mission98",
"History101",
"Subcomponents102",
"Joint Force Headquarters National Capital Region (JFHQ-NCR)",
"Joint Task Force Alaska (JTF-AK)",
"Joint Task Force Civil Support (JTF-CS)",
"Joint Task Force North (JTF North)",
"Army North (ARNORTH)",
"Air Force North (AFNORTH)",
"U.S. Fleet Forces Command (USFF)",
"Ongoing Operations",
"Selected Current Issues104",
"Countering Transnational Criminal Organizations105",
"The Arctic106",
"U.S. Pacific Command (USPACOM)",
"Website: http://www.pacom.mil",
"Mission107",
"History108",
"Subcomponents109",
"U.S. Army Pacific (USARPAC)",
"U.S. Forces Korea (USFK)",
"U.S. Eighth Army",
"U.S. Pacific Fleet (PACFLT)",
"U.S. Pacific Air Force (PACAF)",
"U.S. Marine Forces Pacific (MARFORPAC)",
"Special Operations Command Pacific (SOCPAC)",
"Special Operations Command Korea (SOCKOR)",
"Other Major USPACOM Organizations112",
"Joint Intelligence Operations Center (JIOC)",
"Asia-Pacific Center for Security Studies (APCSS)",
"Joint POW/MIA Accounting Command (JPAC)",
"Joint Interagency Task Force West (JIATF-West)",
"Ongoing Operations113",
"Selected Current Issues",
"Regional Challenges",
"U.S. Strategic Shift to the Pacific117",
"Report to Congress on Resources Needed for U.S. Strategic Shift to the Pacific",
"U.S. Southern Command (USSOUTHCOM)",
"Website: http://www.southcom.mil/appssc/index.php",
"Mission120",
"History121",
"Subcomponents122",
"U.S. Army South (ARSOUTH)",
"U.S. Naval Forces Southern Command/U.S. Fourth Fleet (COMUSNAVSO/COMFOURTHFLT)",
"Air Forces Southern/Twelfth Air Force (AFSOUTH)",
"U.S. Marine Forces South (USMARFORSOUTH)",
"Special Operations Command South (USSOCSOUTH)",
"USSOUTHCOM Task Forces and Direct Reporting Units123",
"Joint Task Force Bravo (JTF-Bravo)",
"Joint Task Force Guantanamo (JTF–Guantanamo)",
"Joint Interagency Task Force South (JIATF South)",
"Center for Hemispheric Defense Studies (CHDS)",
"Ongoing Operations124",
"Exercises and Military-to-Military Activities",
"Task Force-Oriented Activities",
"Selected Current Issues125",
"Counter-Trafficking",
"Natural Disasters, Poverty, and Violence",
"Extra-Regional Actors",
"Potential Issues for Congress",
"What Are the Implications of the Asia-Pacific Strategic Shift for the UCP and COCOMs?",
"Is Greater Interagency Involvement in the UCP Process Needed?126",
"Has U.S. Foreign Policy Become \"Too Militarized\" as a Result of the Geographic COCOMs?",
"Are There Other Regions or Functions That Merit a Separate COCOM?132",
"Is There an Alternative to COCOMs?",
"Replacing Subcomponent Commands with Joint Task Forces (JTFs)136",
"Replacing COCOMs with a Joint Interagency Organization137",
"Appendix. 2011 UCP COCOM Areas of Responsibility"
],
"paragraphs": [
"",
"",
"The Unified Command Plan (UCP) and associated Combatant Commands (COCOMs) provide operational instructions and command and control to the Armed Forces and have a significant impact on how they are organized, trained, and resourced—areas over which Congress has constitutional authority. In a grand strategic sense, the UCP and the COCOMs are the embodiment of U.S. military policy both at home and abroad. The COCOMs not only execute military policy but also play an important role in foreign policy, and Congress, in both oversight and budgetary roles, has shown great concern in this regard. All Combatant Commanders testify to the Armed Services Committees on an annual basis about their posture and budgetary requirements and frequently host Members and staff during a variety of congressional delegation visits.",
"The Department of Defense (DOD) defines the Unified Command Plan (UCP) as\nThe document, approved by the President, that sets forth basic guidance to all unified combatant commanders; establishes their missions, responsibilities, and force structure; delineates the general geographical area of responsibility (AOR) for geographic combatant commanders; and specifies functional responsibilities for functional combatant commanders.\nThe UCP is a classified executive branch document prepared by the Chairman of the Joint Chiefs of Staff (CJCS) and reviewed and updated at a minimum every two years. While the UCP is normally on a two-year cycle, it can be updated anytime based on changing strategic, political, and budgetary requirements. As noted, the UCP assigns missions; planning, training, and operational responsibilities; and geographic areas of responsibilities to COCOMs. The UCP is assessed and modified, taking into consideration the following strategic documents:\nThe National Security Strategy of the United States of America; The National Defense Strategy of the United States of America; The National Military Strategy of the United States of America; and The current UCP.\nThe UCP process also takes into consideration the strategic context (such as the war in Afghanistan, the global economic situation, relationships with allies, etc.) and command guidance from the President and senior DOD civilian and military leadership. As part of the final review process before the UCP is submitted to the President, the proposed UCP is reviewed by senior service leaders, the Secretary of Defense, and the National Security Council (NSC). Congress is not included in this review process but does have visibility into issues affecting UCP development.",
"DOD defines Combatant Command (COCOM) as:\nA unified or specified command with a broad continuing mission under a single commander established and so designated by the President, through the Secretary of Defense and with the advice and assistance of the Chairman of the Joint Chiefs of Staff. Combatant commands typically have geographic or functional responsibilities.\nDr. Cynthia Watson, a professor at the National War College and author of \"Combatant Commands: Origins, Structure, and Engagements\" describes combatant commands as being:\nCommands in charge of utilizing and integrating air, land, sea, and amphibious forces under their commands to achieve U.S. national security objectives while protecting national interests. Four [now three] of the unified commands handle functional concerns while there are six with geographic mandates. The specific configurations have shifted over the decades, but the idea that geography provides an organizing principle remains the same, allowing each combatant command to have its specific threats and opportunities. The combatant commanders work with the military forces in their theaters, and report to the commander in chief and secretary of defense. The combatant commanders do not serve on the Joint Chiefs of Staff nor are they the senior U.S. representatives in the theater.\nThe number of combatant commands is not regulated by law or policy and their numbers and responsibilities have varied over the years. Today, there are nine active COCOMs, and one COCOM–U.S. Joint Forces Command (JFCOM) was disestablished in 2010 and all of its remaining functions were transferred to other COCOMs or organizations.",
"Functional combatant commands operate worldwide across geographic boundaries and provide unique capabilities to geographic combatant commands and the services:\nUSSOCOM: U.S. Special Operations Command, MacDill Air Force Base, FL; USSTRATCOM: U.S. Strategic Command, Offutt Air Force Base, NE; and USTRANSCOM: U.S. Transportation Command, Scott Air Force Base, IL.",
"Geographic combatant commands operate in clearly delineated areas of operation and have a distinctive regional military focus.\nUSAFRICOM: U.S. Africa Command, Kelley Barracks, Stuttgart, Germany; USCENTCOM: U.S. Central Command, MacDill Air Force Base, FL; USEUCOM: U.S. European Command, Patch Barracks, Stuttgart, Germany; USNORTHCOM: U.S. Northern Command, Peterson Air Force Base, CO; USPACOM: U.S. Pacific Command, Camp H.M. Smith, HI; and USSOUTHCOM: U.S. Southern Command, Miami, FL.",
"The United States' experience with global warfare in World War II provided countless lessons attesting to the importance of unity of military effort achieved through the unified command of U.S. forces. While the United States was able to achieve a degree of unified command in the European theater under General Dwight Eisenhower—Supreme Commander, Allied Expeditionary Force—attempts to establish unified command in the Pacific \"proved impossible.\" Differences between the Army and Navy precluded any sort of unified command arrangement and General Douglas MacArthur commanded U.S. Army Forces, Pacific while Admiral Chester Nimitz commanded the U.S. Pacific Fleet. Although both commanders were able to work together to defeat Japan, there was a considerable amount of friction between these two powerful, independent commands. After the war, President Truman noted:\nWe must never fight another war the way that we fought the last two. I have the feeling that if the Army and Navy had fought our enemies as hard as they fought each other, the war would have ended much earlier.",
"In 1946, the Chief of Naval Operations characterized the Pacific command arrangement as \"ambiguous and unsatisfactory\" and proposed a single command over the Pacific (not including Japan, Korea, and China) to provide unity of command over all U.S. forces in the region. The Army and the Army Air Forces rejected this proposal, favoring instead unified command based on assignment of mission and forces as opposed to geographic areas. After a great deal of discussion and compromise, a worldwide system of unified command was established. President Truman approved the \"Outline Command Plan\" in December 1946, establishing seven commands as an \"interim measure for the immediate post war period.\" The seven commands were:\nFar East Command; Pacific Command; Alaskan Command; Northeast Command; Atlantic Fleet; Caribbean Command; and European Command.\nSome of these seven commands contained more than one service and were, in a sense, unified, while others, such as the Atlantic Fleet, were service-specific. Even though these commands were established to achieve a degree of unity, the services continued in many instances to plan and act independently. Since 1946, the UCP has continued to evolve—sometimes in a dramatic manner—to reflect ever changing strategic, organizational, and political requirements. While Congress has influenced the UCP over the years, three major legislative initiatives have had a lasting impact on the UCP.",
"While the National Security Act of 1947 is best known for the creation of the U.S. Air Force, the Central Intelligence Agency (CIA), and establishing the office of the Secretary of Defense, it also created the Unified Combatant Command (UCC) system. The UCC system signified the recognition by the United States that it would continue to have a worldwide, continuous global military presence. The National Security Act of 1947 also gave the Joint Chiefs of Staff (JCS) the responsibility to establish unified commands in \"strategic areas\" subject to the approval of the President and Secretary of Defense.",
"In 1958, President Eisenhower—the former Supreme Commander, Allied Expeditionary Force—decided a more unified and streamlined chain of command to employ combat forces was needed, essentially putting an end to separate land, sea, and air combat. President Eisenhower sought \"a complete unification of all military planning and combat forces and commands\" and proposed the DOD Reorganization Act of 1958 to Congress to amend the National Security Act of 1947.\nThe DOD Reorganization Act of 1958 authorized the President, acting through the Secretary of Defense with the advice of the JCS, to establish unified or specified commands, assign missions, and determine their force structure. This act did not alter any of the authorities established by the National Security Act of 1947 but instead established a clear line of command from the President, through the Secretary of Defense, to the combatant commanders. Combatant commanders were delegated full operational control over forces assigned to them but once these forces were assigned, they could only be transferred with presidential approval. Responsibility for the administration of these assigned forces was to remain with their respective services.",
"In the aftermath of the failed 1980 multi-service mission to rescue U.S. hostages in Iran and the 1983 invasion of Grenada which featured numerous instances of poor inter-service planning and cooperation, there was renewed emphasis on \"jointness\" both in Congress and at the Pentagon. Goldwater-Nichols sought to \"rebalance the relative power of the geographic commands versus the services.\" Goldwater-Nichols called for the Chairman of the JCS (CJCS) to review the missions, responsibilities, and force structure and geographic boundaries for each COCOM not less than every two years and recommend changes to the Secretary of Defense and the President. In addition, the act expanded the CJCS's and combatant commander's powers and gave combatant commanders greater interaction with Congress and greater participation in the DOD budget process.",
"The UCP and COCOMs are covered under Title 10 - Armed Forces; Subtitle A - General Military Law; Part I–Organization and General Military Powers; Chapter 6–Combatant Commands. As it relates to the UCP, Section 161, inter alia, stipulates:\nUnified COCOMs are established by the President, through the Secretary of Defense (SECDEF), with the advice and assistance of the CJCS. The CJCS shall periodically review (at least every two years) missions, responsibilities (including geographic boundaries), and force structure of each combatant command. Based on this review, the CJCS will recommend to the President, through the SECDEF, changes to missions, responsibilities, and force structure deemed necessary. The President, except in times of hostilities or imminent danger, will notify Congress not less than 60 days after establishing a new combatant command or significantly revising the missions, responsibilities, or force structure of an existing combatant command.\nAlso under Section 161, the CJCS is required to consider during each periodic UCP review:\nWhether there was an adequate distribution of responsibilities among the regional unified combatant commands; Whether fewer or differently configured commands would permit the United States to better execute war fighting plans; Whether any assets or activities were redundant; Whether war fighting requirements were adequate to justify current commands; Whether exclusion of certain nations from the Areas of Responsibility presented difficulties with respect to national security objectives in those areas; and Whether the boundary between the U.S. Central and European Commands could create command conflicts in the context of a major regional conflict in the Middle East.",
"Generally, the UCP update cycle runs from 12 to 18 months. The current UCP process consists of five iterative phases described below:\n1. Guidance: DOD UCP planners review four central documents: The National Security Strategy of the United States of America; The National Defense Strategy of the United States of America; The National Military Strategy of the United States of America; and the current UCP. UCP participants also receive command guidance in various forms and in varying degrees, and are apprised of the strategic context under which the UCP will be evaluated. During the final part of this phase, stakeholders (Combatant Commanders, Service Chiefs, and the Joint Staff) identify issues they believe need to be addressed during the UCP update cycle. 2. Slate: During this phase, issues are slated for discussion. At the beginning of the phase an action officer planning conference is held to discuss UCP issues. After the conference, stakeholders submit Issue Development Papers (IDPs) to the Joint Staff where they are posted online on a secure operating system (SIPRNET) where stakeholders can view and comment on them. After a period of time, these IDPs and associated comments are sent to the Deputy Director for Strategy and Policy and the Director J-5 for validation. Those IDPs that make it through the validation process are then \"slated\" and placed online so stakeholders can develop positions for the next phase of the UCP process. 3. Assessment: This phase begins with a Planner's Assessment Conference where courses of action (COA) are developed for each validated IDP. These COA provide decision makers with a range of choices to address the IDPs. Once the COA are agreed at the conference, they are again posted online for review and comment. After a period of time, the COA are finalized and \"closed out.\" 4. Adjudication: The adjudication phase is a four part process whereby the issues and COA are sent to various levels of the Joint Staff for approval. The first level is the Deputy Director for Strategy and Policy and after review and approval, a draft UCP is published. Next comes the Director J-5 and another revised draft UCP is published. This draft UCP is then taken to a Service Chiefs' \"Tank\" meeting and after that meeting, another UCP draft is prepared. Finally a Joint Chiefs of Staff Tank meeting is held and a final draft UCP is prepared, posted on the SIPRNET, and is then ready for final review. 5. Review: During this phase the UCP is reviewed and revised for the final time. The first review is held at the \"four-star level\" including Service Chiefs, Combatant Commanders, and other 4-star level general officers and DOD civilians. Next, the SECDEF reviews the draft UCP and suggests changes. The next step is the National Security Council (NSC) review where the UCP is commented on by other U.S. government agencies. Finally, after incorporating the views of the NSC principals, the UCP is taken to the President for approval and final publication.",
"There are other executive branch agencies (State Department, Department of Justice, Department of Homeland Security, and the Central Intelligence Agency, to name a few) that are collectively referred to as the Interagency and have a vested interest in the UCP because some of its associated military tasks intersect with the responsibilities of these agencies. While none of these agencies are formally part of the UCP development process, they do have access to it by means of agency liaison officers stationed at the COCOMs and on the Joint Staff. These liaison officers have visibility of the IDP and COA process as well as access to draft UCPs and are able to report their observations and concerns to their principals (i.e., Secretary of State, Attorney General, etc.). The NSC also receives periodic updates on UCP development or revisions during the UCP cycle. The principals may then choose to address their UCP concerns with senior DOD leadership. During the NSC UCP Review, other agencies can publicly voice concerns with the UCP but, unless an agency has not been actively following the UCP development, there should be no \"surprises\" when the UCP is reviewed by the NSC.",
"Congress currently has no statutory role in the UCP development, revision, or review process other than those stipulated in Title 10, Chapter 6, Sections 161 and 166. Congress does, however, make its concerns known during hearings, private conversations between Members and staff and DOD leadership, and through lending support to UCP-related issues through legislation or by resolution. For example, prior to the 2007 decision to stand up AFRICOM, a number of Members called for the creation of a separate geographic combatant command for Africa. Congress also periodically includes provisions in annual National Defense Authorization Acts calling for DOD studies and reports on certain aspects of COCOM structure and operations. These requirements, in addition to providing information to Congress, also serve the purpose of identifying areas of congressional concern which can influence DOD COCOM-related resourcing and policy decisions.",
"The 2011 UCP is a classified document. On April 8, 2011, DOD released the 2011 UCP and the unclassified highlights were included in the following news release:\nDOD Releases Unified Command Plan 2011\nThe Department of Defense released today the updated Unified Command Plan (UCP), a key strategic document that establishes the missions, responsibilities, and geographic areas of responsibility for commanders of combatant commands. Unified Command Plan 2011, signed by the President on April 6, assigns several new missions to the combatant commanders.\nEvery two years, the chairman of the Joint Chiefs of Staff is required to review the missions, responsibilities, and geographical boundaries of each combatant command and recommend to the President, through the Secretary of Defense, any changes that may be necessary. As in past years, the 2011 review process included the combatant commanders, service chiefs and DOD leadership. Significant changes made by UCP 2011 include\n- Shifting areas of responsibilities boundaries in the Arctic region to leverage long-standing relationships and improve unity of effort. As a result of this realignment, responsibility for the Arctic region is now shared between USEUCOM and USNORTHCOM rather than USEUCOM, USNORTHCOM and USPACOM as directed in previous UCPs.\n- Giving USNORTHCOM responsibility to advocate for Arctic capabilities.\n- Codifying the President's approval to disestablish U.S. Joint Forces Command.\n- Expanding U.S. Strategic Command's responsibility for combating weapons of mass destruction and developing Global Missile Defense Concept of Operations.\n- Giving U.S. Transportation Command responsibility for synchronizing planning of global distribution operations.\nUCP 2011 continues to support U.S. defense security commitments around the world while improving military responsiveness to emerging crises.\nA map with the UCP COCOM Areas of Responsibility is included in the Appendix .",
"On September 12, 2011, President Obama signed Change One to the 2011 UCP, which primarily captured the administrative changes reflecting the disestablishment of USJFCOM and a number of SECDEF-directed Efficiency Initiatives. These changes include\nRemoving any language referring to USJFCOM which was disestablished on August 31, 2011; Removing language for geographic combatant command standing joint force headquarters, which are approved for disestablishment by the end of FY2012; Adding the responsibility of global standing joint headquarters to USTRANSCOM; Transferring the Joint Warfare Analysis Center missions from USJFCOM to USSTRATCOM; and Removing language and responsibilities for Information Operations, Military Deception, and Operations Security from USSTRATCOM as these mission areas are to be transferred to the Joint Staff.",
"The non-statutory origins of COCOMs are rooted in the U.S. experience in World War II. Prior to World War II, the services operated independently and, despite lessons learned from World War I suggesting the Army and Navy needed to better communicate and plan, no real concerted effort was made to coordinate the Armed Forces, largely attributed to \"bureaucratic distrust and service rivalry.\" During this period, Marine Corps fears the Army would lobby to eliminate the Marines on the grounds they were a \"redundant service\" as well as Army efforts to maintain control over the country's air arm typified the climate among the services that made any meaningful reform virtually impossible.\nWorld War II presented unique challenges not faced during the 18-month U.S. involvement in the First World War. While World War I was fought in a variety of theaters, such as Europe, Africa, the Mediterranean, and the Middle East, U.S. involvement was primarily limited to Europe and was predominately land-centric. In terms of strategic planning and command relationships, the United States played a supporting role.\nThe United States' experience in World War II bore little resemblance to that of the Great War. The European and Pacific theaters of the Second World War varied significantly, with the European Theater being a land-centric conflict supported by naval operations whereas the Pacific Theater was naval-centric and supported by Marine and Army ground forces. Both theaters also featured extensive supporting air force operations, including long-range strategic bombing campaigns unprecedented in both size and scope. In terms of relationships with allies, the United States assumed the leadership role in both the Pacific and European theaters—largely due to its unmatched military and industrial resources—despite insistence that the U.S. was \"co-equal partners\" with Great Britain, France, and Russia. Unlike 1918, after the Japanese surrender in 1945, U.S. political and military leaders did not advocate a post war policy of isolationism, because of fears of a communist Russia and, to a lesser extent, China. U.S. global military presence was viewed as a guarantee against unfettered communist expansion, and this presence necessitated an effective, geographically focused, long-term, joint command arrangement.",
"As previously noted, COCOMs are governed by the provisions contained in Sections 161 through 168 of Title X, Armed Forces, U.S. Code. These sections address the following provisions;\nSection 161: The establishment of COCOMs; Section 162: Chain of command and assignment of forces for COCOMs; Section 163: Role of the CJCS; Section 164: Assignment and powers and duties of commanders of COCOMs; Section 165: Administration and support of COCOMs; Section 166: COCOM budget proposals; Section 166a: Funding COCOMs through the CJCS; Section 166b: Funding for combating terrorism readiness initiatives; Section 167: Unified COCOMs for special operations forces; Section 167a: Unified COCOMs for joint warfighting experimentation: acquisition authority; and Section 168: Military-to-military and comparable activities.",
"These provisions assign a number of responsibilities to the CJCS including a regular (at least every two years) review of the missions, responsibilities, areas of operation, and force structure of each combatant command. Upon completion of this review, the Chairman provides suggestions to the President—through the SECDEF—for changes in missions, force structure, and responsibilities for the COCOMs. These provisions also tie the services to the COCOMs as the Secretaries of the military departments are directed to assign their forces (unless assigned elsewhere such as a multi-national peacekeeping operation) to COCOMs. These forces can only be transferred from the commands by the SECDEF.",
"Forces assigned to COCOMs are under the command of that COCOM commander, with the chain of command starting with the President and running through the SECDEF as indicated in Figure 1 . The CJCS serves as a link between the President and the SECDEF and the COCOM commanders. The President can send guidance to COCOM commanders through the CJCS, and the chairman can relay combatant commander's needs and concerns to the SECDEF and the President. The CJCS may exercise oversight of the COCOMs, if desired by the SECDEF, but has no command authority over the COCOMs. In this regard, the CJCS is described as taking part in national security discussions but not in the formal decision-making process as it relates to COCOMs.",
"COCOM commanders are responsible for the accomplishment of missions assigned to them as well as all aspects of joint training, logistics, and military operations. COCOM commanders are also responsible for establishing command relationships with subordinate commands as well as organizing subordinate units as deemed necessary. While Combatant Commanders exercise control over subordinate units from different services, the services retain administrative control of their personnel to include assignment, promotion, schooling, and retirement. To facilitate administrative control, geographic combatant commands have service subcomponents for each service.",
"On an annual basis, COCOMs request Operations and Maintenance (O&M) funding. Funding for forces assigned to COCOMs are funded by the respective services and funding for operations are funded separately, such as operations in Afghanistan and counterterror operations that have primarily been funded through the Overseas Contingency Operations (OCO) account. Table 1 provides O&M funding figures for the COCOMs from FY2011 to FY2013. It should be noted that some amounts include operational and OCO costs (see corresponding notes).",
"The SECDEF is required to submit an annual budget proposal for the COCOMs and funding may be requested for joint exercises, force training, contingencies, and selected operations. Proposed funding for special operations forces (SOF) training with foreign forces may also be requested. COCOMs can also receive funds through the CJCS as part of the \"Combatant Commander Initiative Fund.\" Although not a COCOM, the U.S. element of the North American Aerospace Defense Command (NORAD) is also eligible for this fund. Authorized activities include\nForce training; Contingencies; Selected operations; Command and control; Joint exercises to include activities of participating foreign nations; Humanitarian and civic assistance; Military education and training to military and related civilian personnel of foreign countries; Personnel expenses of defense personnel for bilateral or regional cooperation programs; Force protection; and Joint warfighting capabilities.\nCOCOMs also have access to a DOD budget account known as the \"Combating Terrorism Readiness Initiatives Fund.\" Authorized activities under this fund include\nProcurement and maintenance of physical security equipment; Improvement of physical security sites; Under extraordinary circumstances: Physical security management planning; Procurement and support of security forces and security technicians; Security reviews, investigations, and vulnerability assessments; and Any other activity relating to physical security.",
"",
"COCOM commanders hold four-star flag rank and have risen through the ranks of their respective services, commanding at the highest levels. COCOM commanders have also met Joint Military Education Requirements as set forth in the Goldwater-Nichols Act. The President nominates combatant commanders based on the recommendations of the SECDEF. The Senate Armed Services Committee holds confirmation hearings for the nominees and the Senate then votes to confirm the candidates. While four-star officers from any service may serve as combatant commander for any given COCOM, some appointments (e.g., U.S. Pacific Command being commanded by a Navy admiral) traditionally have gone to specific services.\nThe basic configurations of COCOM staffs are generally the same and mirrors the Joint Staff at the Pentagon. COCOM staffs are organized as follows, although there are variations based on unique COCOM mission areas:\nJ-1 Directorate of Manpower and Personnel; J-2 Directorate of Intelligence; J-3 Directorate of Operations; J-4 Directorate of Logistics; J-5 Directorate of Strategic Plans and Policy; J-6 Directorate of Command, Control, Communication, and Computer; J-7 Directorate of Operational Planning and Joint Force Development; J-8 Directorate of Force Structure, Resources, and Assessment; and J-9 Directorate of Interagency Partnering.\nWithin the COCOM command and staff construct, Joint Task Forces (JTFs) are often created to address a single policy concern and allocate resources, such as anti-drug efforts or humanitarian assistance, on a short- to mid-term basis. JTFs can also be established in response to a crisis or for a long-term commitment.\nSome COCOMs also have a political advisor (POLAD) assigned to the commander to serve as an interface with the civilian portion of the national security establishment as well as the ambassadors and embassy staffs of countries that fall under the COCOM commander's UCP mandate.",
"Both Functional and Geographic COCOMs have integrated assets and representatives of other agencies and departments of the U.S. government into the COCOM's structure to enhance operations. Examples of this representation include\nUSAFRICOM: A State Department Deputy Commander for Civil-Military Activities, a senior U.S. Agency for International Development (USAID) advisor, and two other senior U.S. diplomats who serve as a Foreign Policy Advisor and as the J-9, Director of Outreach; USCENTCOM: An Interagency Action Group (IAG) established in the J-3 Directorate of Operations to integrate USCENTCOM and Interagency activities; USEUCOM: Established a J-9 Directorate for Interagency Partnering; and USNORTHCOM: A Joint Interagency Coordinating Group (JIACG) that integrates and synchronizes the activities of numerous civilian, State, Federal, and private sector organizations.",
"",
"",
"",
"USSOCOM's primary mission is to organize, train, and equip special operations forces (SOF) and provides those forces to the Geographic Combatant Commanders under whose operational control they serve. USSOCOM also develops special operations strategy, doctrine, and procedures for the use of SOF and also develops and procures specialized, SOF-unique equipment for its assigned forces. USSOCOM is also the lead COCOM for synchronizing DOD planning against terrorists and their networks on a global basis. USSOCOM also can execute global operations against terrorist networks when directed to do so by the President or Secretary of Defense. The diverse nature of USSOCOM's counterterror mission requires working extensively with other non-DOD U.S. Government Agencies, sometimes referred to as the Interagency.",
"The 1980 Desert One tragedy and the 1983 loss of 237 Marines in Beirut, combined with the command and control problems experienced during Grenada in 1983 heightened apprehensions about DOD's ability to manage the services, including special operations forces who were \"owned\" by their respective service.\nBy 1983, there was a small but growing sense in Congress of the need for military reforms. In June, the Senate Armed Services Committee (SASC), under the chairmanship of Senator Barry Goldwater (R-AZ), began a two-year-long study of DOD which included an examination of SOF. With concern mounting on Capitol Hill, DOD created the Joint Special Operations Agency on January 1, 1984. This agency had neither operational nor command authority over any SOF units and did little to address SOF issues.\nWithin Congress, there was a growing sense that a radical restructuring of SOF was needed. Proponents included Senators Sam Nunn (D-GA) and William Cohen (R-ME), both members of the SASC, and Representative Dan Daniel (D-VA), the chairman of the Readiness Subcommittee of the House Armed Services Committee (HASC). Congressman Daniel believed the U.S. military establishment had little interest in special operations and that U.S. SOF was second-rate when compared to countries such as Great Britain and Israel. Senators Nunn and Cohen also believed that DOD was not preparing adequately for future threats. Senator Nunn expressed a growing frustration with the Service's practice of reallocating monies appropriated for SOF modernization to non-SOF programs and suggested the U.S. needed a more efficient organization and a more direct chain of command for special operations.\nIn early 1986, SOF advocates introduced reform bills in the House and Senate. The Senate bill, co-sponsored by Senator Nunn and others, called for a joint military organization for SOF and the establishment of an office in DOD to ensure adequate funding and policy emphasis for low-intensity conflict and special operations. Representative Daniel's proposal went even further—he wanted a national special operations agency headed by a civilian who would bypass the Joint Chiefs and report directly to the SECDEF, thereby keeping Joint Chiefs and services out of the SOF budget process.\nCongress held hearings on the two bills in the summer of 1986. CJCS Admiral William J. Crowe, led the Pentagon's opposition to the bills and proposed instead a new special operations forces command led by a three-star general. This proposal was not well received by Congress, who wanted a four-star officer in charge so that he could deal on an equal footing with the four-star Service Chiefs.\nPresident Reagan approved the establishment of USSOCOM on April 13, 1987. DOD activated USSOCOM on April 16, 1987, and nominated Army General Lindsay to be USSOCOM's first commander.",
"",
"USASOC includes Army Special Forces, also known as Green Berets; Rangers; Civil Affairs, and Military Information Support Operations (MISO)—formerly known as psychological operations (PSYOPS)—units. In addition, the 160 th Special Operations Aviation Regiment (SOAR) provides rotary wing support to all SOF units.",
"NSWC consists of Sea, Air, and Land (SEAL) teams that conduct operations in both maritime and ground environments. NSWC also has SEAL Delivery Vehicle (SDV) teams—specialized SEALs that pilot small submersible vehicles that can deliver SEALs to their area of operations. NSWC includes Special Boat Teams that can deliver SEALs from ship to shore as well as operate in the littorals and rivers.",
"AFSOC provides specialized fixed and rotary wing support to USSOCOM units. In addition to aircraft support, AFSOC also provides Combat Controllers, Pararescue Jumpers, Special Operations Weather Teams, and Tactical Air Control Parties (TACPs) to support special operations. AFSOC is currently establishing a capacity to train and advise partner nation aviation units as part of foreign internal defense initiatives.",
"Established in 2005, MARSOC is the newest USSOCOM subcomponent. It consists of three Marine Special Operations Battalions, a Marine Special Operations Support Group, a Marine Special Operations Intelligence Battalion, and the Marine Special Operations School.",
"According to USSOCOM, JSOC is a sub unified command charged with studying special operations requirements and techniques to ensure interoperability and equipment standardization. JSOC also plans and conducts special operations exercises and training and develops joint special operations tactics.\nUSOCOM also notes JSOC \"is comprised of an impressive amalgamation of rigorously screened and accessed, Soldiers, Sailors, Airmen, Marines, and Civilians,\" and \"past and present members of JSOC have participated in all of our Nation's wars and contingency operations since it was activated in 1980.\" Press reports suggest JSOC is home to USSOCOM's national mission forces which reportedly conduct highly sensitive combat and supporting operations against terrorists on a worldwide basis.",
"",
"JSOU's stated mission is to\nEducate Special Operations Forces executive, senior, and intermediate leaders and selected other national and international security decision-makers, both military and civilian, through teaching, research, and outreach in the science and art of Joint Special Operations.",
"With the August 2010 disestablishment of JFCOM, SOCJFCOM was transferred to USSOCOM, where it was renamed SOC-JC. SOC-JC's mission is to train conventional and special operations force commanders and their staffs in the employment of Special Operations Forces focusing on the full integration of SOF and the conventional forces in both planning and execution to enhance warfighting readiness.",
"USSOCOM operates on a global basis in both overt and classified modes. Missions range from foreign internal defense to counterterrorism, but the primary emphasis for U.S. SOF is attacking terrorists and terror cells worldwide. While USSOCOM's primary focus of these activities is the USCENTCOM region, USSOCOM Commander Admiral William McRaven stated, \"U.S. special operations forces are in 78 countries around the world, supporting U.S. policy objectives.\"",
"",
"In testimony, Admiral McRaven noted that even when operations conclude in Afghanistan, historical data suggest that there will be a constant demand for a \"steady state\" SOF-deployed force of almost 12,000 SOF troops to support COCOM requirements. As SOF forces continue their Quadrennial Defense Review (QDR)-mandated growth, USSOCOM assesses they will have adequate capacity by FY2017 to meet the anticipated COCOM demand without placing undue risk to global counterterrorism (CT) operations. This FY2017 target is predicated on USSOCOM's self-imposed growth rate of 3% to 5% annually, which is intended to maintain the overall quality of special operations forces.",
"In March 2011, then USSOCOM Commander Admiral Eric Olson testified that the decade-long wars had resulted in some \"fraying around the edges\" for U.S. SOF. This almost constant state of deployment had resulted in significant time away from families and limited time for needed professional training and education and created a great deal of pressure on SOF and their families. As a result of a study initiated under Admiral Olson, a lack of predictability resulting from a demanding operational tempo and increased difficulties for SOF troops reconnecting and reintegrating into family activities after returning from deployments were identified as two primary sources of ongoing stress. As a result, Admiral McRaven has established a task force that has been tasked with building and implementing innovative solutions across USSOCOM to address these stressors.",
"Reports suggest USSOCOM will continue to push for more control over deployed special operations forces. At present, once U.S. SOF deploys into a region, they are controlled by a geographic combatant commander and USSOCOM can no longer control where they go or what mission they perform. According to USSOCOM officials, \"Admiral McRaven is looking for the freedom to move forces where he needs them and when he needs them.\" This requirement seemingly suggests USSOCOM is currently allocating its SOF units to combatant commands with little to no mission guidance, which, in itself, might be considered problematic. Given USSOCOM's counterterrorism mandate, it would appear that USSOCOM could task these SOF units with missions at the national level, which would be mutually supportive of the combatant commander's regional missions for the SOF unit. If USSOCOM gets expanded authorities, it would exert enhanced control primarily through TSOCs, which currently work exclusively for each combatant commander, but USSOCOM contends that TSOCs operate \"without any greater centrality to recognizing how the actions of one TSOC in his regional area of responsibility can do things that influence another region.\" If USSOCOM gets the additional authorities it has requested, it could give the USSOCOM Commander the ability to have a direct relationships with the TSOCs. While these enhanced authorities might benefit USSOCOM, they might also violate the principal of \"unity of command\" despite USSOCOM's insistence that combatant commanders would have to approve any of USSOCOM's moves of deployed SOF units.\nOne report suggests that \"turning SOCOM into a global combatant command would create constant friction with regional commands\" and that efforts to gain additional authorities were perceived by some as a \"power grab.\" The potential for a dual chain of command could result in unnecessary friction between USSOCOM and geographic combatant commands and host countries, possibly having an unintended detrimental impact on the deployed SOF unit. Because there appears to be a number of contentious issues regarding enhanced USSOCOM authorities, Congress might choose to examine these issues in greater detail.",
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"",
"USSTRATCOM's primary responsibility is the stewardship and employment of U.S. nuclear weapons and to detect, deter, and prevent attacks against the United States and our allies and to join with the other combatant commands to defend the nation should deterrence fail. Specific responsibilities include planning, synchronizing, advocating, and employing capabilities to meet the United States' strategic deterrence; space operations; cyberspace operations; global strike; missile defense; intelligence, surveillance, reconnaissance (ISR); and combating weapons of mass destruction (WMD).",
"USSTRATCOM was established October 1, 2002. USSTRATCOM has provided intelligence, planning, and cyber support to coalition forces in Afghanistan and Iraq. It monitors orbiting satellites and space debris, allowing spacecraft to avoid collision. USTRATCOM has also deployed systems to provide limited protection against ballistic missile attack.\nThe missions most directly associated with USSTRATCOM and its predecessors are deterrence and global strike. These were the missions of Strategic Air Command (SAC) from 1946 to 1992 and of the first USSTRATCOM from 1992 to 2002. Though best known for its connection with the nuclear deterrent, SAC conducted conventional bombing operations during the Korean War and Vietnam War and the first Persian Gulf War, 1991.\nOn June 1, 1992, SAC was replaced by a new unified command, USSTRATCOM. The new command's primary mission was to deter attack, especially nuclear attack, on the United States and its allies and, if deterrence failed, employ nuclear forces in response.\nThe U.S. military began operating in space in the late 1950s, with many of the early systems developed to meet SAC's needs for surveillance, warning, meteorology, and communications. By 1985, space activities had grown to such a scale that DOD created a new unified command, USSPACECOM, to manage military space operations. Secretary Rumsfeld's initiative to merge USSTRATCOM and USSPACECOM led to the creation of the current USSTRATCOM in 2002.\nTwo other areas took on increasing importance beginning around 2000: missile defense and cyberspace operations. By September 2004, the United States had deployed a limited system that offered some protection to North America and had opened discussions about extending the system to cover allies.\nThe U.S. military's reliance on computer networks grew exponentially in the 1980s and 1990s. National leaders took steps to protect defense networks in 1998, creating a Joint Task Force for Computer Network Defense and assigning it to USSPACECOM. As computer attacks against DOD become more sophisticated and frequent there were calls to place greater emphasis and visibility on cyber operations. Defense Secretary Robert Gates favored a new sub-unified command under USSTRATCOM that would recombine offensive and defensive computer network operations. Established May 21, 2010, U.S. Cyber Command (USCYBERCOM) was fully operational on October 31, 2010.",
"",
"",
"AFGSC is responsible for the Air Force's three intercontinental ballistic missile (ICBM) wings, two B-52 Stratofortress wings, and the sole B-2 Spirit wing. AFGSC has two numbered air forces that are tasked with providing capabilities to combatant commands. The Eighth Air Force controls the long-range nuclear bomber assets (B-52s and B-2s) and the Twentieth Air Force controls the ICBM wings.",
"AFSPC provides space and cybersecurity forces for USSTRATCOM. It has two numbered air forces providing these capabilities. The Fourteenth Air Force controls and supports several satellite systems including the Global Positioning System (GPS); Defense Satellite Communications Systems Phase II and III; and the Defense Meteorological Support Program. In addition, the Fourteenth Air Force has Atlas, Delta, and Titan launch vehicles at its disposal to put payloads into orbit. The Twenty-Fourth Air Force plans and conducts cyberspace operations in support of combatant commands.",
"ARSTRAT conducts space and missile defense operations and provides planning, integration, control, and coordination of Army forces and capabilities in support of USSTRATCOM missions.",
"Fleet Forces Command is responsible for the entire Atlantic Ocean, the Caribbean Sea, and the waters around Central and South America extending into the Pacific to the Galapagos Island.",
"MARFORSTRAT serves as the Marine Corps service component to USSTRATCOM.",
"",
"USCYBERCOM is a sub unified command that is subordinate to USSTRATCOM. USCYBERCOM plans, coordinates, integrates, synchronizes, and conducts activities to defend DOD information networks and also conducts cyber space activities to enable U.S. military activities.",
"JFCC-GS optimizes planning, integration, execution, and force management of assigned missions to deter attacks against the United States, its territories, possessions, and bases.",
"JFCC-IMD synchronizes operational-level global missile defense planning, operations support, and the development of missile defense effects for DOD.",
"JFCC-ISR plans, integrates, and coordinates intelligence, surveillance, and reconnaissance in support of strategic and global operations and strategic deterrence.",
"JFCC-Space is responsible for executing continuous, integrated space operations to deliver theater and global effects in support of national and combatant commander objectives.",
"JIOWC provides joint information operations planning, execution, and operational-level integration of Electronic Warfare, Operations Security, and Military Deception across DOD to support USSTRATCOM, joint force commanders, and U.S. national objectives. On September 12, 2011, President Obama signed Change One to the 2011 UCP, which transfers the Information Operations, Military Deception, and Operations Security missions from USSTRATCOM to the Joint Staff so it is possible the structure and missions of JIOWC may change significantly in the near future.",
"SCC-WMD plans, advocates, and advises the USSTRATCOM commander on WMD-related matters.",
"According to USSTRATCOM's commander, USSTRATCOM's major ongoing operation is to detect, deter, and prevent attacks against the United States and to join with the other combatant commands to defend the nation should deterrence fail. One aspect of this operation is the \"around the clock\" command and control of U.S. nuclear forces. USSTRATCOM is also involved in implementing the new START treaty and efforts to sustain and modernize the nuclear triad and the nuclear weapons complex.\nUSSTRATCOM provides support to other combatant commanders in the areas of integrated missile defense and ISR operations. Not unlike its nuclear deterrence activities, USSTRATCOM and USCYBERCOM operate on a daily basis to improve their ability to operate and defend the DOD information network and make sure critical activities can continue, even in the face of adversary attempts to deny or disrupt them. USSTRATCOM is also responsible for U.S. military space operations on a day-to-day basis such as launching satellites and monitoring activities in space.",
"",
"In March 2012, the USSTRATCOM commander noted during a Senate Armed Services Committee (SASC) hearings his concerns over the sustainment of the nation's nuclear weapons. In testimony, he noted that as U.S. nuclear weapons age, the United States faces continued erosion of the nuclear enterprise's physical and intellectual capital, necessitating investment in stockpile certification, warhead life extension, and infrastructure recapitalization. Without these investments, USSTRATCOM will not be able to maintain the nation's nuclear deterrent.",
"During congressional testimony, the USSTRATCOM commander noted that the command's ability to process and analyze data from \"increasingly capable ISR platforms is also a growing challenge.\" It was suggested not only are analysts dealing with more data but also with an increased operational tempo, which imposes even greater demands on the timeliness of their analysis and reporting. Conservative USTRATCOM estimates suggest the command would need a 100% increase in analysts to meet COCOM requirements—which USTRATCOM believes is \"an unrealistic level of growth in almost any environment, let alone a fiscally constrained one.\"",
"The USSTRATCOM commander expressed about USCYBERCOM's technical capacity and workforce. Noting that USCYBERCOM needs the best trained and educated people in its cyberspace workforce, concerns were expressed that the U.S. education system might not be emphasizing the appropriate academic disciplines. A possible solution to this situation could be \"encouraging and improving science, technology, engineering, and math education from an early age.\" Another factor contributing to workforce concerns was the belief that \"traditional military recruitment and retention programs may not be the best or fastest way to build a stable cyber cadre for the long term.\"",
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"Develop and direct the Joint Deployment and Distribution Enterprise to globally project strategic national security capabilities; accurately sense the operating environment; provide end-to-end distribution process visibility; and support joint, U.S. government, and Secretary of Defense-approved multinational and nongovernmental logistical requirements.",
"World War II, the Berlin blockade, the Korean War, and the Vietnam War demonstrated the need for the United States to maintain a capable and ready transportation system for national security. A 1978 exercise exposed significant gaps in understanding between military and civilian participants: mobilization and deployment plans fell apart, and as a result, the United States and its NATO allies \"lost the war.\" Two major recommendations came out of the exercise. First, the Transportation Operating Agencies (later called the Transportation Component Commands) should have a direct reporting chain to the JCS. Second, the JCS should establish a single manager for deployment and execution. As a result, the JCS formed the Joint Deployment Agency (JDA) in 1979 at MacDill Air Force Base, FL.\nAlthough the JDA had responsibility for integrating deployment procedures, it did not have authority to direct the Transportation Operating Agencies or Unified and Specified Commanders to take corrective actions, keep data bases current, or adhere to milestones. In April 1987 President Reagan ordered the SECDEF to establish a Unified Transportation Command (UTC), a directive made possible in part by the Goldwater-Nichols DOD Reorganization Act of 1986, which revoked the law prohibiting consolidation of military transportation functions.\nDesignated the United States Transportation Command (USTRANSCOM), its mission was to provide global air, sea, and land transportation to meet national security needs. It had three transportation component commands—the Air Force's Military Airlift Command (replaced by Air Mobility Command in 1992), the Navy's Military Sealift Command, and the Army's Military Traffic Management Command, (renamed Military Surface Deployment and Distribution Command in 2004). On June 22, 1987, the President nominated Air Force General Duane H. Cassidy as the first USTRANSCOM commander. The commander of USTRANSCOM received operational direction from the National Command Authority (NCA) through the CJCS. There were, however, some deficiencies in this new command arrangement. The services retained their single-manager charters for their respective transportation modes. Even more restrictive, USTRANSCOM's authorities were limited primarily to wartime.\nAs a result, during peacetime, USTRANSCOM's component commands continued to operate day-to-day much as they had in the past. They controlled their industrial funds and maintained responsibility for service-unique missions, service-oriented procurement and maintenance scheduling, and DOD charters during peacetime single-manager transportation operations. They also continued to have operational control of forces.\nDOD learned much from the strategic deployment for Desert Shield/Desert Storm and foremost among those lessons was USTRANSCOM and its component commands needed to operate in peacetime as they would in wartime. Consequently, on February 14, 1992, the SECDEF gave USTRANSCOM a new charter. Stating the command's mission to be \"to provide air, land, and sea transportation for DOD, both in time of peace and time of war,\" the charter greatly expanded the authorities of the USTRANSCOM commander. Under the new charter, the Service Secretaries assigned the components to the USTRANSCOM commander in peace and war. In addition, the military departments assigned to him, under his combatant command, all transportation assets except those that were service-unique or theater-assigned. The charter also made the USTRANSCOM commander DOD's single-manager for transportation, other than service-unique and theater-assigned assets.\nOn September 16, 2003, Secretary of Defense Rumsfeld designated the USTRANSCOM commander as the Distribution Process Owner (DPO) to serve \"as the single entity to direct and supervise execution of the Strategic Distribution system\" in order to \"improve the overall efficiency and interoperability of distribution related activities - deployment, sustainment and redeployment support during peace and war.\" As the DPO, USTRANSCOM partnered with other COCOMs, the services, defense agencies, Office of the Secretary of Defense, Joint Staff and industry to improve the Joint Deployment and Distribution Enterprise\nSince 2003, USTRANSCOM has gained additional responsibilities related to its role as the Distribution Process Owner. In 2004, USTRANSCOM became the portfolio manager for DOD logistics information technology systems, and received acquisition authority for procuring information technology systems, carrying out research projects and obtaining services needed to transform the DOD supply chain.",
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"\"SDDC provides ocean terminal, commercial ocean liner service and traffic management services to deploy, sustain and redeploy U.S. forces on a global basis. The command is responsible for surface transportation and is the interface between DOD shippers and the commercial transportation carrier industry. This includes movement of servicemembers household goods and privately owned vehicles. SDDC is the nation's largest customer to the moving industry with more than 500,000 household goods moves a year. The command also provides transportation for troops and materiel to ports of departure in the U.S. and overseas and manages 24 ports worldwide, including military terminals at Sunny Point, N.C., and Concord, Calif.\"",
"\"MSC provides sealift transportation services to deploy, sustain and redeploy U.S. forces around the globe. MSC provides sealift with a fleet of government-owned and chartered U.S.-flagged ships. MSC executes Voluntary Intermodal Sealift Agreement (VISA) contracts for chartered vessels. Sealift ships principally move unit equipment from the U.S. to theaters of operation all over the world. In addition to sealift ships, MSC operates a fleet of prepositioned ships strategically placed around the world and loaded with equipment and supplies to sustain Army, Navy, Marine Corps, Air Force and Defense Logistics Agency operations. These ships remain at sea, ready to deploy on short notice, which significantly reduces the response time for the delivery of urgently needed equipment and supplies to a theater of operation.\"",
"\"AMC provides strategic and tactical airlift, air refueling, and aeromedical evacuation services for deploying, sustaining and redeploying U.S. forces wherever they are needed. Many special duty and operational support aircraft are also assigned to AMC (including Air Force One). In addition, AMC contracts with commercial air carriers through Civil Reserve Air Fleet (CRAF) and other programs for movement of DOD passengers and cargo. AMC's air fleet provides swift response as an element of America's global reach.\"",
"USTRANSCOM conducts military and commercial transportation, distribution process integration, terminal management, aerial refueling, and global patient movement on a daily basis. In 2011, the Air Mobility Command (AMC) deployed a rotational force of over 60 C-130 tactical airlift aircraft, plus 120 KC-135 and KC-10 aerial refueling aircraft. AMC also employed 21 C-17 transport aircraft in dedicated support of USCENTCOM and across all COCOMs, on a daily basis, at least one-third of AMC's air mobility fleet was used to support global operations. The Military Sealift Command (MSC) and the Military Surface Deployment and Distribution Command (SDDC) moved over 19.9 million tons of cargo worldwide. USTRANSCOM noted MSC tankers delivered 1.6 billion gallons of fuel to support global operations and SDDC had moved over 3,500 pieces of mission essential cargo by commercial sealift and then used airlift to transport this cargo to Afghanistan.",
"",
"The Pakistan Ground Lines of Communication (PAK GLOC), when open, remain the quickest and most cost-effective route for surface transportation into Afghanistan. Ground transportation through Pakistan had been curtailed since November 2011, and in early July 2012 the PAK GLOC was reopened after extensive negotiations. It should be noted there is no guarantee the Pakistani government will not close the PAK GLOC if there are future disputes with the U.S. government or NATO. USTRANSCOM continues efforts to expand surface networks that supply Afghanistan. Called the Northern Distribution Network (NDN), USTRANSCOM's stated priority is to enhance and improve this network. In 2011, over 40% of all cargo supporting Operation Enduring Freedom (OEF) moved through the NDN's truck, water, rail, and air routes. In 2011, a total of 27,000 containers were delivered via NDN surface transportation—an increase of 15% from 2010. The importance of the NDN to USTRANSCOM's operations will likely grow as U.S. forces begin leaving Afghanistan in preparation for handing over security responsibilities to the Afghan government by 2014.",
"As part of the Administration's shift in strategic emphasis to the Asia-Pacific region, USTRANSCOM noted during testimony the importance of Guam as a key multimodal logistics node. USTRANSCOM expressed its support of infrastructure improvements to ensure successful distribution operations in the region. USTRANSCOM has partnered with the Defense Logistics Agency (DLA) and, with congressional approval, has invested $101.3 million in the recapitalization of the fuel hydrant infrastructure and $61 million in a JP-8 pipeline between Apra Harbor and Anderson Air Force Base.",
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"\"Africa Command protects and defends the national security interests of the United States by strengthening the defense capabilities of African states and regional organizations and, when directed, conducts military operations, in order to deter and defeat transnational threats and to provide a security environment conducive to good governance and development.\"\n\"USAFRICOM is responsible for U.S. military relations with 54 African countries including the islands of Cape Verde, Equatorial Guinea, and Sao Tome and Principe, along with the Indian Ocean islands of Comoros, Madagascar, Mauritius, and Seychelles. U.S. Central Command maintains its traditional relationship with Egypt, though USAFRICOM coordinates with Egypt on issues relating to Africa security.\"",
"Dr. Cynthia Watson, a professor at the National War College and author of \"Combatant Commands: Origins, Structure, and Engagements,\" observes USAFRICOM has a different type of mission, noting\nUSAFRICOM allows the U.S. government, particularly DOD, to work toward a more stable environment in which political and economic growth can take place with three former U.S. commands consolidated into a single new one to best work out the U.S. government efforts. Africa Command hopes to avoid that traditional combatant command goals of warfighting in favor of war prevention, making its orientation quite different from other parallel organizations.",
"Africa's previous command arrangements (USEUCOM has had responsibility for most of Africa since the end of World War II) reflect the relatively low level of importance assigned to the African continent within the U.S. military structure. Before the creation of USAFRICOM, Africa generally received less attention than other regions under the three aforementioned military commands. USCENTCOM was focused on U.S. security priorities in Iraq and Afghanistan. USEUCOM was preoccupied with NATO, relations with European allies and Russia. USPACOM was primarily focused on regional powers such as China, India, and North Korea. There was a consensus that the previous command arrangements for Africa represented a \"suboptimal organizational structure.\" Secretary of Defense Robert Gates observed that previous command arrangements for the African continent were \"an outdated arrangement left over from the Cold War.\" U.S. foreign policy in the region, like its military involvement, was primarily concerned with Cold War geopolitics rather than African policy and development. Scholars have referred to this policy attitude as \"benign neglect,\" designating Africa as the \"stepchild\" of U.S. foreign policy. This attitude continued after the end of the Cold War, when the opportunity to articulate coherent policy was overlooked. While the transformation of the geopolitical landscape was significantly altered by the fall of the Soviet Union, America's attention was focused on the newly freed Eurasian states. In 1995, in its U.S. Security Strategy for Sub-Saharan Africa, DOD noted that \"ultimately we see very little traditional strategic interest in Africa.\"\nEvents in the late 1990s began to change U.S. perception of security interests in Africa. In 1998, two U.S. embassies in Africa were bombed. While many scholars believe these twin bombings marked a turning point in U.S. strategic policy toward the region, the domestic terrorist attacks of September 11, 2001, forced a reassessment of U.S. policy vis-à-vis Africa and its role in the global war on terrorism. The growing strategic importance of Africa for the United States was subsequently articulated in government documents. In the 2002 National Security Strategy, the concept of weak states and their role in global instability was an important theme. The 2006 National Security Strategy solidified the newly important role of Africa, observing, \"Africa holds growing geo-strategic importance and is a high priority of this administration.\" The National Security Presidential Directive (NSPD 50) signed by President Bush in September 2006 provided the first update to overall U.S. strategy toward Africa since 1992.\nAfrica's abundance of natural energy resources has made it an attractive region for countries the United States, China, and India seeking additional resources. U.S. officials note three areas are of particular concern: (1) the number of soft targets (e.g., embassies and consulates); (2) the recruiting potential for young, angry, marginalized youth from Somalia to Morocco; and (3) the potential of sanctuary for international terrorists (particularly in large ungoverned spaces). Africa has also been a target terrorist activity: there were attacks on the U.S. embassies in Tanzania, and Kenya, in 1998; on targets in Mombasa, Kenya, in 2002; and in Algiers in 2007. In particular, the Horn of Africa is of concern to terrorism experts and military personnel. In addition to terrorism concern, the growth of international piracy in the region has become a serious problem for the international community.\nOn February 6, 2007, the White House announced a presidential directive to create a new unified combatant command in Africa. U.S. Africa Command (USAFRICOM) commenced official operations on October 1, 2007, and remained a sub-unified command under U.S. European Command (USEUCOM) until October 2008. On October 1, 2008, USAFRICOM was declared fully mission capable and took over the role of geographic combatant command for Africa. While the USAFRICOM headquarters remains in Germany, there are aspirations to possibly move it to Africa sometime in the future but regional sensitivities and security concerns have made this a challenging proposition.",
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"Headquartered in Vicenza, Italy, USARAF is the Army component to USAFRICOM. In concert with national and international partners, it conducts sustained security engagement with African land forces to promote peace, stability, and security in Africa. If required, USAFRICOM can deploy as a contingency headquarters in support of crisis response. USAFRICOM is staffed by the Southern European Task Force (SETAF), which prior to August 2008 was an airborne task force that supported NATO in both combat and humanitarian operations.",
"\"NAVAF is part of a combined U.S. Naval Forces Europe (NAVEUR)/NAVAF headquarters and is tasked with the conduct of the full range of maritime operations and theater security cooperation in concert with coalition joint interagency and other partners in order to advance security and stability in Europe and Africa. Their combined areas of responsibility cover approximately half of the Atlantic Ocean, from the North Pole to Antarctica; as well as the Adriatic, Baltic, Barents, Black, Caspian, Mediterranean and North Seas. NAVEUR-NAVAF [headquartered in Naples, Italy] covers all of Russia, Europe and nearly the entire continent of Africa. It encompasses 105 countries with a combined population of more than one billion people and includes a landmass extending more than 14 million square miles.\" The U.S. Sixth Fleet supports NAVAF operations in the AFRICOM AOR and is headquartered in Naples, Italy.",
"\"AFAFRICA, or 17 th Air Forces, conducts sustained security engagement and operations to promote air safety, security, and development in Africa. AFAFRICA is located at Ramstein Air Base in Germany.\"",
"MARFORAF, located Stuttgart, Germany, is the Marine's service component headquarters for USAFRICOM. \"MARFORAF conducts operations, exercises, training, and security cooperation activities throughout the African Continent.\"",
"\"CJTF-HOA is USAFRICOM's forward operating task force located at Camp Lemonnier in Djibouti. It is one of more than 23 tenant organizations. CJTF-HOA has approximately 2,000 people assigned on rotating tours. While the core staff works at Camp Lemonnier, most of the service members assigned to CJTF-HOA are \"embedded\" in partner nations performing a range of activities—building partner security capability, capacity, and infrastructure through regional cooperation; military-to-military programs; civil-military affairs projects; and professional military education programs. Through an indirect approach, the task force, along with coalition and other U.S. defense components, provides support to regional organizations to help foster cooperation, enhance collective peace-keeping, improve humanitarian assistance, and support civil-military operations.\"",
"\"On October 1, 2008, SOCAFRICA was established as USAFRICOM's Theater Special Operations Command—a functional, sub-unified special operations command for Africa. SOCAFRICA contributes to USAFRICOM's mission through the application of the full spectrum of special operations forces capabilities including civil affairs, information operations, theater security cooperation, crisis response, and campaign planning.\" SOCAFRICA is headquartered in Stuttgart, Germany.",
"",
"On October 14, 2011, President Obama informed Congress that on October 12, 2011, a small team of U.S. military personnel began deploying to Uganda and that by November about 100 U.S. military personnel—primarily U.S. Special Forces—would be deployed to Central Africa to act as advisors to partner forces who are attempting to kill or capture the leadership of the Lord's Resistance Army (LRA). The LRA is a nonreligious terror group that routinely kidnaps children and forces them to serve as soldiers which has committed multiple acts of terror in the region over the past two decades. U.S. forces are operating in Uganda, South Sudan, the Central African Republic, and the Democratic Republic of the Congo, and the mission has been characterized as a mission of \"months as opposed to years.\"\nIn the past, USAFRICOM has provided training and equipment to a variety of central African militaries. USAFRICOM's involvement has been credited with helping central African forces attrite the LRA to about 200 core fighters and about 600 supporters. USAFRICOM notes that about 100 U.S. service members continue to operate in Uganda, South Sudan, the Central African Republic, and the Democratic Republic of the Congo as advisors. While not characterized as an \"open-ended commitment\" USAFRICOM regularly \"reviews and assesses\" the effectiveness of this effort to determine if continued involvement is warranted.",
"\"OEF-TS is the US Military regional plan against terrorist and violent extremists. OEF-TS is the military component to Trans Sahara Counterterrorism Partnership (TSCTP), together with other USG organizations, OEF-TS will help enhance stability and deter terrorist activity on the African continent, with an emphasis on greater security in North Africa. USAFRICOM is working with international partners in a regional approach to common areas of concern such as commerce, education and economic development. OEF-TS works with the partner nations to expand military -to-military cooperation, ensure adequate resources are available to train, advise, assist regional units, and establish mechanisms to promote better regional cooperation, communications, and intelligence-sharing.\"",
"USAFRICOM uses exercises to encourage the development of partner nation's security capabilities and instilling professionalism in Africa's various military and security forces. These exercises range from traditional land combat operations, to logistics and medical operations, humanitarian aid and disaster response, to counterterrorism training.",
"",
"The USAFRICOM commander testified that Africa accounts for 14 of the world's 20 weakest states and these fragile states lack the capacity or political will to confront demographic, political, social, and economic challenges. Threats in the region include activities of Al Qaeda and its affiliates in East Africa, the Maghreb, and the Sahel. Illicit trafficking and violent extremist organizations (VEOs) also pose threats to regional security and U.S. national interests. Of further concern, many man-portable air defense systems (MANPADS) disappeared from unsecured storage sites during the 2011 Libyan conflict and could potentially be trafficked to extremist groups.",
"The USAFRICOM commander testified that ISR continues to be a challenge. USAFRICOM is reportedly seeking an expansion of ISR activities in Africa and is seeking additional assets, particularly unmanned aerial vehicles (UAVs) to adequately cover the continent.",
"Reports suggest that beginning in 2013, as U.S. military commitment to Afghanistan begins to decrease, more troops will be available for USAFRICOM. As early as March 2013, the Army reportedly plans to deploy around 1,200 troops to Africa, primarily to participate in partner building, engagement, and training activities, but these forces could also rapidly respond to sudden challenges or crises in the region. In addition, largely in response to the September 11, 2012, attacks in Benghazi that killed the U.S. Ambassador to Libya and three other Americans, a dedicated U.S. SOF Commander's in-Extremis Force was established in early October 2012. Previously, USAFRICOM had shared this force with USEUCOM. While USAFRICOM reportedly stated their in-Extremist Force will be stationed in Ft. Carson, Colorado—home of the 10 th Special Forces Group—some suggest that this force will spend most of its time forward-deployed to Africa in order to be more responsive. The allocation of both general-purpose Army forces and U.S. SOF in-Extremis forces offers the commander of USAFRICOM more flexibility in conducting engagement and training operations and also affords an added element of security that can be deployed in the event of crisis.",
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"",
"\"With national and international partners, U.S. Central Command promotes cooperation among nations, responds to crises, and deters or defeats state and non-state aggression, and supports development and, when necessary, reconstruction in order to establish the conditions for regional security, stability, and prosperity.\"",
"The Iranian hostage crisis that played out from 1979 to 1981 and the 1979 Soviet invasion of Afghanistan served to underscore the need to strengthen U.S. presence in the region; President Carter established the Rapid Deployment Joint Task Force (RDJTF) in March 1980 and President Reagan took steps to transform the RDJTF into a permanent unified command over a two-year period. USCENTCOM was formally established on January 1, 1983.\nBy late 1988, the regional strategy largely focused on the potential threat of a Soviet invasion of Iran. The new USCENTCOM commander, General H. Norman Schwarzkopf, believed an invasion of Iran was unlikely and began to focus on the possible emergence of a new regional threat—Iraq. On August 2, 1990, these beliefs became a reality when Iraq invaded Kuwait. The United States and other nations responded quickly by forming a coalition and deploying forces to Saudi Arabia to deter further Iraqi aggression. On January 17, 1991, U.S. and coalition forces launched Operation Desert Storm with an air interdiction campaign, which prepared the theater for a coalition ground assault. The primary coalition objective, the liberation of Kuwait, was achieved on February 27, and the next morning a cease-fire was declared, just 100 hours after the commencement of the ground campaign.\nEven though formal hostilities ended after the hundred hour war, there were other security concerns. Operation Provide Comfort was implemented in April 1991 to provide humanitarian assistance to the Kurds and enforce a \"no-fly\" zone in Iraq. In August 1992, Operation Southern Watch began in response to Saddam's noncompliance with U.N. Security Council Resolution 688 condemning his brutal repression of Iraqi civilians in southeastern Iraq. In January 1997, Operation Northern Watch replaced Provide Comfort and focused on enforcing the northern no-fly zone. Throughout the decade, USCENTCOM operations such as Vigilant Warrior, Vigilant Sentinel, Desert Strike, Desert Thunder (I and II), and Desert Fox responded to Iraqi threats to its neighbors or to enforce U.N. Security Council resolutions.\nTo prevent widespread starvation attributed to clan warfare, USCENTCOM undertook Operation Provide Relief in 1992 to supply humanitarian assistance to Somalia and northeastern Kenya as sanctioned by the U.N. In 1993, despite some U.N. success in the countryside, the situation in Mogadishu worsened, and a series of violent confrontations compelled President Clinton to order the withdrawal of U.S. troops from Somalia. Throughout the decade following the Gulf War, terrorist attacks had a major impact on USCENTCOM forces in the region. In 1996, the Khobar Towers in Saudi Arabia were bombed, killing 19 U.S. airmen. In 1998 terrorists attacked the U.S. embassies in Kenya and Tanzania, killing 250 persons, including 12 Americans. The October 2000 attack on the USS Cole , resulting in the deaths of 17 U.S. sailors, was linked to Osama bin Laden's al Qaida organization.\nThe September 11, 2001, attacks compelled the United States to initiate a war against international terrorism. USCENTCOM launched Operation Enduring Freedom in October 2001 to expel the Taliban government in Afghanistan, which was harboring al Qaida terrorists, hosting terrorist training camps, and repressing the Afghan population. In the wake of 9/11, some members of international community found Iraq's lack of cooperation with United Nation Security Council (UNSC) Resolutions regarding weapons of mass destruction unacceptable. Continued Iraqi resistance led the UNSC to authorize the use of force by a U.S.-led coalition. Operation Iraqi Freedom began March 19, 2003.\nFollowing the defeat of the Taliban regime in Afghanistan (November 9, 2001) and Saddam Hussein's government in Iraq (April 8, 2003), USCENTCOM continued to provide security to the new governments in those countries, conducting counterinsurgency operations and assisting host nation security forces to provide for their own defense.\nBeginning in October 2002, USCENTCOM conducted operations in the Horn of Africa to assist host nations there to combat terrorism, establish a secure environment, and foster regional stability. USCENTCOM also provided disaster relief such as the October 2005 earthquake in Pakistan and the large-scale evacuation of American citizens from Lebanon in 2006.\nOn October 1, 2008, DOD transferred responsibility for Sudan, Eritrea, Ethiopia, Djibouti, Kenya, and Somalia to the newly established USAFRICOM while Egypt remained in the USCENTCOM AOR.",
"",
"ARCENT, in addition to being the Army component, has the mission to serve as an expeditionary headquarters to handle operations across the full spectrum for limited duration operations. The U.S. Third Army forms the basis of this subcomponent command and also serves as the Coalition Forces Land Component Command. ARCENT has a forward headquarters in Doha, Qatar.",
"NAVCENT has its headquarters in Manama, Bahrain, the homeport of the U.S. Fifth Fleet. NAVCENT forces in the region normally include either a Carrier Strike Group, Expeditionary Strike Group, or an Amphibious Strike Group. NAVCENT also serves as the command element for the Combined Maritime Forces, which is comprised of naval forces from about two dozen nations that are responsible for combating terrorism, piracy, and illegal drug trafficking in the region.",
"\"Located at Shaw Air Force Base, South Carolina, the 9 th Air Force is the headquarters for AFCENT and serves as the air component for a 27-nation area within the USCENTCOM AOR. The 9 th Air Force is also an intermediate headquarters under Air Combat Command and is responsible for five active-duty flying wings, as well as overseeing the operational readiness of 18 designated units of the Air National Guard and Air Force Reserve.\"",
"\"MARCENT is designated as the Marine Corps service component for USCENTCOM. MARCENT is responsible for all Marine Corps forces in the CENTCOM AOR. MARCENT provides Marine Expeditionary Forces capable of conducting a wide range of operations, offering the command a responsive and unique set of capabilities.\" MARCENT has a forward headquarters in Bahrain.",
"\"SOCCENT is headquartered at MacDill Air Force Base, FL and is a subordinate unified command of U.S. Central Command. It is responsible for planning Special Operations throughout the USCENTCOM AOR, planning and conducting peacetime joint/combined Special Operations training exercises and orchestrating command and control of peacetime and wartime Special Operations as directed. SOCCENT exercises operational control of assigned and attached SOF that deploy for the execution of training and for operational missions in the USCENTCOM area of operations as directed by the USCENTCOM commander. When directed by the USCENTCOM commander, SOCCENT forms a Joint Special Operations Task Force (JSOTF).\"",
"USCENTCOM forces are conducting a theater-wide campaign in conjunction with other partner nations against Al Qaeda and its extremist allies. USCENTCOM's stated main effort is in Afghanistan, where U.S., NATO, and coalition allies are conducting a counterinsurgency campaign as well as training, equipping, and advising Afghan military and police forces so they can eventually take over security responsibilities for their country. With U.S. forces out of Iraq, USCENTCOM notes it will take on an increasing maritime character with special operations forces and air forces supporting operations. USCENTCOM believes that naval forces—with embarked troops—will provide a physical presence and a cost-effective means of projecting power in the event of a crisis.",
"",
"Concern has been expressed over past and current unrest in Egypt, Bahrain, Jordan, Syria, and Yemen spurred by people's demands for democratic rights in those countries. In the case of Egypt, a long-standing regime was deposed and is now moving to a more democratic form of government. Of critical concern to many is that, despite overtures towards democracy, widespread demonstrations have resulted in varying degrees of instability in these countries. In the case of Egypt, Jordan, Yemen, and Bahrain, they are considered crucial counterterrorism partners and long-term unrest and possible political changes could have a detrimental impact on U.S. counterterrorism efforts in the region. Despite international pressure, open conflict continues in Syria, with some suggesting that it could eventually turn into a long-term, full-fledged civil war that could pose a threat to regional security and stability. While there have been calls for outside military intervention, the pervasive approach appears to be \"hands off\" in nature. Given the volatility of these countries, USCENTCOM could be called upon in short order to protect U.S. national interests in the region.",
"U.S. intelligence agencies and USCENTCOM have long held that Iran has provided arms, ammunition, money, and improvised explosive device (IED) components to insurgents opposing U.S. efforts in Afghanistan. Iran also stands accused of exploiting the Arab Awakening, undermining democracy in Iraq, and supporting the Asad regime in Syria, behaviors that some believe are the primary catalyst in pushing the region toward an arms race or armed conflict. The challenge to USCENTCOM is how to best mitigate Iranian interference to promote long-term regional stability.",
"",
"",
"The mission of USEUCOM is to conduct military operations, international military partnering, and interagency partnering to enhance transatlantic security and defend the United States. USEUCOM forces constitute the United States military contribution to NATO.",
"The USEUCOM Commander also traditionally serves as the Supreme Allied Commander of NATO (SACEUR). SACEUR's responsibilities are outlined as follows:\nSACEUR is responsible for the overall command of NATO military operations. He conducts the necessary military planning for operations, including the identification of forces required for the mission and requests these forces from NATO countries, as authorized by the North Atlantic Council and as directed by NATO's Military Committee. SACEUR analyzes these operational needs in cooperation with the Supreme Allied Commander Transformation.\nSACEUR makes recommendations to NATO's political and military authorities on any military matter that may affect his ability to carry out his responsibilities. For day-to-day business, he reports to the Military Committee, composed of Military Representatives for Chiefs of Defense of NATO member countries. He also has direct access to the Chiefs of Defense and may communicate with appropriate national authorities, as necessary, to facilitate the accomplishment of his tasks.\nIn the case of an aggression against a NATO member state, SACEUR, as Supreme Commander, is responsible for executing all military measures within his capability and authority to preserve or restore the security of Alliance territory.",
"USEUCOM was established August 1, 1952, to provide unified command and authority over all U.S. forces in Europe. For several years after World War II the services had maintained separate commands in Europe that reported directly to the JCS. After the end of the occupation of Germany in 1949, some questioned the U.S. commitment to the defense of Western Europe against the Soviet Union. The Berlin Crisis of 1948-1949 exacerbated these concerns and in 1949 the allies established the North Atlantic Treaty Organization (NATO), but little else was done to address the Soviet threat.\nThe June 1950 surprise attack on South Korea by Communist North Korea served as a catalyst and in 1951 NATO established Allied Command Europe and the Supreme Headquarters Allied Powers Europe (SHAPE). General Dwight D. Eisenhower was recalled from retirement to become the first Supreme Allied Commander Europe (SACEUR).\nEven as the war in Korea raged, the U.S. reinforcements to Europe to deter the Soviet Union from similar aggression there and between 1950 and 1953, U.S. military personnel in Europe grew from 120,000 to over 400,000. To provide for national command within NATO, and to help control this build-up of forces, Eisenhower proposed a separate command for all U.S. forces in Europe. Because the senior U.S. commander would continue as Supreme Allied Commander Europe, Eisenhower recommended giving \"a maximum of delegated authority\" to a four-star deputy.\nThe first U.S. Commander-in-Chief Europe (USCINCEUR) was General Matthew B. Ridgway, former commander of Eighth Army and the Far East Command during the Korean War. USEUCOM used the Military Assistance Program to help its NATO partners build their military capabilities. USEUCOM also conducted out-of-sector operations such as a major contingency operation to Lebanon in 1958. In 1961 Berlin once again became a flashpoint when the Soviets erected a wall to stop people fleeing Communist rule.\nIn the early 1960s, policy disagreements emerged within NATO, and in 1966 France demanded the removal of all U.S. and NATO headquarters and forces from France. The following year SHAPE moved to Mons, Belgium, while Headquarters USEUCOM moved to Patch Barracks. USEUCOM continued to prepare for the defense of Europe and began a series of annual REFORGER (Return of Forces to Europe) exercises in 1967. Cold War crises continued, including the 1968 Warsaw Pact invasion of Czechoslovakia. But the readiness of U.S. forces in Europe slowly declined due to the Vietnam War and balance of payment problems. Troop strength in Europe fell to 265,000 by 1970.\nDuring the 1970s, the Cold War transitioned to an era of détente and negotiations although tensions remained high as both sides modernized their conventional and nuclear forces. In the late 1970s the Soviet Union deployed SS-20 intermediate-range ballistic missiles into Eastern Europe and in 1979 invaded Afghanistan. NATO responded with a \"two-track\" decision to step up negotiations while deploying U.S. intermediate-range Pershing II missiles and ground-launched cruise missiles to counter the Soviet threat.\nDuring the 1980s, the Armed Forces began to recover from the Vietnam War and U.S. forces in Europe grew to over 350,000. The UCP was changed in 1983 to transfer responsibility for the Middle East from USEUCOM to a new combatant command, USCENTCOM, but USEUCOM retained responsibility for the \"confrontation states\" of Israel, Lebanon and Syria. At the same time USEUCOM was formally assigned responsibility of Africa, south of the Sahara.\nIn 1989, the Soviet Union and its empire in Eastern Europe collapsed and the Cold War came to an end. In 1991 USEUCOM and its components provided forces to USCENTCOM for another out-of-sector operation, Desert Storm. USEUCOM reached out to the emerging democracies through programs such as the Joint Contact Team Program, NATO Partnership for Peace and the National Guard Bureau State Partnership Program. It was also active in peace and stability operations in the Balkans, including Bosnia, Macedonia, and Kosovo. But it had to conduct these new missions with fewer assigned forces as its strength fell below 120,000.\nAfter the September 11, 2001, terrorist attacks, USEUCOM provided major forces for operations in Afghanistan and Iraq and stepped up its efforts to protect U.S. interests in Europe and Africa. Subsequent terrorist attacks in the USEUCOM theater in Casablanca, Madrid, London, and Algiers made it clear that terrorism demanded a collective response. USEUCOM worked to build partner capacity in Europe and Africa for peacekeeping operations and deployments to Iraq and Afghanistan. USEUCOM launched Operation Enduring Freedom and Trans-Sahara in 2007 while continuing to provide rotational forces to Afghanistan and Iraq.",
"",
"Located in Heidelberg, Germany, USAEUR trains, equips, deploys, and provides command and control of forward-deployed land forces, able to support and conduct the full spectrum of joint, and combined multi-national operations, and engagement activities.",
"Located in Naples, Italy, NAVEUR, the U.S. Navy component command, conducts a full range of maritime operations as well as theater security cooperation operations with NATO allies. The U.S. Sixth Fleet, which is also a subcomponent of AFRICOM, forms the basis of this subcomponent command.",
"Located at Ramstein Air Force Base in Germany, USAFE, the Air Force component command, operates from five main operating bases that supports nine air wings. These wings provide a full spectrum of air support, including strategic airlift as well as air support to ground forces and intelligence, surveillance, and reconnaissance support. The Third Air Force forms the basis of this subcomponent command.",
"Located in Stuttgart, Germany, MARFOREUR employs pre-positioned assets to rapidly deploy expeditionary forces and equipment and conduct a wide array of operations, including building partner capacity.",
"Located at Patch Barracks, Stuttgart, Germany, SOCEUR provides flexibility throughout a full range of military operations including combat, special operations, humanitarian assistance, noncombatant evacuations, and joint-combined military operations.",
"",
"USEUCOM's support to ISAF is significant. About 90% of the 40,000 non-U.S. troops deployed to Afghanistan are from the European theater. USEUCOM's support to ISAF is primarily focused on preparing these nation's forces for deployment to Afghanistan. These supporting activities include sending mobile planning teams to assess partner nation equipment and training requirements and working with these countries to develop a comprehensive pre-deployment plan.",
"Multi-national and joint interagency exercises constitute the most significant form of peacetime interaction with NATO allies and other partners. In 2011, USEUCOM conducted 22 major exercises involving almost 50,000 U.S., allied, and partner nation personnel from 42 nations. These exercises focused on preparing partner nations for ongoing coalition operations including ISAF, enhancing overall NATO interoperability, and improving NATO's military interoperability with Israel.",
"In support of NATO initiatives, USEUCOM provides U.S. forces for nine NATO and Partnership for Peace training events in the Baltics. In addition, USEUCOM provides forces for major exercises in the Balkans which not designed to help to improve these nation's military capabilities but also to ease regional tensions.",
"",
"USEUCOM currently has about 12,000 U.S. troops forward deployed to Afghanistan serving in a variety of capacities. As previously noted, USEUCOM plays a central role in training and deploying non-U.S. forces and the USEUCOM Commander, in his SACEUR role, is a central figure in persuading NATO allies to provide troops and resources for ISAF. As overall U.S. involvement in Afghanistan begins to wind down, NATO involvement will also likely follow suit and, in some instances, some NATO nations might opt for an abrupt end to their support to ISAF. USEUCOM's and SACEUR's primary challenge will likely be to develop plans for and manage a smooth transition as NATO forces draw down and transition security functions to the Afghan National Army. It is possible USEUCOM and NATO might have some residual support requirements in Afghanistan after the transition and these efforts will also require resources and management.",
"USEUCOM has participated in NATO operations in the Balkans since the 1995 Dayton Peace Accords. At the height of Operation Joint Endeavor in 1996, the United States had over 20,000 troops in the Balkans. While current USEUCOM troop commitments to the Balkans are negligible, continued engagement in the region is viewed by most as essential in keeping the region stable. As such, USEUCOM participation in NATO exercises and training teams in this region is deemed essential not only to improve capabilities and diffuse tensions but also to signify U.S. long-term interest and commitment to the Balkan region.",
"USEUCOM notes an increasing and expanding ballistic missile threat to USEUCOM's area of focus, citing missile-related activities in Iran and Syria, as well as those of non-state actors such as Hizbollah. In response to this threat, the United States and Poland have initiated a cooperative air and missile defense partnership whereby the United States rotates Patriot anti-missile and anti-aircraft batteries to Poland on a quarterly basis and conducts training with their Polish counterparts. In September 2011, Romania agreed to the stationing of 24 interceptor missiles on Romanian soil and Turkey agreed to accept sophisticated U.S. radar, which is now operational. In the spring of 2012, the U.S. Navy added two ballistic missile defense (BMD)-capable ships to the theater to further improve NATO missile defense. These events, as well as plans to expand coverage to other countries, have elicited opposition from Russia and have complicated NATO's relationship with Moscow. USEUCOM's challenge will likely be to continue to play a role in developing European ground-based missile defense while at the same time maintaining an effective military relationship with Russia under potentially trying circumstances.",
"",
"",
"\"USNORTHCOM's mission is to conduct homeland defense, civil support and security cooperation to defend and secure the United States and its interests. USNORTHCOM was established Oct. 1, 2002, to provide command and control of DOD homeland defense efforts and to coordinate defense support of civil authorities.\nUSNORTHCOM's area of operation includes air, land and sea approaches and encompasses the continental United States, Alaska, Canada, Mexico and the surrounding water out to approximately 500 nautical miles. It also includes the Gulf of Mexico, the Straits of Florida, portions of the Caribbean region to include The Bahamas, Puerto Rico, and the U.S. Virgin Islands. The commander of USNORTHCOM is responsible for theater security cooperation with Canada, Mexico, and The Bahamas.\"",
"\"The commander of USNORTHCOM also commands NORAD, a joint U.S.-Canadian command responsible for aerospace warning, aerospace control, and maritime warning for Canada, Alaska and the continental United States. For the aerospace warning mission, the commander of NORAD provides an integrated tactical warning and attack assessment to the governments of Canada and the United States. To accomplish the aerospace control mission, NORAD uses a network of satellites, ground-based radar, airborne radar and fighters to detect, intercept and, if necessary, engage any air-breathing threat to Canada and the United States. In conjunction with its aerospace control mission, NORAD assists in the detection and monitoring of aircraft suspected of illegal drug trafficking. This information is passed to civilian law enforcement agencies to help combat the flow of illegal drugs into North America. The Command has developed an initial concept for implementing the new maritime warning mission.\"",
"USNORTHCOM is the combatant command responsible for the operation of the Ground-Based Midcourse Defense System (GMD) designed to defend the United States against the threat of a limited ballistic missile attack from nations such as North Korea and Iran.",
"USNORTHCOM's civil support mission includes domestic disaster relief operations during fires, hurricanes, floods, and earthquakes. Support also includes counter-drug operations and managing the consequences of a terrorist event employing a weapon of mass destruction. The command provides assistance to a nonmilitary Primary Agency when tasked to do so by DOD. Per the Posse Comitatus Act, military forces can provide civil support, but cannot become directly involved in law enforcement.",
"On April 17, 2002, DOD announced the establishment of USNORTHCOM to consolidate under a single unified command those existing homeland defense and civil support missions that were previously executed by other military organizations. On May 8, 2002, U.S. Air Force General Ralph E. Eberhart, the commander of the North American Aerospace Defense Command (NORAD) and U.S. Space Command, was nominated to be the first commander of USNORTHCOM. USNORTHCOM attained initial operational capability on October 1, 2002.\nUSNORTHCOM provided support in response to the Space Shuttle Columbia disaster in February 2002, and in May 2003 participated in a comprehensive terrorism response exercise States—Top Officials 2, or TOPOFF 2. USNORTHCOM conducted Exercise Determined Promise 03 in Clark County, NV, and Colorado Springs, CO. This major exercise was designed to evaluate the command's ability to command and control multiple homeland defense and defense support of civil authorities missions simultaneously. Following Exercise Determined Promise 03, USNORTHCOM announced full operational capability on September 11, 2003.\nIn February 2004, USNORTHCOM conducted Exercise Unified Defense 04. This major exercise allowed the USNORTHCOM, Fifth Army, Joint Task Force Alaska and associated units to practice the homeland defense and defense support to civil authorities' missions. The exercise involved the Department of Homeland Security and more than 50 federal, state, and local organizations. During the summer of 2004, USNORTHCOM supported interagency efforts to deter and defeat any possible threats against several National Security Special Events. Exercise Determined Promise 04, conducted in August 2004, tested USNORTHCOM's ability to assist civil and federal authorities in a coordinated response to simulated chemical, radiological, and explosive hazards, conducted in California and Virginia. In the same month, USNORTHCOM supported the Federal Emergency Management Agency's efforts to provide relief to areas in Florida most impacted by Hurricane Charley.\nIn September 2005, as directed by the Secretary of Defense and in accordance with the National Response Plan, USNORTHCOM supported the Department of Homeland Security and Federal Emergency Management Agency (FEMA) and other federal agencies in disaster relief efforts in the aftermath of Hurricane Katrina. More than 21,400 active-duty servicemembers and 45,700 Army and Air National Guard members supported the effort in the U.S. Gulf Coast.\nIn May 2006 USNORTHCOM participated in Exercise Ardent Sentry 06, which involved numerous federal, provincial, state, and local agencies in Canada and the United States. The exercise required participants to respond to simulated terrorist activities and manage the consequences of a range of simulated man-made and natural disasters. Exercise Ardent Sentry 06 helped military and civilian officials prepare to respond to a variety of national crises.\nOn July 4, 2006, the Democratic Peoples Republic of Korea launched six ballistic missiles, including a long-range Taepodong-2 missile. USNORTHCOM personnel were immediately able to detect the launch of all the missiles. While Ground-based Midcourse Defense System interceptors at Fort Greely, AK, and Vandenberg Air Force Base, CA, were operational during the launches, top officials from the command were able to quickly determine the missiles posed no threat to the United States or its territories.",
"",
"\"JFHQ-NCR, based at Fort McNair, Washington, D.C. is responsible for land-based homeland defense, defense support of civil authorities (DSCA), and incident management in the National Capital Region. JFHQ-NCR is responsible for protecting the District of Columbia and neighboring counties and cities of Maryland and northern Virginia. JFHQ-NCR draws together the existing resources of the Army, Navy, Air Force, Marine Corps, Coast Guard and NORAD into a single point headquarters for planning, coordination and execution of the mission in the National Capital Region.\"",
"\"JTF-AK is headquartered at Elmendorf Air Force Base, Alaska. JTF-AK's mission is to, in coordination with other government agencies, deter, detect, prevent and defeat threats within the Alaska Joint Operations Area (AK JOA) in order to protect U.S. territory, citizens, and interests, and as directed, conduct Civil Support operations.\"",
"\"JTF-CS, was originally formed as a standing joint task force under USJFCOM. JTF-CS was transferred to USNORTHCOM when USNORTHCOM was established October 1, 2002. The task force consists of active, Guard and Reserve military members drawn from all service branches, as well as civilian personnel, who are commanded by a federalized (Title X) National Guard general officer. JTF-CS plans and integrates DOD support to the designated Primary Agency for domestic chemical, biological, radiological, nuclear, or high-yield explosive (CBRNE) consequence management operations. When approved by the Secretary of Defense and directed by the commander of USNORTHCOM, JTF-CS deploys to the incident site and executes timely and effective command and control of designated DOD forces, providing support to civil authorities to save lives, prevent injury and provide temporary critical life support.\"",
"\"JTF North, based at Biggs Army Airfield, Fort Bliss, TX, is the DOD organization tasked to support our nation's federal law enforcement agencies in the interdiction of suspected transnational threats within and along the approaches to the continental United States. Transnational threats are those activities conducted by individuals or groups that involve international terrorism, narcotics trafficking, alien smuggling, weapons of mass destruction, and the delivery systems for such weapons that threaten the national security of the United States.\"",
"\"ARNORTH is the Army component of NORTHCOM and is located at Fort Sam Houston, TX. ARNORTH's mission is to conduct homeland defense, civil support operations and theater security cooperation activities. ARNORTH is responsible for developing and unifying the military response capability for chemical, biological, radiological, nuclear and high-yield explosives (CBRNE) incidents. In addition, the Civil Support Readiness Directorate trains National Guard Weapons of Mass Destruction Civil Support Teams, which are state first responders for chemical, biological, radiological, nuclear or high-yield explosive incidents.\"",
"\"Headquartered at Tyndall Air Force Base, near Panama City, FL, 1 st Air Force is assigned to Air Combat Command. It has the responsibility of ensuring the air sovereignty and air defense of the continental United States. As the CONUS geographical component of the bi-national North American Aerospace Defense Command, it provides airspace surveillance and control and directs all air sovereignty activities for the continental United States Fleet Forces Command (USFF).\"",
"\"USFF is the Navy component of USNORTHCOM and is located at Norfolk, VA. USFF's mission is to provide maritime forces prepared to conduct homeland defense, civil support operations and theater security cooperation activities when directed by USNORTHCOM. Additionally, USFF has responsibilities to generate ready Navy forces for assignment to global Regional Combatant Commanders, execute the Fleet Response Plan (FRP) using the Fleet Training Continuum, articulate to the Chief of Naval Operations the integrated Fleet warfighting requirements as coordinated with all Navy Component Commanders, and provide operational planning support to USTRATCOM.\"",
"USNORTHCOM's and NORAD's missions of homeland defense, air and missile defense, and maritime warning involve a multitude of continuous operations in a variety of domains. These operations are best described as monitoring, detection, and warning, and, in the case of air-breathing threats, interception. According to the USNORTHCOM commander:\nOur daily efforts include countering terrorism and transnational criminal organizations, preparing to support our federal and state partners in the wake of a natural or manmade disaster, air defense against both internal and external threats, maritime and ballistic missile defense and of course, a growing focus on the Arctic.",
"",
"Mexican transnational criminal organizations (TCOs) and their involvement in the illicit trafficking of drugs, weapons, money, and human beings into the United States is one of USNORTHCOM's primary homeland security concerns. USNORTHCOM, in keeping with U.S. law and working with and through other U.S. government agencies, is working with the Mexican government to defeat the TCOs. USNORTHCOM efforts include providing the Mexican military with material solutions as well as sharing operational insights and experiences. In addition to efforts along the southern U.S. border, USNORTHCOM has been providing support to U.S. law enforcement agencies along both southern and northern borders. This support includes sensors, radar, forward-looking infrared, and manned and unmanned aerial border surveillance. Because access to these platforms is not unlimited, concerns exist that if a greater level of support is required along one border, assets available for the other border might become constrained.",
"Because of the growing geo-strategic importance of the Arctic, the USNORTHCOM Commander has designated the Arctic as a key focus area. Along these lines, USNORTHCOM is currently examining how to support other U.S. government agencies in the region with search and rescue assets, humanitarian assistance, disaster response, and law enforcement. As part of this examination, USNORTHCOM has identified deficiencies in all-domain awareness, communications, infrastructure (including a deepwater port), mobility (including an adequate national icebreaking capability), search and rescue enabling capabilities, Arctic Ocean charting, and the ability to observe and forecast Arctic environmental change.",
"",
"",
"\"USPACOM protects and defends, in concert with other U.S. Government agencies, the territory of the United States, its people, and its interests. With allies and partners, USPACOM is committed to enhancing stability in the Asia-Pacific region by promoting security cooperation, encouraging peaceful development, responding to contingencies, deterring aggression, and, when necessary, fighting to win. This approach is based on partnership, presence, and military readiness.\"\nUSPACOM's AOR covers half of the earth and is home to 3 billion people living in three dozen countries with five of these nations being U.S. allies and with many more important economic and security partners. USPACOM's AOR contains the world's three largest economies and almost one-third of U.S. two-way trade in goods and services. In addition, much of the world's trade and energy that fuels the global economy transits Asia's sea and air lines of communication.",
"USPACOM was established as a unified command on January 1, 1947, and is the oldest and largest of the United States' COCOMs. The present USPACOM includes areas originally assigned to two other unified commanders. The Far East Command, which had been established on January 1, 1947, was disestablished on July 1, 1957, and all its responsibilities were assumed by the Pacific Command. That same day the command assumed some of the responsibilities of the Alaskan Command and individual Army and Air Force component commands for the Pacific also were established in Hawaii.\nAdded responsibilities were assigned to USPACOM on January 1, 1972, for military forces and elements in the Indian Ocean, Southern Asia, and the Arctic. The Pacific Command's AOR was further expanded on May 1, 1976, to the east coast of Africa. This enlarged the Pacific Command to more than 50% of the earth's surface, an area of over 100 million square miles.\nAnother enlargement of the USPACOM area took place in October 1983, when CINCPAC was assigned responsibility for the People's Republic of China, the Democratic People's Republic of Korea, Mongolia, and the Republic of Madagascar. CINCPAC was also redesignated Commander in Chief, U.S. Pacific Command (USCINCPAC).\nA new Alaskan Command (ALCOM) was established on July 7, 1989, at Elmendorf Air Force Base, Alaska, as a subordinate unified command responsible to USCINCPAC. This placed the defense of Alaska and its surrounding waters under the leadership of one commander, providing a unity of command absent from the state since the early 1970s.\nFrom 1989 through 2000, three UCPs slightly reduced USPACOM's AOR. With the focus of attention shifting to the Middle East, the August 16, 1989, plan assigned responsibility for the Gulf of Oman and Gulf of Aden to Commander, USCENTCOM. The January 1, 1996, plan transferred the Seychelles and adjacent waters to USCENTCOM. On October 1, 2000, responsibility for Indian Ocean waters off Tanzania, Mozambique, and South Africa was transferred from USPACOM to USEUCOM.\nThe UCP changed as a result of the events of September 11, 2001, and the ensuing war on terrorism, as well as the new defense strategy articulated in the 2001 Quadrennial Defense Review. For the first time the entire surface of the earth was divided among the various unified commands. A new USNORTHCOM was created for homeland security and other changes in the various commands' responsibilities resulted in significant changes for USPACOM. The West Coast of North America was reassigned from USPACOM to USNORTHCOM. While Alaska was included in the reassignment to USNORTHCOM, Alaskan Command forces remained assigned to USPACOM in the Forces for Unified Commands Memorandum. Antarctica was also added to USPACOM's AOR. Approved in April 2002, the new UCP became effective October 1, 2002.\nThe 2008 UCP, signed on December 17, 2008, documented the transfer of all areas of the Indian Ocean previously assigned to USPACOM west of 68 degrees east to the newly established USAFRICOM. As a result, four island countries off the east coast of Africa that were formerly assigned to PACOM were reassigned to AFRICOM: Comoros, Madagascar, Mauritius, and Reunion.",
"",
"Located in Fort Shafter, Hawaii, USARPAC is the Army's component command in the Pacific and supplies Army forces for full-spectrum security operations. USARPAC is the most forward deployed unit in the Army still on U.S. soil in Hawaii.",
"USFK is a subcommand within USPACOM responsible to U.S. forces in Korea. While this is a joint headquarters, command has traditionally been held by a four-star, U.S. Army general.",
"The U.S. Eighth Army operates in conjunction with USFK and the United Nations Command in Korea. U.S. Eighth Army's stated mission is described as\nEighth Army supports deterrence of North Korea aggression against the Republic of Korea. Should deterrence fail, Eighth Army supports Non-combatant Evacuation Operations (NEO), transitions to hostilities, generates combat power to support Commander in Chief United Nations Command/USFK's campaign, and provides combat support and combat service support to assigned, attached, and other designated forces within the Korea Theater of Operation and on order, conducts combat operations.",
"PACFLT consists of the California-based Third Fleet and the Fifth Fleet in Japan. It is the world's largest fleet command responsible for 100 million square miles, more than half the Earth's surface, from the West Coast of the United States into the Indian Ocean. PACFLT consists of approximately 180 ships, nearly 2,000 aircraft and 125,000 Sailors, Marines, and government civilian employees.",
"PACAF is headquartered at Hickam Air Force Base, Hawaii, where it plans, conducts, and coordinates defensive and offensive air operations in the Asian and Pacific region. PACAF's components consists of the Seventh Air Force in South Korea, the Fifth Air Force in Japan, the Eleventh Air Force in Alaska, and the Thirteenth Air Force in Guam.",
"MARFORPAC, the Marine component headquarters, includes the First Marine Expeditionary Force in California and the Third Marine Expeditionary Force based in Okinawa.",
"SOCPAC, located at Camp H. M. Smith, Oahu, Hawaii, is a sub-unified command and serves as the SOF component command for USPACOM.",
"SOCKOR, located at Camp Kim in Yongsan, Korea, is the Theater Special Operations Command responsible for special operations on the Korean peninsula and, when established, the Korean Theater of Operations.",
"",
"The JIOC is the central clearing house for intelligence throughout the theater and is responsible for managing intelligence requirements at the strategic level and supports USPACOM Subcomponents and Subordinate Commands.",
"APCSS supports USPACOM security cooperation and capacity-building efforts by means of international executive education and specialized assistance programs that are intended to both educate and foster relationships between key regional security officials.",
"JPAC's mission is to achieve the fullest possible accounting of all Americans missing as a result of past conflicts.",
"JIATF-West is the USPACOM executive agent for countering drug-related transnational crimes in the Asia-Pacific region primarily by supporting U.S. law enforcement agencies operating in the region.",
"While USPACOM has significant on-the-ground presence in Korea as well as a variety of naval and air activities throughout its AOR, its primary focus is exercise and engagement programs. USPACOM's current program consists of 18 major exercises involving joint military forces as well as other U.S. government agencies. These exercises are conducted with 27 of 36 USPACOM partner nations.\nOn the operational side, USPACOM played a crucial role in helping Japan in the aftermath of the March 11, 2011, earthquake and resultant tsunami which devastated parts of Japan. USPACOM and its subordinate commands provided direct disaster relief support on the ground, at sea, and in the air. Of note, Joint Special Operations Task Force-Philippines continues its eight-year-old non-combat role in supporting Filipino armed forces in their efforts to contain violent extremist organizations (VEOs) in their country.",
"",
"In his March 2012 testimony to the Senate Armed Services Committee, the USPACOM commander indicated current major issues in his AOR. These issues included the threat to the United States and its allies posed by North Korea's nuclear and missile capabilities, its proliferation of weapons of mass destruction and associated technologies, and its potential for instability. Another issue was transnational violent extremist organizations (VEOs) undermining stability and threatening Allies and emerging partners. The USPACOM commander voiced concern with China's significant military modernization associated with its unclear intent. He also noted that territorial disputes, and increasingly assertive actions to resolve them, present the potential for conflict and instability. Cyber threats and transnational criminal activity—to include piracy and trafficking in narcotics and persons—were cited as growing areas of concern. Finally, humanitarian crises such as pandemics and famines, as well as natural disasters such as tsunamis, earthquakes, and volcanoes; and environmental degradation presented unique challenges to USPACOM.",
"On January 26, 2012, senior DOD leadership unveiled a new defense strategy based on a review of potential future security challenges, current defense strategy, and budgetary constraints. This strategy will rebalance the Army's global posture and presence, emphasizing where potential problems are likely to arise, such as the Asia-Pacific region and the Middle East. The major focus of this new strategy is the Asia-Pacific, and the Navy plans to rebalance its fleet. Secretary of Defense Panetta recently told Asian leaders, \"By 2020, the Navy will re-posture its forces from today's roughly 50/50 split between the Atlantic and Pacific to about a 60/40 split between those oceans—including six aircraft carriers, a majority of our cruisers, destroyers, littoral combat ships and submarines.\" It is not known if such a change in strategic emphasis will require additional resources or authorities for USPACOM.",
"Concerned about the resources needed to successfully prosecute the Administration's Asia-Pacific strategy, the FY2013 National Defense Authorization Act requires DOD to conduct a comprehensive review detailed in the following section.\nSEC. 1068. REPORT ON MILITARY RESOURCES NECESSARY TO EXECUTE UNITED STATES FORCE POSTURE STRATEGY IN THE ASIA PACIFIC REGION.\n(a) REVIEW REQUIRED.—\n(1) IN GENERAL.—The Secretary of Defense shall, in consultation with the Chairman of the Joint Chiefs of Staff, conduct a comprehensive review of the national defense strategy, force structure, force modernization plans, infrastructure, budget plan, and other elements of the defense program and policies of the United States with regard to the Asia Pacific region to determine the resources, equipment, and transportation required to meet the strategic and operational plans of the United States.\n(2) ELEMENTS.—The review required under paragraph (1) shall include the following elements:\n(A) The force structure, force modernization plans, infrastructure, budget plan, and other elements of the defense program of the United States associated with the Asia Pacific region that would be required to execute successfully the full range of missions called for in the national defense strategy.\n(B) An estimate of the timing for initial and final operational capability for each unit based in, realigned within, or identified for support to the Asia Pacific region.\n(C) An assessment of the strategic and tactical sea, ground, and air transportation required for the forces assigned to the Asia Pacific region to meet strategic and operational plans.\n(D) The specific capabilities, including the general number and type of specific military platforms, their permanent station, and planned forward operating locations needed to achieve the strategic and warfighting objectives identified in the review.\n(E) The forward presence, phased deployments, pre-positioning, and other anticipatory deployments of manpower or military equipment necessary for conflict deterrence and adequate military response to anticipated conflicts.\n(F) The budget plan that would be required to provide sufficient resources to execute successfully the full range of missions and phased operations in the Asia Pacific region at a low-to-moderate level of risk and any additional resources (beyond those programmed in the current future-years defense program) required to achieve such a level of risk.\n(G) Budgetary recommendations that are not constrained to comply with and are fully independent of the budget submitted to Congress by the President pursuant to section 1105 of title 31, United States Code.\n(b) CJCS REVIEW.—Upon the completion of the review under subsection (a), the Chairman of the Joint Chiefs of Staff shall prepare and submit to the Secretary of Defense the Chairman's assessment of the review, including the Chairman's assessment of risk and a description of the capabilities needed to address such risk.\n(c) REPORT.—\n(1) IN GENERAL.—Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report on the results of the review required under subsection (a).\n(2) CONTENT.—The report required under paragraph (1) shall include the following elements:\n(A) A description of the elements set forth under subsection (a).(1).\n(B) A description of the assumptions used in the examination, including assumptions relating to—\n(i) the status of readiness of the Armed Forces;\n(ii) the cooperation of allies and partners, mission-sharing, and additional benefits to and burdens on the Armed Forces resulting from coalition operations;\n(iii) warning times;\n(iv) levels of engagement in operations other than war and smaller-scale contingencies and withdrawal from such operations and contingencies;\n(v) the intensity, duration, and military and political end-states of conflicts and smaller-scale contingencies; and\n(vi) the roles and responsibilities that would be discharged by contractors.\n(C) Any other matters the Secretary of Defense considers appropriate.\n(D) The full and complete assessment of the Chairman of the Joint Chiefs of Staff under subsection (b), including related comments of the Secretary of Defense.\n(3) FORM.—The report required under paragraph (1) may be submitted in classified or unclassified form.",
"",
"",
"\"USSOUTHCOM is responsible for providing contingency planning, operations, and security cooperation for Central and South America, the Caribbean (except U.S. commonwealths, territories, and possessions), Cuba; as well as for the force protection of U.S. military resources at these locations. USSOUTHCOM is also responsible for ensuring the defense of the Panama Canal and canal area.\"",
"During World War II, the Roosevelt Administration established the U.S. Caribbean Defense Command (1941-1947), a prototype unified military organization, to defend the Panama Canal and surrounding area. The command organized and implemented an active system of regional defense, including antisubmarine and counterespionage operations.\nLocated in Panama, the U.S. Caribbean Defense Command also established military training missions in Latin America; distributed military equipment to regional partners through the Lend Lease program; and opened U.S. service schools to Latin American soldiers, sailors, and airmen. At the height of the war, U.S. military planners assigned 130,000 uniformed personnel to duty stations in Latin America and the Caribbean. Roughly half of those forces were under the direct control of the U.S. Caribbean Defense Command.\nIn 1947, U.S. strategists adopted a national security plan that transformed the wartime headquarters into the U.S. Caribbean Command. Beyond defending the Panama Canal, it assumed broad responsibilities for inter-American security cooperation in Central and South America. During the 1950s, defense officials also removed the Caribbean basin from the U.S. Caribbean Command's area of focus. In the event of a global war with the communist powers, they reasoned, U.S. Atlantic Command, based in Norfolk, VA, needed the Caribbean basin to conduct hemispheric antisubmarine operations.\nBy 1960, the U.S. Caribbean Command carried a name that incorrectly described its geographic interests, Central and South America. The Kennedy Administration changed the name to USSOUTHCOM on June 6, 1963.\nDuring the 1960s, the USSOUTHCOM mission involved defending the Panama Canal, contingency planning for Cold War activities, and the administration of the U.S. foreign military assistance program in Central and South America. In particular, USSOUTHCOM personnel undertook civic-action projects with partner nation forces to accelerate regional development. During the 1970s the Joint Chiefs of Staff recommended disestablishing the command to trim the U.S. military presence abroad. For political reasons, the command narrowly survived, albeit with limited responsibilities and resources.\nIn the 1980s, internal conflicts in El Salvador, Nicaragua, and elsewhere rekindled U.S. military interest in Latin America and the Reagan Administration revitalized USSOUTHCOM. When the Cold War ended, the command, like other U.S. military organizations, entered a period of dramatic change. In rapid succession, USSOUTHCOM was assigned responsibility for counter-drug operations, expanded its area of geographic focus to include the Caribbean, and enhanced its capacity for humanitarian missions. In September 1997, USSOUTHCOM moved to Miami, FL.",
"",
"ARSOUTH is located at Ft. Sam Houston, Texas, where its primary mission is to support regional disaster and counterdrug operations. ARSOUTH also is responsible for oversight, planning, and logistical support for humanitarian and civic assistance projects throughout the region.",
"COMUSNAVSO/COMFOURTHFLT is located in Mayport Naval Base in Florida and supports USSOUTHCOM with a full range of naval capabilities. Its primary responsibility is to provide sea-based forward presence to ensure freedom of maneuver as well as developing cooperative relationships with partners in the region.",
"AFSOUTH is located at Davis-Monthan Air Force Base in Arizona and is responsible for Air Force forces in the region. AFSOUTH serves as the executive agent for forward operating locations in the region and provides joint and combined radar surveillance and intra-theater airlift.",
"USMARFORSOUTH is located in Miami, Florida, and advises USSOUTHCOM on the proper employment and support of Marine forces operating in the region. In addition, USMARFORSOUTH conducts deployment/redeployment planning and supervises mission execution for assigned Marine forces.",
"USSOCSOUTH is located near Miami, Florida, and provides primary theater contingency response forces and plans for and conducts special operations in support of USSOUTHCOM. USSOCSOUTH can also serve as a Joint Special Operations Task Force when required.",
"",
"JTF-Bravo is located at Soto Cano Air Base, Honduras, and operates a forward, all weather, day/night C-5 Galaxy-capable air base. JTF-Bravo organizes multilateral exercises and, with partner nations, supports humanitarian and civic assistance, counterdrug, contingency and disaster relief in Central America.",
"JTF-Guantanamo is located at the U.S. Naval Station Guantanamo, Cuba, and conducts detention and interrogation operations in support of worldwide U.S. counterterrorism operations.",
"JIATF-South is located in Key West, Florida, and is an interagency task force that integrates and synchronizes U.S, counterdrug operations and is responsible for the detection and monitoring of suspect air and maritime drug activity in the region. JIATF South works in coordination with USNORTHCOM's JTF North on a variety of counterdrug and counter trafficking operations.",
"CHDS is located in Washington, DC, and provides education, outreach, and research and knowledge-sharing activities on defense and policy making with regional military and political leaders.",
"",
"USSOUTHCOM is involved in a variety of exercises and military-to-military operations in support of the Theater Engagement Plan. On an annual basis, USSOUTCOM conducts medical readiness training exercises, engineering exercises, and disaster relief and humanitarian assistance exercises. For example, USSOUTHCOM conducted civic assistance exercises Beyond the Horizon and New Horizons in El Salvador, the Dominican Republic, and Haiti. In addition USSOUTHCOM conducts medical readiness training exercises and other annual military exercises designed to facilitate interoperability, build capabilities, and provide opportunities to share best practices with regional military and security forces.",
"JTF-Guantanamo continues to serve as a detention and interrogation center for suspected terrorists. JTF-Bravo and JIATF-South are involved in a wide variety of day-to-day activities and operations designed to counter illicit trafficking of people, narcotics, money, and weapons. In addition to operations against Transnational Criminal Organizations, USSOUTHCOM task forces also work to counter violent extremist organizations from the Middle East which have been active in Latin America and the Caribbean and are considered a potential threat.",
"",
"The USSOUTHCOM Commander noted that illicit trafficking of drugs, weapons, and people and their associated TCOs constitute the primary threat to regional security. Working in conjunction with regional partners, USSOUTCOM is combating these criminal organizations through demand reduction; eradication and regulation of source materials; suppression of money laundering; and interdiction of illegal shipments as they transit to the United States and other end-user countries. These efforts not only involve regional partners but also various U.S. Interagency offices.",
"The USSOUTHCOM Commander testified that natural disasters, poverty, and violence in the region have a negative impact on regional security and stability. Widespread and frequent natural disasters in the region have worsened economic and social conditions in countries that can ill-afford these types of setbacks and when governments cannot make discernible progress recovering in the aftermath of these events, citizens lose faith in government. While economic conditions in some countries have improved, poverty, particularly in Central America, creates conditions for social stagnation. These social conditions create openings for criminal organizations to recruit new members who both undermine legitimate governance and contribute to increasing violence against private citizens.",
"While the USSOUTHCOM Commander noted there are economic benefits for countries in his AOR in establishing or renewing relationships with extra-regional actors such as China, Russia, and Iran, it also presents a number of challenges. Currently, 18 countries in Central and South America and the Caribbean receive military training from China, and in 2011 Venezuela became the largest importer of Russian arms in the world. In addition to extra-regional state actors, violent extremist organizations from the Middle East are active in Latin America and the Caribbean and are involved in fund-raising activities to finance worldwide activities.",
"Congress is presented with a wide range of national security policy issues that are impacted by the provisions of the UCP as well as the COCOM construct. As the U.S. arguably moves to a post-Iraq/Afghanistan era where global military operations against terrorists could be the new \"steady state,\" it might prove prudent to re-examine the UCP and COCOMs. The Administration's decision to shift U.S. national strategic emphasis to the Asia-Pacific region and Middle East also presents considerations for Congress. As new threats such as cyber attacks and TCOs take center stage and new international actors such as China and India emerge while established actors such as Russia and Iran transition to different types of security challenges, such a re-examination could serve to increase the efficacy of U.S. national security policy.",
"The Administration's decision to shift strategic focus to the Asia-Pacific while maintaining an active role in the Middle East raises a number of issues for possible congressional consideration. Potential issues include the following:\nIn terms of the UCP, will a new UCP need to be issued in the near future to codify this change in strategic emphasis? Will new Title 10 authorities be required to facilitate this shift? Does Headquarters, USPACOM require additional staff and resources to implement the Administration's new strategy? Is USPACOM's command infrastructure adequately geographically positioned to take on this new strategic challenge? Compared to USCENTCOM and USAFRICOM, the USPACOM region can be viewed as somewhat peaceful. In this regard, is focusing on the Asia-Pacific region the best course of action when there are, at present, a number of volatile conflicts and potential civil wars in the Middle East and Africa? What are the impacts to the other COCOM's as a result of the Asia-Pacific shift? What resources will they lose due to this shift and how do respective combatant commanders plan to compensate for a possible loss of resources? Are there UCP-directed missions and responsibilities that COCOM commander will no longer be able to accomplish as a result of shifting resources to the Asia-Pacific region? What has been the response of our allies and potential adversaries as a result of the announced strategic shift?",
"In the Fall 2010 edition of the Interagency Journal, former U.S. Ambassador Edward Marks noted\nThe geographic commands have essentially two tasks: war planning and fighting, and military engagement programs. Both tasks remain, and will always remain, fundamental responsibilities of the Department of Defense and the military services. However while the war planning and fighting responsibility obviously remains uniquely a duty of the Department of Defense and the military services, the engagement programs no longer can be handled as a discrete military activity. In today's world, military engagement programs with other countries can only be seen as part of the overall engagement activity of the U. S. government. The so-called \"nexus\" of security challenges—terrorism, narcotics, smuggling, international criminal networks, etc.—can no longer be managed as single agency programs but must be integrated into \"whole of government\" programs.\nThe concept of a \"whole of government approach to national security\" has taken on renewed emphasis since September 11, 2001. Past and current senior military leadership have repeatedly called for greater participation in national security matters from other U.S. government agencies, even going so far as to publically advocate for greater funding levels for the State Department and U.S. Agency for International Development (USAID) so they can play a greater role in military operations.\nIn the current strategic environment, COCOMs are being faced with security challenges that fall outside the traditional military realm. One such challenge, transnational criminal organizations or TCOs, is a stated concern of Combatant Commanders both in a domestic and international context. In this regard, if TCOs are expected to become a central security issue for COCOMs and the President and DOD include TCO-related responsibilities in the UCP, enhanced interagency involvement in the UCP process from the Justice Department, other U.S. law enforcement entities and others could prove to be beneficial.\nIt can be argued while greater resources for other U.S. government agencies are important, of equal importance is participation in the UCP process. It has been noted that military engagement programs are at the forefront of geographical COCOM's responsibilities and as hostilities in Iraq and Afghanistan diminish over time, and the U.S. defense budget decreases, military engagement could become the primary focus of all geographical COCOMs. Under the current UCP development process, the U.S. Interagency has a degree of visibility but participation is limited. While Interagency participation in developing regional war plans might not be appropriate, a greater role in planning for military engagement activities might not only enhance these programs but might also identify areas of redundancy with other U.S. government regional engagement programs. This enhanced role could include more Interagency representatives in the early stages of the UCP review and development process and increasing military presence in key Interagency positions, particularly directorates that are responsible for strategic planning and resourcing. While the Interagency might welcome the opportunity to play a greater role, DOD might be less than enthusiastic with including a greater role for other U.S. government agencies in what it likely considers fundamental strategic military planning.\nIn this regard, Congress might consider an in depth examination of the UCP development process. This examination could focus on the current level of Interagency participation and identifying areas in the process where greater Interagency involvement could be beneficial.",
"In September 2000, Washington Post reporter Dana Priest published a series of articles whose central premise was Combatant Commanders wielded an inordinate amount of political influence within the countries in their areas of responsibility and \"had evolved into the modern-day equivalent of the Roman Empire's proconsuls—well-funded, semi-autonomous, unconventional centers of U.S. foreign policy.\" Some national security experts consider this series as the catalyst of the continuing debate as to whether or not COCOMs have assumed too much influence overseas, thereby diminishing the roles other U.S. government entities play in foreign and national security policy. Despite the post-September 11, 2011, ascendancy of the Interagency in foreign policy and national security matters, the debate over the COCOM's role continues. In 2007, testimony from Mark Malan from Refugees International before the Senate Subcommittee on African Affairs of the Foreign Relations Committee he noted\nIn some parts of the world, like Iraq and Afghanistan, the face of U.S. foreign policy is clearly a military one. In Africa, the DOD appears to be putting a civilian mask on the face of a combatant command, with its marketing pitch for USAFRICOM. This disingenuous strategy is not working. The veneer of the mask is simply too thin, and attempts to patch the holes that have emerged—by telling us \"what AFRICOM is not about\" and re-emphasizing a humanitarian and developmental role for the U.S. military in Africa—simply make the face of U.S. foreign policy much shadier.\nThe notion of a benign U.S. combatant command is an enigma to those who clearly understand (and accept) the need for the U.S. to secure access to Africa's natural resources, especially oil; and to establish bases from which to destroy networks linked to Al-Qaeda. When the U.S. promotes a combatant military command in terms of development and humanitarianism, Africans will inevitably suspect that the true story is being kept from them.\nThe assertion that COCOMs have usurped other U.S. government entities in the foreign policy arena may deserve greater examination. Geographic Combatant Commanders generally agree their role is more political than military. A former USEUCOM and Supreme Allied Commander, Europe (SACEUR) estimated he spent about 70% of his time on political-military issues, despite having ongoing combat operations in the Balkans. USCENTCOM commanders have reportedly spent a significant amount of time meeting with the senior Iraqi and Afghan political leadership over the past 10 years discussing issues of building and maintaining armed forces, civil-military relations, and other national security matters. While these discussions might not conform to what have been traditionally considered war fighting-related topics, the complexities of U.S. involvement in these two countries suggests Combatant Commanders have been required to play a more pronounced political role.\nSome U.S. government officials suggest the Combatant Commander/State Department relationship, as it currently exists, has proven beneficial. A former Under Secretary of State for Political Affairs noted he was\na huge fan of the [regional commanders]. I was the ambassador to Turkey; in EUCOM, when the deputy [commander, the commander], and I were on the same page—there was nothing we couldn't achieve. In 6 years in Turkey as [deputy chief of mission] and ambassador, there was never a single conflict. Now, I'm dealing with Colombia; I've made five of my six visits with SOUTHCOM's commander. We do everything together. Yes, someone could goof. But the system works wonderfully—the [regional commanders] are some of the finest America has to offer. When the [commander] and ambassador are on the same page, it's a very powerful combination. I'm a complete believer.\nCongress has examined aspects of this COCOM-State Department relationship in terms of the broader topic of civil-military relations as well as how it pertains to USAFRICOM and its role in U.S. foreign policy. In a broader context Congress might wish to consider the role Geographic COCOMs play in U.S. foreign policy abroad. This consideration could take into account more than just the State Department, but also other U.S. government agencies that play a foreign policy role. While presence and access to resources have been cited as positive attributes for COCOM involvement overseas, it is possible a reallocation of resources might put a more \"civilian\" face on U.S. engagement and development efforts, possibly resulting in greater acceptance and efficacy in regions that are sensitive to U.S. military presence. In examining the respective roles of COCOMs, the State Department, and others, it might be possible to identify both areas of redundancy as well as areas requiring greater emphasis, thereby enhancing overall U.S. effectiveness in political-military relations with nations in respective regions. With many experts predicting shrinking or flat U.S. military and State Department budgets over the next few years, such an examination might lead to a more cost effective approach to U.S. foreign policy.",
"While Geographic COCOMs suggest their regional perspective is their primary virtue, others argue the \"strict geographic regionalism\" the COCOMs were aligned under is no longer how the world is organized. These critics contend globalization at one end and localism (tribalism) at the other end has made the Geographic COCOM construct less than ideal.\nGiven this view, some suggest there are opportunities to address this disparity. The Subcontinent or Indian Ocean or western Asia has been cited as one AOR that could merit a separate command. With long-term strategic emphasis on countering violent extremism in Afghanistan and Pakistan, it might be in the nation's best interest to establish a separate command rather than continuing to include them in USCENTCOM where the command's planners and decision makers must also focus on issues such as Iran's pursuit of nuclear weapons and regional influence, the Israel-Palestine impasse, and the fate of Syria and Egypt. India might also figure into this strategic recalculation, as its relationships with Pakistan and China have a significant political-military impact in the region. Some believe India—currently the responsibility of USPACOM—might be a better fit under a separate Subcontinent COCOM.\nAnother area where a new COCOM could be warranted is Central Asia. Such a new command could include Turkmenistan, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan—all presently under USCENTCOM—and could be a natural complement to a Subcontinent COCOM as many of the region's issues are more \"localized\" as tribes in the region tend not to conform to established political borders. These cross-border tribal and ethnic issues are viewed by many as key contributors to regional instability.\nWhile the establishment of new COCOMs might have an academic appeal, critics note such a course of action might not be fiscally sustainable. Establishment of new COCOMs is viewed as being a resource-intensive undertaking—even if resources are taken from existing COCOMs. New COCOMs would require additional Joint-qualified senior and mid-level officers as well as supporting military, civilian, and possibly contractor staff. New COCOMs would also likely require additional physical infrastructure and if there is an intent to headquarter these new COCOMs in their AORs, there might also be political and diplomatic issues to consider. In a fiscally constrained environment, these considerations might outweigh any operational benefits that might be derived from the establishment of new COCOMs.\nAside from Geographic COCOMs, there might also be cause to re-examine Functional COCOMs. One area for possible examination is if U.S. Cyber Command—currently a Subunified Command under USSTRATCOM—should be elevated to a full-fledged Combatant Command. Proponents cite the following five benefits of this course of action:\nUnity of Command/Effort: The current DOD approach to cyberwarfare is scattered across the services and defense agencies. The services, the Defense Information Systems Agency (DISA), the National Security Agency (NSA), the Intelligence Community, and the other COCOMs have unsynchronized cyberspace warfighting capabilities. A separate and distinct USCYBERCOM would have greater authority, responsibility, legitimacy, and visibility than the current arrangement. Synchronization: Under the current command arrangement, USCYBERCOM might not have sufficient authority to fully synchronize cyber operations across the services and COCOMs. This could lead to a situation in which a COCOM decides to conduct cyber operations within its AOR and, because there are no physical boundaries in cyber space, these actions could have an adverse impact on the other COCOMs. Mass: A central COCOM with exclusive authority could mass the cyber activities of the other COCOMs, services, and DOD agencies into a coordinated effort to achieve mass effects on their intended target. Offensive Operations: One perceived benefit of elevating USCYBERCOM to full combatant command status is it would enable the U.S. government to place greater emphasis on offensive cyber operations as opposed to the current disparate emphasis on defensive cyber operations which are viewed by some as less effective than offensive operations. Diverse Mission Focus: Supporters argue the current command arrangement results in a lack of direction and discipline amongst DOD and government entities that makes oversight and, ultimately, funding more difficult. An elevated USCYBERCOM could serve to provide a single mission focus for the U.S. military.\nWhile proponents suggest, in the long run, a separate USCYBERCOM would be cost efficient, such an undertaking in a fiscally constrained environment could prove to be a difficult undertaking. There might also be resistance from the other COCOMs to ceding their cyber-related responsibilities to an elevated USCYBERCOM, arguing that they better understand the cyber threats in their specific regions than would a single entity responsible for a wider range of cyber threats. Because it might be difficult to identify, recruit, and retain cyber-qualified personnel that would likely be needed for a separate USCYBERCOM, cyber professionals from the COCOMs might be sought after to staff a new USCYBERCOM which could cause resentment from the COCOMs.",
"Some experts believe the COCOM construct is a relic of the Cold War where the central mission of the U.S. military was to prepare for and conduct combat operations in specific geographical regions against conventional armed forces. These experts suggest a more radical approach to the issue of COCOMs is required so they remain relevant in a post-September 11, 2001, world. Two possible alternatives to the current COCOM construct are usually discussed.",
"This proposal advocates retaining the COCOM headquarters and substituting a number of JTFs for the service-centric Subcomponent Commands. This approach could streamline and reduce infrastructure and simplify command channels. These JTFs could be designed on a regional, functional basis, for specific operational tasks and would be more flexible and reduce response time to crises in the region. Larger COCOM AORs might also benefit from several JTFs that could provide focused planning and operational execution in smaller, more manageable portions of their AORs. Another perceived benefit of this construct is if a specific condition within a COCOM's AOR is resolved, the JTF established to address the issue could be rapidly disestablished, thereby reducing personnel, infrastructure, and operations and maintenance (O&M) costs.",
"This proposal advocates replacing COCOMs with permanent standing, civilian-led interagency organizations that would have regional responsibility for all aspects of U.S. foreign policy. These organizations would be led by highly credentialed civilians, potentially with a four-star military deputy and would report directly to the President through the National Security Council (NSC). These organizations would include representatives from all major U.S. government agencies, including DOD. This construct would change only the authority to integrate all elements of U.S. national power and DOD would continue to exercise its Title 10 authority by means of JIATFs.\nA perceived benefit of this approach is it could result in a significant increase in unity of effort across all the instruments of U.S. national power through all phases of an operation to include pre and post-conflict. Another benefit is such an organization might better facilitate both coalition and alliance-based operations from a political standpoint as it may be more palatable for some nations to work with a civilian-led organization rather than a military-centric one. This new construct might also have benefits for both regional engagement and developmental efforts thereby reducing the military \"face\" of these operations, particularly in regions that are sensitive to U.S. military presence.\nThese are but two possible alternatives to the current COCOM construct. While Congress might not choose to directly address COCOM reform (particularly if there is a general belief the current COCOM construct meets current and future security needs) it is possible that, as Congress, the Administration, and DOD continue to pursue government-wide efficiencies aimed at reducing federal spending, these and other alternatives might inform the debate.",
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"question": [
"Cannot make a question.",
"What are some potential issues for Congress regarding this plan?",
"What is a possible concern regarding COCOMs?",
"Why might separate COCOMs apart from the current nine be necessary?",
"Why might Congress propose alternative organizational structures for this plan?"
],
"summary": [
"USSOCOM: U.S. Special Operations Command, MacDill Air Force Base, FL. USSTRATCOM: U.S. Strategic Command, Offutt Air Force Base, NE. USTRANSCOM: U.S. Transportation Command, Scott Air Force Base, IL. USAFRICOM: U.S. Africa Command, Kelley Barracks, Stuttgart, Germany. USCENTCOM: U.S. Central Command, MacDill Air Force Base, FL. USEUCOM: U.S. European Command, Patch Barracks, Stuttgart, Germany. USNORTHCOM: U.S. Northern Command, Peterson Air Force Base, CO. USPACOM: U.S. Pacific Command, Camp H.M. Smith, HI. USSOUTHCOM: U.S. Southern Command, Miami, FL.",
"Potential issues for Congress include the implications of a strategic shift to the Asia-Pacific region. Another issue is whether there is a need for greater interagency involvement in the UCP development process.",
"A possible area for congressional concern is if Geographical COCOMs have made U.S. foreign policy \"too militarized.\"",
"Some have also suggested there might be a need for separate COCOMs apart from the current nine to better address emerging regional and ethnic alignments as well as emerging threats such as cyber warfare.",
"Finally, if Congress believes the current COCOM construct does not meet contemporary or future security requirements, there are proposals for alternative organizational structures that might prove more effective."
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CRS_R44489
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{
"title": [
"",
"Introduction",
"Background",
"Congressional Consideration",
"TPP's Strategic Context5",
"Economic Significance15",
"U.S.-TPP Trade and Investment28",
"Relationship to Existing Trade Organizations and Agreements",
"TPP and the WTO",
"The TPP and Other Asia-Pacific Trade Agreements",
"Core Provisions",
"Goods",
"Tariffs36",
"Background",
"Key Provisions with Non-U.S. FTA Countries",
"Rules of Origin (ROO)44",
"Textiles, Apparel, and Footwear45",
"Background",
"USITC Estimated Economic Impact",
"Key Provisions",
"Industry Views",
"Motor Vehicles67",
"Background",
"USITC Estimated Economic Impact",
"Key Provisions",
"Industry Views",
"Services91",
"Background",
"USITC Estimated Economic Impact",
"Cross-Border Trade in Services",
"Express Delivery",
"Financial Services",
"Temporary Entry for Business Persons",
"Telecommunications",
"Stakeholder and Industry Views",
"Agriculture118",
"Background",
"Key Considerations",
"USITC Estimated Economic Impact",
"Specific Market Access Commitments",
"Other Agriculture Provisions",
"Geographical Indications",
"Sanitary and Phytosanitary (SPS) Measures",
"Agricultural Biotechnology125",
"Export Disciplines",
"Stakeholder and Industry Views",
"Government Procurement",
"Background",
"Key Provisions",
"Intellectual Property Rights (IPR)132",
"Background",
"Debate and Stakeholder Views",
"Patents",
"Copyright and Related Rights",
"Trademarks",
"Trade Secrets",
"Industrial Designs",
"Investment149",
"Background",
"Debate and Stakeholder Views",
"Key Provisions",
"Labor172",
"Background",
"Key Provisions",
"Environment",
"Background",
"Key Provisions",
"E-Commerce, Data Flows, and Digital Trade182",
"Background",
"Key Provisions",
"State-Owned Enterprises",
"Background",
"Key Provisions",
"Currency197",
"Background",
"Joint Declaration",
"Nontariff Barriers",
"Technical Barriers to Trade",
"Background",
"Key Provisions",
"Regulatory Coherence",
"Transparency and Pricing of Health Care Technology and Pharmaceuticals Annex",
"Customs and Trade Facilitation",
"Background",
"Key Provisions",
"Other Provisions",
"Competition Policies",
"Transparency and Anti-Corruption",
"Trade Remedies",
"Development and Capacity Building",
"Small- and Medium-Sized Enterprises",
"Institutional Issues",
"Secretariat",
"Dispute Settlement (DS)",
"A \"Living Agreement\"",
"Relationship to Existing Agreements",
"Issues for Congress",
"Comprehensive, High-Standard Agreement",
"Role and Timing of TPA and Negotiating Objectives",
"Potential Economic Impact",
"The TPP and U.S. Trade Policy",
"Strategic Considerations",
"Potential Consequences of Not Ratifying the TPP",
"Implementation, Future Expansion, and Institutional Issues",
"Conclusion",
"Appendix."
],
"paragraphs": [
"",
"The Trans-Pacific Partnership (TPP) is a proposed free trade agreement (FTA) among the United States and 11 Asia-Pacific countries. The U.S. Trade Representative (USTR) has described it as a \"comprehensive and high standard\" agreement, designed to eliminate and reduce trade barriers and to establish and extend the rules and disciplines of the trading system among the parties to the agreement (see Figure 1 ). If implemented, it would be the largest plurilateral FTA by value of trade, encompassing roughly 40% of world GDP, and could serve further to integrate the United States in the dynamic Asia-Pacific region. As a \"living agreement,\" it has the potential to negotiate new rules and expand its membership. It could also mark a shift to the negotiation of \"mega-regional\" trade liberalization agreements in lieu of bilateral FTAs and broader multilateral trade liberalization in the World Trade Organization (WTO).\nThe 12 countries concluded the TPP negotiations and released the text of the agreement in late 2015. Trade ministers from the TPP countries signed the final agreement text on February 4, 2016, and several countries are seeking to ratify the agreement this year. TPP draws congressional interest on a number of fronts, and Congress must approve implementing legislation for U.S. commitments under the agreement to enter into force. The TPP would be eligible to receive expedited legislative consideration under Trade Promotion Authority (TPA), P.L. 114-26 , unless Congress determines the Administration has failed to advance TPA negotiating objectives, or has not met various notification and consultation requirements. Furthermore, the TPP may affect a range of sectors and regions of the U.S. economy and could influence the shape and path of U.S. trade policy for the foreseeable future. It may also serve strategic goals of the United States by strengthening regional alliances and extending U.S. influence in the Asia-Pacific region. This report examines the key provisions of the proposed TPP, related policy and economic contexts, and issues of potential interest to Congress.",
"The precursor to the TPP was the Trans-Pacific Strategic Economic Partnership (P-4). It was conceived in 2003 by Singapore, New Zealand, and Chile as a path to trade liberalization in the Asia-Pacific region—Brunei joined in 2005—and the P-4 agreement was concluded in 2006. U.S. trade policymakers took notice of the P-4's relative ambition as a possible template for a wider Asia-Pacific free trade agreement. President Bush notified Congress of his intention to negotiate with the existing P-4 members on September 22, 2008, along with Australia, Peru, and Vietnam, on December 30, 2008, as required under past and current TPA. President Obama recommitted to the TPP negotiations in November 2009 and renotified Congress of the Administration's intention to negotiate the renamed Trans-Pacific Partnership. In October 2010, the TPP participants agreed by consensus to the inclusion of Malaysia as a negotiating partner.\nThe negotiating partners announced a framework for the agreement at the sidelines of the Asia-Pacific Economic Cooperation (APEC) Ministerial in Honolulu, HI, November 8-13, 2011. Thereafter, Canada, Mexico, and Japan consulted with the existing TPP partners on joining the negotiations. The North American Free Trade Agreement (NAFTA) partners—Canada and Mexico–acceded to the negotiations in December 2012, followed by Japan in July 2013. During the course of the negotiations, others countries, such as South Korea, Taiwan, and the Philippines expressed varying degrees of interest in joining, but the parties decided to conclude the agreement before contemplating new members. The agreement must be ratified by all parties to enter into force in the first two years from its 2016 signing. Thereafter, it requires at least six countries representing 85% of the bloc's 2013 gross domestic product (GDP) to accede to the agreement for it to take effect, thus requiring ratification by the United States and Japan for entry into force to occur.",
"The Bipartisan Comprehensive Trade Priorities and Accountability Act of 2015 ( P.L. 114-26 ), the current grant of TPA (TPA-2015), sets the procedures governing congressional consideration of the proposed TPP. TPA is the authority by which Congress, for specific periods of time, sets trade negotiating objectives, establishes notification and consultation requirements, and enables implementing legislation for reciprocal trade agreements to be considered under expedited procedures if it meets certain statutory requirements. TPA-2015 was enacted into law on June 29, 2015, and expires in 2018, with a possible extension to 2021.\nLegislation to implement the TPP can be considered under the expedited procedures of TPA, since the TPP was signed during the time TPA has been effect. The TPP could be considered under expedited procedures during this Congress, the next Congress, or even after the present grant of TPA expires. TPP was signed and the final text of the agreement was released on February 4, 2016. Following signature, under TPA, implementing legislation can be introduced 30 days after the release of the final text of the agreement on a day when both Houses are in session. That day was March 14, 2016. The President notified Congress of the changes to U.S. law that TPP implementation would require on April 1, 2016. A TPA-required report by the U.S. International Trade Commission (USITC) on the potential economic effects of the agreement was released on May 18, 2016. Once the President submits the legislation for introduction, TPA sets a 90-legislative-day deadline for congressional consideration with set periods for committee and floor consideration by the House and Senate.",
"The TPP could have significant implications beyond its direct economic impact, in what many term as broader \"strategic\" contexts. Obama Administration officials and other TPP proponents argue that these implications would be positive and felt in several ways, both geo-economic and geo-political. Though such implications are hard to define precisely, proponents of the TPP's strategic importance suggest that the United States could use the agreement as a tool to exert influence in the region and beyond, in not only economic, but also broader political and security spheres.\nAdministration officials regularly emphasize the TPP's strategic value in arguing for its approval. USTR Ambassador Froman said in a 2014 speech:\nTPP is as important strategically as it is economically. Economically, TPP would bind together a group that represents 40 percent of global GDP and about a third of world trade. Strategically, TPP is the avenue through which the United States, working with nearly a dozen other countries (and another half dozen waiting in the wings), is playing a leading role in writing the [trade] rules of the road for a critical region in flux.\nSecretary of State John Kerry wrote in 2015:\nTPP also matters for reasons far beyond trade. The Asia-Pacific includes three of the globe's four most populous countries and its three largest economies. Going forward, that region is going to have a big say in shaping international rules of the road on the Internet, financial regulation, maritime security, the environment, and many other areas of direct concern to the United States. Remember that, in our era, economic and security issues overlap; we can't lead on one and lag on the other.\nOverall, proponents maintain that through the TPP, the United States can further a wide range of goals, including the following:\nliberalizing trade, encouraging market-oriented reforms, and driving economic growth; establishing and updating regional trade rules and disciplines consistent with U.S. interests and modern commercial realities; potentially strengthening the global trade architecture; strengthening regional alliances and partnerships; maintaining U.S. leadership and influence in the Asia-Pacific region; and enhancing U.S. national security.\nIn terms of economic influence, some observers argue the TPP may present an alternative to FTAs constructed by other countries, especially in the Asia-Pacific region. Such agreements often exclude or have less extensive provisions on agriculture, services, investment, and intellectual property rights (IPR), which some see as among the most important FTA provisions for certain U.S. sectors; moreover, these agreements generally have few if any binding protections for worker rights and the environment. The TPP could provide participating governments political cover to enact reforms relating to these and other provisions, presenting them as a tradeoff for greater access to the large U.S. market. While debate continues, both in the United States and abroad, over the appropriate scope of various TPP provisions and the degree to which they differ from other regional pacts, some policymakers argue that the TPP would provide the United States with leverage to help shape regional and, perhaps, broader multilateral economic norms.\nIn the geo-political realm, some analysts consider the TPP to be a litmus test for U.S. credibility in the Asia-Pacific region. Proponents argue the TPP signals the primacy of U.S. integration into Asia's economic and diplomatic structures, suggesting that congressional inaction or rejection of the TPP would make the Administration's rebalancing strategy look relatively weak and the United States look divided on how important it considers its leadership role in the region. Similarly, many Asian policymakers—correctly or not—could interpret a failure of the TPP in the United States as a symbol of declining U.S. interest in the region and its inability to assert leadership. Some critics of the TPP assert that such arguments are overstated, and that the strength or weakness of broader bilateral political and security relationships depend more on countries' assessment of their political and security interests than on whether they have a trade agreement with the United States.\nChina is not a TPP member, but its emergence as a regional economic power with active overseas trade and investment initiatives forms an important backdrop to the TPP's consideration. Those championing the TPP, including President Obama, often cast it as a vehicle for maintaining U.S. leadership in Asia in the face of China's rise, arguing that through the agreement, the United States can \"write the rules\" for regional trade and investment and help foster a broader, rules-based regional order. Others contend that casting the TPP as an effort to \"counter\" Chinese initiatives is unproductive, and could create negative perceptions of U.S. intentions, both in China and elsewhere in the region. Some also argue that in many ways U.S. and Chinese goals for trade liberalization and rules and norms in the region could be mutually reinforcing, rather than competing, by promoting the goal of free trade in the Asia-Pacific region\nTrade agreements, and trade policy in general, inevitably exist at the intersection of domestic and foreign policy and include both economic and political elements. This can create a tension in balancing various policy priorities, particularly for those policymakers who may support the TPP on some grounds but not others. Some opponents of the agreement argue that focusing on the strategic elements of the TPP distracts the debate from what they view should be its main criteria: the agreement's potential impact on the U.S. economy. While both TPP critics and supporters cite different estimates of economic outcomes to support their positions, the broader strategic implications are highlighted largely by proponents, and can be difficult to quantify despite their potential significance.",
"Preferential multi-country trade agreements, such as the TPP, generally are expected to alter trade relations among the participants by lowering tariffs on traded goods and by reducing nontariff barriers within countries. Most economists agree that reducing trade barriers enhances productivity by allocating resources towards their most efficient uses, increases consumer choice and lowers costs, stimulates economic growth, and at the national level improves economic welfare. The Japanese government, for example, hopes to use increased international competition achieved by TPP to revitalize its less productive sectors, including agriculture and services, and lower costs for consumers. The gains of trade, however, are not necessarily distributed equally throughout an economy, and the resource reallocation that can lead to efficiency and job gains in some sectors may reduce production in other industries and can cause worker dislocation and job losses, a concern for policymakers and workers and firms in certain industries.\nRemoving formal barriers to trade, primarily tariffs and quotas, directly lowers the price of traded goods. For example, the 20% tariff on certain Vietnamese-made shoes imported into the United States would be eliminated, while U.S.-grown walnuts would receive a 10% tariff discount in Japan, once eliminated. In turn, lower prices may impact trade patterns by increasing the overall amount of trade that occurs (trade creation) and by shifting trade away from countries that are not party to the agreement to those that are in the agreement (trade diversion). At times, countries are motivated to participate in trade agreements to prevent this type of trade diversion.\nThe magnitude of the trade creation and trade diversion effects that arise from TPP likely will be affected by a number of factors, including: the difference between pre-and post-agreement tariff rates, the speed with which tariff cuts are implemented, and a range of other external economic factors that affect global trade as a whole. For instance, the 2008-2010 global economic slowdown and the sharp drop in commodity prices and changes in exchange rates from 2014-2016 arguably had a greater impact on the volume of global trade and trade flows between countries than any FTA trade liberalization measures that might have gone into effect during this period. In addition, the impact of tariff cuts under the TPP may be muted to some extent due to the multiplicity of trade agreements that already exist among the participants and the already low tariff rates that are characteristic of trade among a number of the participants. (See \"Tariffs\" section below for more detail.)\nIn addition to the economic effects expected to result from cuts in tariffs, the TPP may offer long-term benefits to bilateral and regional trade through changes in domestic nontariff barriers that form the structure under which trade is conducted. In broad terms, the TPP incorporates rules and disciplines for open, nondiscriminatory treatment for participants. These rules are expected to reduce market-distorting activities that not only may reduce the overall level of trade, but also may create market distortions and inefficiencies. Analysts have indicated that some TPP participants, such as Vietnam, may use the rules and disciplines incorporated in the TPP to support a market-oriented reform agenda within their economies. To the extent that countries undertake such reforms, the TPP could provide long-term economic benefits to the countries themselves and to other TPP participants. Other rules such as aspects of IPR protections and certain labor and environmental commitments are, in effect, less about economic openness and more about ensuring economic activity meets certain requirements. As such, the rationale behind them (i.e., encouraging innovation, protecting worker rights, and safeguarding the environment) can differ from the traditional economic arguments for trade liberalization.\nTPP would be significant among U.S. trade agreements, due to its size and the commitments reached. TPP would be the largest U.S. FTA by the number of parties and trade flows, though the majority of that trade is with countries with an existing U.S. FTA ( Figure 2 ). Japan's participation has greatly increased the potential economic significance of the agreement. Among the U.S. negotiating partners in the TPP, Japan is the largest economy and largest trading partner without an existing U.S. FTA (and hence, with greater scope for trade liberalization with the United States). In 2015, Japan was the United States' fourth largest goods export ($63 billion) and import ($131 billion) market.\nMalaysia and Vietnam also stand out among the TPP countries without existing U.S. FTAs, both in terms of their current trade and investment with the United States and their potential for future growth. Both countries have young, relatively large populations (above 30 million in Malaysia and 90 million in Vietnam) and their economies have experienced rapid growth in recent years. Moreover, Malaysia's and Vietnam's average applied most-favored nation tariffs—the average tariff on imports—are 6.1% and 9.5%, respectively, two of the highest levels among TPP members. Removal of various nontariff barriers in both countries is also a primary U.S. goal. Both nations also have substantial state sectors, which may be affected by TPP outcomes.",
"U.S. trade with TPP countries was more than $1.5 trillion in merchandise in 2015 and more than $276 billion in services in 2014, the most recent periods for which data are available ( Table A-1 and Table A-2 , in Appendix). The flow of U.S. foreign direct investment (FDI) into TPP countries totaled $61 billion in 2014, while TPP countries invested nearly $59 billion in the United States ( Table A-3 ). The TPP would become the largest U.S. FTA by trade flows ( Figure 3 ).\nThe TPP group of 12 countries is diverse in population, geographic location, and economic development, and U.S. trade relations with the countries reflect this diversity. The major U.S. merchandise exports are fairly similar to most TPP countries and include motor vehicles and parts; petroleum and coal products; computer equipment, semiconductors, and electronic components; agriculture and construction machinery; and aircraft. However, the top U.S. merchandise imports vary greatly by country. Agriculture and natural resources products are key U.S. imports from Australia, Chile, New Zealand, and Peru, while apparel products are the main U.S. imports from Vietnam. Canada and Mexico are both major suppliers of crude oil to the United States, but they also supply manufactured products like motor vehicles and motor vehicle parts. U.S. imports from Malaysia and Singapore consist primarily of manufactured products such as computers, semiconductors, and electronic components. Motor vehicles and motor vehicle parts make up nearly 35% of U.S. goods imports from Japan.\nIn terms of value, Canada and Mexico are by far the largest U.S. trading partners among TPP countries in goods. Both countries share a long border with the United States and are among the oldest U.S. FTA partners. Japan is the third-largest U.S.-TPP goods trading partner, and second-largest services trade and investment partner. Among the other eight TPP partners, Singapore and Australia are the top U.S. goods export markets and top overall services trade and investment partners with the United States, while Malaysia, Vietnam, and Singapore are the top sources of U.S. goods imports.",
"",
"Though designed as a regional trade agreement, the TPP could have a number of implications for the multilateral trading system represented by the WTO. Fundamentally, the proliferation of FTAs over the past two decades calls into question the multilateral system's ability to negotiate and implement new trade disciplines and further international trade liberalization.\nAlthough WTO members agreed to a number of customs-related commitments as part of the Trade Facilitation Agreement in 2013, the goal of concluding a major multilateral trade round remains elusive nearly 15 years after the launch of the Doha Development Agenda negotiations in November 2001. Persistent differences among members about the extent and balance of trade liberalization continue to stymie progress in this forum and major issues, such as services trade liberalization are being negotiated among a subset of WTO members outside the body. The United States has pushed for the Doha Round to end and to be replaced by a more attainable package, but at the most recent WTO Ministerial in Nairobi, trade ministers were unable to agree on declaring an end to the Doha agenda, since developing countries fear that abandoning the Doha agenda may result in agricultural issues receiving less priority.\nThe last major round of global trade negotiations—the Uruguay Round—was concluded in 1994. Since then, global commerce has adapted to rapid advances in technology, with the result that current multilateral trade rules do not address some critical aspects of today's trading environment, including digital trade and e-commerce. New trade patterns have emerged and new obstacles to the flow of goods and services have appeared. This has left countries, including the United States, to pursue new or advanced trade rules and further liberalization through bilateral and regional agreements like the TPP.\nDebate continues over whether or not bilateral and now \"mega-regional\" trade agreements help or hinder broader multilateral initiatives. On one hand, \"mega-regionals,\" such as the TPP or the Trans-Atlantic Trade and Investment Partnership (T-TIP) negotiations between the United States and the European Union, could serve as alternative venues for establishing new rules and disciplines for the trading regime, and their size and economic significance could help spur negotiations at the multilateral level, influencing their direction. Some argue, for example, that the conclusion of the North American Free Trade Agreement (NAFTA), among the United States, Canada, and Mexico, effective since 1994, did in fact push the multilateral Uruguay Round negotiations to conclusion.\nOn the other hand, if the locus of trade negotiations primarily shifts to \"mega-regional\" agreements, it could limit the overall effectiveness of the multilateral system. If the rules of the WTO no longer reflect the standards of trade policy to which much of the world has evolved, it could endanger the legitimacy of the organization in other aspects of its work, such as dispute settlement. A two-tier trading system, one working on more extensive rules and disciplines and one essentially dormant, could raise tensions by alienating those countries that feel they had no part in developing the new rules. Overlapping in membership with differing rules, these \"mega-regional\" agreements and other trade agreements could also add to the complexity of engaging in international commerce, as opposed to rules established at the WTO, which are applicable to nearly all world trading partners. They could also reduce economic efficiency in the global trading system if trade is diverted into these trading blocs due to preferential tariff treatment.",
"The current 12 TPP countries form part of a growing network of Asia-Pacific FTAs ( Figure 4 ). All TPP countries have at least one FTA with a TPP partner country, although the extent of trade liberalization varies among them. The United States has FTAs with six TPP countries, including Australia, Canada, Chile, Mexico, Peru, and Singapore. Four TPP countries—Brunei, Malaysia, Singapore, and Vietnam—are part of the Association of Southeast Asian Nations (ASEAN), which has a free trade area among its membership as well as several external FTAs.\nNew FTAs involving key markets in the region have been concluded in recent years. For example, Australia recently implemented FTAs with China, Japan, and South Korea, and the European Union has concluded FTAs with Canada, and, most recently, Vietnam. As tariffs fall for the countries party to these agreements, it could put U.S. firms at a disadvantage in those markets without existing U.S. FTAs. This is the idea of \"competitive liberalization\" in practice, whereby new trade agreements spur other countries to enter into similar pacts in order to maintain their firms' competiveness in foreign markets. If the TPP were to enter into force, such motivation would likely be a major factor in drawing other countries' interest in joining the agreement.\nAll 12 TPP partners are also members of the Asia-Pacific Economic Cooperation (APEC) forum, which does not negotiate FTAs but serves as a forum for dialogue on, and establishes nonbinding commitments toward, the goals of open trade and investment within the region. In the context of this forum for dialogue and nonbinding commitments, APEC Leaders have repeatedly agreed to push forward the creation of a Free Trade Area of the Asia-Pacific (FTAAP).\nTwelve countries in APEC, seven of which are also in TPP, are currently negotiating the Regional Comprehensive Economic Partnership Agreement (RCEP). ASEAN leads the negotiations for this proposed FTA among its members and six ASEAN FTA partners (Australia, China, India, Japan, New Zealand, and South Korea). Both the RCEP and the TPP would encompass a significant share of regional economic activity, but each currently includes only one of the region's two economic leaders, the United States and China. The breadth and depth of trade liberalization resulting from two potential agreements is likely to differ. In their 2015 Declaration, APEC Leaders recognized both the TPP and the RCEP, which includes China, but not the United States, as \"ongoing regional undertakings\" on which to eventually achieve an FTAAP.\nAs noted above, the TPP could not enter into force without the United States and Japan. It is conceivable, however, that the other 11 countries, after spending five years negotiating an agreement not only with the United States, but among themselves as well, could conclude a replacement agreement without the United States. It would not have the economic heft of an agreement with the United States, but it still would contain the third-largest economy (Japan) and could serve as a vehicle for further Asian integration.",
"The text of the TPP agreement spans 30 chapters. The main goal as stated by the negotiating countries is \"to establish a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21 st -century challenges.\" FTA provisions are often discussed in two different categories: (1) the market access component addressing tariff and nontariff barriers to trade in goods, services, and agriculture, and government procurement; and (2) the rules component covering the procedures, standards, and regulatory considerations that relate to international trade, including such issues as investment and intellectual property rights. Market access can be affected by the process by which trade is conducted, and, hence, the distinction between these two categories is not always clear. While tariff negotiations are perhaps the most well-known component of trade agreements and the easiest to measure and verify, U.S. firms are often most competitive in the international trade of services and products involving high levels of research and development. These industries face mostly nontariff, behind-the-border barriers, making rules commitments such as transparent regulatory procedures or IPR protection particularly important for U.S. access to and ability to compete in overseas markets.\nU.S. FTAs also attempt to ensure that U.S. FTA partners meet certain requirements. In particular, internationally-recognized and other core principles for the protection of worker rights and the environment have become a significant aspect of U.S. trade agreement negotiations. In addition, the TPP includes an entirely new chapter that seeks to establish disciplines on how state-owned enterprises engage in international trade, with a goal of limiting potential negative impacts on private actors from nonmarket practices.\nThe 12 TPP countries have varying competitive advantages, sensitivities, and levels of economic development. As a result of these differences and the \"give and take\" of trade negotiations, achieving common TPP rules and disciplines also involves certain exceptions in different forms, and phase-in periods of varying lengths. When examining the specific commitments of the agreement it is important to examine these exceptions, as they may impact the agreement's practical application.\nThis section examines the major issues addressed in the TPP negotiations, beginning with the treatment of trade in merchandise goods. For each issue the report provides background information, a discussion of the provisions in the text, particularly as they relate to previous trade agreements, and a summary of the debate on the topic, including, where relevant, U.S. trade negotiating objectives.\nStakeholders' views on the TPP agreement vary. Some groups generally oppose or support trade liberalization; others' positions hinge on specific provisions in the TPP text. Most business groups generally support the agreement, while most labor unions and certain nongovernmental organizations (NGOs) are generally opposed. The discussion that follows focuses on specific commitments in the agreement and debate over those measures.",
"Although services are an increasingly important aspect of international trade, physical goods still account for the bulk of such activity. In 2015, merchandise trade accounted for over 75% of the nearly $5 trillion in U.S. trade. Expanding opportunities for trade in goods by reducing and eliminating tariff and nontariff barriers remains a top priority for U.S. trade negotiations, highlighted by Congress in its first principal negotiating objective in the TPA-2015.",
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"Like previous U.S. FTAs, TPP would eventually eliminate all industrial goods tariffs and most agriculture tariffs and quotas. These commitments would be phased in over varying periods. For some of the most sensitive agriculture products, tariff and quota protections would remain in place or only be partially removed. Each of the 12 TPP countries has its own unique tariff schedule laying out its product-specific tariff commitments. These schedules list each country's individual tariff lines (i.e., a list of products described by Harmonized Tariff Schedule (HTS) product codes at the 8-10 digit level of aggregation) and include the current tariff rate (base rate), the relevant staging category, and the post-TPP annual tariff rates.\nThe staging categories explain the speed and scope of tariff elimination for a specific product. For example, \"entry-into-force\" signifies a removal of that product's tariff immediately when the agreement becomes effective. The categories may be simple, such as an annual equal decrease until the tariff is eliminated, or more complex, such as staying at current levels for a period of years before decreasing by varying amounts. The United States has 36 unique staging categories that apply to its tariff commitments, surpassed only by Japan, which has 60. The United States has the longest phase-out period of any TPP country, and longer than any previous U.S. FTA; it would delay the complete removal of tariffs on light trucks from Japan, for example, and certain dairy products from New Zealand for 30 years.\nWhile most TPP countries negotiated a single TPP tariff schedule with their partners, the United States negotiated bilaterally such that for certain import-sensitive products, U.S. tariff and quota commitments differ by partners. As a result, U.S. tariffs on some products may be eliminated according to different staging categories for different countries. This bilateral approach to tariff commitments within a multi-party agreement stands in contrast to the most-favored nation (MFN) approach in the WTO, which achieves a single tariff schedule for all trading partners. U.S. negotiators argue that this bilateral approach allows for more complete liberalization overall, but some observers question this assertion and raise concerns over setting this precedent for multi-party negotiations.\nKey factors impacting the potential significance of TPP tariff commitments include the following:\nCurrent Tariff Levels. Average MFN applied tariff rates among TPP countries currently range from 0.2% in Singapore to 9.5% in Vietnam (Appendix 1). Given the already low simple U.S. average tariff rate (3.5%), U.S. rates would change less through TPP than those for some other countries, especially Vietnam and Malaysia. Existing Trade Agreements. Each TPP country has existing FTAs with at least four other TPP countries, and Chile has existing FTAs with all 11 other TPP countries. In 2014, 85% of goods trade among TPP parties occurred between partners with existing trade agreements. Depending on the degree of tariff liberalization in these existing agreements, the tariff commitments in TPP may not require a significant adjustment for some TPP parties. For example, under NAFTA, the United States, Canada, and Mexico have eliminated nearly all tariffs on trade between the three countries. In cases where existing agreements offer different tariff rates than the TPP, exporters would be able to choose which agreement to utilize as long as they also met the relevant rules of origin. Product Mix. While tariffs are below 10% on average in all TPP countries, product-specific peaks can be much higher, above 100% on certain sensitive items. TPP tariff commitments may have a larger impact on countries that trade heavily in these high-tariff products. For example, U.S. imports from Vietnam are concentrated in high-tariff footwear and apparel products. U.S. exports facing relatively high tariffs in certain TPP markets include autos, agricultural products, and heavy machinery. Effective Tariff Rates . Calculated by dividing collected duties by the value of imports, this measure effectively incorporates the factors discussed above to provide an indication of the average duty actually paid on imports from a particular country. Among TPP countries, U.S. effective duty rates in 2015 were highest on imports from Vietnam ( Figure 5 ). Without readily available data on duties collected by other TPP countries, a similar calculation cannot be made for effective duty rates on U.S. exports.",
"Given the existing U.S. FTAs with Australia, Canada, Chile, Mexico, Peru, and Singapore, which include comprehensive tariff coverage, this section focuses only on TPP tariff commitments between the United States and the five TPP countries without an existing U.S. FTA (Brunei, Japan, Malaysia, New Zealand, and Vietnam).\nKey aspects of TPP tariff commitments among these countries include (see Figure 6 ):\nMore than one-third of tariff lines are already duty-free in each country: U.S. (37%), Brunei (76%), Japan (39%), Malaysia (65%), New Zealand (58%), and Vietnam (32%). Most tariff elimination would occur in the first years after the agreement's entry into force, with more than 80% of tariff lines duty-free in each country after three years, rising to approximately 90% after ten years. Eventually 95% or more tariff lines in each country would be duty-free. U.S. commitments would be phased in over the longest period, with tariff phase outs on two products up to 30 years after the agreement's entry into force, although on average U.S. tariff commitments are similar to the other countries. In terms of U.S. exports, more than 99% of tariff lines would eventually be duty-free in Brunei, New Zealand and Malaysia. Japan and Vietnam would maintain some level of tariff protection on more than 2% of their tariff lines (approximately 200 lines in Vietnam, mostly agricultural products like sugar, as well as used autos, and more than 400 lines in Japan comprised mostly of agricultural products, including pork and dairy). In terms of U.S. imports, more than 99% of tariff lines would eventually be duty-free for all five countries. The United States would maintain tariffs on some products from each country, with the highest number of tariffs remaining on imports from New Zealand (approximately 100 tariff lines, mostly dairy products). These rates of duty elimination are similar to previous U.S. FTAs, but with somewhat longer phase out periods and a slightly higher share of tariff lines excluded from liberalization. For example, in the KORUS FTA, both South Korea and the United States committed to eventually eliminate duties on more than 99% of tariff lines, with more than 92% of tariff lines duty-free within five years.",
"Rules of origin (ROO) determine whether products \"originate\" within an FTA area and, therefore, are eligible to receive the benefits when imported into an FTA member state. Thus, they are used to ensure that the parties to an FTA receive the tariff liberalization benefits and to prevent transshipments. In practice, however, restrictive rules of origin can also be used to limit the impact of FTAs on import-sensitive sectors. In the TPP, as in other FTAs, rules of origin are laid out in detail in the agreement and would need to be approved by Congress as part of the implementing legislation.\nAll FTAs and preference programs have distinctive ROO, but the ways that they are developed are similar. One ROO type requires that a product illustrate that it is \"substantially transformed\" (i.e., made into a \"new and distinct\" product) by showing a \"tariff shift,\" a change in its HTS tariff classification. The degree of change required varies by product. The \"yarn forward\" rule, a tariff-shift rule that is a guiding principle in TPP for textiles and apparel, requires that all qualifying products must be produced in the FTA region beginning with the yarn. Some product-specific ROO in TPP and other FTAs require that a minimum ad valorem (value) percentage of the product must be produced in the FTA region. TPP uses regional value content rules for many products, including automobiles, appliances, and machine tools. Another kind of ROO specifies that the value of foreign content must not exceed a certain maximum percentage (i.e., a de minimis rule, which in TPP is 10%). Third, ROO for some products require that some kind of manufacturing or processing operation (e.g., a chemical reaction) must be completed in the region.\nTPP ROO allow for cumulation among TPP countries. This means a TPP country manufacturer can use unlimited inputs from other TPP partners and have the finished product qualify for TPP tariff benefits. This could provide an incentive for creation of new regional supply chains within the TPP area, and may encourage other countries to join the TPP to avoid being left out of supply chains.\nFor the majority of goods, the ROO in most U.S. FTAs, including TPP, are quite similar in most areas. However, TPP ROO pertaining to certain import-sensitive manufacturing industries, especially in the textile, apparel, and footwear sectors and the automotive industry, have important distinctions from previous FTAs (see below).",
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"While the United States continues to produce certain yarns and fabrics, some of which are used in apparel production abroad, nearly all apparel sold in the United States is imported and most U.S.-headquartered apparel companies have limited or no U.S. manufacturing capabilities. Instead, they rely on extensive global supply chains, which, in turn, depend on costs, lead times, and other considerations. As a result of these dynamics, the U.S. textile industry generally supported gradual TPP textile and apparel tariff reductions, but only if the imported products are assembled using yarn produced in a TPP country (i.e., the \"yarn-forward\" rule of origin). Meanwhile, trade organizations representing U.S. apparel companies and retailers generally supported the immediate elimination of textile and apparel tariffs upon implementation of the TPP agreement, opposing the yarn-forward rule of origin as too restrictive.\nAs with apparel products, most footwear consumed in the United States is imported from abroad, with import penetration in the industry well above 90%. Over a decade ago, the U.S. footwear industry reached a general agreement supporting immediate elimination of nearly all footwear tariffs in future trade agreements, except for a number of sensitive items determined still to be manufactured in the United States.\nVietnam has been a major focus of U.S. negotiations over TPP commitments on textile, apparel, and footwear. Vietnam accounted for 12% of apparel and 15% of footwear imported by the United States in 2015, and was the second-largest supplier of apparel and footwear to the United States after China. It is the only large apparel and footwear producer among TPP partners without an existing FTA with the United States. Currently, Vietnam's apparel sector sources the overwhelming majority of its yarns and fabrics from non-TPP members, mainly China, Taiwan, and South Korea, and it purchases only a small amount of yarns and fabrics (about $100 million in 2015) from the United States.\nAlthough associations representing the U.S. textile industry ultimately support the TPP, domestic industry raised concerns over the potential for Vietnamese-made apparel displacing garments manufactured with U.S. fabric in Western Hemisphere countries such as Mexico, El Salvador, Honduras, and Nicaragua, where garment makers currently must use U.S. inputs to obtain duty-free access to the U.S. market under NAFTA and the U.S.-Central America-Dominican Republic FTA (CAFTA-DR). They also raised concerns over Mexico and Peru, both TPP members, potentially shifting sourcing of textile inputs from the United States to Vietnam should it develop an industry that can produce large quantities of textiles. On the other hand, proponents of FTAs as a tool for economic development would argue that encouraging movement up the value chain, such as from apparel to textile production, in a developing country like Vietnam is a goal of U.S. FTAs.\nTextile, apparel, and footwear tariffs differ considerably among TPP countries. The TPP countries currently face U.S. tariff rates as high as 25% on textiles, 32% on apparel, and up to nearly 50% on footwear. Other TPP countries also maintain high tariffs, including Vietnam, whose apparel tariffs range from 5% to 20%.",
"The USITC, in its May 2016 report on the economic impact of TPP, estimated sector-specific outcomes for textiles and apparel, and footwear. Their study, which compares a TPP scenario in 2032 against a non-TPP baseline, estimated that the apparel industry would see an increase in imports over the 2032 baseline of 1.4% or $1.9 billion, and a smaller increase in exports of 0.3% or $10 million. Vietnam would account for much of this import growth, while imports from China would be expected to decline. Textile imports and exports would also be expected to increase over the baseline, by 1.6% ($869 million) and 1.3% ($257 million), respectively. The study estimated output and employment slightly above the baseline for the apparel industry (an increase of 1.0% and 0.9%, respectively), and slightly below for textiles (a decrease of 0.4% for both output and employment). Regarding footwear, USITC estimated a slight overall rise in total U.S. imports of 2.7% or $1.1 billion, but a major shift in sourcing toward TPP countries with imports from the region increasing by 23.4% or $1.6 billion. As most U.S. footwear is already imported, the agreement is not expected to have a significant impact on the U.S. industry, although the study estimated an increase above baseline in exports to Vietnam, mostly in intermediate components, and shows a slight (0.5%) increase in U.S. footwear output.",
"Tariffs. All textile, apparel, and footwear tariffs will either be eliminated immediately or phased out in various stages over a decade or more following implementation of the TPP agreement. The United States has eight different tariff phase out schedules for textiles, apparel, and footwear. The longest phase out periods apply to the most sensitive products, such as certain men's and boys' overcoats, some women's and girls' blouses and skirts, men's leather boots and work shoes, and women's pumps. Tariffs on these products will be fully eliminated at the end of year 10 or 12, after an initial reduction of 50% or 55% when the pact enters into force.\nSafeguard. Like most U.S. FTAs, the TPP includes a textile and apparel safeguard that will allow the United States to reimpose tariffs if import surges cause or threaten to cause serious damage to domestic industry. This option will be available for five years after the agreement enters into force, and each safeguard action may last for two years with a possible two-year extension. In addition, the United States may unilaterally suspend future tariff phase outs after five years of implementation if it determines that Vietnam has failed to allow independent unions and grant them the right to strike by that time (see below section on labor provisions).\nRules of Origin. To qualify for favorable tariff treatment, textiles and apparel must meet a yarn-forward rule of origin, which requires the use of U.S. or other TPP country yarns and fabrics, with only a few exceptions, in textile and apparel products traded within the TPP area. Footwear manufacturers can qualify their shoes as TPP-originated under (1) a tariff shift method, requiring that sufficient production occurred entirely within the TPP region to change the tariff classification of the goods, or (2) one of two different methods of measuring the share of a product's value that was added within the TPP region. These ROO may give Vietnamese producers of footwear an advantage in the U.S. market over producers in other Asian countries that do not benefit from tariff preferences.\nShort Supply List. Like other U.S. FTAs with a yarn-forward rule of origin for textiles and apparel, the TPP provides an exception for products that are deemed to be in \"short supply\" within the TPP region. The TPP short supply list includes 187 fibers, yarns, and fabrics, such as cashmere, certain wool yarns for sweaters, and polyester/wool blend fabrics. The agreement would allow goods made within the TPP region using non-TPP inputs from the short supply list to qualify for privileged access when exported to other TPP countries. Other exceptions to the textile and apparel ROO allow synthetic knit and woven baby clothes and brassieres cut and sewn in other TPP countries to be exported to the United States even if the yarn and fabric are not produced within the TPP region.\nEarned Import Allowance. The TPP pact includes a program called the Earned Import Allowance Program to encourage the use of American fabrics in Vietnamese-manufactured jeans and khaki pants. The provision exempts some U.S. apparel imports from Vietnam from the TPP yarn-forward rule provided Vietnam imports a specific quantity of U.S. fabrics. This would allow a limited amount of apparel cut, sewn, and assembled in Vietnam to enter the United States duty-free even if the garments include fabric from non-TPP countries.\nImportantly, because both the ROO and the Earned Import Allowance program are complex and have substantial compliance and reporting requirements, some manufacturers in previous FTAs have opted to simply pay import duties rather than prove a product meets the specified requirements.\nCustoms Enforcement and Implementation . The TPP includes specific customs procedures to enforce each TPP country's commitments, such as visiting textile and apparel factories to conduct verification activities. A Committee on Textile and Apparel Matters is to be established under the TPP, where industry can raise concerns and issues can be resolved on trade in these products.",
"The Industry Trade Advisory Committee (ITAC) on Textiles and Clothing (ITAC 13) summarizes the industry's divergent views. Committee members generally applauded the greater opening of global markets, but they differed sharply \"over how that should be accomplished, whether that involves greater U.S. market access for foreign products, and what role consumer perspectives should play in this debate.\" There were also strong differences over how the trade negotiations could best accommodate industry adjustments to additional competition. The National Council of Textile Organizations (NCTO), the industry group representing the domestic textile industry, the American Apparel and Footwear Association (AAFA), the national trade association of the apparel and nonrubber footwear industries, and the Footwear Distributors and Retailers of America have endorsed the TPP. In contrast, Patagonia, an apparel retailer, has stated its opposition to the TPP, as has New Balance, a footwear company that maintains some production in the United States.",
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"The United States and Japan are the second- and third-largest auto manufacturing nations, respectively, which made motor vehicle market access issues central to the TPP negotiations ( Table 2 ). Other TPP signatories that produce motor vehicles are Canada, Mexico, Malaysia, and Vietnam. Japan, Mexico, the United States, and Canada all export large numbers of vehicles. As a result of market forces and the elimination of vehicle trade barriers in NAFTA, the North American auto industry has become highly integrated. The largest source of U.S. imports from outside the NAFTA region is Japan, which shipped over 1.5 million vehicles to the United States in 2014.\nU.S. vehicle exports have steadily risen since the 2007-2009 recession and exports to other TPP countries could grow further as tariffs fall and nontariff barriers (NTBs) are reduced or eliminated. In 2014, U.S. vehicle exports exceeded two million units for the first time, having doubled since 2009. Nearly half of those exports were sold in Canada (870,025 units). Other TPP destinations for U.S. vehicle exports were Mexico (151,902), Australia (61,052), Japan (19,003), Chile (16,631), Peru (6,354), and New Zealand (5,013). However, while TPP markets accounted for 56% of U.S. vehicle exports to the world, most of those exports already benefit from duty-free access under various regional and bilateral trade agreements. Japan is the only large vehicle market among TPP countries that is not covered by an FTA with the United States.\nTPA-2015 did not spell out specific TPP objectives for trade in motor vehicles. Rather, motor vehicle industry goals were subsumed under general objectives to reduce tariffs and NTBs and to refrain from foreign currency manipulation. TPP auto manufacturing countries sought the elimination or reduction of U.S. vehicle tariffs, which are currently 2.5% on passenger vehicles and 25% on pick-up trucks. A related goal was to develop rules of origin for TPP vehicle trade that would ensure parts supply chains could operate smoothly but with strong verification and enforcement procedures. Some of the rules for vehicle trade in NAFTA and the U.S.-South Korea FTA (KORUS) served as reference points for TPP negotiators.",
"The USITC study estimated impacts on the passenger vehicle industry over 30 years given the long phaseout period for tariffs in this sector. The study highlights three significant periods during this transition: (1) after year 6, Canada, the top U.S. export market, would eliminate tariffs on imports from Japan potentially increasing competition for U.S. auto producers in that market; (2) by year 13 Malaysia and Vietnam would eliminate auto import duties, making U.S. exports more competitive in those markets; and (3) by year 30 the United States would eliminate its import tariffs on Japanese autos potentially increasing competition in the U.S. market for U.S. producers. Ultimately, the study predicts an increase from the 2047 baseline in vehicle and parts exports of 2% ($2.9 billion) and 1.5% ($2.1 billion), respectively. Imports are expected to be above baseline by 1.1% ($4.3 billion) for vehicles and 1.5% ($4.5 billion) for parts. Relative to the baseline, output and employment are expected to increase slightly for autos (2% for each), and decline slightly for parts (-0.2% for output and -0.3% for employment).",
"T ariffs. If the TPP agreement comes into force, member countries will eventually eliminate import tariffs on most vehicles and parts. U.S. tariff commitments, including for motor vehicles, are on a bilateral basis, so tariff reduction speeds differ with respect to each country. The longest tariff phaseouts are applied to vehicle shipments from Japan to the United States. In that case, the 2.5% tariff on passenger cars will remain in place until year 15, after which it will be eliminated gradually through year 25 after the agreement's entry into force. The 25% U.S. light truck tariff with Japan is not phased out, but eliminated only in year 30 of the TPP. The U.S. rationale for longer tariff phase outs on Japanese vehicles than on those from other countries is that a longer transition is necessary for Japan to remove its own NTBs and move toward a \"more open automotive market.\" The reduction in foreign barriers to U.S. vehicles is likely to be most significant in Malaysia and Vietnam, where current high tariff levels make imported vehicles costly. Malaysia's vehicle tariffs are as much as 40%; Vietnam's as much as 70%.\nNon t ariff Barriers. NTBs in the vehicle industry fall into two categories: (1) suppression of imports through tax breaks for local vehicles and local content requirements for domestically produced cars and parts; and (2) safety and environmental regulations that limit vehicle trade because the regulatory requirements differ among countries. Although Japan does not assess tariffs on vehicles, its consistently low level of vehicle imports has led to assertions that NTBs are used to restrict sale of foreign-made vehicles. Bilateral U.S.-Japan side letters to the TPP agreement establish a special joint dispute resolution process and commit Japan to\nadopt a more open automotive rulemaking process; accept a limited number of U.S. motor vehicle safety regulations on an equivalency basis with similar Japanese standards; reduce barriers to establishing vehicle distribution centers; and apply financial incentives equally to imported as well as domestic vehicles.\nRules of Origin. The motor vehicle rules of origin, while focused to some extent on U.S.-Japan vehicle trade, are also of interest to Canada and Mexico, which seek to maintain their own large auto-making industries in the face of increased competition from Asian production. The NAFTA rules served as a model for the TPP. To receive reduced tariffs under NAFTA, 62.5% of a vehicle's content must be manufactured in the United States, Canada, or Mexico. The NAFTA net cost method takes total vehicle manufacturing costs, then subtracts costs of promotion, marketing, shipping and other factors. The resulting figure is then divided into the value of regional content—determined by subtracting the value of all the parts originating outside of the NAFTA area from the net cost—to find the percentage of regional content. In its own bilateral trade agreements, however, Japan has used a different calculation, known as the build-down method, and it argued that this should be the basis of vehicle rules of origin in the TPP. The build-down method does not subtract shipping and marketing before making the regional content determination, so cars using this method would have higher regional content than if the net cost method were used. The formula in the TPP allows either approach, requiring vehicles to have 45% TPP content using the net cost method or 55% using the build-down method to qualify for tariff preferences. The 45% net cost RVC in TPP is lower than the 62.5% level in NAFTA, but above the 35% level in KORUS.\nVehicle and parts manufacturers producing and exporting within North America would be able to choose whether to use the NAFTA or TPP rules of origin. While the rules of origin differential between NAFTA and TPP may not impact vehicle trade, it may affect trade in auto parts. That is because the required TPP share of value for auto parts to receive preferential treatment is significantly lower than the threshold for vehicles, ranging from 35% to 45%, depending on the type of accounting used. While different regional value content standards for vehicles and parts were used in NAFTA—62.5% for vehicles and 60% for parts—the standards were closer than they are in TPP. Under TPP rules, some auto parts whose value was added mainly outside the TPP region may be able to enter the United States duty-free. This differential led ITAC 2 to note that its auto industry members \"acknowledge the real concerns raised by some that the automotive origin RVC [regional value content] is not sufficiently strong, particularly for automotive parts.\"",
"The motor vehicle industry does not have a unified position on the TPP; some automakers support it, others have raised concerns, and one company opposes it. The United Autoworkers union (UAW) opposes it. Concerns include the following:\nCurrency M anipulation . Some automakers (as well as some other manufacturers) recommended that the TPP include an enforceable commitment to prohibit currency manipulation. Instead, the TPP establishes a Macroeconomic Policy Authority Forum (see below section on currency), which the International Trade Advisory Committee for autos (ITAC 2) says falls short of its recommendations, but which \"could help mitigate the misuse of exchange rate policies and the adverse economic impact this policy practice has had on the United States....\" U.S.-Japan S ide L etters and A ppendix . ITAC 2 considers Japan's vehicle NTB commitments as marginal improvements, but expects that they \"will not lead to a substantially larger U.S. presence in the Japanese motor vehicle market.\" It contends that these commitments are not enforceable under the TPP's dispute resolution provisions. Long P hase out of U.S. T ariffs on I mported Japanese C ars and T rucks . With up to 30 years before these tariffs are eliminated completely, some experts alleged that the TPP tends to emphasize protection over liberalization. ITAC 2 sees the long phase out period as appropriate to provide Japan with a \"sufficient transition period to a more open automotive market.\" Slow L iberalization S chedule for Malaysia and Vietnam . These countries will complete their vehicle and parts tariff reductions in year 13 year of TPP's implementation, although some of Vietnam's restrictions will remain after full implementation. (Almost all auto parts from TPP countries will be able to enter the United States duty free as soon as the TPP takes effect, as long as they meet the rules of origin.) Tracking and E nforcing C omplicated R ules of O rigin . TPP methods permit automakers to import vehicles and parts that contain some non-TPP content (from China or Thailand, for example). While supply chain sourcing is increasingly global, the impact on smaller U.S. parts manufacturers is not clear. ITAC 2 report calls for the U.S. government to monitor and enforce these rules to prevent non-TPP countries from benefiting from the preferential tariff benefits. Lack of R egulatory H armonization . There are no obligations to require TPP countries to accept motor vehicle imports engineered to U.S. regulatory standards. This means that U.S. producers may need to modify their vehicles before selling them in other TPP member countries. This can be costly, especially in countries where the prospective demand for U.S.-made vehicles is small. ITAC 2 calls the lack of recognition of U.S. standards a \"retreat from the longstanding U.S. practice of securing concessions in new agreements that go beyond what had been achieved in prior pacts. As such, this represents a significant missed opportunity.\"",
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"A major priority for the United States in its negotiations of bilateral and regional FTAs is increased market access for services providers. Congress identified expanded market opportunities in services trade as a principal negotiating objective in the TPA-2015. Cross-border trade in services represents slightly less than one-fourth of total U.S. trade, and is an area of focus for the United States due to U.S. firms' competitiveness in these sectors. Services accounted for 78% of U.S. private sector gross domestic product (GDP) and 87 million (82%) private sector employees in 2013. The United States consistently runs a surplus in services trade; U.S. services exports surpassed imports by $233 billion in 2014. Some economists argue that the expanded commitments in international services may represent the greatest benefit for the United States in the TPP.\nThe United States sought to expand on previous commitments the 11 partner countries have made on trade in services, particularly with the five countries with whom the United States does not have existing U.S. FTAs (Brunei, Japan, Malaysia, New Zealand, and Vietnam). For these countries, existing commitments with the United States are based on the multilateral WTO General Agreement on Trade in Services (GATS). Another major U.S. objective was to address new services trade barriers not covered, or covered only partially, in previous trade agreements, and in doing so, potentially influence other ongoing U.S. services trade negotiations, including the Trans-Atlantic Trade and Investment Partnership (T-TIP) with the EU and the plurilateral Trade in Services Agreement (TiSA) on the sidelines of the WTO. Emerging issues in services trade include the prohibition of restrictions on data flows and data localization requirements and treatment of electronic payment card systems.\nUnlike tariff barriers, nontariff barriers (NTBs) on services trade that the TPP seeks to reduce and eliminate can take many different forms, making them difficult to quantify and compare across countries. The Organization for Economic Cooperation and Development (OECD) has created indices that provide some measure of services trade restrictiveness. These indices, available for OECD countries and some selected other countries across 18 different services sectors, show considerable variation in services trade restrictiveness among TPP OECD countries (Australia, Canada, Chile, Japan, Mexico, New Zealand, and the United States) and hence the opportunity for liberalization through TPP negotiation efforts. For example, in telecommunications, the index, which takes a value from 0 to 1 (most restrictive), ranges from 0.12 for the United States to 0.30 for Japan and 0.34 for Mexico. Such restrictions are likely even greater among some of the lesser developed TPP countries not included in the OECD database. Similar work by researchers at the World Bank, which covers more countries but in less detail, supports this hypothesis. Their index for overall services trade restrictiveness, which takes a value from 0 to 100, ranges from 11 for New Zealand to 41.5 for Vietnam and 46.1 for Malaysia, although the middle income country of Peru (16.4) scores lower than the United States (17.7).\nDue to the complexity of services trade barriers, TPP commitments in several chapters may affect services trade. Chapters with a focus on services-related commitments discussed in more detail below include: Cross Border Trade in Services (Chapter 10), Financial Services (Chapter 11), Temporary Entry (Chapter 12), and Telecommunications (Chapter 13).",
"The USITC predicts generally positive results for U.S. services industries from the TPP. The May 2016 study estimates that both services sector output and employment would see increases above a 2032 baseline as a result of the TPP. These gains are small in relative terms (0.1%), but large in absolute terms ($42.3 billion increase in output) given the scale of the U.S. services sector. Both exports and imports are expected to increase above the baseline ($4.8 billion and $7.0 billion, respectively) but the estimated larger growth in imports would lead to an overall decline in net U.S. exports of services. The authors attribute this to a few factors: increased expenditures on tourism abroad (a U.S. services import), due to higher U.S. incomes post TPP; a shift in U.S. productive resources to sectors experiencing greater liberalization in foreign markets, including food and agriculture; and increasing U.S. demand for services imports given output capacity constraints and greater demand for U.S. services exports in TPP countries. The increase in U.S. services exports is estimated to go largely to TPP countries without an existing FTA while the increase in U.S. services imports would come from non-TPP countries, particularly the EU.",
"The TPP chapter on cross-border trade in services commits parties to provisions governing situations in which the buyer and seller are located in different territories. As with previous U.S. FTAs, the TPP employs the \"negative list approach,\" that is, the provisions are to apply to all types of services, unless specifically excluded by a partner country in the chapter annex on NCMs. This approach is generally considered more comprehensive than the \"positive list approach\" used in the GATS, which requires each covered service to be identified. The negative list approach also implies that any new type of service that is developed after the agreement enters into force is automatically covered unless it is specifically excluded. Key provisions include the following:\nnondiscriminatory treatment of services from partner-country providers, including national treatment and MFN treatment; no limitations on the number of service suppliers, the total value or volume of services provided, the number of persons employed, or the types of legal entities or joint ventures that a foreign service supplier may employ; prohibition on locality requirements that a TPP-based service provider maintain a commercial presence in the country of the buyer; support of mutual recognition of professional qualifications for certification of service providers; transparency in the development and application of government regulations; and allowance for payments and transfers of capital flows that relate to the provision of services, with permissible restrictions in some cases including bankruptcy and criminal offences.",
"The United States made market access of express delivery services a priority in the TPP negotiations, as it has in other recent FTAs, including KORUS. Covered in a chapter annex, the commitments on express delivery focus, in particular, on cases where a government-owned and operated postal system provides express delivery services competing with private sector providers. Japan Post, which also includes banking and insurance services, has been moving towards privatization with an initial public offering of a portion of its shares in 2015, but remains majority owned by the government. Even domestic Japanese competitors in express delivery have argued that the Japanese postal service receives a number of unique advantages. The TPP annex and a separate side letter between the United States and Japan attempt to eliminate those advantages.\nTPP, like KORUS, stipulates that the postal system cannot use revenue generated from its monopoly power in providing postal services to cross-subsidize an express delivery service. Vietnam would be exempt from such a rule for 3 years. TPP, however, goes beyond KORUS in its express delivery commitments, and would also require independence between express delivery regulators and providers, prohibit the requirement of providing universal postal service as a prerequisite for express delivery, and prohibit fees on express delivery providers for the purpose of funding other such providers. Unlike KORUS, TPP lacks a specific threshold for the customs de minimi s , a critical commitment for express delivery providers as shipments valued below the de minimis receive expedited customs treatment and pay no duties or taxes. Industry sought a $200 de minimis , like that in KORUS, and has noted that TPP parties agreed to periodically review their respective thresholds.",
"Financial services, including insurance and insurance-related services, banking and related services, as well as auxiliary services of a financial nature, are addressed in a separate chapter as in previous FTAs. The financial services chapter adapts relevant provisions from the foreign investment chapter and the cross-border trade in services chapter. The prudential exception in TPP provides that nothing in the FTA would prevent a party to the agreement from imposing measures to ensure the integrity and stability of the financial system. TPP, like KORUS, distinguishes between financial services traded across borders and those sold by a provider with a commercial presence in the home country of the buyer. In the case of providers with a foreign commercial presence, TPP applies the negative list approach with commitments applying generally except where noted; in the case of cross-border trade, TPP limits coverage to specific banking and insurance services as defined by each country.\nSome critics have noted the long list of NCMs. The United States, for example, excludes Government-Sponsored Enterprises such as the Federal National Mortgage Association (Fannie Mae). One of Malaysia's NCMs has received particular scrutiny from the business community, as it would require the Malaysian government's approval for certain bank and insurance investments based on whether such investment is in \"the best interest of Malaysia.\" Services industry representatives have raised concerns over the potential breadth of this exemption given its lack of a threshold or specific definition or criteria.\nFinancial services are not covered under the e-commerce chapter and therefore not protected by that chapter's new obligations such as the prohibition of localization requirements for data servers and computing facilities. The chapter does, however, have a separate provision prohibiting restrictions on cross-border data flows based on KORUS, which is similar to that found in the e-commerce chapter. U.S. financial services firms and some Members of Congress are concerned about the distinct treatment of the sector because, like many other industries, financial services firms rely on cross-border data flows to ensure data security, create efficiencies and cost savings through economies of scale, and utilize internet cloud services that are often provided by U.S. technology firms. Localization requirements imposed by countries could require companies to have in-country servers and data centers to store data. These types of regulations can create additional costs and may serve as a deterrent for firms seeking to enter new markets or a disguised barrier to trade. Localization supporters, though, claim they increase local control and data security.\nIn TPP, USTR negotiated for the position advocated by the U.S. Treasury Department and sought flexibility for financial regulators to impose localization requirements . While localization requirements are not currently in place in TPP countries, observers note that Malaysia and Vietnam are considering imposing such regulations. In addition, some stakeholders note concern about other countries, including potential future TPP parties such as South Korea and Indonesia, which have or are considering localization requirements. Treasury Secretary Lew cautioned that options for altering the 12-country agreement are limited and, on May 25, 2016, announced a proposal to resolve the issue in future trade agreements (which would not directly affect TPP commitments).\nTPP, like KORUS, also addresses insurance sold by government postal entities. U.S. providers have argued that government-owned and operated insurance providers are not regulated as stringently and, therefore, have a competitive advantage over privately-owned counterparts. TPP would require that parties to the agreement ensure that postal insurance entities are not given advantages over private suppliers, specifically including through regulations, requirements to maintain a license, and access to distribution channels. In some ways, these measures go beyond what was included in KORUS. The separate U.S.-Japan letter on nontariff measures specifically addresses Japan Post's insurance business with clarified and additional commitments by Japan.\nFor the first time in a U.S. FTA, the TPP also includes commitments on electronic payment card services. The TPP would require that each country in the agreement allow for the supply, by persons of other TPP countries, of electronic payment services for payment card transactions, defined by each country, and generally including credit and debit cards. The provisions on card services would, however, allow for certain preconditions of access, including requiring a representative or office within country.",
"While some services can be traded across borders, services are also traded by a person supplying the service traveling to the location where the service is consumed. This is known as mode 4 delivery in the GATS. TPP, like some previous U.S. FTAs, includes commitments on temporary entry for business persons in order to facilitate such trade. As temporary entry has been a controversial issue in the context of previous trade agreements, the United States did not offer or seek commitments on additional visas for temporary entry, and only agreed to measures on regulatory transparency and predictability. According to the Administration, these rules would not require any change in U.S. immigration laws or regulations, and dispute settlement for this chapter is limited to very specific circumstances. Other TPP parties, however, have made additional access commitments on the temporary entry of business persons, including on length of stay and types of occupations, but these will only apply to the other countries making commitments in this area (i.e., not the United States). Australia, for example, provides categories defining \"business visitors\" and spells out the conditions and limitations for each category such as \"service sellers\" who are permitted an initial stay of 6 months up to a maximum of 12 months.",
"For the first time in a U.S. FTA, the telecommunications chapter covers mobile service providers. Television or radio broadcast or cable suppliers, though, are not covered. Overall, the chapter applies a market driven approach, enshrining competition and consumer choice in the sector, and promotes the independence of regulators from the regulated. According to the Administration and the industry advisory committee, given current competition in the U.S. mobile market, the United States would not have new obligations resulting from the TPP commitments, but U.S. mobile carriers would gain greater access to markets abroad. The chapter's provisions would require regulatory transparency; that providers can interconnect with one another; that there is reasonable and nondiscriminatory access to networks, infrastructure, government-controlled resources like spectrum bandwidth, for reasonable rates; and protection of the supplier's options for employing technology. The chapter would promote cooperation on charges for international roaming services and allow regulation for mobile roaming service rates. Other provisions aim to ensure that suppliers can resell and unbundle services.",
"Services industries generally have reacted positively to the TPP provisions relating to U.S. trade in services, with some key exceptions. The International Trade Advisory Committee for services and finance industries (ITAC 10) reported that the agreement satisfies TPA negotiating objectives and \"on balance promotes the economic interest of the United States.\" Business groups note that for the five countries without existing U.S. FTAs, the provisions in TPP would provide meaningful additional market access. They also highlight new provisions in TPP, particularly those related to data flows and digital trade, as advancing U.S. service firms' interests. Provisions on data flows also affect other (non-services) firms, such as manufacturers who rely on global supply chains and transmitting data across borders. The larger business community also sees additional advances in the TPP, include ensuring electronic payment card services and electronic signatures, as well as addressing mobile telecommunications carriers and international roaming rates.\nWhile business groups generally support the agreement and its impact on services, they have raised some concerns. There has been vocal opposition from some in the services sector, for example, over financial services firms' exclusion from TPP's e-commerce chapter and its provisions prohibiting localization requirements for computing facilities. The U.S. Treasury Department reportedly argued in favor of this exception to maintain regulatory flexibility for requiring local storage of financial firm data; opponents of the provision view it as unnecessary given the general prudential exception in the services chapter. Several Members of Congress have expressed their concerns over this exemption in a letter to USTR, urging the Administration to address the issue both in TPP and in ongoing negotiations. Other issues of concern for services industries include: the long list of nonconforming measures (NCMs) that limit the level of liberalization achieved; what some view as a narrow definition of SOEs, limiting these disciplines' applicability; and the U.S. decision not to negotiate additional commitments on temporary entry for business persons in TPP.\nThe Communications Workers of America (CWA), a union representing workers in a number of service industries, opposes TPP. They argue that increased access to the U.S. services market and various provisions throughout the agreement, including on government procurement, investment, and data transfers, could have negative impacts on service workers including in jobs such as call centers and data processing. Other groups also oppose TPP, in part, due to certain services provisions, particularly those on financial services. They argue that TPP commitments will restrict the U.S. government's ability to regulate the financial services industry.",
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"Exports make a vital contribution to U.S. agriculture, absorbing about 20% of total agricultural production, while representing a far larger share of the production of certain commodities, including wheat, rice, soybeans, cotton, almonds, pecans, pistachios, and walnuts, to name a few. As such, foreign demand for U.S. food and fiber contributes materially to higher commodity prices and farm income. The positive ripple effects from farm trade extend beyond farmers and ranchers to rural communities to include: farm input industries that provide seed, fertilizer, and machinery; and commodity processors and food manufacturers with a stake in foreign markets. Exports also can contribute to higher input prices for food to the extent that additional foreign demand is not met by an increase in domestic supplies, although commodity costs amount to a fraction of overall retail food prices. Rising farm productivity, market-oriented U.S. farm policies, and the prospect of competing on more favorable terms for a larger share of the faster-growing food markets in many developing countries are among the reasons that negotiations aimed at liberalizing agricultural trade among TPP countries has elicited a high level of interest and broad-based engagement from U.S. agriculture and food industry interests.\nIt appears the TPP agreement would improve market access for many U.S. food and agricultural products, thus enhancing U.S. competitiveness in a number of markets. At the same time, it also would provide TPP partners with greater access to U.S. markets, thus raising the level of competition from TPP partners.\nThree considerations around the TPP are particularly relevant for U.S. food and agriculture. A discussion of these issues and USITC estimates of TPP's economic impact on U.S agriculture is followed by a partial snapshot of some of the higher-profile improvements in market access for agricultural products in the agreement, a summary of selected provisions beyond market access that are of interest to food and agriculture, and a review of industry reactions to the agreement.",
"An overarching consideration is that among significant TPP markets, the United States lacks FTAs with five TPP countries—of which the most significant are Japan, Vietnam, and Malaysia. With a combined population of roughly 250 million, these three countries likely offer the greatest potential for boosting U.S. farm and food exports via lower tariffs, or expanded tariff rate quotas (TRQs). Significantly, all three countries impose much higher average applied MFN agricultural tariffs than the United States, which could work to the advantage of U.S. farm and food exports versus domestic suppliers and non-TPP export competitors as tariffs decline under the agreement. In 2014, applied MFN tariffs on agriculture products averaged 5.1% in the United States, 9.3% in Malaysia, 14.3% in Japan and 16.3% in Vietnam. Moreover, existing tariff peaks are far higher for a number of product categories. Examples include dairy and poultry imports into Canada; bovine meat, rice and dairy products into Japan; and Vietnamese tariffs across a number of food categories. Japan is likely the leading agricultural market opportunity in the TPP due to its highly protected farm and food markets, large population, and high per capita gross domestic product. Vietnam, with the fourth largest population in the TPP and a fast growing economy, is generally viewed as a market that could hold significant future growth potential for U.S. farm and food products.\nAlso significant is that potential key export expansion opportunities for U.S. food and agriculture interests, such as beef and pork to Japan and dairy products to Japan, Canada, and Vietnam, generally are to be phased in over a period of years, if not decades. For certain products in certain countries, including Japan for beef, pork, and whey powder, and the United States for some dairy products, safeguard measures allow for additional tariffs to be imposed if imports should exceed specified thresholds. Generally, the quantitative trigger level for invoking safeguard measures would increase over time, while the duties imposed under the safeguard are scheduled to be reduced or eliminated. At the same time, preferential access that U.S. food and agricultural interests have to markets in Canada and Mexico under the North American Free Trade Agreement (NAFTA) would become available to a wider group of potential competitors over time as tariffs are lowered for TPP countries.\nIf the United States chooses not to implement the TPP agreement, U.S. agricultural export competitors would have the potential opportunity to gain a competitive edge over U.S. exports of certain products to Japan and elsewhere. This could occur as a result of existing preferential tariff arrangements—such as Australia's FTA with Japan—or by ratifying an agreement similar to TPP without U.S. participation. Also, while the European Union is not party to the TPP, it is negotiating FTAs with Japan, Malaysia, and Vietnam that could enhance its producers' competitive position in those markets.",
"The USITC in its report on TPP of May 2016 concluded the agreement would provide significant benefits to U.S. agriculture. The model estimated TPP outcomes in 2032 for U.S. agriculture compared with a baseline scenario without TPP and reached the following conclusions:\nAgricultural exports would be $7.2 billion higher (2.6%), while imports would increase by $2.7 billion (1.5%). Agricultural output would expand by $10 billion (0.5%), while employment in agriculture also would increase by 0.5%. U.S. dairy product exports would increase by $1.85 billion (18%), while processed foods and beef would post gains of $1.54 billion (3.8%) and $876 million (8.4%), respectively. Fresh fruit, vegetables and nuts would see an estimated increase of $575 million (2%), while pork and poultry meat products post increases of $219 million (1.9%) and $174 million (1.3%), respectively. Corn and rice exports are estimated to be marginally lower with TPP by 0.1% and 0.3%, respectively. As for U.S. imports, processed food would increase by $427 million (1.1%), while beef imports would expand by $419 million (5.7%) and dairy products would be $349 million higher (10.3%). Export gains stem primarily from greater market access via lower tariffs and expanded TRQs, with the lion's share of the total increase of $7.2 billion concentrated in Japan ($3.6 billion) and Vietnam ($3.3 billion).",
"A principal negotiating objective for agriculture in the TPA-2015 is to obtain competitive opportunities for U.S. exports of agricultural commodities that are substantially equivalent to those provided to foreign exports in U.S. markets. In part, this is to be achieved by reducing foreign tariffs on U.S. commodities, while providing a reasonable adjustment period for import-sensitive U.S. products. Accordingly, the TPP agreement would affect market access for a broad range of agricultural commodities and food products. What follows is a selection of some of the notable changes included in the agreement. It is not meant to be comprehensive.\nBeef: Japan ranks as the largest U.S. export market for beef and beef products, according to the U.S. Department of Agriculture (USDA). Under the TPP agreement, Japan would drop its current tariff on fresh, chilled, and frozen beef from 38.5% to 27.5% in year one, with subsequent annual reductions to 9% by year 16. Japan would lower tariffs on other beef products as well, while Vietnam would eliminate such tariffs, currently as high as 34%, over three to eight years. The United States, for its part, would eliminate tariffs on beef and beef products that range as high as 26.4% in no more than 15 years and in fewer than 10 years in most instances. Pork: Japan, which also ranks as the leading market for U.S. pork and pork product exports, would immediately cut its tariff of 4.3% on fresh, chilled, and frozen pork cuts to 2.2%, phasing out the residual over nine years. A separate duty on pork cuts under Japan's \"gate price system,\" which acts as a minimum import price, would be lowered immediately to 125 yen per kilogram, from 482 yen now. This duty would then be cut to 70 yen in year five and subsequently lowered each year thereafter to reach 50 yen in year 10. A special U.S.-specific safeguard would allow Japan to temporarily increase the duty during this transition period if imports were to exceed a trigger level. Vietnam would eliminate tariffs that are as high as 34% on pork and pork products within 10 years, while the United States would immediately eliminate most such tariffs. Poultry: Canada would allow incremental increases in access to its highly protected poultry and egg markets over five years via new duty-free, TPP-wide TRQs amounting to 2.3% of domestic production for eggs, 2.1% for chicken, 2% for turkey, and 1.5% for broiler hatching eggs. Thereafter, the quotas would be raised moderately each year, plateauing in year 19 , at which point these TRQs would amount to 19 million dozen eggs, 26,745 metric tons of chicken, 3,983 tons of turkey and 1.14 million dozen broiler hatching eggs and chicks. Vietnamese tariffs on poultry of up to 40% would be eliminated within 13 years. U.S. tariffs of up to 18.6% ad valorem equivalent would be eliminated within 10 years. Dairy: Opening dairy markets to greater import competition was among the most difficult agricultural issues to resolve during TPP negotiations. Under the agreement, Canada would allow incremental additional access to its highly protected dairy product markets amounting to 3.25% of its output for 2016 under TRQs that would be phased in over five years, with moderate annual increases thereafter. For perspective, this additional access would amount to about 0.3% of current U.S. milk production and would be open to all TPP countries. These Canadian TRQs for dairy products, such as fluid milk, butter, cheese, and yogurt, would increase between 14 and 19 years and then remain fixed. In-quota dairy products would enter Canada duty free. Canada also would eliminate its over-quota tariff of 208% on whey powder over 10 years. Japan would eliminate many tariffs it imposes on cheese imports within 16 years and on whey within 21 years. The United States would gradually phase out tariffs and establish TRQs for dairy products from Australia and New Zealand that would be increased annually. Existing preferential access for Australian dairy products under the U.S.-Australia FTA would be transferred to perpetual TRQs. New U.S. TRQs for Canadian dairy products would be raised gradually each year until year 19, at which point the quantities would remain level. Rice: Japan, the second-largest overseas market for U.S. rice, would establish a new duty-free quota for U.S. rice of 50,000 tons initially, rising to 70,000 tons in year 13, but still well below the 165,000 tons the U.S. rice industry had sought. Japan also would allow a broader range of domestic entities to participate in tenders on this additional quota, as well as on 60,000 tons of rice under an existing quota. But Japanese officials indicate that the \"minimum mark-up\" Japan imposes on rice imports—equivalent to a 15-20% duty according to USA Rice—would continue to be applied to all imports. U.S. tariffs on rice products of up to 11.2% would be eliminated within 15 years. Cotton: U.S. tariffs on cotton that range up to $0.314 per kg generally would be eliminated by 2022, and in some cases would be removed immediately. Sugar: Access to the U.S. sugar market would be expanded incrementally by establishing new TRQs for sugar and sugar-containing products totaling 86,300 tons annually, representing 2.4% of U.S. sugar imports in 2014/2015. Australia and Canada would immediately receive new duty-free quotas totaling 65,000 tons and 19,200 tons per year, respectively. The residual would be split between Japan, Malaysia, and Vietnam. The Australian and Canadian TRQ s include the potential for expansion in years when additional U.S. sugar imports are required. The additional TRQ for sugar is not expected to threaten the budget neutral requirement of the U.S. sugar program. Japan would provide new TRQs that would expand access to its market for sugar and sweetener-related processed products on a duty-free or preferential-tariff-rate basis, including chewing gum, chocolates and products containing chocolate, confectionery goods and other such products, and would eliminate tariffs on various sweetener products over time. Tobacco: U.S. tariffs on tobacco of up to 350% would be eliminated within 10 years, while Japan would eliminate tariffs on smoking tobacco and cigars over 11 years, and Malaysia would eliminate all tariffs on tobacco and tobacco products over 16 years. Vietnam would create a TRQ of 500 metric tons for unmanufactured tobacco imports that increases gradually for 20 years with no limit from year 21, while eliminating in-quota tariffs over 11 years and for all tobacco leaf after 20 years. Vietnamese tariffs on blended tobacco, cigars, and other tobacco products would be eliminated over 16 years. A controversy has emerged over a provision in the Exceptions chapter of the agreement that allows countries to deny recourse to protections under the investor-state dispute settlement (ISDS) to tobacco product manufacturers for claims directed at tobacco control measures. This optional exclusion would not apply to leaf tobacco, although, to the extent that tobacco product sales could be blunted by this provision, it would appear to have the potential to affect sales of leaf tobacco.",
"The agreement addresses a number of trade-related areas beyond tariffs and TRQs are import to exporters of food and agricultural products, among which are sanitary and phytosanitary measures (SPS), agricultural biotechnology and export programs.",
"Geographic Indications (GIs) are geographical names that act to protect the quality and reputation of a distinctive product originating in a certain region. As such, GIs can be commercially valuable and, as intellectual property, can provide eligibility for relief from acts of infringement or unfair competition. GIs are most often, but not exclusively applied to wines, spirits and agricultural products. Examples of GIs include Parmesan cheese and Parma ham, Champagne, Florida oranges, Idaho potatoes, Washington State apples and Napa Valley wines. GIs have become a point of controversy in international trade because GIs that are considered by some to be protected intellectual property are considered by others to be generic or semi-generic names and thus not protected. For example, \"feta\" is considered a generic name for a type of cheese in the United States, but is a protected GI in the European Union (EU). As such, U.S.-produced \"feta\" cannot be sold under that name in the EU. This type of exclusivity can extend beyond the EU, for example, when a third country has agreed to recognize EU-approved GIs under a bilateral trade agreement.\nThe TPP agreement obligates members that provide for recognition of GIs to make this process available and transparent to interested parties within the TPP, while also providing a process for canceling GI protection. Parties that recognize GIs also are to adopt a procedure by which interested parties may object to the provision of a GI. Among the reasons the agreement lists for opposing a GI are: the GI is likely to cause confusion with a trademark that is recognized within the country, a pre-existing application is pending, or the GI is the customary term for same item in the common language of the country. Specific to wines and spirits that are products of the vine, TPP members are not required to recognize a GI of another member if the GI is identical to the customary name of a grape variety existing in that party's territory. Factors that are relevant in determining whether a term is the customary common name for a good include whether the term is used to identify the good in dictionaries, newspapers and websites, and whether the term is the name by which the good is marketed and referenced in trade in the country.\nFinally, with respect to other international agreements involving TPP members that provide for the protection of GIs, the TPP agreement states that members are to make available to interested parties information concerning the GIs involved and to allow them a reasonable opportunity to comment and to oppose the prospective recognition of the GIs. These obligations would not apply to international agreements that were concluded, agreed in principle, ratified, or that had entered into force prior to the entry into force of the TPP agreement.",
"As tariff rates have been lowered for food and agricultural products in recent decades, nontariff barriers have gained greater visibility as obstacles to trade. Among the nontariff measures the TPP seeks to address are SPS measures, which consist of actions that address issues of food safety, plant pests and animal diseases. Among SPS commitments the agreement addresses are: the establishment of an SPS committee composed of TPP member representatives; an obligation to base SPS measures either on international standards or on objective scientific evidence and to select risk management measures that are no more trade-distorting than necessary; a commitment to allow for public comment on the development of SPS measures; and the obligation to provide rapid notification of shipments held on importation. Importantly, SPS disputes are to be addressed first in technical consultations among relevant governmental authorities under a procedural timeline established in the agreement. If the issue cannot be resolved through technical consultations, parties may turn to dispute settlement procedures in the agreement.\nTPP builds on the WTO's SPS agreement with the introduction of a rapid notification requirement that obligates an importing country to provide notification within 7 days when an inbound shipment is restricted or prohibited. IT also establishes a new rapid response mechanism that allows parties to raise SPS concerns through recourse to Cooperative Technical Consultations by engaging national trade and regulatory agencies with the aim of resolving them within a defined procedural framework and timetable.",
"As concerns agricultural products of modern biotechnology, the agreement commits the signatories to increase transparency and provide notification of national laws and regulations of biotech products. It also encourages information sharing on issues related to the occurrence of low-level presence (LLP) of biotech material in food and agricultural products. To minimize LLP occurrences and any disruptions to trade that may result from an LLP incident, both importers and exporters commit to exchange certain information, such as product risk assessments and new plant authorizations.\nThe agreement also establishes a working group on agricultural biotechnology within the TPP Committee on Agricultural Trade. The working group is to function as a forum for exchanging information on issues such as national laws, regulations and policies affecting trade in biotech products. Finally, the agreement states that parties are under no obligation to adopt or modify existing laws, regulations or policies that apply to biotechnology.",
"On the topic of agricultural export programs, signatories to the agreement commit to eliminate the use of export subsidies, a type of incentive the United States does not employ in any case. The export subsidy ban is seen mainly as setting a standard for future reform on a multilateral basis. A commitment around export credits, credit guarantees, and insurance programs—which the United States does employ—is less ambitious: the agreement merely states the parties will cooperate to develop multilateral disciplines around these programs. The agreement also discourages restrictions on exports of food and agricultural products. To this end, it commits TPP countries to limit such restrictions to six months, and requires a country that imposes such restrictions for more than 12 months to consult with interested TPP importing countries.",
"As of the beginning of 2016 numerous interest groups in the food and agricultural sector have passed judgment on the TPP agreement. Supporters include broad agricultural groups such as the American Farm Bureau Federation, as well as specific meat (beef, pork, and chicken) and commodity (wheat, corn, soybean, and peanut) associations. The Grocery Manufacturers Association, representing food, beverage and consumer product companies has also endorsed the agreement. More recently, a number of U.S. dairy groups, including the National Association of Milk Producers, have endorsed the agreement.\nThe Agricultural Policy Advisory Committee for Trade on the Trans-Pacific Partnership (APAC), which is composed of a broad array of agricultural interests from producer groups to processing and exporting companies, expressed strong support for the agreement, reflecting the views of a \"clear majority\" of its members. APAC is one of a number of advisory committees charged with assessing whether the agreement promotes the economic interests of the United States and achieves the negotiating objectives that Congress established in TPA-2015.\nSupport for the TPP agreement, however, is not universal within the food and agriculture sectors. The National Farmers Union (NFU) opposes the deal, contending benefits on the export side of the trade ledger will be overshadowed by greater competition from imports, leading to lower revenues for farmers and ranchers and to job losses. Also opposed to the agreement is the United Food and Commercial Workers Union International (UFCW), which represents workers in the grocery, retail, meat packing and food processing industries. The UFCW faults the agreement for the lack of an enforcement mechanism against currency manipulation, which it contends will nullify the benefits of tariff reductions, while contributing to the transfer of U.S. jobs to lower-wage markets overseas. The NFU and UFCW issued a dissenting minority report as members of APAC.\nAPAC Representatives of tobacco leaf growers also oppose the agreement. They contend that allowing TPP countries to deny dispute settlement protections to tobacco product manufacturers could have negative ripple effects for U.S. tobacco farmers and could establish a precedent for future trade agreements.\nCertain NGOs also oppose the agreement, in part, due to concerns with provisions related to agriculture. These groups argue that the TPP will limit the U.S. government's ability to regulate the country's food supply, raising particular concern with seafood imports from Malaysia and Vietnam. They also take issue with potential food labeling restrictions resulting from TPP commitments, noting that the Congress decided to change its country-of-origin-labeling (COOL) requirements for meat products as a result of a trade dispute with Canada and Mexico in the WTO.",
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"The Government Procurement chapter sets standards and parameters for government purchases of goods and services among TPP countries. The U.S. trade negotiating objective for government procurement in TPA seeks \"transparency in developing guidelines, rules, regulations, and laws for government procurement,\" but does not address market access goals. The United States is a member of the plurilateral WTO Government Procurement Agreement (GPA) and has sought the inclusion of government procurement provisions in its FTAs. Among TPP partner countries, only Canada, Japan, New Zealand, and Singapore are members of the GPA. All U.S. FTAs—including those with TPP partners Australia, Peru, Chile, Singapore, and NAFTA—include chapters on government procurement. Similar to U.S. obligations in the GPA, although with different schedules of commitments for various government agencies, the FTA obligations provide opportunities for firms of each nation to bid on certain contracts over a set monetary threshold on a reciprocal basis. TPP contains first-ever reciprocal procurement commitments for Vietnam, Malaysia, and Brunei.\nSupporters of expanded procurement opportunities in FTAs argue that the reciprocal nature of the government procurement provisions in TPP will allow U.S. firms access to major government procurement market opportunities overseas. This market could be quite large. According to the WTO, government procurement typically accounts for 15-20% of a country's GDP, and the size of the government procurement market among GPA members was valued at $1.6 trillion in 2008. In addition, supporters claim open government procurement markets at home allow government entities to accept bids from partner country suppliers, potentially making more efficient use of public funds.\nHowever, others stakeholders contend that public procurement should primarily benefit domestic industries. The Buy American Act of 1933, as amended, limits the ability of foreign companies to bid on procurements of manufactured and construction products. Buy American provisions periodically are also proposed for legislation such as infrastructure projects requiring government purchases of iron, steel, and manufactured products. Such restrictions are waived for companies from countries with which the United States has FTAs or to countries belonging to the GPA.\nThe United States negotiated only federal procurement, excluding additional state or local procurement commitments in the TPP negotiations. This may be due to resistance among U.S. states to providing access to their procurement markets. States must voluntarily opt in to government procurement commitments in FTAs, but the number of states doing so has dropped substantially from the 37 states that signed up to the GPA to 10 states that acceded to commitments under the most recent U.S. bilateral FTAs with South Korea, Panama, and Colombia.",
"In negotiating government procurement agreements, countries set out schedules on: (1) the government entities that will accept bids from overseas companies; (2) the types of procurements that are eligible; (3) monetary thresholds; and (4) exceptions to these commitments. The TPP provides that for eligible procurement opportunities, countries will\nextend national and nondiscriminatory treatment among TPP partners; adopt a negative goods coverage schedule (i.e., all goods are eligible unless explicitly excluded, such as defense procurement). Some countries also adopt a negative list for services; promote transparency in the tendering process through online tender information and descriptions; provide online application and documentation processes without cost to the applicant, and provide for publication of post-award explanations of procurement decisions; broaden covered procurement to include public-private partnerships (PPP) and build-operate-transfer (BOT) projects, although Malaysia, Mexico, and Vietnam are excluded from this provision; and prohibit offsets.\nCountries have made incremental changes in the schedules of covered commitments to provide additional access to TPP partners. Yet, several countries have taken exceptions to their schedules. The United States and four other countries (Malaysia, Mexico, New Zealand, and Vietnam) exclude sub-central (state and local) procurement. Countries that do make sub-national commitments (Australia, Canada, Chile, Japan, and Peru), extend those concessions reciprocally only among themselves.\nThresholds , Transitions and Exemptions . When fully effective, most countries will adopt a baseline threshold of SDR130,000 (about $180,000). However, Brunei, Malaysia, and Vietnam will apply transitional thresholds that shrink over time: 4 years for Brunei, 7 years for Malaysia, and 25 years for Vietnam. Thresholds for sub-federal procurement and construction projects are higher. In addition, Malaysia is allowed to retain its Bumiputera preferences to support the native Malay population, and Malaysia, Mexico, and Vietnam may continue to impose offsets, set-asides and price preferences for varying periods or permanently. For example, Vietnam will be able to set aside 100% of the value of pharmaceutical procurements for the first 3 years, transitioning in installments to 50% in year 16. In addition, Malaysia can exempt any procurements that will \"affect Malaysia's essential security interests.\"",
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"Intellectual property (IP) is a creation of the mind embodied in physical and digital objects. IPR are legal, private, enforceable rights that governments grant to inventors and artists that generally provide time-limited monopolies to right holders to use, commercialize, and market their creations and to prevent others from doing the same without their permission.\nThe use of trade policy to advance IPR internationally emerged with NAFTA and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These agreements build on international treaties administered by the World Intellectual Property Organization (WIPO). U.S. trade negotiating objectives in TPA-2015 call for U.S. FTAs to \"reflect a standard of protection similar to that found in U.S. law\" (\"TRIPS-plus\") and to apply existing IPR protection to digital media through adherence to the WIPO \"Internet Treaties.\" TPA-2015 also includes new objectives to address cybertheft and protect trade secrets and proprietary information.\nIP is a source of U.S. comparative advantage, and the Asia-Pacific region is a fast-growing market for U.S. IP-based exports. TPP countries represent more than one-fifth of the approximately $130 billion in IP royalties, license fees, and payments that U.S. exporters received in 2014. According to USITC modeling estimates, improvements in TPP countries' patent protections to meet TRIPS obligations, led to an 11% or $2.9 billion increase in U.S. IP receipts from these countries in 2010, which could have been even higher with greater levels of patent protection (17% or $5.0 billion higher in 2010).\nAt the same time, the TPP region poses significant counterfeiting and piracy challenges, including in the digital environment. The USTR continued to designate five TPP parties (among 34 U.S. trading partners) as having IPR regimes of concern to the United States in the 2016 \"Special 301\" report (pursuant to Sec. 182 of the Trade Act of 1974, as amended). The report reviews the global state of IPR protection and enforcement and designated Chile on the \"Priority Watch List\" for significant IPR concerns; and Canada, Mexico, Peru, and Vietnam on the \"Watch List\" for lesser but still notable IPR concerns (see text box ).\nIn its FTA negotiations, the United States generally seeks IP commitments that exceed the WTO TRIPS Agreement's minimum standards of IPR protection and enforcement. TRIPS includes provisions on a balance of rights and obligations between protecting private rights holders and securing broader public benefits. Debate persists in U.S. trade policy and more broadly, among developed countries (historically IP generators and exporters) and developing countries (historically IP importers), about this balance.",
"Among the more controversial aspects of the TPP negotiations were protections for pharmaceuticals through patents and data exclusivity, which raise questions about the balance between supporting innovation and supporting affordable access to medicines. One view is that patents and data exclusivity provide incentives for innovation by enabling right holders to generate profits to recoup R&D and regulatory costs and invest in future innovations. Another view is that patents may raise the costs of drugs and delay the entry of generic competitors into the market, thereby impeding affordable access to medicines. Some observers argue that a narrow focus on patents and data exclusivity masks the other factors that can affect public health, such as the efficiency of health care delivery systems or infrastructure, while others emphasize the significant role of patents and data exclusivity. Such debates have come to a head in terms of TPP's treatment of biologics, a major U.S. innovation sector that can produce life-saving medicines, but for consumers, affordability is a concern both in the United States and abroad.\nWith copyrights, a longstanding debate concerns the balance between granting copyright holders exclusive rights to control their works and providing certain limitations on that right for \"fair use\" (e.g., criticism, comment, news reporting, teaching, scholarship, and research). Stakeholders also debate the balance between allowing Internet Service Providers (ISPs) to operate their businesses and providing enforcement procedures to address copyright theft through their networks.\nDuring the negotiations, different stakeholders expressed concern over how TPP's IP chapter compared to other FTAs, chiefly the KORUS and the \"May 10 th \" FTAs, i.e., those then-pending FTAs revised to reflect the May 10, 2007, Bipartisan Trade Understanding (May 10 th addressed four different aspects of U.S. FTA provisions, see text box preceding this section for more). Some business groups, especially in the pharmaceutical sector, while broadly supportive of the IPR chapter, express concern that certain aspects of it may be less robust compared to KORUS, while others say that vigilant enforcement of TPP will not lead to any substantive differences from the level in KORUS. Some express concern about the length of transition periods for implementing IPR commitments for certain countries, while others argue that these transition periods reflect TPP countries' development levels and enforcement capacity.\nSome groups, particularly those concerned about the impact of strong IP provisions on affordable access to medicines in developing countries, favored maintaining the May 10 th approach to patents. Others argued that this approach was specifically tailored to certain FTAs and not intended to be the template for the U.S. approach to patent protections in FTAs going forward. In the end, TPP includes some provisions favorable to both sets of stakeholders, extending some patent and data protections beyond those of the May 10 th Agreement, while providing phase-in periods for those new commitments for developing countries.\nIP is addressed primarily in a separate chapter in TPP, though other chapters also have some relevance (e.g., investment). The patent section reflects some May 10 th elements, but departs in other areas. The IP chapter also contains some new provisions that go beyond existing U.S. FTAs, such as KORUS. IP provisions, including key changes, are discussed below.",
"Patents protect new innovations and inventions, such as pharmaceutical products, chemical processes, new business technologies, and computer software. Patent protection in the TPP builds on the TRIPS provisions of the WTO and adapts provisions from previous U.S. FTAs. It broadly seeks to establish consistent and harmonized patent regimes throughout the TPP region. Some of these provisions are specific to pharmaceutical products and are designed, according to recently enacted U.S. trade negotiating objectives, to \"encourage innovation and access to medicine.\"\nPatent Subject Matter. TPP reaffirms the familiar language of TRIPS requiring countries to provide a system of patents available for an invention, product or process \"if the invention is new, involves an inventive step and is capable of industrial application.\" In addition to making patents available for \"new uses or new methods of using a known product\"—the language found in KORUS—TPP also provides for \"new processes of a known product.\"\nTPP reaffirms the TRIPS language that a party may exclude from patents diagnostic, therapeutic and surgical methods, and animals other than microorganisms. While it allows parties to exclude plants other than microorganisms from patentability, it does provide for patents for inventions derived from plants.\nAccess to Medicines. TPP provides that the chapter's obligations \"do not and should not prevent a Party from taking measures to protect public health...and, in particular, to promote access to medicines for all.\" TPP affirms that the chapter should be interpreted as consistent with the WTO Doha Declaration on TRIPS and Public Health (TRIPS Declaration). Parties also may take measures consistent with the TRIPS Declaration in matters regarding protecting test data for pharmaceuticals and biologics.\nPatent Term Adjustment . TPP provides that for unreasonable delays (defined as more than five years from the date of filing, or three years from a request for examination) in the patent examination process, applicants may request an extension of the patent term. For pharmaceutical products subject to marketing approval by a regulatory authority, TPP also provides adjustment for a patent term to account for unreasonable delays, although in this case, \"unreasonable\" is not defined. These provisions follow the KORUS text, but allow Brunei, Malaysia, and Vietnam a five-year transition period. Patent term extension was optional under the May 10 th agreement for developing countries.\nProtection for Undisclosed Test Data (Data Exclusivity) . Often referred to as data exclusivity, this practice provides a period of protection for test data that prevents a generic company from relying on the test data submitted by the originator company in order to gain marketing approval for a generic version of the brand name drug. TPP provides at least five years of data exclusivity for small molecule pharmaceuticals, following the KORUS standard. The May 10 th FTAs also provided for five years of data exclusivity; however, they allowed, for countries relying on marketing approval granted in the United States, that period to run concurrently if the country grants marketing approval within six months of receiving an application. The purpose of concurrent period is to encourage the marketing of innovative drugs in developing countries. TPP does not provide for a concurrent exclusivity period. TPP also provides an additional three years of data exclusivity for clinical information supporting a new indication, formulation, or method of administration of an existing approved drug. Under the May 10 agreement, this type of extension was optional. In addition, under TPP, the expiration of the patent cannot limit the period of protection for test data.\nBiologics. The issue of data exclusivity for biologics has been especially contentious in TPP. The United States currently provides a 12-year exclusivity period for marketing data submitted with biologics for marketing approval, and sought that standard in the TPP negotiations in line with U.S. negotiating objectives. Other countries have had a range of exclusivity periods, from no period of exclusivity (Brunei) to five years (Australia, Malaysia, New Zealand, Singapore, and Vietnam) to eight years (Japan and Canada). Chile, Mexico, and Peru do not differentiate between data exclusivity for biologics and small-molecule pharmaceuticals, but have 5-year periods for the latter. TPP provides either eight years of data exclusivity, or five years coupled with \"other measures\" and \"recognizing that market circumstances also contribute to effective market protection\" to \"deliver a comparable outcome in the market.\" Some Members of Congress have objected to this shortened period of exclusivity, and may seek side letters or other measures to clarify how this provision will be implemented. Australia and New Zealand have indicated that they would not have to make changes to their laws to be compliant with this language. The TPP is the first FTA specifically to include protections for biologics as an obligation.\nPatent Linkage. Under this practice, a national regulatory authority (e.g., U.S. Food and Drug Administration) cannot grant marketing approval to a generic version of a drug without the permission of the patent holder. If marketing approval is sought for a generic prior to the expiration of a patent, this patent could delay the access of generic medicines. Previous U.S. FTAs, such as KORUS, mandated the notification of the patent holder and obligated the marketing authority to prevent a generic manufacturer from seeking market approval without the rights holder's consent. TPP continues the notification requirement, but provides more flexibility on the notification system and the procedures (e.g., judicial or administrative proceedings, and remedies, such as preliminary injunctions) for a patent holder to assert his rights, as well as for a party to challenge the patent's validity. While the May 10 agreement required this flexibility only for developing countries, TPP extends it to all countries. U.S. law does not mandate patent linkage for biologics, and this may have been a motivating factor for flexibility concerning patent linkage in the TPP.",
"Copyrights protect artistic and literary works, such as books, music, and movies. The TPP copyright section, broadly speaking, includes copyright protections similar to those in KORUS for literary and artistic works, performances, and phonograms (collectively referred to here as \"creative works\" and distinguished as needed), and some new features, such as for \"fair use\" and enforcement.\nInternational Agreements. TPP, like KORUS, requires each party to ratify or accede to several international agreements by the TPP's entry into force. These include the 1996 WIPO \"Internet Treaties,\" which set forth international norms regarding copyright protection in the digital environment. To date, the WIPO Internet Treaties are in force for nine TPP countries, most recently Canada in 2014, although full implementation of the treaties remains a U.S. concern for some countries. Brunei, New Zealand, and Vietnam have yet to ratify or accede to these agreements.\nLength of P rotection. TPP, like KORUS, increases copyright terms to life plus 70 years, or 70 years from publication for most works. This is higher than the TRIPS Agreement baseline (life plus 50 years). TPP includes phase-in periods for countries currently providing life plus 50 years of protection, which include Brunei, Canada, Japan, Malaysia, New Zealand, and Vietnam.\nExclusive R ights. TPP carries forward KORUS' core copyright protections. Each party must provide right holders the exclusive right to authorize or prohibit the reproduction, communication, and distribution of their works.\nLimitations , Exceptions, and \" F air U se.\" TPP, like KORUS, requires each party to confine limitations or exceptions to copyrights subject to certain conditions. New in TPP is a provision that parties \"shall endeavor to achieve an appropriate balance\" between users and rights holders in their copyright systems, including digitally, through exceptions for legitimate purposes, such as criticism, comment, news reporting, teaching, scholarship, and research—known as \"fair use\" in the United States. Technological Protection Measures (TPMs). TPMs are measures such as encryption to limit unauthorized reproduction, transmission, and use of products. TPP, like KORUS, requires civil, administrative, and criminal penalties for circumventing TPMs or selling devices and services for breaking TPMs, subject to certain exceptions for noninfringing uses. While KORUS appears to confine exceptions and limitations to specified measures, TPP appears to set out broader parameters for providing exceptions and limitations regarding circumventing TPMs. According to USTR, \"TPP's anti-circumvention of [TPMs] provisions do not preclude new exceptions, like cellphone unlocking, while still protecting new online services that engage in legitimate digital trade.\" Enforcement. The IP chapter's enforcement section includes a number of copyright-related provisions. New provisions in TPP compared to KORUS include extending copyright enforcement commitments to the digital environment and requiring criminal penalties and procedures for camcording in movie theaters. Similar to KORUS is a TPP provision requiring criminalization of the theft of encrypted satellite and cable signals. Collective M anagement S ocieties. TPP includes a new provision that recognizes the importance of collective management societies for copyrights in collecting and distributing royalties based on \"fair, efficient, transparency and accountable\" practices.\" Internet S ervice P roviders (ISPs). ISPs generally are defined as providers of online services for transmitting, routing, or providing connections for digital online communications. Key provisions related to ISPs include: ISP Liability . TPP requires parties to establish or maintain a legal framework and \"safe harbors\" to allow legitimate ISPs to develop their business while also providing effective enforcement procedures against digital copyright infringement. These include legal incentives for ISPs to cooperate with copyright owners to deter unauthorized storage and transmission of copyrighted materials, as well as limitations in law that preclude monetary relief against ISPs for copyright infringement that, generally speaking, the ISPs do not control but that takes place through their systems or networks. KORUS also contains provisions on liability for service providers and limitations. Notice and T akedown. TPP requires parties to adopt \"notice and takedown\" provisions to address ISP liability, i.e., a requirement for the ISP to remove or disable access to infringing materials on their networks or systems when they receive notice or become aware of the infringement and a liability exemption for an ISP that has taken proper action. It also contains safeguards to protect against abuse of notice and takedown systems. Some find TPP's \"notice and takedown\" approach similar to that in the U.S. law while others have questioned its consistency. TPP allows certain existing alternative systems for specific countries, such as Canada's \"notice and notice\" system.",
"Trademarks protect distinctive commercial names, marks, and symbols. TPP includes provisions on trademark protection and enforcement. Key features are discussed below.\nTerm of P rotection. Under TPP, like KORUS, the term of protection for the initial registration of a trademark and each renewal is no less than 10 years.\nScope of P rotection. TPP includes several provisions regarding the scope of trademark protection:\nSound and S cent M arks. TPP, like KORUS, extends trademark protections to sounds (stating that marks do not have to be \"visually perceptible\" in order to be registered). Unlike KORUS, TPP does not extend trademark protections to scents, instead requiring \"best efforts\" to do so. Some stakeholders may value the \"best efforts\" language as a positive development, but would prefer mandatory protection for scents. Certification and C ollection M arks. TPP, like KORUS, extends trademark protections to \"certification marks\" (e.g., such as the Underwriters' Laboratory or Good Housekeeping Seal) New in TPP is protection for \"collective marks,\" which is not in KORUS. Certification marks are usually given for \"compliance with defined standards,\" while collective marks are usually defined as \"signs which distinguish the geographical origin, material, mode of manufacture or other common characteristics of goods or services of different enterprises using the collective mark.\" Well-known T rademarks. TPP, like KORUS, extends protection for \"well-known marks\" to dissimilar goods and services, whether or not registered, so long as the use of the mark would indicate a connection between the goods or services and the owner of the well-known mark and the trademark owner's interests are likely to be damaged by the use. TPP, similar to KORUS, require \"appropriate measures\" to refuse applications or cancel registrations and prohibit using trademarks that are identical or similar to well-known trademarks for identical or similar goods or services if doing so is likely to cause confusion with the prior well-known trademark. GI P rotection. Geographical indications (GIs) protect distinctive products from a certain region, applying primarily to agricultural products (e.g., feta cheese, Parma ham).TPP, like KORUS, requires geographical indications (GIs) to be eligible for protection as trademarks. This provision may be viewed as consistent with the U.S. approach which affords GIs protection through the trademark system. (See Agriculture, above, for more information.) Exceptions. TPP, like KORUS, allows parties to provide limited exceptions to trademark rights, such as \"fair use of descriptive terms,\" subject to certain conditions.\nTrademark S ystem. TPP, like KORUS, includes provisions to enhance efficiency and transparency in parties' trademark systems, such as requiring a system for examining and registering trademarks, the ability to challenge a refusal of a mark, and an electronic system for application and maintenance of trademarks.\nTPP expands on KORUS to also prohibit parties from requiring that a mark be recorded as a condition for a trademark owner to be able to pursue certain legal proceedings relating to the acquisition, maintenance, or enforcement of trademarks. The removal of this administrative requirement is intended to enable easier protection and enforcement of trademarks.\nDomain Names. Similar to KORUS, TPP requires each party to have a system for managing its country-code top level domains (ccTLDs) and to make available online public access to a database of contact information for domain-name registrants. Going beyond KORUS, TPP requires parties to make available appropriate remedies in which a person registers or holds, with \"bad faith intent to profit,\" a domain name that is identical or confusingly similar to a trademark. This provision is intended to protect against what is often referred to as \"cybersquatting.\"",
"Trade secrets are confidential business information that is commercially valuable because it is secret, including formulas, manufacturing techniques, and customer lists. TPP is the first FTA to require criminal procedures and penalties for trade secret theft, including through cyber means, and including such theft by State Owned Enterprises (SOEs). While some stakeholders view these new commitments on trade secrets as a good first step and a good precedent, others express concern that the provisions lack clarity and do not go far enough.",
"Industrial designs constitute the ornamental or aesthetic aspects of a product. The section on industrial designs is a new provision in TPP. It adds protections beyond the TRIPS Agreement for designs embodied in a part of an article, or a part of an article \"in the context of the article as a whole.\" TPP also contains hortatory language on parties improving their system of design registration.",
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"The United States, a major source of and destination for foreign direct investment (FDI), negotiates investment rules in its trade agreements to reduce restrictions on investment, protect investors, and advance other U.S. interests. The TPA-2015 includes a principal U.S. trade negotiating objective to reduce or eliminate discriminatory barriers to foreign investment while ensuring that, in the United States, foreign investors are not accorded \"greater substantive rights\" than domestic investors. The U.S. Model Bilateral Investment Treaty (BIT) also forms the basis of U.S. investment negotiations and contains \"core\" protections for investors (see text box ).\nIn 2014, TPP countries represented more than 20% of U.S. global FDI (stock and flow), and TPP would cover more FDI than any U.S. FTA (save the potential T-TIP). The United States has bilateral FTAs in force with six TPP countries, all with investment obligations. Still, U.S. investors express concern about investment barriers in the TPP region, including restrictions on investing in certain sectors, discriminatory treatment, and local content requirements.",
"Investment negotiations reportedly were among the most difficult in TPP. One issue is the relationship between protecting investors and TPP countries' national sovereignty. Supporters argue that investor protections are central to removing investment barriers and protecting investors from discriminatory treatment. Supporters also argue that U.S. investment agreements do not prevent governments from regulating in the public interest in a nondiscriminatory manner, and that ISDS remedies are limited to monetary penalties and cannot require governments to change their laws or regulations. Critics counter that companies use ISDS to restrict governments' ability to regulate in the public interest (such as for environmental or health reasons), leading to \"regulatory chilling\" even if an ISDS outcome is not in a company's favor. The United States, to date, has never lost a claim brought against it under ISDS in a U.S. investment agreement. Some opponents express concern that ISDS in TPP could open the United States to more litigation because of the presence in the United States of affiliates of companies from TPP countries like Japan. An ISDS claim brought in 2011 by a Philip Morris subsidiary against Australia under the Australia-Hong Kong BIT challenging its plain packaging requirement for tobacco as an uncompensated expropriation and a violation of minimum standard of treatment (MST) obligations heightened the TPP debate. In December 2015, a tribunal ruled that it lacked jurisdiction to consider the claim. Separately, TransCanada's notice in January 2016 of its intent to challenge the Obama Administration's Keystone XL pipeline decision under NAFTA Chapter 11's ISDS mechanism may further complicate the debate.\nAnother issue is whether investment rules treat U.S. and foreign investors equally. Supporters stress that ISDS and other protections are reciprocal (i.e., a U.S. investor could use ISDS to resolve a dispute over its investment in a TPP country) and modeled after U.S. law, and, thus, do not afford foreign investors any greater substantive rights than U.S. investors domestically. Critics argue that the use of ISDS implies greater procedural rights by providing foreign investors in the United States with an additional choice of venue.\nThe fairness and transparency of ISDS procedures have also been a focal point. In general, under U.S. investment agreements, the ISDS tribunal is to be composed of three arbitrators—one appointed by the investor claimant, one by the party, and one by agreement of the disputing sides. Most cases are conducted under rules of the World Bank-affiliated International Centre for Settlement for Investment Disputes (ICSID), or under comparable rules of the United Nations Commission on International Trade Law (UNCITRAL). Both sets of rules include procedures for disqualifying arbitrators for bias. The actual record on ISDS also suggests that tribunal outcomes favor states more often than investors. Critics nevertheless express concern about bias, noting that lawyers can rotate between acting as arbitrators in one case and representing investors in other cases. While transparency in ISDS proceedings has been a common part of U.S. investment agreements, some stakeholders argue that the proceedings are not transparent enough. Limited opportunity for third-parties to express their views in ISDS proceedings also has been an issue.\nAlso debated is the creation of an appellate mechanism to review ISDS outcomes; such a mechanism is a TPA negotiating objective, but is not included in the TPP. Some argue that this kind of review mechanism could bring some coherence to inconsistent tribunal decisions, resulting in greater certainty about obligations under investment agreements, while others argue that it would lead to additional costs and delays in resolving disputes.\nOther ISDS reforms advanced may affect consideration of TPP. For example, in the T-TIP negotiations, the EU submitted a proposal for a new Investment Court System to replace ISDS; the proposal includes an appellate mechanism. U.S. government officials have questioned the proposal, favoring ISDS to protect investors while balancing other public policy interests. Some businesses argue that it would erode investor protections, while some civil society groups say it does not resolve their concerns. The United States may closely monitor how the EU pursues its new proposal in its other trade negotiations, including with TPP partners. For example, the EU-Vietnam trade agreement includes the main provisions of the EU's proposal, and the EU and Canada have agreed to include the proposal's main elements in the finalized text of their Comprehensive Economic and Trade Agreement (CETA).",
"The investment chapter largely reflects the 2012 Model BIT's core investor protections and exceptions (see text box above). It also notes that such obligations apply to SOEs. Like other U.S. FTAs, TPP does not have an appellate mechanism. TPP also contains some new provisions that go somewhat beyond KORUS and the model BIT and significantly beyond WTO agreements, which address investment issues in a limited manner. Certain new provisions are highlighted below.\nMinimum Standard of Treatment (MST) . TPP requires parties to provide MST to investments in accordance with applicable customary international law. New in TPP is clarification that a party's action (or inaction) that may be inconsistent with investor expectations is not, on its own, a breach of the MST, even if loss or damage to the investment follows. Some stakeholders oppose the change as weakening investor protections; they view it as departing from the longstanding approach of linking the MST obligation with an investor's reasonable, investment-backed expectations. Others assert that TPP should clarify that investor expectations remain a criteria that may be considered. Others express concern that the MST obligation is ambiguous and could be used to expand investor protections unduly.\nPerformance R equirements. Like prior approaches, TPP prohibits parties from imposing specific \"performance requirements\" in connection with an investment or related to the receipt of an advantage in connection with it. These include prohibitions on performance requirements such as to export a given level or percentage of goods, achieve a given level or percentage of domestic content, or transfer a particular technology. New features of TPP compared to KORUS include prohibitions on performance requirements related to the purchase, use, or according of a preference to a technology of the party (or of a person of the party), and related to certain royalties and license contracts. In addition to addressing concerns in TPP markets, these new features may be geared toward addressing \"indigenous innovation\" measures such as in China.\nDenial of Benefit s . TPP's denial of benefits article, among other things, permits a party to deny the investment chapter's benefits to an investor that is an enterprise of another party (and to the investments of that investor) if that enterprise does not have \"substantial business activities\" in the territory of any party other than the party denying benefits, provided that the enterprise is owned or controlled by a person of a nonparty or the denying party. According to USTR, the denial of benefits article allows a party to deny benefits to \"shell companies.\" The article presumably is intended to address some stakeholders' concerns for instance, regarding the ISDS claim filed by Philip Morris (PM) under the Australia-Hong Kong BIT to challenge Australia's plain packaging requirement for tobacco, though PM has stated that its restructuring of PM Australia's ownership to PM Asia in Hong Kong was for legitimate business reasons. KORUS also contains a denial of benefits article, but with some variation.\nGovernment's Right to Regulate . Like KORUS, TPP contains a provision stating that, except in rare circumstances, nondiscriminatory regulatory action by a party to protect legitimate public welfare objectives (e.g., in public health, safety, and the environment) do not constitute indirect expropriation. Debate exists about what exactly are \"rare circumstances.\" New in TPP is a statement that nothing in the Investment Chapter \"shall be construed as preventing a government from regulating in a manner sensitive to \"health, environmental, and other regulatory objectives,\" as long as the action taken is otherwise consistent with the chapter. In contrast, KORUS limited the affirmation of a government's right to regulate due to \"environmental concerns.\" USTR contends that the \"right to regulate\" provision is a stronger safeguard that addresses prior ISDS criticism. Skeptics argue that the new provision does not adequately protect a government's right to regulate because the measures a government may take must be \"otherwise consistent\" with an Investment Chapter which, from their perspective, has vague provisions (such as for minimum standard of treatment) that can be interpreted in an overly broad manner.\nISDS Proceedings . TPP, like most other U.S. FTAs, includes ISDS. It also contains new provisions on ISDS proceedings, including a:\nrequirement that appointments of ISDS arbitrators take into account candidates' expertise or relevant experience with respect to the relevant governing law; requirement for parties to establish a code of conduct for arbitrators to provide additional guidance on issues of arbitrator independence, impartiality, and conflict of interest; provision allowing tribunals to accept and consider amicus curiae (third-party) submissions regarding a matter of fact or law within the scope of the dispute that may assist the tribunal in evaluating submissions and arguments of the disputing parties; expanded rules for dismissing \"frivolous claims;\" and clarification that a claimant has the burden of proving all elements of a claim.\nSupporters assert that these provisions appropriately balance investor protections and safeguards to protect the public interest. Some, including in the business community, argue that these new provisions weaken investor protections and may delay what can already be a lengthy arbitration process, although other civil society groups argue that the safeguards do not go far enough in protecting the public interest. While some support the clarifying language as reaffirming existing obligations, others express concern that it may be interpreted to change substantive obligations. For example, the clarifying statement on burden of proof potentially could be interpreted to require a different burden of proof for the investor.\nTobacco \"Carve-out\" from ISDS . TPP gives parties the option to deny ISDS to investors' claims challenging tobacco control measures against manufactured products, for example, relating to the labeling or packaging of tobacco products. Some stakeholders support the carve-out as a way to protect public health interests and to protect tobacco control measures obligated by the World Health Organization's Framework Convention on Tobacco Control from challenge. Others question its need because the investment chapter elsewhere affirms a party's right to regulate to protect legitimate welfare objectives and are concerned about the possible precedent it may set for other products or sectors. Still others, particularly in the tobacco industry, oppose the carve-out as discriminatory against a legally-traded product.\nBreach of \"Investment Agreement\" and ISDS . In addition to permitting an investor to seek ISDS for alleged violations of TPP's core investor protections, TPP also allows an investor to pursue ISDS for a breach of an \"investment agreement\" (commonly called a \"breach of contract\") between an investor and a government. At the same time, TPP imposes limits on the use of ISDS to challenge investment agreement breaches, including, broadly speaking, allowing its use only if the investment agreement was signed after TPP's entry into force and the underlying agreement does not include an international arbitration clause. Mexico, Peru, and Canada include additional limitations on the use of ISDS for breaches of investment agreements. For instance, Mexico exempts from ISDS breaches of investment agreements if doing so would be inconsistent with certain sector-specific Mexican laws, such as its hydrocarbon sector.\nFinancial Services . The Financial Services Chapter provides access to ISDS to resolve certain disputes concerning covered financial services investments. In contrast to prior U.S. FTAs, it allows investors to challenge certain actions by parties for alleged breaches of the MST obligation. Like some other U.S. investment agreements, TPP has a \"prudential exception\" allowing a party to employ measures for prudential reasons or to ensure the financial system's integrity and stability. The prudential exception in TPP appears to be broader than KORUS because it may be invoked with respect to obligations under the entire agreement except for those in goods and goods-related chapters, whereas the prudential exception in KORUS appears to be restricted to a few select chapters of that agreement (financial services, investment, telecommunications, cross-border trade in services concerning the supply of financial services by an investment). TPP also includes a state-to-state arbitration mechanism constituted under its general dispute settlement provisions that may be used when a party invokes a prudential exception as a defense to an ISDS claim and absent a joint determination by both parties that the regulation is exempt. KORUS also includes a state-to-state arbitration mechanism when a prudential exception is invoked as a defense, but it does not appear to be constituted under KORUS's general dispute settlement provisions.\nExceptions . As with past FTAs, the TPP Investment Chapter has a number of country-specific exemptions. Some of these highlighted by U.S. business groups, include\nForeign Investment Reviews. Under TPP, Australia, Canada, Mexico, and New Zealand are exempt from ISDS claims stemming from decisions by these countries under specified laws to reject certain types of investment. Claims Already Filed in Court or Administrative Tribunal . TPP exempts Chile, Mexico, Peru, and Vietnam from ISDS claims that investors have already submitted before a court or administrative tribunal in those countries. These exemptions illustrate the multiple interests with which investor protections may intersect. For example, in terms of claims exemptions, on the one hand, governments may have an interest in reducing duplicative actions. On the other hand, some business groups are concerned that such a prohibition may cause some investors (particularly small investors with limited experience) to lose access to ISDS by raising such issues in local proceedings.\nNonco n forming Measures (NCMs) . Parties agreed to apply TPP's core investor protections on a \"negative-list basis\" to all sectors and activities except where they specifically took an exception (known as an NCM). Annex I lists each party's current measures that would otherwise violate the Investment Chapter, but which a party has deemed necessary to maintain. For these, the party agreed to a \"standstill,\" (to not to make the measure more restrictive in the future); and also agreed to a \"ratchet\" (to use any future liberalization of a measure as the new benchmark for the standstill). TPP includes certain limits (exceptions) on the ratchet mechanism for Vietnam for the first three years after TPP's entry into force under specified conditions. In addition, New Zealand raised the monetary threshold for screening investments from TPP countries and the threshold will increase if New Zealand negotiates higher thresholds in other agreements.\nAnnex II contains measures and policies on which a party retains full discretion in the future. NCMs vary by party and include restrictions on foreign ownership limitations and operation and on branch numbers, asset requirements, and residency or nationality requirements, for specified investments. On one hand, NCMs may allow parties the flexibility to undertake obligations in a manner sensitive to their needs and interests, while on the other hand, expansive NCMs may limit the extent to which TPP liberalizes investment in TPP countries. In Annex III, Malaysia has also exempted its \"best interest to Malaysia\" test for approving foreign investment in financial services.",
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"One of the more controversial issues of the TPP pertains to the scope and depth of provisions on worker rights. Supporters of strong worker rights, such as labor unions and certain nongovernment organizations (NGOs), are concerned that failure to promote and implement these rights, including protection of the right to organize and bargain collectively, could adversely affect wages and working conditions in other countries. This, in turn, could further increase competitive pressures on U.S. workers.\nWorker rights provisions in U.S. trade agreements have evolved over time. NAFTA included labor provisions in a side agreement that required all parties to enforce their own labor laws. The side agreement includes a consultation mechanism for addressing labor disputes and a special labor dispute settlement procedure. The enforcement mechanism applies mainly to a party's failure to enforce its own labor laws. Under provisions of the 2002 TPA, seven subsequent FTAs included a similar provision within the main text of the agreement.\nMore recently, internationally recognized labor principles were included in FTAs with Peru, Colombia, Panama, and South Korea consistent with the May 10 th Agreement (see text box above). These four FTAs require parties to adopt and maintain in their statutes and regulations core labor principles of the International Labor Organization (ILO) (ILO Declaration). They also required countries to enforce their labor laws and not to waive or derogate from those laws to attract trade and investment. These provisions are enforceable under the same dispute settlement procedures that apply to other provisions of the FTA, and violations are subject to the same potential trade sanctions. These provisions are continued in the TPP.\nLabor and civil rights groups have raised concerns about the effects of the TPP on workers. Some labor leaders contend that the TPP's labor provisions are weak and that the agreement would provide incentives for businesses to move U.S. jobs to countries with poor protections for worker rights, such as Brunei, Malaysia, Mexico, and Vietnam. Some Members of Congress are particularly concerned about Vietnam. In order to comply with TPP labor obligations, Vietnam would have to make significant reforms to its labor regime. Some policymakers question whether this is possible. Others are concerned about labor conditions in Brunei, Malaysia, and Mexico and whether these countries would be able to meet TPP labor obligations. Proponents of the agreement contend that the TPP would help these countries build their capacity to support labor protections, enhance economic growth, and support thousands of high-paying U.S. jobs, particularly in the high tech and electronics sectors. The Obama Administration asserts that the TPP includes the strongest labor standards of any existing U.S. FTA and that it would allow the United States to \"write the rules of the road in the 21 st century,\" especially in the Asia-Pacific region.",
"TPP labor provisions are in the main text of the agreement and subject to the same dispute settlement mechanism, including potential trade \"sanctions,\" that applies to other chapters of the TPP. TPP parties agreed:\nto adopt and maintain laws and practices consistent with the ILO Declaration (see box above); to adopt and maintain laws and practices governing acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health; not to waive or derogate from labor laws and practices mentioned above in a manner affecting trade or investment; and not to fail to effectively enforce their labor laws through a sustained or recurring course of action or action in a manner affecting trade or investment.\nFor the first time in a U.S. FTA, the parties also agreed to protect against degradation of fundamental worker rights or working conditions in export processing zones. If a party believes that another TPP country is not meeting its labor commitments, the agreement establishes a means for the public to raise concerns with TPP governments. The agreement also provides for transparency and access to fair and equitable administrative and judicial proceedings, as well as for a mechanism for cooperation and coordination on labor issues, including opportunities for stakeholder input in identifying areas of cooperation.\nIn addition, and new to the TPP, the United States negotiated separate labor consistency agreements with Vietnam, Malaysia, and Brunei, countries of particular concern for the United States in terms of labor protections. The consistency plans commit Vietnam, Malaysia, and Brunei to undertake specific legal reforms and implement other measures related to freedom of association and collective bargaining, forced labor, child labor, employment discrimination, acceptable conditions of work, institutional reforms and capacity building, transparency and sharing of information, and a review mechanism for implementation of the plan. Most of the commitments must take place before the TPP can enter into force with these countries.\nAll three plans are subject to labor consultations under the Labor Chapter and to the dispute settlement provisions of the TPP agreement. A previous labor consistency plan was negotiated with Colombia in conjunction with the U.S.-Colombia FTA, but it was not part of the FTA itself, nor subject to the dispute settlement provisions of that agreement. In addition, the United States can suspend additional tariff reductions on Vietnamese products five years after entry-into-force on a U.S. determination that Vietnam has not implemented the plan's provision on the establishment of grassroots labor unions.",
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"Like the chapter on worker rights, the scope and depth of the TPP's environmental provisions are the subject of ongoing debate. Supporters of environmental provisions seek to ensure minimum standards of environmental protection in partner countries to stem a perceived \"race to the bottom,\" in which countries reduce protection or do not enforce existing standards to attract trade or investment. Supporters of strong environmental provisions in FTAs also note that while many of the provisions in the environmental chapter are covered by multilateral environmental agreements (MEAs), those agreements do not have effective enforcement mechanisms, whereas FTAs contain a dispute settlement mechanism that could result in penalties (i.e., withdrawal of trade concessions).\nOther stakeholders, however, contend that environmental provisions are not germane to, and should not be included in FTAs. Several countries in the TPP negotiations reportedly sought weaker disciplines, and sought to remove those commitments from being subject to dispute settlement. Others claim that the enforcement of environmental provisions in existing FTAs is lacking. They point to continued disputes over illegal logging in Peru, despite commitments to protect against such acts in the U.S.-Peru FTA.\nAs with the U.S. position on worker rights, environmental provisions in U.S. FTAs have evolved over time. Environmental provisions were originally placed in side-letters in the NAFTA agreement containing \"enforce your own laws\" provisions and a special consultation mechanism and dispute settlement procedure. Under TPA provisions of the 2002 Trade Act, seven subsequent FTAs included a similar enforce your own laws provision within the main text of the agreement. The May 10 th Agreement provisions (see text box in appendix) added an affirmative obligation for FTA partner countries to adhere to multilateral environmental agreements (MEAs) and allowed for environmental disputes under the FTAs to access the full dispute settlement provisions of the agreements. These provisions generally were followed in the TPA-2015. The TPP environmental chapter reflects some aspects of recent U.S. FTAs, differs in some aspects, and addresses additional topics not previously considered.",
"The chapter obligates each party:\nnot to fail to effectively enforce its environmental laws through a sustained or recurring course of action or inaction to attract trade and investment; not to waive or derogate from such laws in a manner that weakens or reduces the protections afforded in those law to encourage trade or investment; and to ensure that its environmental laws and policies provide for and encourage high levels of protection, and also strive to improve its levels of environmental protection.\nThe agreement also:\nrecognizes the sovereign right of each party to establish its own levels of domestic environmental protection, its own regulatory priorities, and to adopt or modify its priorities accordingly; acknowledges a party's right to exercise discretion with regard to enforcement resources; and provides for the resolution of disputes; a party may seek recourse to the dispute settlement mechanism of the agreement, following the exhaustion of consultations.\nRecent U.S. FTAs have required the parties to \"adopt, maintain, and implement\" seven enumerated MEAs. TPP requires parties to affirm their commitment to implement the multilateral environmental agreements to which they are a party. However, TPP only requires the \"adopt, maintain, and implement\" language with regard to CITES (see below), but variously addresses protections contained in other MEAs. Parties \"shall maintain\" measures consistent with the Montreal Protocol, which is referenced by footnote.\nTo comply with the MARPOL agreement, each party \"shall take measures\" to prevent the protection of the marine environment from ships and maintains statutes in compliance with MARPOL, also referenced by footnote. The other MEAs are not referenced, but some provisions address the subject matter of those accords. One reason for this difference in treatment of the MEAs may be that all TPP parties are not signatories to each of the 7 accords.\nFisheries and Fishing Subsidies. For the first time in an FTA, the TPP contains measures to combat overfishing and unsustainable utilization of fisheries, combats illegal, unreported and unregulated (IUU) fishing activities, and promotes conservation of marine mammals. Negotiations to restrict fishing subsidies occurred as part of the WTO Doha Round, but agreement remained elusive. The TPP requires the countries \"to seek to operate\" a fishing management system to prevent overfishing and overcapacity, reduce by-catch of nontarget species and juveniles, and promote the recovery of overfished stocks. It also prohibits specific subsidies that negatively affect stocks in an over-fished condition and prohibits subsidies to vessels engaged in IUU fishing. Subsidies negatively affecting fish stocks must be brought into conformity within three years, although Vietnam may request a two-year extension while it completes its stock assessment. TPP parties shall \"promote the long term conservation of sharks, marine turtles, seabirds, and marine mammals.\" While measures concerning sharks \"should include, as appropriate,\" collection of species data, fisheries by-catch mitigation, and finning prohibitions, these provisions have not been interpreted as not actually banning shark finning.\nConservation. As noted above, TPP commits the parties to adopt, maintain, and implement laws and regulations to achieve compliance with the CITES treaty. The parties commit to combat the illegal take and trade in wild flora and fauna, including to prevent the trade of wild flora and fauna in violation of the laws of other countries. While TPP does not implement the Ramsar Convention protecting wetlands, it \"commits\" the parties to take measures to protect \"specially protected natural areas, for example, wetlands.\" The chapter mentions illegal logging in the context of \"exchanging information and practices\" for protecting wild flora and fauna, and promoting government capacity for sustainable forest management.\nThe parties also recognize the importance of cooperative measures—while not making any affirmative commitments—pertaining to trade and biodiversity, invasive alien species, transition to a low emissions economy, and the promotion of environmental goods and services.",
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"The volume of data transmitted across borders is growing ( Figure 7 ). With 43.4% of the world's population online today, cross-border data flows have increased 45 times since 2005. Digital trade includes not only end-products such as movies or video games, but also the means or \"lifeblood\" of the rest of the economy, enhancing productivity and overall competitiveness of an economy. Examples include transmitting information a manufacturer needs to manage global value chains, communication channels such as email and Voice over Internet Protocol (VoIP), and financial services used in e-commerce or electronic trading.\nIn 2014, the United States exported $399.7 billion in digitally-deliverable services, and imported $240.8 billion, creating a surplus of $158.9 billion. Digitally-delivered services were half of all U.S. services imports and 56% of services exports. Furthermore, the United States is the largest producer of digital content that Internet users consume worldwide.\nCongress established principal negotiating objectives in TPA-2015 on digital trade in goods and services, as well as on cross-border data flows. The objectives include equal treatment of electronically delivered goods and services, as compared to physical products, protection of cross-border data flows, and prevention of data localization regulations, as well as duties on electronic transmissions. The Industry Trade Advisory Council on Information and Communication Technologies Services and Electronic Commerce (ITAC 8), in its report to USTR, endorsed the TPP, finding that the agreement meets the objectives, promotes the economic interests of the United States, and provides equity and reciprocity for the sectors represented by the ITAC. While most industry stakeholders support the digital trade provisions as breaking new ground in this emerging area, some have raised concerns over certain exceptions, particularly the exclusion of financial services from the data localization provisions (see Financial Services section). Other stakeholder groups have argued that the provisions go too far and may limit a government's flexibility to adopt strict privacy laws.",
"The electronic commerce chapter broadly covers all industries but explicitly excludes government procurement and financial services, which each have separate chapters. Overall, the chapter aims to promote digital trade and the free flow of information, and to ensure an open internet. While the majority of the obligations related to digital trade are found in the E-commerce chapter, there are relevant provisions in other chapters, including the Financial Services, IPR, Technical Barriers to Trade, and Telecommunications.\nSome of the innovations in TPP on d igital trade include provisions to :\nprohibit cross-border data flows restrictions and data localization requirements, except for financial services and government procurement; prohibit requirements for source code disclosure or transfer as a condition for market access, with exceptions; require parties to have online consumer protection and anti-spam laws, and a legal framework on privacy; prohibit requiring technology transfer or access to proprietary information for products using cryptography; clarify IPR enforcement rules to provide criminal penalties for trade secret cybertheft; encourage cooperation between parties on e-commerce to assist Small and Medium-Sized Enterprises (SMEs), and on privacy and consumer protection; promote cooperation on cybersecurity; safeguard cross-border electronic card payment services; and cover mobile service providers and promotes cooperation for international roaming charges.",
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"U.S. government and business stakeholders have raised concerns over competition with companies linked to the state through ownership or influence. As a result, they supported new specific TPP disciplines to address such competition. According to analysis by the OECD, state-owned enterprises (SOEs), which traditionally have focused primarily on domestic markets, increasingly compete with international private sector actors. Governments may provide these state-owned or -supported businesses with preferential treatment—such as subsidies, low cost credit, preferential access to government procurement, and a different regulatory environment—compared to private sector competitors, thereby distorting competition and market access. Such advantages may also be directed toward companies not owned but significantly favored or supported by a government. In the context of the TPP, the SOE presence in Vietnam, which accounted for over 40% of all Vietnamese enterprise pre-tax profits in 2013, has been a particular focus, although Malaysia and Singapore also have important SOE sectors. In addition, as the TPP could become a template for a larger Asia-Pacific FTA or future WTO negotiations, wider applicability of these provisions to SOEs in other countries, particularly China, may be envisioned.\nIn TPA-2015, Congress supported new rules and disciplines on SOEs in U.S. trade agreements as a principal negotiating objective. It directs the Administration to eliminate or prevent unfair trade advantages by state-owned or state-controlled enterprises and to ensure they act on the basis of commercial considerations.\nReaction to the SOE provisions in TPP is mixed. Most groups argue that these disciplines represent a positive first step in establishing international commitments on SOEs and their competition with private firms. Given the potential impact of these provisions on a range of industries, several private sector Industry Trade Advisory Committees (ITAC) generally express support for the SOE commitments. Many of these reports, however, also acknowledge that there are a number of exceptions to these disciplines (nonconforming measures), including all sub-federal SOE activity, and they express concern about the effectiveness and enforceability of the commitments in practice. Other observers are more critical of the provisions, viewing their broad exemptions as a negative precedent. These analysts take particular issue with what they view as a limited definition of SOEs in the agreement, and argue that TPP negotiators should have directly restricted the presence of SOEs in certain sectors rather than attempt to address their potential harm to private sector actors.",
"Chapter 17 of the TPP includes the most substantive disciplines on SOEs of any U.S. FTA. NAFTA and subsequent U.S. FTAs with Australia, Chile, Colombia, Peru, and South Korea have minimal disciplines on what they term \"state enterprises.\" Though the specific details vary among these agreements, they are generally limited to two commitments: nondiscriminatory treatment in the sale of goods or services by state enterprises, and clarification that other commitments in the agreement also apply to such enterprises, whenever the state delegates some type of regulatory or administrative authority to the state enterprise. The U.S.-Singapore FTA includes somewhat more extensive provisions on SOEs. Related multilateral commitments under the WTO include Article XVII of the General Agreement on Tariffs and Trade (GATT 1994), but this provision focuses narrowly on state-trading enterprises, entities understood to have some influence on the exports and imports of a particular good.\nThe provisions in TPP go beyond these existing commitments to address potential commercial disadvantages to private sector firms from state-supported foreign competitors receiving preferential treatment. Like previous U.S. FTAs, most TPP provisions on SOEs also apply to designated monopolies. TPP also includes an agreement to conduct further negotiations on SOEs after 5 years with the intent to reduce nonconforming measures, and extend SOE disciplines to cover competition in the services sector in a non-TPP market. Key provisions include:\nSOE Definition . Refers to an enterprise principally engaged in commercial activities if the government owns more than 50% of capital share, controls more than 50% of voting rights, or selects a majority of board members. Delegated Authority . Would require, like previous U.S. FTAs, that SOEs and designated monopolies adhere to all provisions of the agreement when governments delegate to them regulatory or administrative authority. Nondiscriminatory Treatment/Commercial Considerations . Would require SOEs and designated monopolies of a party to make their purchase and sale decisions based on commercial considerations and in a nondiscriminatory manner with respect to goods and services bought or sold by other TPP country firms. Non c ommercial Assistance/Adverse Effects/Injury. Would prohibit noncommercial assistance (i.e., funds, loans, or goods and services at more favorable rates than commercially available) provided by or to SOEs, if it adversely affects the interests of other TPP parties or causes injury to another TPP country's domestic industry. Domestic supply of services by SOEs would generally be excluded from these provisions. Transparency. Would require each TPP country to provide a list of all SOEs within six months of entry into force. Also would require countries to respond to requests for information regarding ownership, revenue, and management of SOEs and noncommercial assistance received. Brunei, Malaysia, and Vietnam are generally exempt from the chapter's transparency commitments for five years, though certain country-specific transparency commitments would apply. Exceptions. Generally excluded from these provisions are: SOEs with revenue below a certain threshold that adjusts for price level changes in three year intervals (starting at 200 million SDR generally and 500 million SDR for Brunei, Malaysia, and Vietnam for 5 years); a party's supply of goods and services for its own government functions; sub-central SOEs and designated monopolies for nearly all commitments; government actions in economic emergencies; government procurement; sovereign wealth funds; pension funds; and trade and investment financing provided it is not intended to displace commercially available financing or offered on terms more favorable than available through the market. In addition to these general exclusions there are a number of country-specific exemptions to some or all of the disciplines. Many of these exclusions relate to SOEs owned by sovereign wealth funds, as well as those dealing with natural resources, development financing, including housing finance, and national broadcasting associations. Most countries have also exempted government actions to support indigenous peoples.",
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"For some Members of Congress, a key issue in the TPP debate has been how to combat the \"unfair\" exchange rate policies of other countries. Some Members of Congress and policy experts argue that U.S. companies and jobs have been adversely affected by the exchange rate policies adopted by China, Japan, and a number of other countries. They allege that these countries use policies to \"manipulate\" the value of their currency in order to gain an unfair trade advantage against other countries, including the United States. Given the impact exchange rate values can have on trade flows, some Members have advocated that currency manipulation be addressed in trade agreements, including the TPP.\nOther Members and policy experts have questioned whether currency manipulation is a significant problem, how it can be measured, and whether it can be addressed effectively in trade agreements. They raise questions about whether government policies have long-term effects on exchange rates, whether it is possible to differentiate between \"manipulation\" and legitimate central bank activities, and the net effect of currency manipulation on the U.S. economy. They have also raised concerns that more aggressive measures to combat currency manipulation could lead to a tariff war or put restrictions on U.S. monetary policy.\nThe June TPA-2015 included, for the first time, a principal negotiating objective addressing currency manipulation, calling on negotiators to seek related provisions. The principal negotiating objective outlined a number of possible remedies to prevent and combat unfair currency practices, including enforceable rules, transparency, reporting, monitoring, and cooperative mechanisms.",
"Largely in response to the TPA-2015, monetary authorities from the 12 TPP countries initiated negotiations and in November 2015 released a declaration to address unfair currency practices. While the declaration was released concurrently with the text of the TPP, it is a separate agreement from the TPP. The declaration has three major parts:\nCommitment to A void Manipulation . Reaffirms IMF commitments to avoid manipulating exchange rates to gain an unfair competitive advantage, and commits countries to pursue exchange rate policies that reflect underlying economic fundamentals, avoid persistent exchange rate misalignments, and refrain from competitive devaluations and exchange rate targeting for competitive purposes. Transparency and Reporting . Requires public release of relevant data, including interventions in foreign exchange markets and foreign reserve holdings, as well as IMF's annual assessment of their exchange rate. Multilateral D ialogue . Establishes a group of TPP macroeconomic officials, with possible IMF participation, to meet at least annually to discuss macroeconomic and exchange rate policy issues, including transparency or reporting, and policy responses to address imbalances.\nThe joint declaration would take effect when TPP enters into force and would apply to countries that accede to the TPP in the future, subject to additional transparency or other conditions determined by the existing TPP countries. The Treasury Department emphasizes that this declaration, for the first time in the context of a free trade agreement, addresses unfair currency practices by promoting transparency and accountability. However, the declaration does not include any enforcement mechanism on currency manipulation, the inclusion of which some Members advocated.",
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"Technical barriers to trade (TBT) are standards and regulations that are intended ostensibly to protect the health and safety of consumers or other legitimate purposes, but through design or implementation, may discriminate against imports. In order to minimize trade distortion, WTO members must adhere to the Agreement on Technical Barriers to Trade. The WTO TBT Agreement and subsequent U.S. FTA TBT chapters cover voluntary standards that industries apply, technical regulations that governments impose for health and safety purposes, and assessment procedures that governments employ to determine that a product meets required standards. FTA provisions establish rules and procedures for member countries to follow, including making sure that standards, technical regulations, and conforming assessment procedures are applied without discrimination and in a manner not more trade restrictive than necessary. It addition, they require that members practice transparency as regulations are developed and applied, that international standards are used where appropriate, and that the domestic technical regulations of trading partners are recognized as equivalent to domestic regulations when possible. A key provision of the WTO TBT Agreement is that members have a central point of inquiry from which firms can ask for information on standards and regulations.",
"The TPP builds on the TBT agreement and prior U.S. FTAs in several ways. It would:\nprovide opportunities for partner countries to comment on proposed standards and regulations and the implementation of regulations; require nondiscriminatory treatment for conformity assessment bodies, including nongovernmental bodies; extend transparency obligations to include placing new TBT proposals and rules on a single website, broadening the range of TBT measures notified to the WTO; allow interested stakeholders from others parties to participate in the development of technical regulations, standards, and conformity assessment procedures by central government bodies, and adopt U.S. style notice and comment periods; mandate a \"reasonable interval\"—generally defined as no less than 6 months—between adoption and implementation of new standards, as well as business compliance with new standards; establish a Committee on Technical Barriers to Trade to promote and monitor the implementation and administration of the agreement and strengthen cooperation.\nThe TBT chapter includes seven sectoral annexes: wine and distilled spirits, pharmaceuticals, medical devices, cosmetics, proprietary formulas for prepackaged food and food additives, information and communications technology products, and organic products. These include sector-specific obligations aimed at reducing unnecessary barriers to trade in these products.",
"With average tariffs already low in many countries throughout the Asia-Pacific, nontariff barriers, including inefficient and unpredictable regulatory processes, can be a significant impediment to market access for U.S. goods and services exports. While nontariff and regulatory barriers are addressed in provisions throughout the agreement, the TPP includes a new stand-alone chapter specifically on regulatory coherence. The goal of this new chapter, according to the USTR, is to ensure a regulatory environment throughout the Asia-Pacific that includes hallmarks of the U.S. regulatory system, such as transparency, impartiality, due process, and coordination across government, while affirming the rights of TPP countries to regulate their economies to promote legitimate public policy objectives. To achieve these dual goals the chapter focuses on recognized best practices and good governance frameworks, rather than proscribing specific regulatory actions or outcomes.\nThe regulatory coherence chapter recommends that TPP partner countries \"endeavor\" to establish domestic regulatory structures similar to the U.S. Office of Information and Regulatory Affairs in the Office of Management and Budget, a venue to vet proposed regulations and their compliance with domestic law and policy, as well as with trade agreements and other international obligations. Aside from seeking to assure regulatory consistency among various domestic agencies, TPP countries would also be encouraged to conduct regulatory impact assessments that would assess the need for a given regulation, conduct cost-benefit analysis, and assess alternatives to the proposed regulation, as well as seek to assure transparency and openness in the rule-making process. TPP would establish a regulatory coherence committee among TPP members to review implementation of the chapter's commitments and consider future priorities related to regulatory coherence. In addition, TPP would encourage cooperation among the countries on regulatory coherence activities, and would require notification to the committee of steps taken to implement the chapter.\nWhile the agreement establishes new commitments related to regulatory process, the commitments appear largely to require self-enforcement among the 12 countries. Each TPP party would make its own determination of what regulations are covered under the agreement. Nothing in the chapter is subject to TPP's dispute settlement mechanism.",
"The debate over access to medicines encompasses other issues beyond pharmaceutical patent protections. Several TPP negotiating partners administer a national formulary for medicines purchased by the government for their national health services. These formularies often rely on generic drugs to the extent possible to maintain availability and contain costs. The U.S. pharmaceutical industry has expressed concern that the practices and procedures in national healthcare programs, including New Zealand's Pharmaceutical Management Agency (PHARMAC), which maintains the New Zealand formulary, put \"innovative pharmaceutical products,\" often made in the United States, at a disadvantage. They contend that access to the country's health care technology markets can be blocked by government's use of nontransparent procedures that do not provide due process. The annex on \"Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices\" (Annex 26-A) is located in the chapter on Transparency and Anti-corruption (Chapter 26). As its name suggests, it is dedicated to promoting transparent and fair procedures to parties, concerning the listing of new pharmaceutical products or medical devices for reimbursement purposes. The key provision of the annex requires countries to make available to an applicant either (1) an independent review procedure, or (2) an internal review process, to reconsider a determination not to list a pharmaceutical or medical device for reimbursement. The addition of an internal review process differentiates the TPP from KORUS, which required the establishment of an independent review process. In addition, the parties agreed to consider reimbursement funding in a specified time frame. The annex does not apply to government procurement of pharmaceuticals or medicals, nor does it \"modify a Party's system of health care in any other respect.\" The provisions are not subject either to state-to-state or investor-state dispute settlement.",
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"Customs valuation and trade facilitation have been long-standing, if unheralded, provisions in U.S. FTAs that aim to ease and expedite the passage of goods over borders through streamlined, transparent, and more accountable customs procedures, and reduce associated transaction costs. OECD research has shown that addressing these issues, which provide the basic framework for how goods move from country to country, can reduce overall trade costs by 10-15%, with the greatest reduction in costs in lower income countries. Because of the potential benefits to the global trading system, improvements in customs and logistical procedures have figured prominently in WTO negotiations and form the core of the 2013 WTO Trade Facilitation Agreement (TFA). Such provisions have taken on new significance as global supply chains have increased the number of times intermediate goods cross borders and, hence, the cost of customs bottlenecks to the world economy.\nIndustry stakeholders generally support the commitments achieved on customs and trade facilitation in the TPP. On the whole, the Industry Trade Advisory Committee on Customs Issues (ITAC 14) found the agreement \"fair and balanced\" with similar but expanded provisions to recent agreements. ITAC 14 and other advisory committees, including those representing the services industries, have expressed concerns over the lack of a fixed de minimis threshold for customs duties given the importance of this provision in streamlining trade. They note that the parties have agreed to review this issue periodically and encourage the U.S. government to pursue a commercially relevant value.",
"The TPP chapter on customs and trade facilitation would generally seek to ensure an efficient, timely, and transparent customs process, with relevant information readily available and easily accessible to businesses. Issues addressed include publication and sharing among TPP parties of customs information, the release of goods and issuance of advance rulings by customs authorities, treatment of express delivery shipments, nature of penalties for violation of customs laws, and risk management techniques for targeting inspection efforts on high-risk shipments. Given the magnitude and frequency of U.S. trade with TPP partners, changes in customs procedures could have a significant impact on companies engaged in trade throughout the region. Some commitments in TPP are similar to those in previous U.S. trade agreements and are already in force between the United States and its current FTA partners.\nOn some customs issues, the TPP has more extensive commitments than previous FTAs. In other aspects, TPP commitments are less stringent. Generally, the TPP would go beyond the commitments included in the WTO TFA. Differences with existing agreements include:\nAutomation . A new provision would encourage creation of a single-access window whereby importers and exporters can electronically complete any requirements in one entry point. Advance Rulings . TPP would require advance rulings to be issued within 150 days of receipt by the customs authority, an increase over the 90 days allowed in the KORUS FTA. There is no deadline in the WTO TFA. Advice/Information . A new provision would require parties to provide an expeditious response to requests for information regarding issues such as quotas, country of origin markings, and eligibility requirements for repaired and altered goods. Express Shipments . TPP would require special customs procedures for express shipments, including release within six hours, and a de minimi s threshold—no specific amount is required—below which goods are not subject to customs duties. The KORUS FTA required release within four hours for express shipment and fixed the de minimis threshold at $200 or more. Penalties . A new provision would place parameters on penalties imposed by a customs administration that go beyond previous U.S. FTAs. Such penalties may be imposed only to the person legally responsible for the breach of law, must be commensurate with the degree and severity of the breach, must be accompanied by an explanation in writing, and proceedings must be initiated within a fixed and finite time period. Release of Goods . TPP would require general release of goods no longer than the time required to comply with laws and within 48 hours of arrival, where possible. New provisions would provide some protections to importers when customs authorities release goods while holding some type of financial collateral.",
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"National competition laws and regulations are intended to protect consumers by ensuring that one firm does not so dominate a sector of the economy as to inhibit market entry and stifle competition. Some U.S. FTAs have included provisions to limit the trade-distorting effects of such laws. Among other things, U.S. FTAs require that the United States and the partner country(ies) inform persons from a partner country, who may be subject to administrative actions under domestic antitrust laws, of related hearings and provide them the opportunity to make their case. Under these FTAs, the partner countries agree to cooperate in enforcing competition laws through the exchange of information and consultation.\nThe TPP includes commitments on competition policy similar to previous U.S. FTAs, including that such commitments are not subject to dispute settlement. Previously, the limited U.S. FTA commitments on SOEs and designated monopolies were included in the competition policy chapter. In TPP, these issues are addressed in a separate and more extensive chapter (see \" State-Owned Enterprises \"). TPP includes some commitments that go beyond the recent KORUS FTA. These include provisions related to: protection of confidential business information, private rights of action in pursuing enforcement of national competition laws, and laws protecting consumers from fraudulent or deceptive commercial practices. In addition to the general carve out from dispute settlement, the competition provisions largely will not apply to Brunei until after either 10 years or its establishment of a national competition authority and laws.",
"Transparency. Like the commitments on regulatory coherence, the TPP provisions on transparency relate to the broader governance framework within which each TPP party will administer its laws, rules, and regulations that may affect TPP commitments. These provisions largely follow those included in previous U.S. FTAs, including KORUS. Such provisions would require the publication of all TPP-relevant measures a country may take, with time allowed for comments before such measures take effect. TPP would require countries to \"endeavor to publish\" proposed regulations no less than 60 days prior to the date on which comments are due, whereas KORUS requires that parties \"should in most cases\" publish not less than 40 days before comments are due. The agreement would also require due process with respect to administrative proceedings, including a review and appeal of such determinations.\nAnti-Corruption. TPP also includes commitments that would require measures to fight corruption, a number of which are not included in the KORUS FTA. Like KORUS, the TPP would require laws or measures making corruption and bribery criminal offenses, substantive penalties for such offenses, and protections for parties that report bribery. TPP includes additional commitments, not found in KORUS, such as requiring monetary sanctions for bribery offences and disallowing the deduction of those sanctions from tax liabilities, prohibiting specific corrupt acts relating to financial reporting and accounting standards, and requiring that no party fail to effectively enforce its anti-corruption commitments as a means to encourage trade and investment, subject to discretion on domestic allocation of resources. TPP also includes language that would require parties to endeavor to adopt a number of measures to prevent corruption among public officials and the private sector such as training, transparency, and disciplinary actions. The agreement would also require Japan to ratify the U.N. Convention against Corru ption (UNCAC). As of December 1, 2015, Japan is the only TPP country that has not yet ratified UNCAC.\nDispute settlement applies both to the transparency and anti-corruption commitments with some limitations with respect to enforcement of anti-corruption laws. Additional commitments related to transparency and procedural fairness for pharmaceuticals and medical devices are included in an annex to this chapter. For more on these commitments, see \" Transparency and Pricing of Health Care Technology and Pharmaceuticals .\"\nIn its chapter on transparency, the KORUS FTA also includes a provision that prohibits the United States and South Korea from discouraging their residents' purchase of goods and services from one another. A similar clause is not found in TPP.",
"Trade remedies are measures designed to provide relief to domestic industries that have been injured or threatened with injury by imports. They are regarded by many in Congress as an important trade policy tool to mitigate the adverse effects of unfairly traded imports and import surges on U.S. industries and workers.\nThe three most commonly used trade remedies are: (1) antidumping (AD) remedies, which are designed to provide relief from the adverse price effects of imports sold at less than fair-market value; (2) countervailing duty (CVD) remedies, which are used to counter the adverse effects on domestic industry of foreign government subsidies that lower the cost of imports; and (3) safeguard actions, which are employed to permit temporary relief so that domestic industries can adjust to the adverse effects of surges in fairly-traded imports. These actions are sanctioned by the WTO as long as they are undertaken in a nondiscriminatory and transparent manner and are consistent with rules specified in WTO agreements.\nCongress has repeatedly insisted, including most recently through the TPA-2015, that the United States retain the right to use trade remedies to counter unfair trade practices and import surges and rigorously enforce its trade laws. This objective is reflected in existing U.S. FTAs.\nTPP would preserve each party's rights and obligations under the General Agreement on Tariffs and Trade (GATT) regarding global safeguard and AD/CVD measures, as previous U.S. trade agreements have done. TPP includes additional provisions on transparency and due process in pursuing AD/CVD remedies. With regard to safeguard actions, TPP, like previous U.S. FTAs, also describes the precise terms of their use in the context of injury due to increased imports under the agreement, including guidelines on addressing import injury from multiple parties. Following an investigation and affirmative determination of injury by relevant domestic authorities, TPP would allow for a withdrawal of trade concessions for affected products (i.e., returning duties to their pre-agreement levels). The agreement also stipulates certain standards regarding safeguard measures such as their duration (generally no more than two years) and would require notification among the TPP parties of any safeguard actions. If one party implements a safeguard measure, TPP would provide that other affected parties be afforded additional liberalization or may suspend tariff concessions of an equivalent nature.",
"A notable aspect of the TPP is the variation among partners in terms of economic development. TPP does not have a distinct set of provisions applicable only to developed or developing countries. Some of the countries, however, particularly Brunei, Malaysia, and Vietnam, have longer phase-in periods before several of their commitments take full effect, and many have extensive nonconforming measures excluding certain sectors, industries, and practices from various TPP provisions.\nThe agreement includes two related chapters (development, and cooperation and capacity building) addressing issues dealing with this variation in economic status among the countries. Neither chapter is subject to dispute settlement and the commitments in both are largely hortatory, with the exception of establishing committees to exchange information and discuss further possible actions. The chapter on development would require TPP countries to recognize the importance of broad-based economic growth, consider activities to help women take advantage of the agreement, and encourage developing skills in science and technology. The chapter on cooperation and capacity building would require the TPP countries to establish a contact person for coordination on capacity building, and would commit the countries to work to provide the resources necessary to implement the agreement.\nAs in previous trade agreements, the TPP would not commit the United States to a particular level of funding for trade capacity building (TCB). The U.S. government, however, provides ongoing assistance to a number of FTA partners relating to implementation of trade agreement commitments. For example, a 2008-2011 U.S. Agency for International Development (USAID) project provided $6.2 million to support efforts by the Dominican Republic to implement the DR-CAFTA, including assistance related to customs, SPS, environmental standards, labor standards, and other provisions. TCB is a major component of U.S. foreign assistance—the United States committed $594 million to TCB in FY2014, with major categories including trade-related agriculture ($109.5 million), competition policy, business environment and governance ($69.4 million), trade-related labor ($56.9 million), and customs operations ($54.3 million).",
"Small- and medium-sized enterprises (firms with less than 500 employees by the U.S. definition, or SMEs) account for the majority of firms involved in international trade (about 97%), but they account for a relatively small share of the value of direct U.S. trade (about 30%). In fact, in 2013, eight firms alone accounted for more than 10% of all U.S. exports and imports. SMEs, however, also participate in trade indirectly as suppliers, providing parts and components into the supply chain of larger, finished products that can be exported. That contribution may not always be reflected in U.S. trade data. Though SMEs represent a relatively small share of U.S. trade by value, they employ approximately half of the U.S. workforce in the nonfarm private sector. In addition, academic studies have shown that small businesses are important for job growth, but this appears to be due more to their age than their size—small firms are typically also young firms—suggesting policies aimed at job growth may be better targeted toward young firms than small firms.\nThe characteristics of SMEs and their relatively small presence in U.S. trade have led to government efforts to improve SME access to international markets. The USTR commissioned a series of reports from the USITC regarding the role of SMEs in U.S. exporting activities. Those reports identified barriers limiting SME access to foreign markets, and surveyed SMEs for suggestions on policy changes that could ease SME exporting activities. An increased focus on FTAs and other trade agreements was among the top three most frequent responses provided.\nSeeking to enhance SME engagement in international trade, the TPP negotiators agreed to a stand-alone SME chapter. Although this goes beyond previous U.S. FTAs, the chapter includes few commitments. Disciplines would require TPP countries to make the agreement and some analysis of its SME-relevant provisions available on a website. In addition, TPP would establish a committee to consider further efforts to assist SMEs in trade matters. Nothing in the chapter would be subject to the agreement's dispute settlement mechanism. Negotiators originally described SME's ability to engage in trade as a \"cross-cutting\" issue in the TPP, noting that disciplines throughout the agreement could impact SMEs. For example, new provisions on digital trade could be salient for SMEs in allowing them to reach new markets. While stakeholders generally support the transparency measures in TPP for SMEs, some have argued that negotiators missed an opportunity to facilitate trade for SMEs by failing to establish a fixed de minimis threshold on customs shipments, the value beneath which imports receive expedited and duty-free customs treatment. They argue this would have been particularly beneficial for SMEs as a way to minimize burdensome customs procedures for small-value shipments.",
"The TPP contains provisions related to dispute settlement and governance of the agreement. Given that the TPP is viewed as a \"living agreement,\" it contains procedures for the accession of new members, the negotiation of new provisions, and the creation of a Free Trade Commission to oversee the agreement.",
"Generally, U.S. FTAs have minimal structures; they do not have free-standing secretariats and TPP is no exception. From NAFTA onward, they have included a commission co-chaired by USTR and trade ministers of the respective parties to the agreement. In keeping with this practice, the TPP provides for the establishment of a Free Trade Commission (Commission). The Commission is tasked with: (1) supervising the implementation and operation of the agreement; (2) considering any proposals to amend or modify the agreement; (3) supervising work of committees established under the agreement; and (4) seeking to resolve disputes arising from its interpretation or application (also see dispute settlement, below). Examples of modifications could, for example, be agreements to accelerate tariff elimination, modify rules of origin, or amend the list of covered goods and services in the government procurement chapter. The Commission would meet within one year of the entry into force of the agreement and periodically as the parties decide thereafter. All decisions would be taken by consensus. Any changes to the agreement made by the Commission that require changes to U.S. law would need congressional approval.",
"The TPP, as well as previous U.S. FTAs, provide options to resolve disputes arising under the agreement. These are in addition to procedures with regard to investor-state dispute resolution (discussed above). In general, TPP is designed to resolve disputes in a cooperative manner. A party first seeks redress of a grievance through a request for consultation with the other party. These steps include:\ninitial consultations between the parties; good offices, conciliation, or mediation; and (if no resolution); and establishment of a dispute settlement panel.\nPanels would be composed of three arbiters, of whom each side appoints one and the third is appointed by mutual consent. Failing that, the third is selected from a list of individuals who are not nationals of either side. After the panel makes its decision, the unsuccessful party would be expected to remedy the measure or practice under dispute. If it does not, compensation, suspension of benefits, or fines have been traditional remedies. In cases in which a dispute is common to both WTO and FTA rules, a party can choose the forum in which to bring the dispute, but cannot bring the dispute to multiple fora. Although State-State dispute settlement use has been infrequent under U.S. FTAs, the size of the potential TPP, the inclusion of new members, and the negotiation of new provisions may cause increased utilization of the dispute settlement forum among the parties.\nThe applicability of DS for certain provisions was an issue in the negotiations. For example, the labor consistency plans for Vietnam, Malaysia, and Brunei are subject to DS, whereas Colombia's separate labor action plan was not subject to DS. As noted above, the applicability of DS to the environmental provisions was a subject of contention in the negotiations. Some provisions not subject to dispute settlement include:\nthe regulatory coherence chapter; the competition chapter; the SME, development, and cooperation and capacity building chapters; certain commitments by Malaysia in the SOE chapter for two years after entry into force; and the Annex on pharmaceutical and medical device reimbursement.",
"The TPP is envisaged as a \"living agreement,\" one that is open to new members willing to sign up to its commitments and to addressing new issues as they evolve. The TPP provides that countries can amend the agreement by consensus, through consideration by the TPP Commission. Such an amendment, however, could only take effect after each party's legal process is completed. Any amendment requiring changes to U.S. law would need passage of implementing legislation to take effect.\nThe TPP provides for accession by \"any State or separate customs territory that is a member of APEC,\" or other state by consensus of the parties, that is prepared to meet the standards of the agreement. Following a request to join addressed to the depository of the agreement (New Zealand), the TPP Commission would establish a working group to negotiate the proposed terms and conditions. All parties must agree to the terms and conditions negotiated by the working group through their domestic ratification process. For the United States, that would mean the introduction and passage of implementing legislation by Congress.\nWhile the expansion of the TPP's membership beyond Asia-Pacific countries has been contemplated, as a trans-Pacific agreement, to date, it has focused on APEC countries. Of these, there are many potential candidates, from relatively advanced economies such as South Korea and Taiwan, to middle-income states with dynamic economies and youthful populations like Thailand or the Philippines. Other countries beyond APEC, such as Colombia and Costa Rica, have expressed interest, and it is conceivable that additional countries or trade blocs beyond the Pacific shores could link up to the agreement in the future. Policymakers in TPP countries have ventured that China may seek to join at some point, provided that it could adhere to the standards of the agreement.\nThe accession process raises the question of whether a country, especially one with political or economic heft, can be expected simply to join an agreement already negotiated or whether it would or should have input on the existing agreement, especially if the goal is to produce a free trade area for the Asia-Pacific, or beyond. Yet, reopening the agreement's substantive provisions with each new entrant—as opposed to its market access provisions which presumably would need to be negotiated with each existing member regardless—offers up its own difficulties. The WTO accession process, whereby countries agree to the established WTO rules, but negotiate on market access, could serve as a template.",
"Each party to the TPP previously has concluded FTAs with multiple TPP members. This circumstance has raised the issue of the relationship of the TPP to previous agreements. Article 1.2 of TPP declares the intention of the parties for it to \"coexist\" with their international agreements, and in a situation of inconsistency, for the relevant parties to work toward a mutually agreeable solution. The Vienna Convention on the Law of Treaties also provides guidance on the interpretation of precedence between agreements:\nWhen all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation .... the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty. (Article 30.3)\nThis provision can be interpreted to mean that the latter treaty applies when there is a conflict, but that an earlier provision could apply in situations where the subject matter of a provision of the earlier treaty is not addressed in the later agreement. In cases where the market access provisions differ between a previous agreement and a later one, it could be up to the exporter as to whether to seek the benefits under the old agreement or the new. Given that the new agreement is likely to achieve further liberalization, the new agreement would most likely be used by the exporter. However, in some cases, such as the phased elimination of tariffs or cases of more favorable ROO, exporters may continue to invoke the provisions of the old agreement, at least until the transition periods of the new agreement are completed.",
"Congress has taken a strong interest in the TPP since the negotiations were launched in 2008. Hearings have been held, and many Members have expressed views on the negotiations through letters and consultations with the Administration and with stakeholder groups. Congress may consider the agreement from several perspectives if it considers implementing legislation.",
"As the largest FTA negotiated by the United States, the TPP brings together a large and expanding group of countries representing various levels of development. Likewise, with 30 chapters in the agreement, it is the most comprehensive FTA in terms of breadth of commitments undertaken by the United States. On one hand, the TPP would incorporate provisions on new trade barriers, such as digital trade and additional intellectual property rights. On the other hand, certain aspects of the agreement differ from previous U.S. FTAs, and are considered by some stakeholders as less ambitious. For example, the agreement includes the longest U.S. tariff phase-out (30 years) ever in an FTA and excludes more agricultural product lines from complete liberalization than many previous FTAs. Some industry stakeholders have raised concerns over such issues as: less than 12 years of data exclusivity for biologic drugs, as found in U.S. law; the exclusion of tobacco control measures from the ISDS procedures of the investment chapter, unlike any prior FTA; the exclusion of financial services from disciplines on data localization, one of the TPP's innovative provisions; and the more flexible rules of origin for autos and auto parts than those prescribed in NAFTA, among other issues. Meanwhile, some NGO stakeholders were disappointed in certain provisions in the environmental chapter, as compared with previous U.S. FTAs. The negotiators and other stakeholders, however, would argue that these provisions were the result of compromise in order to achieve a final agreement among such a diverse membership.\nKey questions for Congress include:\nDid the United States achieve its objective of creating a \"comprehensive, high-standard\" agreement, including in comparison with previous FTAs and commitments in the WTO? Has the TPP set the appropriate framework and precedent for future trade negotiations, particularly on new issues?",
"TPA-2015 sets forth U.S. negotiating objectives for future U.S. trade agreements as a condition for their expedited legislative consideration, and provides a method to remove expedited treatment if an agreement does not make sufficient progress toward those goals. TPA objectives include traditional goals such as reducing barriers to various types of trade (e.g., goods, services, agriculture, electronic commerce); protecting foreign investment and intellectual property rights; encouraging transparency, fair regulatory practices, and anti-corruption measures; ensuring that countries protect the environment and worker rights; providing for an effective dispute settlement process; and protecting the U.S. right to enforce its trade remedy laws. They also include goals reflecting recent developments and emerging issues, such as objectives on state-owned enterprises, regulatory coherence, trade in the digital environment, and trade in green technologies. In practice, negotiating objectives are written to be flexible enough to allow the Administration to negotiate agreements with other countries, as well as keep current with an evolving international trading system. This flexibility, however, leaves open to interpretation what constitutes \"progress in achieving the purposes, policies, priorities, and objectives\" of TPA: the standard an agreement must meet in order for its implementing legislation to receive expedited congressional consideration.\nKey questions for Congress include:\nDoes the TPP make progress in achieving the trade negotiating objectives of TPA? Under what circumstances could the expedited procedures of TPA be removed for TPP?",
"The current debate over the TPP and its potential impact on the U.S. economy is one component of a larger national conversation on employment opportunities, income and wealth distribution, and the general economic well-being of the U.S. middle class. Economic theory and empirical evidence during the post-war period support the lowering of international trade barriers as a tool for economic growth as a result of increased efficiency, productivity, cost savings, and consumer choice due to greater competition. At the same time, increased trade can lead to job loss and economic dislocation in importing-competing sectors. Jobs with expanding firms may require new skills or relocation, potentially making it difficult for dislocated workers to find new employment.\nEstimates of the economic impact of the TPP will likely form an important part of the congressional debate. Deriving these estimates, however, is a difficult and imprecise task. Beyond changes in tariffs and quotas, which form only a portion of the TPP commitments, economic modeling efforts are limited by difficulties in accurately measuring existing trade barriers and their potential changes. In addition, the choice of modeling techniques and assumptions necessary to generate estimates can alter outcomes. Already a number of studies on the TPP have been released, some with very different conclusions. In May, the USITC released the official USG nonpartisan and objective analysis of the agreement's potential economic impact, estimating a small positive benefit to the U.S. economy from the TPP. Key questions for Congress include:\nDo U.S. worker dislocation and retraining programs provide adequate adjustment support for workers disadvantaged by trade, including the retraining and relocation assistance that may be necessary to find alternate employment in competitive industries? Do U.S. workers have the skills needed to take advantage of opportunities in a globalized world? If not, who should provide those skills? What criteria should be used to evaluate the reliability of the various estimates of TPP's economic impact?",
"The U.S. pursuit of the TPP and the outcome of the negotiations raise questions regarding its possible impact on the status and shape of current and future U.S. trade policy. With the Doha Round in abeyance, the United States has turned to the negotiation of 'mega-regional' FTAs such as the TPP and T-TIP as alternative venues for negotiating trade liberalization. These negotiations offer some advantages, namely the potential for deeper liberalization than that achievable through the consensus-based multilateral trading system. These agreements also have the potential to guide and encourage further liberalization through other venues both multilateral and regional. However, as with previous FTAs, the TPP may create trade diversion (i.e., trade patterns that reflect preferential tariff treatment rather than comparative advantage), undermining the broader economic goals of U.S. trade policy. In addition, they could create a two tier global economy, where the rules of the multilateral trading system are different from these mega-regional agreements and potentially impeding trade between the two tiers.\nKey questions for Congress include:\nDoes the TPP signal the beginning of the end of WTO trade negotiations or could it serve as a building block for a more viable multilateral trade system through the WTO that responds to trade challenges of the 21 st century? What impact will the TPP have on the WTO as an institution, including on some of its most effective functions, such as the resolution of international trade disputes?",
"Supporters also frame the TPP in terms of its potential strategic value for the United States, relating to U.S. influence in geo-political and economic spheres in the Asia-Pacific region. China is not a signatory to the TPP agreement, but, in some ways, the debate over the accord includes China. During a time when China's rise and North Korea's growing nuclear and missile capabilities are testing the U.S.-based status quo, TPP proponents argue that the TPP is part of a broad foreign policy strategy to promote greater respect for, and ensure a primary U.S. role in establishing, the next generation of international trade rules and norms in the Asia-Pacific region. The Administration has touted the importance of writing these rules, warning that if the United States does not, China will. The implication is that the rules and disciplines China would seek to impose would be less robust and, perhaps, would be counter to U.S. economic and geo-political interests.\nKey questions for Congress include:\nHow do the potential strategic effects of the TPP compare to its economic value, and how should one weigh such considerations in an overall assessment of the agreement? Are U.S. and Chinese visions of international trading norms fundamentally different or do initiatives by both regional powers advance the same underlying goals?",
"Some analysts have asserted that failure to pass the TPP could have significant implications for the United States both economically and strategically. Given the recent flurry of concluded or implemented trade agreements between major U.S. trading partners (e.g., Australia-Japan, China-South Korea, EU-Vietnam), and the progress in the RCEP negotiations, it is clear that the regional and international trade architecture will continue to evolve with or without U.S. participation. Economically, this means that without the TPP, U.S. goods and services could be at a further disadvantage in foreign markets in which other countries, but not the United States, have negotiated trade agreements. Strategically, they argue that ratification of the TPP may be tied to perceptions of U.S. credibility as a negotiating partner and that countries could interpret a failure of TPP in the United States as a symbol of the United States' declining interest in the region and its inability to assert leadership.\nKey questions for Congress include:\nWhat would be the impact on U.S. trade policy and perceptions of U.S. leadership in the Asia-Pacific region if the TPP is rejected by Congress or is delayed indefinitely? How will congressional consideration of TPP affect U.S. credibility in future bilateral, regional, and international trade negotiations?",
"Congress may look forward as it debates the TPP, considering issues relating to the agreement's potential implementation and expansion. FTA implementing legislation typically requires that the Administration certify the partner countries are prepared to meet their obligations before an agreement can enter into force for the United States. A number of commitments, however, will continue to be phased in over time. Some Members have questioned the commitment of future administrations to ensure that TPP provisions are adequately and equally enforced. Specific issues have been raised with regards to the implementation of IPR commitments, labor and environment provisions, and the removal of nontariff barriers, among other matters. Congress may also consider the institutional structure of the TPP agreement—potentially the largest U.S. FTA—including the congressional role in any expansion of TPP, both in terms of members and content. The accession of new members likely would require implementing legislation, thus requiring congressional approval, if only to amend the U.S. tariff code and impose requisite rules of origin. Implementing legislation would also be required for changes to the agreement that would alter U.S. law. While TPA requires congressional notification for beginning trade negotiations, Congress may also consider whether to require prior congressional approval to negotiate with potential new participants due to the expandable nature of the TPP.\nHas the United States adequately funded implementation and enforcement efforts for past FTAs? How should the U.S. government ensure that TPP commitments are fully implemented, and subsequently enforced? What factors should be considered in assessing the suitability of a country for membership? Would amendments or changes to the agreement not requiring changes to U.S. law be subject to congressional approval?",
"The potential Trans-Pacific Partnership agreement has both economic and broader strategic policy implications for the United States. The TPP is ambitious in at least four ways: (1) its size—it would be the largest U.S. FTA by trade flows and could expand in a region that represents over half of all U.S. trade; (2) the scope and scale of its liberalization—the parties, while not always at the desired level of ambition, have agreed to reduce barriers to goods, services, and agricultural trade and to establish rules and disciplines on a wide range of topics, including new policy issues that neither the WTO nor existing FTAs yet cover; (3) its potential evolution as a \"living agreement\"—it may continue to be expanded in terms of its membership and its rules and disciplines, and a number of countries officially have expressed an interest in joining TPP if it goes into effect; and (4) its geo-political significance—it has become, for some observers in the United States and Asia, a symbol of U.S. commitment to and influence in the Asia-Pacific, a region of growing economic and military importance where U.S. leadership increasingly is being challenged. As Congress debates potential implementing legislation, it has a wide and complex set of issues to consider.",
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{
"question": [
"What is the TPP?",
"How does the TPP differ from previous free trade agreements?",
"Economically, how does this FTA affect the U.S?",
"What does Congress need to do to allow the agreement to enter into force?",
"What governing body would consider the legislation?",
"What portion of the world GDP is comprised within the TPP countries?",
"How has TPP been constructed to be flexible to change?",
"In what ways is the U.S. already involved with some of the potential countries included in this TPP?",
"What countries within this TPP stand out most as countries with which U.S. not currently have an FTA?",
"What are some perspectives on the TTP?",
"What are regulatory concerns regarding the TTP?",
"How has the Obama Administration argued to support the TPP agreement?",
"How can Congress decide how to implement (or not) this legislation?"
],
"summary": [
"The Trans-Pacific Partnership (TPP) is a proposed free trade agreement (FTA) among 12 Asia-Pacific countries, with both economic and strategic significance for the United States.",
"The proposed agreement is perhaps the most ambitious FTA undertaken by the United States in terms of its size, the breadth and depth of its commitments, its potential evolution, and its geo-political significance. Signed on February 4, 2016, after several years of negotiations, if implemented, TPP would be the largest FTA in which the United States participates, and would eliminate trade barriers and establish new trade rules and disciplines on a range of issues among TPP partners not found in previous U.S. FTAs or the World Trade Organization (WTO).",
"In addition, the TPP is designed to better integrate the United States into the growing Asia-Pacific region and has become the economic centerpiece of the Administration's \"rebalance\" to the region.",
"Congress would need to enact implementing legislation for the agreement to enter into force for the United States.",
"Such legislation would be considered under Trade Promotion Authority (TPA) procedures, unless Congress determines the Administration has not met TPA requirements.",
"Currently, the TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, which together comprise 40% of the world's GDP.",
"TPP is envisioned as a \"living agreement,\" potentially addressing new issues and open to future members, including as a possible vehicle to advance a wider Asia-Pacific free trade area.",
"The United States currently has FTAs with six TPP partner countries.",
"Japan is the largest economy and trading partner without an existing U.S. FTA. Malaysia and Vietnam also stand out among TPP countries without existing U.S. FTAs, given the rapid growth in U.S. trade with the two nations over the past three decades and their generally higher level of trade restrictions.",
"Views on the likely effects of the agreement vary. Proponents argue that the TPP is in the national interest and has the potential to boost economic growth and jobs through expanded trade and investment opportunities in what many see as the world's most economically vibrant region. Opponents of TPP voice concerns over possible job loss and competition in import-sensitive industries.",
"Other concerns include how a TPP agreement might limit the government's ability to regulate in areas such as health, food safety, and the environment.",
"The Obama Administration and others have argued that the strategic value of a TPP agreement parallels its economic value, while others argue that past trade pacts have had a limited impact on broad foreign policy dynamics.",
"In analyzing the agreement and its implementing legislation, Congress may consider the agreement from several of these perspectives, as well as how the TPP promotes progress on U.S. trade negotiating objectives."
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GAO_GAO-14-501
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{
"title": [
"Background",
"Federal Role",
"Types of Land-use Agreements and Their Benefits",
"Land-use Agreement Data and Monitoring",
"VA Does Not Maintain Reliable Data on the Number of Land-use Agreements and Their Associated Revenues",
"Additional Monitoring at Three VA Medical Centers Could Improve the Billing and Revenue- Collection Process for Land-use Agreements",
"Weaknesses Noted in Various Aspects of the Revenue Collection Process at the Selected Medical Centers",
"Inadequate Billing Practices",
"Opportunities for Improved Collaboration",
"Segregation of Duties",
"Opportunities for Improved Monitoring of Billing and Collections at Selected Medical Centers",
"VA Did Not Effectively Monitor Many of Its Land-use Agreements at Two of the Three Selected Medical Centers",
"Several Agreements Lacked Proper Enforcement of Terms",
"Expired Agreements",
"Lack of Written Agreements",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments",
"Appendix I: Court Decision on Sharing Agreements at the West Los Angeles Medical Center",
"Appendix II: Comments from the Department of Veterans Affairs",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"",
"VA’s three operational administrations—the Veterans Health Administration (VHA), the Veterans Benefits Administration (VBA), and the National Cemetery Administration (NCA)—each manage their own separate regional network of facilities to provide program services to veterans and their families. These services include a diverse array of educational, disability, survivor, and health benefits.\nVHA holds the nation’s largest integrated health care system consisting of, among other things, medical centers and community-based outpatient clinics that are decentralized across 21 Veterans Integrated Service Networks. In addition to its primary program mission area of providing health care to veterans, VHA—specifically—is also responsible for managing the majority of the department’s underutilized and excess property and land-use agreements at the local level. It should be noted that the management of underutilized and vacant spaces can be costly. Decision making on how to use these properties may involve competing considerations such as budgetary constraints, legal limitations, and stakeholder input.",
"VA utilizes various leasing authorities as a means of avoiding or decreasing its costs by maximizing available resources through the joint use of facility space. VA may use these authorities to enter into agreements that include outleases, licenses, permits, sharing agreements, and EUL agreements with public or private entities to use land and buildings for revenue or in-kind consideration. See table 1 below for the various types of authorities available to VA, a brief description of the authority, and how proceeds may be used if revenue is generated.\nDepending upon the terms specified and the type of agreement, agreements may generate revenue, in-kind considerations (such as cost savings or avoidance, or enhanced services), or both for the benefit of veterans, VA’s operations, or the community at large. When veterans benefit directly from these agreements, they may enjoy access to an expanded range of services that would otherwise not be available on VA medical center campuses because in some cases VA is not authorized to provide such services itself. VA benefits from land-use agreements by offsetting or avoiding altogether the costs associated with operating and maintaining underutilized or vacant properties. Finally, local communities may also benefit from agreements through the provision of services such as credit unions, daycare, or the placement of rooftop antennas to strengthen cell-phone reception.",
"Details about land-use agreements, including estimated revenue and indications of in-kind considerations, are to be recorded in VA’s CAI system by administration, network, or medical facility personnel who are responsible for those agreements. According to VA, it uses this system to evaluate property management by its administrations, regional networks, and medical centers. The inventory data from this system are to form the basis for decision making used in VA’s strategic capital-investment planning processes. CAI data are also reported to external stakeholders, including Congress and GAO.\nTo be entered into CAI, each land-use agreement must have its own revenue source and accounting codes. VA headquarters staff process requests and register the land-use agreements with these codes. Once assigned, the codes are to be entered into the CAI database. VA medical centers in VA’s 21 service networks are then responsible for updating the land-use agreement information into CAI immediately after they are notified that the codes have been entered as well as updating CAI at the time of execution of the land-use agreement. VA medical centers are also required to immediately update the CAI database for any subsequent changes in the land-use agreements. Each year, VA headquarters staff initiate a call for the VA medical centers to review existing data in CAI, including land-use agreements; update any needed changes to CAI; and certify the data are complete and accurate at that point in time.\nEnhanced use leases (EUL) are centrally managed at headquarters by the Office of Asset Enterprise Management (OAEM). OAEM is responsible for administering and managing the EUL program, with support from local facility staff from VA’s administrations. This monitoring includes tracking lease requirements and identifying benefits and expenses for EUL projects, once leases are executed. VA is also responsible for producing an annual consideration report to Congress for EULs that includes information on revenue, cost avoidance, cost savings, enhanced services, and expenses paid by VA.\nUnlike the central management of revenues and agreements associated with EULs, VA generally uses a decentralized approach in the monitoring of sharing agreements, outleases, licenses, and permits. The scope of projects can be diverse, ranging from space for medical research, day care, and rooftop telecommunications equipment, to 1-day special events for community causes. Regardless of the type of project, roles and responsibilities may vary by medical facility when overseeing land-use agreements. The monitoring of agreements, including ensuring the space is properly maintained or occupied, may involve offices responsible for asset management or contracting, for instance. According to VA officials, the medical centers are allowed considerable discretion in their management of these agreements.",
"Based on our review of land-use agreement data for fiscal year 2012, VA does not maintain reliable data on the total number of land-use agreements and VA did not accurately estimate the revenues those agreements generate.provided to us from VA’s CAI system, VA reported that it had over 400 land-use agreements with over $24.8 million in estimated revenues for fiscal year 2012. However, in the course of our testing the reliability of the data, one of VA’s administrations—VHA—initiated steps to verify the accuracy and validity of the data it originally provided to us. During this verification process, VHA made several corrections to the data that raised questions about their accuracy, validity, and completeness. Examples of these corrections include the following: According to the land-use agreement data\nVHA reported multiple entries for a single land-use agreement.\nSpecifically, VHA had 37 separate land-use entries for the same agreement entered in CAI—one for each building listed in the agreement—that were, in fact, for only one agreement at VA’s facility in Perry Point, Maryland.\nVHA also noted in its revisions that there were 13 agreements that had been terminated prior to fiscal year 2012 that should have been removed from the system.\nAt the three VA medical centers we reviewed, we also found examples of errors in the land-use agreement data. Examples of these errors include the following:\nVHA did not include 17 land-use agreements for the medical centers in New York and North Chicago, collectively.\nVHA initially reported that it had 9 non-EUL land-use agreements that generated about $3.2 million in revenues at its North Chicago medical center in fiscal year 2012. In its revisions, VHA stated that its North Chicago medical center maintained 7 land-use agreements that generated no revenue, instead of 9 agreements that generated revenues. However, on the basis of our independent review of revenue receipts, we found that 5 agreements generated more than $240,000 in revenue in fiscal year 2012.\nFor the medical center in West Los Angeles, VHA revised its estimated revenues from all land-use agreements in fiscal year 2012 from about $700,000 to over $810,000. However, our review of VA’s land-use agreements at this medical center indicated that the amount that should have been generated was approximately $1.5 million.\nGuidance in this area states that reliable data can be characterized as being accurate, valid, and complete.reasonably complete and accurate, can be used for their intended purposes, and have not been subject to inappropriate alteration. Additionally, data in systems should also be consistent—a subset of accuracy—and valid. Consistency can be impaired when data are entered at multiple sites and there is an inconsistent interpretation of what data should be entered. Finally, data that are valid actually represent what is Reliable data means that data are being measured. Thus, despite the corrections made by VHA, we cannot conclude that the revised number of land-use agreements held by VA or the amount of revenue these agreements generated in fiscal year 2012 are sufficiently reliable.\nVA policy requires that CAI be updated quarterly until the agreement ends. VA’s approach on maintaining the data in CAI relies heavily on data being entered timely (quarterly) and accurately by a staff person in the local medical center. VA OAEM makes annual requests to medical centers to update the data in CAI, which also calls for the medical centers staff to verify the data. VA officials stated that a number of deficiencies remained after an annual update of the data in CAI. According to VA officials, the errors may be a result of manual data entry or medical centers not adhering to the guidance for updating CAI on a quarterly basis. Our review found that VA does not currently have a mechanism to ensure that the data in CAI are updated quarterly as required and that the data are accurate, valid, and complete. Federal internal control standards state that relevant, reliable, and timely information is to be available for external reporting purposes and management decision making. Additionally, these standards also state that management should put in place control mechanisms and activities to enable it to enforce its directives and achieve results, such as providing relevant, reliable, and timely information.\nVA officials recognize the importance of maintaining quality data. According to VA’s guidance on CAI, the maintenance of high-quality data is critical to the organization’s credibility and is an indication of VA’s commitment to responsible capital asset portfolio management. Additionally, VA contends that high-quality data are needed to be responsive to policymakers and others. Officials at the VA headquarters reported that they undertake a few activities throughout the year to improve their data, such as the annual update. For example, an official told us that staff at headquarters had recently deployed a training session in 2014 that focused on updating data in CAI. According to a VA official, six sessions have been provided through June 2014. While these activities are positive steps, they do not provide the assurance needed that the data maintained in CAI are reliable. By implementing a mechanism that will allow it to assess whether medical centers have timely entered the appropriate land-use agreement data into CAI, and working with the medical centers to correct the data, as needed, VA would be better positioned to reliably account for land-use agreements and the associated revenues that they generate.",
"",
"At the three medical centers we visited, we found weaknesses with the billing and collection processes that impair VA’s ability to effectively and timely collect land-use agreement revenues from its sharing partners. Specifically, we found inadequate billing practices at all three medical centers we visited, as well as opportunities for improved collaboration at two of the three medical centers, and duties that were not properly segregated at one medical center. Because we did not perform a systematic review of VA’s internal controls outside of the three selected sites, our findings in this section cannot be generalized to other VA medical centers.",
"At the three sites that we visited, we found that VA had billed partners in 20 of 34 revenue-generating land-use agreements for the correct amount; however, the partners in the remaining 14 agreements were not billed for Based on our analysis of the agreements, we found the correct amount.that VA underbilled by almost $300,000 of the approximately $5.3 million that was due under the agreements, a difference of about 5.6 percent. For most of these errors, we found that VA did not adjust the revenues it collected for inflation. According to the department’s guidance on sharing agreements, VA must incorporate an annual inflation adjustment to multiple-year agreements to ensure that its maintenance and operating costs—such as future utility costs—continue to be recouped, or exceeded. However, for some of these incorrectly billed agreements, the sharing partners paid the correct amount of rent as specified in the agreement even though the bill stated an incorrect amount. In addition, we found that the West Los Angeles medical center inappropriately coded the billing so that the proceeds of its sharing agreements, which totaled over $500,000, were sent to its facilities account. According to the West Los Angeles chief fiscal officer, these proceeds were mainly used to fund maintenance salaries. However, according to VA policy, proceeds from sharing agreements are required to be deposited in the medical care appropriations account that benefits veterans.\nAccording to the policy for sharing agreements, each agreement must include the amount of rent for the space, when the rent is expected to be paid, and the number of payments to be made over a specified period by the sharing partners. In the absence of a bill from VA, the sharing partner still is required to make payments as stipulated under the agreement. However, at all three sites that we visited, we found problems with the billing of rent for the land-use agreements:\nAt the New York City location, VA officials were not aware that a sharing partner—an academic department with the local university— renewed its agreement to remain at the VA in 2008. As a result and according to a VA New York fiscal official, VA did not bill the sharing partner for several years’ rent that totaled over $1 million. After it discovered this error, VA began to take collection action on the unpaid rent in 2012, but over $200,000 in delinquent rent remained outstanding as of April 2014.\nAt the West Los Angeles location, officials did not send periodic invoices to sharing partners as required by policy or under its agreements. As a result, two of its sharing partners did not always submit timely payments. And in a third case, VA has not fully collected on the total amount of past due rent from a sharing partner that it did not bill as expected. Specifically, in August 2011, VA stopped billing a hospitality corporation that operated a laundry facility on the campus. Since that time, the sharing partner has not made any payments as required under the terms of its agreement. The partner vacated the space in December 2013, and owes hundreds of thousands of dollars to VA. A contracting officer in Long Beach, who is responsible for the management of the land-use agreements in West Los Angeles, stated during a February 2014 meeting with GAO that he advised the West Los Angeles location to evict the sharing partner for occupying VA space beyond its agreement term because they were “trespassing” and lacked authorization to remain in the space. The contracting official also stated that VA should bill the sharing partner for the rent due and, if necessary, seek guidance to initiate available collection actions. A West Los Angeles VA official acknowledged that eviction was one of the options that could be pursued; however, the medical center continued to allow the sharing partner to remain in the space so that the agreement could be terminated “amicably.” During our visit in December 2013, that same West Los Angeles official also stated that VA would continue to negotiate with the sharing partner on the final payment to be received; and those negotiations would take into account the value of certain inventory items and parts that the partner left in the space. This official later reported to GAO that, as of May 2014, VA would bill the sharing partner for the full amount of past due rent without offsetting the value of the property remaining in the space. We asked for a copy of the letter that would be sent to the sharing partner, but as of June 2014 VA had not provided it.\nThe medical center at West Los Angeles also did not bill a federal government agency sharing space at the Sepulveda Ambulatory Care Center during fiscal year 2012. Instead, the medical center submitted the bill for about $480,000 to the federal agency on October 1, 2012, the day after the end of fiscal year 2012. As a result, the sharing partner did not make any monthly rental payments during fiscal year 2012. The sharing partner subsequently made the full rental payment in November 2012.\nAt the North Chicago medical center, VA officials did not bill one of its sharing partners for about $3,000 for the month of August 2012. Officials were not aware that they had not billed for this agreement until we brought the matter to their attention in January 2014. According to a VA official, the North Chicago medical center submitted a bill to the sharing partner in June 2014.\nVA officials acknowledged that the department did not perform systematic reviews of the billings and collections practices at the three medical centers, which we discuss in more detail later. Federal internal control standards state that management is to ensure that transactions are promptly recorded to maintain their relevance and value to management in controlling operations and making decisions. This applies to the entire process or life cycle of a transaction or event from its initiation and authorization through its final classification in summary records. In addition, the standards call for agencies to design control activities to help ensure that all transactions are completely and accurately recorded. These standards and OMB guidance also state that management should put in place control mechanisms and activities to enable it to enforce its directives and achieve results. Because VA lacks a mechanism that ensures its transactions are promptly and accurately recorded, VA is not consistently collecting revenues that the sharing partners owe to VA at these three medical centers.",
"At two of the three sites we visited, we found that VA could improve collaboration amongst key staff that could enhance the collections of proceeds for its land-use agreements. Examples include the following:\nAt the New York site, VA finance staff created spreadsheets to improve the collection of its revenues for more than 20 agreements. However, the fiscal office did not have all of the renewed contracts or amended agreements that could clearly show the rent due since the contracting office failed to inform the fiscal office of the new agreements. According to a VA fiscal official at the New York office, repeated requests were made to the contracting office for these documents; however, the contracting office did not respond to these requests by the time of our visit in January 2014. According to the New York Harbor Healthcare System director and the fiscal officials at New York, collection activities suffered because the contracting office was not responsive.\nAt the North Chicago medical center, the finance staff identified differences between what they billed from the sharing partners and what they collected for some agreements. As a result, a North Chicago medical center finance staff official stated that the center’s staff had to undertake extra, time-consuming measures—including speaking to the sharing partners themselves—to resolve these differences. At that time, the finance staff discovered that VA was not billing for the increase in rent for inflation. North Chicago did not have a mechanism to communicate the specific terms (such as inflation adjustments) and did not have access to the land-use agreements across offices, according to another North Chicago finance official. Such sharing of information would have helped to expedite the explanation of these differences.\nCollaboration can be broadly defined as any joint activity that is intended to produce more public value than could be produced when organizations act alone. Best practices state that agencies can enhance and sustain collaborative efforts by engaging in several practices that are necessary for a collaborative working relationship. These practices include defining and articulating a common outcome; agreeing on roles and responsibilities; and establishing compatible policies, procedures, and other means to operate across agency boundaries.\nBy taking additional steps to foster a collaborative environment, VHA could improve its billing and collection practices. For example, rather than contacting sharing partners to confirm the accuracy of its billing, fiscal staff in the North Chicago VA could work with the office that holds the agreements, the contracting office, to confirm the accuracy of its billing and to correct errors.",
"Based on a walkthrough of the billing and collections process we conducted during our field visits, and an interview with a West Los Angeles VA official, we found that West Los Angeles did not utilize proper segregation of duties. Specifically, the office responsible for monitoring agreements also bills the invoices, receives collections, and submits the collections to the agent cashier for deposit. This assignment of roles and responsibilities for one office is not typical of the sites we examined. At the other medical centers we visited, these same activities were separated amongst a few offices, as outlined in VA’s guidance on deposits. Federal internal control standards state that for an effectively designed control system, key duties and responsibilities need to be divided or segregated among different people to reduce the risk of error or fraud. These controls should include separating the responsibilities for authorizing transactions, processing and recording them, reviewing them, and accepting any acquired assets. Without proper segregation of duties, risk of errors, improper transactions, and fraud increases. According to West Los Angeles officials, the medical center is considering steps to correct the segregation of duties issue by assigning certain duties to the fiscal office. However, the West Los Angeles site did not provide any details on the steps it would take or the timeline it would follow to implement these actions. Federal internal control standards emphasize the need for federal agencies to establish plans to help ensure goals and objectives can be met. Because of the lack of appropriate segregation of duties at West Los Angeles, the revenue collection- process has increased vulnerability to potential fraud and abuse.",
"VA headquarters officials informed us that program officials located at VA headquarters do not perform any systematic review to evaluate the medical centers’ processes related to billing and collections at the local level. VA officials further informed us that VHA headquarters also lacks critical data—the actual land-use agreements—that would allow it to routinely monitor billing and collection efforts for land-use agreements across the department. Federal internal control standards require that departments and agencies assess program quality and performance over time and work to address any identified deficiencies. Further, management must continually assess and evaluate these controls to assure that the activities being used are sufficient and effective. In response to our findings, one VA headquarters official told us that the agency is considering the merits of dispatching small teams of staff from program offices located at VA’s headquarters to assist the local offices with activities such as billing and collections. However, as of May 2014, VA had not implemented this proposed action or any other mechanism for monitoring the billing and collections activity at the three medical centers. Federal internal control standards also state that management should put in place control mechanisms and activities to enable it to enforce its directives and achieve results. Until VA performs systematic reviews, VA will lack assurance that the three selected medical centers are taking all required actions to bill and collect revenues generated from land-use agreements, as expected.",
"VA did not effectively monitor the status of the land-use agreements at the medical center level for two selected sites that we visited. As a result, we identified problems associated with many of the land-use agreements including unenforced agreement terms, expired agreements with partners remaining in VA space, and organizations occupying VA space without a written agreement. Because we did not perform a systematic review of VA’s internal controls outside of the three selected sites, our findings in this section cannot be generalized to other VA medical centers.",
"During our site visit to West Los Angeles, we noted several sharing agreements that lacked proper enforcement. These agreements included the following:\nAuthorization and Reporting Terms for Parking Services Agreement Not Enforced. VA did not enforce two key modification terms of a West Los Angeles sharing agreement. One modification for this agreement allowed for the receipt of in-kind considerations—such as road repaving and the installation of speed bumps—in lieu of revenue, as originally agreed. This agreement modification stipulates that the sharing partner will provide services (such as paving) as determined necessary by the contracting official. However, the medical center’s current contracting officer—an official located in the Long Beach office—stated that he had not approved any services under the agreement since his appointment in June 2012. Another provision in the modification requires the sharing partner to provide an annual reconciliation to the contracting officer. According to a West Los Angeles VA official that was previously responsible for monitoring the agreement, this report reconciles the costs of the in-kind services provided to VA to the revenues generated through the agreement each year. This official could not provide us with either documentation or information regarding any services that were provided during fiscal year 2012, including the value of such services. According to the current contracting officer in Long Beach, neither the sharing partner nor officials at West Los Angeles medical center have provided the reconciliation reports for 2012. We also requested the 2012 reconciliation report from VA West Los Angeles officials, but they could not provide us with a copy.\nOriginal Payment Terms with Nonprofit Organization Not Enforced. A West Los Angeles VA agreement with a nonprofit organization to provide space and services for homeless veterans included a rental provision that, if enforced, would have collected over $250,000 in revenue in 2012. However, according to a West Los Angeles VA official, no revenue was collected that fiscal year because the rental provision was waived. According to this same official, the waiver for the rental provision may have occurred in the late 2000s due to the nonprofit experiencing financial hardship.of the VA solicitation for award, demonstrating financial viability was one of the criteria considered in evaluating this partner. Further, VA policy requires the monitoring of sharing agreements and does not have a provision that allows for the waiving of such revenues. According to the contracting officer at the Long Beach VA office, VA has given this nonprofit organization an unfair advantage over other organizations that provide similar services by lowering its operating costs.\nHowever, from our review\nAgreement Terms with Golf Course Manager Not Enforced. During our site visit to West Los Angeles, we observed the installation of an irrigation system to upgrade a nine-hole golf course (shown in fig. 1) located at the medical center. As part of this agreement, the partner managing the golf course is required to obtain prior approval from the VA contracting officer before making any improvements to VA’s property. The Long Beach contracting officer told us that, he was unaware of the improvements to the golf course and had not authorized them, in contrast to what was stipulated in the agreement.\nImproper Subleasing of VA Space. VA guidance does not allow sharing partners to sublease the space obtained through sharing agreements. However, we found that a nonprofit organization—a botanic garden—subleased its space to two other organizations, including an exotic bird sanctuary and a food pantry. The Long Beach VA contracting officer told us that he was not aware of this sublease prior to our audit.",
"We found expired agreements at two of the three VA medical centers we reviewed where the sharing partners were still occupying the space. At the West Los Angeles medical center, a university athletics department, a laundry-services company, and a soccer club occupied VA space after their agreements had expired. According to a West Los Angeles VA official, VA did not renegotiate an extension for these agreements because of an ongoing lawsuit. The university athletics department and soccer club continued to pay rent although they generally did not fully comply with the schedule of payment terms outlined in the expired agreement. However, as previously discussed, the laundry-services company had not made any payments to VA since 2011 but remained in the building until it vacated the space in December 2013. According to the current contracting officer, he advised West Los Angeles to remove the laundry-services company from the premises, but medical center officials did not act on this advice. West Los Angeles VA officials told us that they discussed sending month-to-month tenancy letters to sharing partners that authorized them to operate on the VA property in the absence of an agreement. However, according to the contracting official at Long Beach, the letters were not sent to the partners because the lawsuit prohibited such actions.\nAt the New York medical center, seven agreements expired and were not renewed timely. Because of the lack of monitoring, one sharing partner— a local School of Medicine—with seven expired agreements remained on the property and occupied the premises without written authorization during fiscal year 2012. Our review of VA’s policy on sharing agreements did not have any specific guidance on how to manage agreements before they expired including the renewal process. Federal internal control standards state that the policies and procedures are needed to enforce management directives such as the process for managing expiring agreements. Without such guidance, VA may find it difficult to adequately manage agreements scheduled to expire at any time or determine what specific actions should be taken when an agreement has expired.\nThey help ensure that actions are taken to address risks.",
"GAO/AIMD-00-21.3.1. the New York medical center had recorded in CAI. After we brought this to their attention, New York VA officials researched the owners of these antennas and could not find written agreements or records of payments received for seven antennas. VA did not have written agreements associated with these antennas. According to New York VA officials, now that they are aware of the antennas, they will either establish agreements with the tenants or disconnect the antennas.\nDog Park and Baseball Fields. The City of Los Angeles has utilized a 12-acre field—Barrington Park—on VA property for recreational use (e.g., dog park and baseball fields) without a written agreement. The city has posted signs about local ordinances at the site, which purport to show the space is under the city’s jurisdiction. VA is forgoing potential revenue for use of this facility by not having a written agreement in place. In the absence of a written agreement, it is also unclear what party should respond to any emergency situation that may occur at the park and fields. The lack of an agreement in this instance could potentially increase VA’s risk of liability.\nVA officials stated there could be a number of reasons that these spaces lacked agreements such as agreements could have been disposed of or misplaced. VA officials acknowledged that agreements are not centrally managed or stored and that CAI does not include all terms of the agreements that are needed for monitoring activity. However, VA’s guidance calls for written sharing agreements with all non-VA partners. Further, federal internal control standards state that all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination and the documentation should be properly managed and maintained.\nWe found that VA had not established mechanisms to monitor the various agreements at the West Los Angeles and New York medical centers. VA officials acknowledged that they had not performed systematic reviews of these agreements and had not established mechanisms to enable them to do so. Federal internal control standards also state that management should put in place control mechanisms and activities to enable it to enforce its directives and achieve results. Federal internal control standards require that departments and agencies assess program quality and performance over time and work to address any identified deficiencies. Further, management must continually assess and evaluate these controls to assure that the activities being used are effective. Without a mechanism for accessing land-use agreements to perform needed monitoring activities, VA lacks reasonable assurance that the partners are meeting the agreed-upon terms, agreements are renewed as appropriate, and agreements are documented in writing, as required. This is particularly important if sharing partners are using VA land for purposes that may increase risk to VA’s liability. Finally, with lapsed agreements, VA not only forgoes revenue, but it also misses opportunities to provide additional services to veterans in need of assistance and to enhance its operations.",
"For the past decade, we have reported that the management of federal property is at risk for fraud, waste, and abuse. As one of the U.S. government’s largest property holders, many of the issues we identified across the federal government can be found in VA’s management of its underutilized and vacant property. VA’s system for managing its numerous land-use agreements, including its system for recording associated revenues and benefits, is in need of corrective action. Because we found that the VHA data maintained in CAI are unreliable, these data cannot be used to accurately and reliably manage the bulk of VA’s land-use agreements as intended. Developing a mechanism to assess the accuracy, validity, and completeness of land-use agreement data in CAI would better position VHA to reliably account for the current land-use agreements and the associated revenues that they generate.\nVA has opportunities to enhance the effectiveness of its land-use agreements processes at the three selected medical centers. As noted in our report, deficiencies in its monitoring of the billing and collection of revenues have impaired VA in the timely collection of all revenues due from its sharing partners and the proper recording of the revenues to its medical-care appropriations account at one of the medical centers. In addition, VA did not have mechanisms in place at two medical centers to ensure that different individuals charged with the responsibility of executing and managing agreements and collecting revenues worked together in a collaborative manner. Further, VA lacked adequate processes that enabled it to readily access land-use agreements and perform monitoring of the execution of its land-use agreements at two of the three selected sites, which resulted in land-use agreement terms not being properly documented in writing or being enforced by VA and the failure to execute renewals when the agreements have expired. The ineffective monitoring of land-use agreements at the VA medical centers is further exacerbated by the lack of any detailed guidance by VA on how to manage the expiration of land-use agreements. Finally, the lack of appropriately segregated duties at its West Los Angeles medical center is also problematic and needs to be immediately addressed; however, officials at that medical center have not developed a plan for doing so. This lapse of a key internal control increases the likelihood that revenues from land-use agreements may be vulnerable to potential fraud and abuse. Until VA effectively addresses these weaknesses, it will likely continue to miss opportunities to maximize revenues that can be used to offset VA operational costs—thereby placing a higher burden on taxpayers—or provide additional services to veterans in need of assistance.",
"In order to improve the quality of the data collected on specific land-use agreements (i.e., sharing, outleases, licenses, and permits), enhance the monitoring of its revenue process and monitoring of agreements, and improve the accountability of the VA in this area, we recommend that the Secretary of Veterans Affairs take the following six actions: develop a mechanism to independently verify the accuracy, validity, and completeness of VHA data for land-use agreements in CAI; develop mechanisms to: monitor the billing and collection of revenues for land-use agreements to help ensure that transactions are promptly and accurately recorded at the three medical centers; foster collaboration between key offices to improve billing and collections practices at the New York and North Chicago medical centers; and access and monitor the status of land-use agreements to help ensure that agreement terms are enforced, agreements are renewed as appropriate, and all agreements are documented in writing as required at the New York and West Los Angeles selected medical centers; develop a plan for the West Lost Angeles medical center that identifies the steps to be taken, timelines, and responsibilities in implementing segregation of duties over the billing and collections process; and develop guidance on managing expiring agreements at the three medical centers.",
"We provided the Departments of Veterans Affairs with a draft of this report for its review and comment. In its written comments, reprinted in appendix II, the Department concurred with our recommendations and provided technical comments that we incorporated, as appropriate.\nAs agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Veterans Affairs. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov.\nIf you have any questions concerning this report, please contact me at (202) 512-6722 or lords@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.",
"On August 29, 2013, a federal judge found that certain sharing agreements in the West Los Angeles medical center were unauthorized under the land-use authority under which they were executed. This authority states that the Secretary of Veterans Affairs may enter into agreements to share health care resources with health care providers in support of the Department of Veterans Affairs’ (VA) mission. As a result, the federal judge voided several sharing agreements with entities other than health care providers; thus, the district court case called into question whether VA can enter into sharing agreements with entities other than health care providers. The case is under appeal at the United States Court of Appeals for the Ninth Circuit.\nIf this opinion stands, this ruling may affect other sharing agreements VA holds with nonmedical providers nationwide. Our review of VA’s land-use agreements at West Los Angeles, North Chicago, and New York found just over 40 percent of VA’s sharing agreements were with nonmedical providers, such as telecommunication companies that lease space for rooftop antennas, and collectively generate hundreds of thousands of dollars in revenue each year.",
"",
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"In addition to the contact named above, Matthew Valenta (Assistant Director), Erika Axelson, Carla Craddock, Debra Draper, Olivia Lopez, Elke Kolodinski, Edward Laughlin, Barbara Lewis, Paul Kinney, Jeffrey McDermott, Maria McMullen, Linda Miller, Lorelei St. James, April VanCleef, Shana Wallace, and William Woods made key contributions to this report."
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"question": [
"How have land-use agreements specifically been a place of concern within the GAO's findings?",
"What is particularly troubling about the VA's shared partners at the New York Center?",
"How did the VA attempt to rectify this error?",
"Why is there cause for continued concerned regarding the billing and collection processes at these centers?",
"What information did VA officials at the New York and Chicago centers share to shed more light on this case?",
"What three things does this report address?",
"How did the GAO gather information for this report?",
"How did GAO select the medical centers they did?",
"What is a limitation to these site visits?"
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"summary": [
"GAO found weaknesses in the billing and collection processes for land-use agreements at three selected VA medical centers due primarily to ineffective monitoring. For example, VA incorrectly billed its sharing partners for 14 of 34 agreements at the three centers, which resulted in VA not billing $300,000 of the nearly $5.3 million owed.",
"In addition, at the New York center, VA had not billed a sharing partner for several years' rent that totaled over $1 million.",
"VA began collections after discovering the error; over $200,000 was outstanding as of April 2014.",
"VA stated that it did not perform systematic reviews of the billing and collection practices at the three centers and had not established mechanisms to do so. Until VA addresses these issues, VA lacks assurance that it is collecting the revenues owed by its sharing partners.",
"VA officials at the New York and North Chicago centers stated that information is also not timely shared on the status of agreements with offices that perform billing due to lack of collaboration.",
"This report addresses the extent to which VA (1) maintains reliable data on land-use agreements and the revenue they generate, (2) monitors the billing and collection processes at selected VA medical centers, and (3) monitors land-use agreements at selected VA medical centers.",
"GAO analyzed data from VA's database on its land-use agreements for fiscal year 2012, reviewed agency documentation, and interviewed VA officials. GAO also visited three medical centers to review the monitoring of land-use agreements and the collection and billing of the associated revenues.",
"GAO selected medical centers with the largest number of agreements or highest amount of estimated revenue.",
"The site visit results cannot be generalized to all VA facilities."
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GAO_GAO-14-231
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{
"title": [
"Background",
"NNSA Identified Various Cost Drivers for the Plutonium Disposition Program’s Construction Projects",
"NNSA Has Not Analyzed Root Causes of the Cost Increases for the Plutonium Disposition Program’s Construction Projects",
"NNSA Has Taken Steps to Hold Contractors Accountable for Cost Increases by Withholding Fees",
"NNSA Withheld Portions of Two of the Four Types of the MOX Contractor’s Fees",
"NNSA Withheld 41 Percent of the WSB Contractor’s Fees through Fiscal Year 2012",
"Estimates for the Plutonium Disposition Program’s Life-cycle Cost and Construction Projects Did Not Meet All Best Practices for Reliability",
"NNSA Did Not Follow All Key Steps for Developing a Reliable Life-cycle Cost Estimate for the Plutonium Disposition Program",
"Contractor’s Proposed Estimate for the MOX Facility Did Not Meet Most Best Practices for Reliability",
"Contractor’s Schedule Estimate for the WSB Did Not Meet Most Best Practices for Reliability",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Assessment of NNSA’s Process for Developing a Life-cycle Cost Estimate for the Plutonium Disposition Program",
"Best practice characteristic and overall assessment Comprehensive: Partially met",
"Best practice characteristic and overall assessment Credible: Not met",
"Appendix III: Assessment of the MOX Contractor’s Proposed Cost Estimate Compared with Industry Best Practices",
"Best practice characteristic and overall assessment Comprehensive: Substantially met",
"Best practice characteristic and overall assessment",
"Appendix IV: Assessment of the Waste Solidification Building’s Schedule Estimate Compared with Industry Best Practices",
"Best practice characteristic and overall assessment Comprehensive: Partially met",
"Appendix V: Comments from the National Nuclear Security Administration",
"Appendix VI: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"The end of the cold war left the United States with a surplus of weapons- grade plutonium. Much of this material is found in a key nuclear weapon component known as a pit. In 1997, DOE announced a plan to dispose of surplus, weapons-grade plutonium through an approach that included fabrication of plutonium into MOX fuel for use in domestic commercial nuclear reactors. In 2000, the United States and Russia entered into a Plutonium Management and Disposition Agreement, in which each country pledged to dispose of at least 34 metric tons of surplus, weapons- grade plutonium. Through a protocol to the agreement signed in 2010, the United States and Russia reaffirmed their commitment to dispose of surplus, weapons-grade plutonium as MOX fuel in nuclear reactors, and the agreement entered into force in 2011.\nThe MOX facility is designed to remove impurities from plutonium feedstock obtained from nuclear weapon pits, form the plutonium into MOX fuel pellets, and fabricate pellets into fuel assemblies for use in a reactor. The MOX facility is a reinforced concrete structure measuring about 600,000 square feet (including support buildings) and, when complete, will include about 300 separate process systems using approximately 23,000 instruments; 85 miles of process piping; 500,000 linear feet of conduit; 3,600,000 linear feet of power and control cable; and 1,000 tons of heating, ventilation, and air conditioning duct work. The WSB will be a 33,000 square foot reinforced concrete structure and will include tanks, evaporators, and solidification equipment to process radioactive liquid waste streams from the MOX facility into solid waste forms suitable for disposal at DOE sites in New Mexico and Nevada. Figure 1 shows aerial views of construction progress for the MOX facility and WSB as of June 2013 and July 2013, respectively.\nIn addition to the MOX facility and WSB, NNSA’s plans for the U.S. Plutonium Disposition program include the following two additional components:\nMOX Irradiation, Feedstock, and Transportation (MIFT). Among other activities, this component includes: (1) production of plutonium feedstock for the MOX facility, (2) qualification of MOX fuel for use in commercial nuclear reactors, and (3) procurement and maintenance of shipping containers for plutonium feedstock and MOX fuel.\nPlutonium Disposition and Infrastructure Program (PDIP). This component includes overall management and integration of the MOX facility and WSB projects and integration of the projects with activities falling under MIFT; preparation of environmental impact statements and records of decision for the program in accordance with the National Environmental Policy Act; support for infrastructure at the Savannah River Site, such as site roads; and other activities.\nNNSA’s plans for producing plutonium feedstock previously included design and construction of a stand-alone Pit Disassembly and Conversion Facility (PDCF) at the Savannah River Site. As we reported in March 2010, NNSA never established a definitive cost and schedule estimate for the PDCF, but NNSA estimated in January 2011 that the cost of the facility could range from $4.5 billion to $4.8 billion. NNSA canceled the PDCF in January 2012 and, instead, proposed in a July 2012 draft environmental impact statement to meet the feedstock requirements for the MOX facility through existing facilities at DOE’s Los Alamos National Laboratory and the Savannah River Site.cycle cost estimate for the Plutonium Disposition program, NNSA spent $730.1 million on the PDCF prior to its cancellation.\nAccording to NNSA’s draft life- In July 2012, NNSA also announced its preferred alternative for disposition of 13.1 metric tons of surplus plutonium not already included in the 34 metric tons planned for disposal as MOX fuel. The additional plutonium included pits declared excess to national defense needs, as well as surplus non-pit plutonium. According to NNSA officials, the preferred alternative would increase the amount of plutonium disposed as MOX fuel to about 42 metric tons. As of December 2013, DOE had not issued a final supplemental environmental impact statement or record of decision on the facilities to be used to meet plutonium feedstock requirements for the MOX facility or on the disposition pathway for the 13.1 metric tons of surplus plutonium.\nNNSA’s Office of Defense Nuclear Nonproliferation provides policy direction for the Plutonium Disposition program, develops and manages annual budgets and the life-cycle cost estimate for the overall program, and manages the MIFT and PDIP components of the program.\nNNSA’s Office of Acquisition and Project Management is responsible for managing construction of the MOX facility and WSB projects within approved cost and schedule estimates. To do so, the office manages teams of federal project directors and federal staff that provide direction and oversight of the contractors for both projects, report monthly on the projects’ cost and schedule performance, and evaluate contractors’ performance in areas such as management of subcontractors. The office also conducts reviews of the construction projects to evaluate technical, cost, scope, and other aspects of the projects so that any necessary course corrections can be made. DOE’s project management order requires that such reviews be conducted at least once per year.\nNNSA entered into cost-reimbursable contracts for construction of the MOX facility and WSB. A cost-reimbursable contract provides for payment of a contractor’s allowable incurred costs to the extent prescribed in the contract. Agencies may use cost-reimbursable contracts when uncertainties in the scope of work or cost of services prevent the use of contract types in which prices are fixed, known as fixed-price contracts. The MOX and WSB contracts included fees with payment tied to meeting or exceeding preestablished requirements or withholding of fees for any requirements not met, thereby reducing contractors’ profits. Under the MOX contract, NNSA provided four types of fees that the contractor could earn: (1) incentive fees—a type of fee specifically tied to meeting a project’s cost and schedule estimate; (2) milestone fees tied to on-time completion of construction milestones; (3) award fees, which are generally intended to motivate performance in areas other than cost and schedule, such as safety; and (4) fixed fees, a set amount a contractor receives for contract performance. In contrast, NNSA included only one type of fee for the WSB—a performance incentive fee under the contract for management and operation of the Savannah River Site, which included construction of the WSB. In order to provide the contractor performance incentives specifically related to construction of the WSB, NNSA established various performance measures, such as meeting the project’s cost and schedule and completing construction milestones, and allocated portions of the fee to each performance measure.\nThe contractors for the MOX facility and WSB work with subcontractors to construct the facilities. For example, the WSB contractor entered into a subcontract that included all construction activities for the WSB with the exception of early site work, such as installation of underground utilities.\nOnce the construction subcontractor completes its work, the WSB contractor is responsible for start-up testing and operation of the facility.\nUnder DOE’s project management order, the Deputy Secretary of Energy is the senior DOE official accountable for all of the department’s project acquisitions. In addition, the Deputy Secretary approves cost and schedule estimates for all major construction projects—defined as those with values of at least $750 million, which includes the MOX facility—and approves any cost increase over $100 million for a major or nonmajor project. The DOE Office of Acquisition and Project Management conducts external independent reviews to validate estimates prior to approval by the Deputy Secretary. Once estimates have been approved, this office monitors projects’ cost and schedule performance and reports to the Deputy Secretary on a monthly basis. Figure 2 depicts the roles of NNSA, DOE, and contractors in managing the Plutonium Disposition program.\nThe GAO Cost Estimating and Assessment Guide and the GAO Schedule Assessment Guidethe four characteristics of high-quality, reliable cost and schedule estimates, respectively: compiled best practices corresponding to\nThe characteristics of a high-quality, reliable cost estimate are comprehensive, well-documented, accurate, and credible. For example, (1) a comprehensive estimate has enough detail to ensure that cost elements are neither omitted nor double counted, (2) a well- documented estimate allows for data it contains to be traced to source documents, (3) an accurate estimate is based on an assessment of most likely costs and has been adjusted properly for inflation, and (4) a credible estimate discusses any limitations because of uncertainty or bias surrounding data or assumptions. Our cost estimating guide also lays out 12 key steps that should result in high- quality cost estimates. For example, one of the steps is to conduct an independent cost estimate––that is, one generated by an entity that has no stake in approval of the project but uses the same detailed technical information as the project estimate. Having an independent entity perform such a cost estimate and comparing it with a project team’s estimate provides an unbiased test of whether a project team’s estimate is reasonable.\nThe four characteristics of a high-quality, reliable schedule are comprehensive, well-constructed, credible, and controlled. For example, (1) a comprehensive schedule includes all government and contractor activities necessary to accomplish a project’s objectives, (2) a well-constructed schedule sequences all activities using the most straightforward logic possible, (3) a credible schedule uses data about risks and opportunities to predict a level of confidence in meeting the completion date, and (4) a controlled schedule is updated periodically to realistically forecast dates for activities.",
"NNSA identified various drivers of the cost increases for the MOX facility and WSB. NNSA’s budget request for fiscal year 2014 summarized the cost drivers that NNSA considered to be most significant. In addition, NNSA identified some of these drivers in earlier documents, including in reports of project reviews conducted in 2011 and 2012, in monthly status reports for the projects, and, for the WSB, in the document requesting approval for a cost increase. NNSA and contractor officials provided additional details on these drivers during interviews with us.\nKey drivers NNSA identified for the cost increase for the MOX facility included the following:\nDOE’s approval of the cost and schedule before design was complete. The head of NNSA’s Office of Acquisition and Project Management told us that, judging from the MOX contractor’s design costs during construction of the MOX facility, the overall design was about 58 percent complete when DOE approved the project’s cost and schedule estimate in April 2007. In contrast, according to DOE’s project management order, to support the development of a cost estimate, the design of complex nuclear processing facilities needs to be closer to 100 percent complete than the design of basic facilities, such as administrative buildings and general purpose laboratories. NNSA’s budget request for fiscal year 2014 stated that the cost of critical system components for the MOX facility averaged 60 percent higher than estimated as a result of approval of these estimates before design was complete. According to NNSA and MOX contractor officials, after the contractor completed designs for critical system components, such as the gloveboxes used in the facility for handling plutonium and related infrastructure, equipment suppliers submitted higher bids than the contractor anticipated. For example, according to the contractor’s Vice President of Operations, a vendor submitted a bid in 2008 that was four times the amount the same vendor had estimated in 2005.\nHigher-than-anticipated costs to install equipment. For example, the MOX contractor estimated in its September 2012 proposal to increase the cost of the facility that the labor hours to install each foot of the approximately 85 miles of piping in the facility increased by as much as 26 percent and that, as facility designs became more definitive, the total amount of pipe increased by close to 33 percent over the previous estimate. In addition, according to NNSA, the number of safety systems needed to meet Nuclear Regulatory Commission (NRC) requirements was greater than anticipated, further adding to equipment installation costs. According to NNSA officials, NNSA and the contractor did not have a good understanding of the cost of designing the facility to meet NRC requirements related to demonstrating the ability to withstand an earthquake. The officials explained that the facility’s design is based on a similar facility in France but that NRC regulatory requirements differ from those in France.\nThe contractor’s difficulty identifying suppliers and subcontractors able to fabricate and install equipment meeting nuclear quality assurance criteria.project was experiencing the same issues identifying qualified suppliers and subcontractors as other nuclear projects across DOE. These issues included a higher than expected effort associated with attracting qualified vendors and, after vendors were selected, responding to questions or correcting noncompliance with requirements. For example, according to NNSA and the MOX contractor, the contractor needed to station quality assurance personnel at supplier and subcontractor locations to oversee activities.\nAccording to NNSA’s review of the MOX project in 2011, the\nGreater-than-expected turnover of engineering and technical staff. In particular, the project lost staff to other nuclear industry projects, including projects in neighboring states, resulting in a nearly complete turnover of construction management personnel over a period of several years and the need to provide training to replacement personnel. NNSA identified this driver in its budget request for fiscal year 2012. Specifically, the budget request stated that over 15 percent of the project’s engineering and technical personnel had left for other nuclear industry jobs in the previous year with pay increases of at least 25 percent. The budget request further stated that finding experienced replacements had become difficult and expensive. According to the budget requests for fiscal years 2013 and 2014, the loss of experienced engineering and technical staff to other nuclear industry projects has continued.\nChange in scope of the project to add capability to the MOX facility to produce plutonium feedstock. As part of its decision to cancel plans for a stand-alone PDCF and to instead meet feedstock requirements through existing facilities, NNSA directed the MOX contractor to include feedstock capability in its September 2012 proposal to increase the cost of the facility. The contractor’s proposal included an estimate of $262.3 million to add feedstock capability.\nIn identifying these drivers of the cost increase for the MOX facility, NNSA did not identify the dollar amount associated with each cost driver. An NNSA official said that the MOX contractor’s system for tracking and reporting on cost and schedule performance could potentially be used to determine dollar amounts that each driver added to the overall cost increase—which is one possible use of such a system—but that doing so would be time-consuming and difficult. As a result, NNSA officials could not substantiate the relative importance of the cost drivers. For example, NNSA officials said they had not conducted a formal analysis to back up an estimate, which they had made when we first discussed the cost drivers with them, that lack of design maturity of critical system components accounted for more than half of the increase. In reviewing the MOX contractor’s system, we found that, as NNSA officials stated, using the system to determine the dollar amounts each driver added to the cost increase would be difficult—for example, because the system’s identification of cost increases at a summary level, such as site construction support, did not correspond to the cost drivers identified by NNSA.\nKey cost drivers NNSA identified for the WSB included the following:\nHigher-than-anticipated bids for the construction subcontract.\nAccording to the NNSA federal project director for the WSB, the WSB contractor received two bids in 2009 from prospective construction subcontractors that both came in at about $26 million higher than the contractor’s estimate. NNSA officials did not explain the reason for the difference, stating that the bidders were not required to provide details of their estimates. The federal project director said that NNSA supported the WSB contractor awarding the construction subcontract, despite the higher cost, in order to maintain the schedule for completing the WSB in time to support the start-up of the MOX facility. According to NNSA officials, the project applied cost savings from earlier work to cover part of the increased cost of the construction subcontract and had sufficient contingency—the portion of a project’s budget that is available to account for uncertainties in the project’s scope—to absorb the remainder of the increase. Consequently, however, contingency to absorb further cost increases as construction progressed was reduced.\nDesign errors, omissions, and inconsistencies. According to the NNSA federal project director, the WSB contractor and subcontractor made hundreds of design changes, which led to an additional cost increase in the construction subcontract. According to NNSA’s log of design changes, as of August 2013, design changes increased the cost of the construction subcontract by about $15 million, from $91.5 million to $106.5 million. The federal project director said that, unlike the design of the MOX facility, the design of the WSB was about 90 percent complete at the start of construction. A September 2008 report of NNSA’s independent review of the WSB prior to approval of the cost and schedule estimate found that the design was essentially complete. Nevertheless, according to the federal project director, design changes were needed because of constructability issues, such as equipment that met specifications in design documents not being available by the time the project reached construction.\nSchedule delays resulting from the construction subcontractor not meeting required targets. According to the NNSA federal project director’s feedback on the WSB contractor’s performance in September 2009, NNSA had concerns related to the project schedule and the ability to meet the completion date in part because of a delayed start in the construction subcontract. By the time NNSA approved the cost increase for the WSB in December 2012, schedule delays in the construction subcontract had grown to 15 months. The approved cost increase included about $30 million in the contractor’s delay-related costs because NNSA’s contract for the WSB is cost- reimbursable.\nThe actual cost attributable to the WSB may be even higher depending on the outcome of a lawsuit filed by the subcontractor against the WSB contractor related to design changes and schedule delays that increased the subcontractor’s costs in excess of the amount specified in its fixed- price subcontract. The approved cost increase for the WSB included contingency to account for the possibility of higher costs incurred by the construction subcontractor.",
"NNSA has not analyzed the underlying, or root, causes of the close to $3 billion in construction cost increases for the MOX facility and WSB. DOE’s project management order requires that lessons learned be captured throughout a project to allow for the exchange of information within DOE in the context of project management and to benefit future endeavors. However, the project management order does not include a requirement for a root cause analysis of projects experiencing significant cost increases or schedule delays. NNSA officials said that they decide on a case-by-case basis whether to conduct a root cause analysis. In contrast, under the Weapon Systems Acquisition Reform Act of 2009, the Department of Defense must perform a root cause analysis of a cost increase that exceeds a certain threshold.\nDocumentation NNSA provided to us on the cost drivers for the MOX facility and WSB do not provide clear details about the causes of the cost increases. Such details can be found in a root cause analysis, which would help address questions about why the drivers identified by NNSA occurred and help inform lessons learned. Key questions about the cause of the key drivers include the following:\nDOE’s reasons for approving a cost and schedule estimate for the MOX facility before the design was complete, even though a July 2006 review of the project found that the cost estimate’s basis on portions of the design that were less than 50 percent complete posed a risk to the project. Similarly, a root cause analysis would address why one of the drivers of the cost increase for the WSB identified by NNSA was design errors, omissions, and inconsistencies, given that a review prior to approval of the project’s cost and schedule estimate found that most of the design was ready for construction.\nThe extent to which NNSA and its contractors shared responsibility for cost drivers, such as the greater-than-anticipated number of safety systems needed in the MOX facility to meet NRC requirements. According to NNSA officials, the department hired the MOX contractor because it considered the contractor to be well-qualified to engineer and estimate all of the safety systems for the facility, taking into account NRC requirements. However, the record for DOE’s approval of the cost and schedule estimate for the facility shows that DOE was aware of complexities in adapting MOX technology to comply with NRC requirements. Specifically, the minutes from DOE’s July 2006 meeting to request approval of the estimate stated that these complexities had already contributed to a $1.1 billion increase in the estimated cost.\nThe sufficiency of measures DOE took to ensure that the cost estimate for the MOX facility it approved in 2007 reflected an awareness of market conditions, such as the availability of suppliers and subcontractors with the ability and experience to meet nuclear quality assurance criteria. As required under the MOX contract, in October 2006—before DOE approved the cost and schedule estimate for the facility—the contractor submitted a construction market analysis report, which stated that the contractor had experienced trouble obtaining qualified suppliers and that the subcontractor pool using nuclear quality standards had been decreasing due to inactivity in the nuclear industry. However, the report provided limited detail and did not include recommendations to address availability of qualified suppliers.\nThe thoroughness of DOE’s review, required under DOE’s project management order, to ensure that the WSB contractor’s system for tracking and reporting on cost and schedule performance provided accurate information. DOE recertified the contractor’s system in December 2011 after identifying and closing out several corrective actions and continuous improvement opportunities. However, DOE found additional problems with the system after January 2012, when the WSB contractor informed NNSA that schedule delays for the project were greater than the contractor previously revealed. Based in part on the contractor’s revelations, DOE reexamined the contractor’s system and suspended its certification in November 2012.\nThe corrective actions NNSA and its contractors took after periodic project reviews identified problems, including problems cited by NNSA as drivers of cost increases for the MOX facility and WSB. For example, multiple reviews of the MOX facility found that costs to install equipment were underestimated. A July 2006 review found that installation for electrical; piping; and heating, ventilation, and air- conditioning equipment were underestimated by close to $160 million and nearly 3 million labor hours. NNSA’s project reviews of the facility in 2011 and 2012 continued to raise concerns about unrealistic installation rates.\nThe responsiveness of NNSA project managers to emerging cost and schedule issues. Without a review of the timing of NNSA initiating the process of increasing the projects’ cost and schedule estimates, it is not clear whether NNSA acted in a timely manner or whether project cost and schedule indicators warranted earlier action. For example, an NNSA review of the MOX facility in the spring of 2011 found that the most significant risk to delivering the project within cost centered on the ability of the project team to identify about $364 million in savings to offset expected cost growth, but NNSA did not initiate the process of increasing the project’s cost and schedule estimates until January 2012.\nWithout a root cause analysis, it is uncertain whether NNSA will be able to accurately identify underlying causes of the cost increases for the MOX facility and WSB in order to identify and implement corrective measures and identify lessons learned to share with and apply to other DOE construction projects.",
"After determining that the performance of the contractors for the MOX facility and WSB contributed to the projects’ construction cost increases, NNSA took steps to hold the contractors accountable for their performance by withholding fees specified under the contracts. Specifically, NNSA withheld portions of two of the four types of the MOX contractor’s fees and 41 percent of the WSB contractor’s fees.",
"NNSA withheld portions of two of the four types of fees that the MOX contractor could earn under the contract for construction of the facility— incentive fees and award fees. In total, NNSA withheld $45.1 million or close to one-third of all fees the contractor could earn as of November 2013. Under the terms of the MOX contract, the contractor could still earn incentive fees that have been withheld, but only if it completes the overall project within cost and schedule. Table 1 summarizes fees paid to and withheld from the contractor as of November 2013.\nDetails of fees NNSA withheld and paid under the MOX contract include the following: Incentive fees. NNSA did not pay $36.5 million or over half of the $65.6 million in incentive fees that the MOX contractor could earn from fiscal year 2008, when construction began, through fiscal year 2013. Of the $29.1 million in incentive fees paid to the contractor, $21.6 million remains provisional, meaning that NNSA can require that the fees be paid back as a result of the project not being completed within cost. The amount not paid represented the contractor’s entire incentive fees for fiscal years 2011 through 2013. Specifically, under the terms of the MOX contract, NNSA can withhold quarterly payments of incentive fees if an increase in the projected cost to complete the MOX facility exceeds $200 million. NNSA began withholding incentive fees for the first quarter of fiscal year 2011 when, for the first time, the increase in the projected cost to complete the facility exceeded this threshold. NNSA memos for subsequent quarters in fiscal year 2011 noted that the project’s cost and schedule metrics continued to worsen, reducing the likelihood of resumption of payments. In a July 2011 letter to the contractor explaining its rationale for not resuming payments, NNSA stated that it was sensitive to the potential impacts of the “nuclear renaissance”—the contractor’s term for the resurgence of U.S. nuclear engineering and manufacturing capability after being dormant for more than 20 years, which the contractor stated limited the availability of qualified suppliers and subcontractors and led to staff turnover and higher-than- anticipated costs to install equipment. However, NNSA stated that such impacts would not necessarily overcome other evidence showing that the contractor was not meeting the overarching goal of the incentive fees, which is that the facility be completed within cost.\nAward fees. NNSA withheld $8.6 million or about a quarter of the $32.6 million in award fees that the MOX contractor could earn from fiscal year 2008 through fiscal year 2012. The amount withheld included about half of the fees the contractor was eligible to earn in fiscal year 2012. NNSA’s award fee evaluation for fiscal year 2012 cited various factors, such as poor construction planning; less than optimal coordination of work; and overly conservative specifications for installation of fire doors, resulting in delays and unnecessary costs. In contrast, NNSA paid $24.0 million in award fees for performance in other areas, such as maintaining a high level of worker safety—an area in which the contractor has consistently performed well, according to NNSA’s award fee evaluations.\nMilestone fees. NNSA did not withhold any milestone fees and instead paid milestone fees of $30.8 million for tasks with deadlines ranging from February 2009 to March 2014. Examples of tasks for which NNSA paid milestone fees (some of which the MOX contractor completed early) included completing the roof, installing the first glovebox, constructing a technical support building, and completing a start-up plan for the facility. According to the NNSA officials, although NNSA did not withhold milestone fees, NNSA stopped paying any of the $30.2 million in remaining milestones fees as part of an understanding with the contractor to renegotiate the amount of and conditions for earning milestone fees.\nFixed fees. According to the contracting officer, NNSA did not withhold any of the $15.7 million in fixed fees—the total amount of fixed fees for construction-related work under the MOX contract. NNSA included these fees in the contract to reward the contractor for work performed during contract negotiations, when other fees had not yet been negotiated.",
"In a March 2013 analysis of the WSB contractor’s performance, the NNSA contracting officer for the WSB recommended that the contractor should be held accountable for performance failures that contributed to the project’s cost increase. For example, the analysis stated that the contractor did not require the subcontractor to add crews or take other steps to correct delays until almost 2 years after the federal project director began expressing concerns about the delays. In accordance with this assessment, NNSA withheld $7.7 million or about 40 percent of the $18.9 million in performance incentive fees that the WSB contractor could earn from fiscal year 2009, when construction began, through fiscal year 2012, for the portion of fees allocated to construction of the WSB under the management and operation contract for the Savannah River Site. Most of the fees withheld were for the contractor’s performance in fiscal years 2011 and 2012 (see table 2). In particular, NNSA withheld $3.3 million of the $6.9 million in fees the contractor could earn in fiscal year 2011 and $3.9 million of the $4.0 million in fees the contractor could earn in fiscal year 2012. The fees withheld were tied to various performance measures, which DOE acquisition regulations require be established prior to the start of each evaluation period. Performance measures NNSA established included meeting the schedule for testing various types of equipment, providing engineering support to and coordinating with the construction subcontractor, and maintaining the project within pre- established cost and schedule metrics.\nThe $3.3 million in fees withheld for fiscal year 2011 included $2 million that NNSA took back—that is, was paid back by the contractor—after making its fee determination for the contractor. Specifically, according to a December 2012 letter from the NNSA contracting officer to the contractor, the fiscal year 2011 fee determination was premised on the contractor’s statements that schedule delays were recoverable and that the project would be completed within the approved cost estimate. Shortly after NNSA made its fee determination, however, the contractor notified NNSA that the project was further behind schedule than previously represented and that cost factors not included in the contractor’s system for tracking and reporting on cost and schedule performance would result in a cost overrun. The contracting officer’s letter stated that NNSA would have reduced the contractor’s fee if it had known the extent of delays and cost overruns when it made its fee determination, and NNSA required the contractor to repay $4 million. In May 2013, NNSA agreed to a settlement with the contractor to reduce the amount taken back to $2 million after the contractor appealed NNSA’s initial demand.\nIn addition to withholding fees, in a June 2012 letter to the contractor, NNSA’s contracting officer questioned why she should not conclude that the contractor’s actions rose to the level of gross negligence or willful misconduct, warranting disallowance of costs, meaning that the contractor would bear part of the cost increase resulting from the project’s schedule delays. For example, the letter stated that the contractor’s system for tracking and reporting on cost and schedule performance did not meet industry standards and impeded NNSA’s ability to understand the potential impact of delays in construction of various segments of the project on the final delivery date. According to NNSA officials, NNSA is waiting until after completion of WSB construction, and total construction costs are known, to determine unallowable costs.",
"NNSA’s most recent cost and schedule estimates for the Plutonium Disposition program did not fully reflect the characteristics of high-quality, reliable estimates as established by best practices used throughout government and industry and documented in the GAO Cost Estimating and Assessment Guide and GAO Schedule Assessment Guide. Specifically, (1) NNSA’s draft April 2013 life-cycle cost estimate for the overall program was partially comprehensive, partially well-documented, and partially accurate but did not meet any of the best practices for a credible estimate; (2) the MOX contractor’s September 2012 proposal for increasing the cost of the MOX facility was substantially comprehensive but partially well-documented and accurate and minimally credible; and (3) the WSB contractor’s February 2013 monthly update to its schedule estimate was minimally well-constructed and partially met the other three characteristics of a reliable schedule—comprehensive, credible, and controlled.",
"In developing its draft April 2013 life-cycle cost estimate of $24.2 billion for the Plutonium Disposition program, NNSA followed several of the 12 key steps for developing high-quality cost estimates, including defining the estimate’s purpose, defining the program’s characteristics, and obtaining the data. NNSA did not follow other key steps, however, such as conducting an independent cost estimate. As a result, the estimate was not reliable. In particular, NNSA’s draft life-cycle cost was partially comprehensive, partially well-documented, and partially accurate but did not meet any of the best practices for a credible estimate.\nTable 3 summarizes the major components of NNSA’s draft April 2013 life-cycle cost estimate. The estimate assumed that the MOX facility would start operations in November 2019 and that it would take approximately 15 years to complete the mission to dispose of 34 metric tons of surplus weapons-grade plutonium.\nTable 4 lists the steps, or best practices, necessary for developing a high- quality cost estimate. Appendix II summarizes our assessment of NNSA’s process for developing its draft life-cycle cost estimate against the steps that should result in the four characteristics of a high-quality cost estimate.\nOur assessment of NNSA’s process for developing its draft life-cycle cost estimate included the following observations:\nComprehensive. The draft life-cycle cost estimate was partially comprehensive because work breakdown structures were developed for the MOX and WSB projects and other components of the program, but NNSA had not formalized a program-level work breakdown structure. A typical work breakdown structure provides a clear picture of what needs to be accomplished, how the work will be done, and a basis for identifying resources and tasks for developing a cost estimate. Without a program-level work breakdown structure, NNSA cannot ensure that its life-cycle cost estimate captures all relevant costs, which can mean cost overruns.\nWell-documented. The draft life-cycle cost estimate was partially well- documented because NNSA defined the estimate’s purpose and the program’s characteristics, but it did not develop a single document to describe data sources and steps taken in developing the estimate— such as applying escalation rates to account for inflation—so that the estimate could be replicated by someone other than those who prepared it. In addition, NNSA stated that a document identified the estimate’s ground rules and assumptions but that the assumptions have changed frequently, hindering development of a life-cycle cost estimate. Examples of changes in assumptions not reflected in NNSA’s draft April 2013 estimate included the slowdown of activities during the assessment of alternative plutonium disposition strategies and NNSA’s plans to increase the amount of plutonium disposed of as MOX fuel.\nAccurate. The draft life-cycle cost estimate was partially accurate in that NNSA followed the best practice for developing a point estimate—a best guess at a cost estimate usually falling between best and worst case extremes. NNSA also updated the estimate periodically to include actual costs and changes to program and project requirements. However, NNSA did not use a formal system for tracking and reporting on cost and schedule performance to update the estimate, limiting the ability of someone other than those who prepared the estimate to check the estimate’s accuracy and to identify when, how much, and why the program cost more or less than planned.\nCredible. The draft life-cycle cost estimate was not credible because NNSA did not conduct an independent cost estimate to provide an unbiased test of whether its estimate was reasonable, a formal sensitivity analysis to examine the effects of changing assumptions and ground rules, or a risk and uncertainty analysis to assess variability in point estimates due to factors such as errors and cost estimators’ inexperience or biases. NNSA conducted such analyses for portions of its life-cycle cost estimate, but not for the entire estimate. For example, NNSA’s Plutonium Disposition program office arranged for another office within NNSA to conduct an independent assessment of the MOX facility’s operations costs, but not for the program’s entire life-cycle cost.\nNNSA did not follow all key steps for developing high-quality cost estimates in part because it did not have a requirement to develop its life- cycle cost estimate. According to NNSA officials, DOE’s project management order includes requirements for development of cost and schedule estimates for a project, such as the MOX facility or WSB, but does not specify equivalent requirements for a program like Plutonium Disposition, which includes multiple projects, as well as supporting activities. As a result, when developing the life-cycle cost estimate for the Plutonium Disposition program, NNSA officials used an ad hoc approach to adapt requirements for managing projects in DOE’s project management order. NNSA officials also said that its April 2013 life-cycle cost estimate did not include all the steps of a high-quality, reliable estimate in part because NNSA considered the estimate to be draft and, therefore, had not fully implemented plans for developing it.\nIn the absence of a specific requirement in DOE’s project management order for developing a life-cycle cost estimate for a program, NNSA officials said they developed a life-cycle cost estimate for the Plutonium Disposition program for several reasons. According to these officials, these reasons included that the cost of the program is largely made up of capital projects, such as the MOX facility, and that requirements for congressional budget submissions specify that the full life-cycle cost of such projects be presented. In addition, each year NNSA must submit to Congress its estimated expenditures covering the fiscal year with respect to which the budget is submitted and at least the four succeeding fiscal years. NNSA officials said that, to accurately estimate expenditures for this 5-year period, they needed to develop a life-cycle cost estimate for the overall Plutonium Disposition program. An NNSA official noted that NNSA plans to use a version of its life-cycle cost estimate as a basis for evaluating alternative strategies to dispose of surplus weapons-grade plutonium.",
"The MOX contractor’s September 2012 proposal for increasing the cost of the MOX facility was substantially comprehensive but was partially well- documented, partially accurate, and minimally credible. The contractor’s estimate did not fully reflect the characteristics of a high-quality, reliable estimate in part because it was a proposal, as opposed to an approved cost estimate. For example, one of the best practices for a well- documented estimate—and a requirement of DOE’s project management order—is that a cost estimate be reviewed and accepted by management. Because DOE had not approved it and instead postponed its review and approval pending the outcome of NNSA’s assessment of alternative plutonium disposition strategies, the contractor’s estimate partially met this best practice. This best practice would be met by DOE’s completion of its review and approval of a new estimate for the MOX facility, assuming the assessment of alternative plutonium disposition strategies maintains the current strategy of disposing plutonium as MOX fuel.\nThough the contractor’s September 2012 estimate did not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable, the MOX contractor began using it as a provisional baseline for purposes of monthly reporting on the project’s cost and schedule performance. Specifically, as directed by NNSA, the contractor began a transition in June 2012 to report its monthly performance against the contractor’s proposed estimate of $7.7 billion. The contractor completed the transition and ceased any reporting of performance against the previously approved estimate early in 2013. Managing projects that no longer have an approved cost and schedule estimate is a challenge because cost and schedule estimates provide a baseline for measuring progress. At a July 2013 hearing, the Deputy Secretary of Energy noted that not having such a baseline is the point of maximum risk of unrestricted cost growth on a project.\nAppendix III summarizes our assessment of how well the MOX contractor’s proposal met the characteristics of a high-quality estimate. Our assessment included the following observations:\nComprehensive. The proposal was substantially comprehensive in that it included all construction costs, as defined by the statement of work under the MOX contract. The proposal was not fully comprehensive, however, because it only partially met certain best practices for a comprehensive estimate, such as documenting all cost-influencing ground rules and assumptions. The proposal partially met this best practice because it did not provide justifications for some assumptions, such as not more than 10 percent of the supports for piping systems being nonstandard and requiring unique designs.\nWell-documented. The proposal was partially well-documented because it described in sufficient detail the calculations performed and the estimating methodology used to derive the cost of each element in the work breakdown structure. However, it did not provide all types of information specified in best practices for a well-documented estimate, such as how data on labor and travel costs were normalized. Data normalization is often necessary to ensure comparability because data can be gathered from a variety of sources and in different forms that need to be adjusted before being used.\nAccurate. The proposal was partially accurate in that it appeared to adjust cost elements for inflation and contained only a few minor mistakes, but the contractor did not update its proposal with actual costs incurred after it developed the proposal and submitted it to NNSA in September 2012. NNSA and contractor officials agreed that the estimate was no longer an accurate reflection of the cost to complete construction—for example, because the proposal assumed a higher level of funding than the project received in fiscal year 2013. The officials said that, if the MOX project continues, the contractor would need to prepare a new proposal that includes costs for work conducted after the initial proposal was developed.\nCredible. The proposal was minimally credible because DOE halted its independent cost estimate of the proposal pending the outcome of NNSA’s assessment of alternative plutonium disposition strategies. Moreover, the proposal did not include a formal sensitivity analysis to examine the effects of changing assumptions and ground rules, and it provided no evidence that major cost elements were cross-checked to determine whether alternative cost-estimating methods produced similar results. Finally, the proposal included an analysis of risks, such as difficulty attracting and retaining workers, and uncertainty in estimating materials and other costs. On the basis of this analysis, the proposal included a total of $713.1 million to account for risks and uncertainty—$641.4 million for the original scope of the MOX facility and $71.7 million for the addition of plutonium feedstock capability (see table 5). However, the contractor did not properly conduct or clearly document all steps in the analysis to determine the amount of funding to account for risks and uncertainty that could increase the cost of the project.",
"The WSB contractor’s February 2013 monthly update to its schedule estimate did not fully reflect the characteristics of a high-quality, reliable schedule estimate as established by best practices. Specifically, the contractor’s schedule estimate was minimally well-constructed and partially met the other three characteristics of a reliable, high-quality schedule as measured against best practices—comprehensive, credible, and controlled. Table 6 shows the characteristics of a high-quality schedule estimate and corresponding best practices. Appendix IV summarizes our assessment of how well the WSB contractor’s February 2013 schedule estimate met the characteristics of a high-quality estimate.\nOur assessment of the WSB contractor’s February 2013 schedule estimate included the following observations:\nComprehensive. The estimate was partially comprehensive in that it captured and established the durations of contractor and government activities to complete the project but did not capture the remaining detailed work to be performed by the construction subcontractor. Specifically, it reduced the subcontractor’s 3,851 activities to complete its portion of the work to one placeholder activity. According to the NNSA federal project director, the WSB contractor reduced the subcontractor’s activities to a placeholder because the subcontractor submitted unreliable schedules with repeated changes in the estimated completion date for its portion of work.\nWell-constructed. The estimate was minimally well-constructed in that it sequenced activities in ways that can obscure a schedule’s earliest completion date. In addition, the sequencing of activities included “merge points”—the convergence of many parallel activities into a single successor activity, which decreased the probability of successor activities starting on time. For example, performance of an assessment of readiness to operate the WSB was preceded by 212 activities. NNSA officials explained that the merge points resulted from the need to complete activities in parallel to meet requirements set forth in DOE’s project management order.\nCredible. The estimate was partially credible in that the WSB contractor conducted a schedule risk analysis to determine the amount of schedule contingency—a reserve of extra time to account for risks and ensure completion of the project on time. However, a DOE review conducted prior to approval of an increase in the project’s cost and a delay in the start of operations found that the results of the contractor’s analysis were unreliable—for example, because project team members were not consulted regarding risk inputs. As a result, the schedule risk analysis did not clearly support the 12 months of schedule contingency included in the approved cost increase and schedule delay.\nControlled. The estimate was partially controlled in that, according to project officials, the schedule was updated weekly and used to measure performance, but no narrative accompanied weekly updates to provide decision makers with a log of changes and their effect, if any, on the schedule time frame. In addition, project officials did not provide documentation enabling the schedule to be validated, such as documentation describing sequencing of activities or assumptions used in developing the schedule.\nThe NNSA federal project director and contractor’s project leader said that the contractor had begun to correct problems in the contractor’s schedule estimate—for example, by replacing the placeholder for the subcontractor’s activities with a schedule of more detailed activities independently developed by the contractor. However, delays on the project continued after the contractor began correcting the problems. Notably, according to DOE’s October 2013 monthly report on the WSB, continuing delays in completion of the construction subcontract—one of the key drivers NNSA identified for the WSB cost increase—already used up about 10 of the 12 months of schedule contingency, placing the project’s completion date in jeopardy.",
"NNSA has identified drivers of the close to $3 billion increase in the projected cost to complete the MOX facility and WSB and has taken steps to hold the MOX and WSB contractors accountable for their role in the cost increases by withholding and taking back fees. However, the various drivers identified by NNSA, such as DOE’s approval of the cost and schedule estimate for the MOX facility before design was complete, do not provide the level of detail that can be found in a root cause analysis. In addition, DOE’s project management order requires that lessons learned be captured throughout a project but does not include a requirement for a root cause analysis when a project exceeds its cost estimate, even when a project exceeds its cost estimate by billions of dollars. The decision whether to conduct such an analysis is instead made on a case-by-case basis. Because NNSA has not conducted a root cause analysis to identify the underlying causes of the cost increases for the MOX facility and WSB, it cannot provide assurance that it has correctly identified the underlying causes to ensure that they will not lead to further cost increases as the projects move forward. Further, without a root cause analysis, NNSA’s ability to identify recommended solutions and lessons learned that could be applied to other projects is lessened. Conducting a root cause analysis of the cost increases for the MOX facility and WSB could help NNSA address its long-standing difficulties in completing projects within cost and on schedule, which has led to NNSA’s project management remaining on GAO’s list of areas at high risk of fraud, waste, abuse, and mismanagement.\nNNSA has drafted a life-cycle cost estimate of $24.2 billion for the Plutonium Disposition program—an important step toward presenting the full cost of NNSA’s current strategy to dispose of surplus weapons-grade plutonium as MOX fuel. A cost estimate that presents the full cost of NNSA’s current plutonium disposition strategy is essential to inform NNSA’s ongoing evaluation of alternative plutonium disposition strategies and provide Congress with a complete picture of the cost of the program. NNSA developed its life-cycle cost estimate even though neither DOE nor NNSA required the estimate. In particular, DOE’s project management order does not explicitly require that life-cycle cost estimates be developed for programs like the Plutonium Disposition program that include both construction projects and other efforts and activities not related to construction, such as producing plutonium feedstock for the MOX facility. In the absence of such a requirement, NNSA followed several of the 12 key steps described in the GAO Cost Estimating and Assessment Guide for developing high-quality, reliable cost estimates, but it did not follow other key steps. Because NNSA did not follow all of the steps, the life-cycle estimate for the Plutonium Disposition program is not reliable. Similarly, the contractors’ cost and schedule estimates for the MOX facility and WSB did not meet all best practices compiled in GAO’s guides for preparing high-quality, reliable cost and schedule estimates. Not meeting these best practices increased the risk of further cost increases and delays for the projects and, because the projects are components of NNSA’s life-cycle cost estimate, for the overall Plutonium Disposition program.",
"We are making six recommendations in this report to the Secretary of Energy. To identify lessons learned from and provide assurance of preventing recurrence of cost increases for the MOX facility and WSB, and to develop reliable cost estimates for the Plutonium Disposition program, we recommend that the Secretary of Energy direct the DOE and NNSA Offices of Acquisition and Project Management and the NNSA office responsible for managing the Plutonium Disposition program, as appropriate, to take the following four actions:\nConduct an analysis of the root causes of the cost increases for the MOX facility and WSB, such as the causes of the design changes that led to cost increases, and identify and prioritize recommended solutions.\nRevise and update the program’s life-cycle cost estimate following the 12 key steps described in the GAO Cost Estimating and Assessment Guide for developing high-quality cost estimates, such as conducting an independent cost estimate to provide an objective and unbiased assessment of whether the estimate can be achieved.\nEnsure that the MOX contractor revises its proposal for increasing the cost of the MOX facility to meet all best practices for a high-quality, reliable cost estimate—for example, by cross-checking major cost elements to determine whether alternative estimating methods produce similar results.\nEnsure that the approved cost increase for the WSB is based on a schedule that the contractor has revised to meet all best practices for a high-quality, reliable schedule estimate, such as reflecting all activities (both government and contractor) needed to complete construction.\nTo ensure that future DOE projects benefit from lessons learned that reflect the underlying causes of cost increases or schedule delays experienced by other projects, and that Congress and DOE have life- cycle cost estimates for DOE programs that include individual construction projects, we further recommend that the Secretary of Energy take the following two actions to revise DOE’s project management order or otherwise implement a departmentwide requirement:\nRequire a root cause analysis of all projects that experience cost increases or schedule delays exceeding a certain threshold established by DOE.\nRequire life-cycle cost estimates covering the full cost of programs that include both construction projects and other efforts and activities not related to construction.",
"We provided a draft of this product to DOE for comment. In written comments, reproduced in appendix V, NNSA stated that the agency and DOE generally agreed with our recommendations. In particular, NNSA concurred with four of our six recommendations and partially concurred with the other two. NNSA described actions it planned to take to implement the recommendations with which it concurred and time frames for taking these actions. NNSA also provided technical comments, which we incorporated into the report as appropriate.\nWe are pleased that NNSA concurred with our recommendation to conduct an analysis of the root causes of the cost increases for the MOX facility and WSB and stated that it is planning to conduct such an analysis, which was not mentioned during the course of our review. NNSA also concurred with our recommendation to revise and update the Plutonium Disposition program’s life-cycle cost estimate and stated that it would do so after a decision was made on the path forward for the program. The path forward could involve the use of alternative strategies to dispose of surplus weapons-grade plutonium.\nNNSA also concurred with our recommendation to ensure that the MOX contractor revises its proposal for increasing the cost of the MOX facility to meet all best practices for a high-quality, reliable cost estimate. In its comment letter, NNSA stated that it is working with the contractor to ensure that the cost estimating processes and procedures are updated such that the best practices are met.\nIn addition, NNSA concurred with our recommendation to ensure that the approved cost increase for the WSB is based on a schedule that the contractor has revised to meet all best practices for a high-quality, reliable schedule estimate. In its comment letter, NNSA stated that it has revised the schedule since we reviewed it and that it now reflects all activities needed to complete construction. We did not review the update to the WSB contractor’s schedule to confirm that it captured all activities to complete construction, which is one of the best practices associated with the characteristics of a high-quality schedule. Moreover, as detailed in appendix IV, the schedule we reviewed only partially or minimally met 7 of the other 9 best practices. To fully implement our recommendation, NNSA would need to ensure that the contractor has revised its schedule to meet all best practices for a high-quality, reliable schedule estimate. In its comment letter, NNSA stated that during the next project review, which is expected to occur by December 31, 2014, NNSA will review the schedule against best practices.\nNNSA partially concurred with our fifth recommendation that DOE require a root cause analysis of all projects that experience cost increases or schedule delays exceeding a certain threshold established by the department. In its comment letter, NNSA stated that DOE program offices currently perform tailored root cause analyses as part of the baseline change proposal process outlined in the department’s project management order for increasing a project’s cost and schedule estimates. NNSA stated that, as a result, the department does not believe that an update to the project management order is required. NNSA further stated that the department will review the lessons learned from NNSA's root cause analyses for the MOX and WSB projects to see what best practices may be of benefit to other projects. However, as we stated in the report, DOE’s project management order does not include a requirement for a root cause analysis of projects experiencing significant cost increases or schedule delays, and NNSA officials said that they decide on a case-by-case basis whether to conduct a root cause analysis. Moreover, the order does not define what a root cause analysis is, how or when a root cause analysis should be conducted, or what is meant by a tailored analysis. In addition, NNSA’s written comments did not provide information on the conditions that would trigger a root cause analysis. Leaving root cause analyses to an informal and undefined process within DOE program offices could result in such analyses not being conducted, not being conducted consistently, or not accurately identifying underlying causes of cost increases in order to identify and implement corrective measures and apply lessons learned to other DOE projects. We continue to believe that a root cause analysis should be conducted for all projects that experience cost increases or schedule delays above a threshold established by the department. We note that our recommendation is consistent with a requirement in the Weapon Systems Acquisition Reform Act of 2009; under the act, the Department of Defense must perform a root cause analysis of a cost increase that exceeds a certain threshold.\nNNSA partially concurred with our final recommendation that DOE require life-cycle cost estimates covering the full cost of programs that include both construction projects and other efforts and activities not related to construction. In its comment letter, NNSA stated that the department’s project management order requires a comprehensive life-cycle cost analysis as part of the alternative selection process and that no further update to the order is required to address this recommendation. The intent of our recommendation goes beyond that of preparing a life-cycle cost estimate at the stage of selecting an alternative for a new capital asset project. Instead, the recommendation applies to departmental programs that include capital asset projects to meet the overall program need. As we stated in the report, NNSA did not follow all key steps for developing high-quality cost estimates in developing its draft April 2013 life-cycle cost estimate for the Plutonium Disposition program, which currently includes the MOX facility and WSB capital asset projects, in part because it did not have a requirement to develop it. NNSA’s response to our recommendation suggests that the life-cycle cost estimates for the MOX and WSB projects that were required to be prepared years ago, when the projects were selected from among other alternatives, are the only life-cycle cost estimates needed to manage the Plutonium Disposition program. Furthermore, NNSA’s response contradicts the fact that it concurred with our recommendation to revise and update the life- cycle cost estimate for the overall Plutonium Disposition program in accordance with cost estimating best practices. We continue to believe that our recommendation that the department require life-cycle cost estimates covering the full cost of programs that include construction projects should be implemented.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 7 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, the NNSA Administrator, and other interested parties. In addition, the report will be 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) 512-3841 or trimbled@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 VI.",
"To assess drivers of the construction cost increases for the Mixed Oxide (MOX) Fuel Fabrication Facility and Waste Solidification Building (WSB) that the National Nuclear Security Administration (NNSA) identified, we reviewed the Department of Energy’s (DOE) budget request for NNSA for fiscal year 2014, which provided a summary of the cost drivers for both projects. To assess cost drivers in further detail, we reviewed the MOX contractor’s September 2012 proposal for increasing the project’s cost, which discussed drivers from the contractor’s perspective. We also reviewed DOE’s December 2012 document approving an increase in the estimated cost of the WSB and a delay in the start of operations, which summarized cost drivers and their impact on the project’s cost and schedule. We visited the Savannah River Site to observe construction progress for both projects and interviewed NNSA and contractor officials responsible for managing the projects. We also interviewed officials from the NNSA Office of Fissile Materials Disposition, the NNSA Office of Acquisition and Project Management, and the DOE Office of Acquisition and Project Management. Separately, to understand how, if at all, cost drivers for the MOX facility were related to Nuclear Regulatory Commission (NRC) regulation and licensing of the construction and operation of the facility, we reviewed NRC construction inspection reports and related documents, and we interviewed NRC officials responsible for overseeing the facility’s construction. In order to understand the components of cost growth for the MOX facility, which represented most of the Plutonium Disposition program’s construction cost increase, we also analyzed the MOX contractor’s earned value management (EVM) system that the contractor used to track and report on cost and schedule performance, including data from the EVM system on cumulative cost and schedule variance trends from July 2011 through April 2012 and the contractor’s variance report for April 2012.\nTo determine the extent to which NNSA analyzed underlying causes of the cost increases, we reviewed documents providing context for cost drivers. The documents we reviewed included NNSA Office of Acquisition and Project Management project review reports and monthly status reports; DOE Office of Acquisition and Project Management monthly status reports; DOE documents related to approval of the previous cost and schedule estimates for the MOX facility and WSB in April 2007 and December 2008, respectively; and documents related to specific cost drivers identified by NNSA, such as the MOX contractor’s October 2006 report on construction markets and DOE reports related to its suspension of the WSB contractor’s system for tracking and reporting cost and schedule performance in November 2012. We also interviewed NNSA officials to determine the extent to which they had conducted or planned any analyses to identify underlying causes of cost increases for the Plutonium Disposition program’s construction projects.\nTo determine steps NNSA took to hold contractors accountable for their role in the cost increases for the Plutonium Disposition program’s construction projects, we reviewed the contracts for the MOX facility and WSB, fees specified under the contracts, and NNSA’s fee evaluations and other documentation supporting its fee determinations. We also interviewed NNSA contracting officers who were responsible for administering the MOX and WSB contracts regarding the terms of the contracts, fees specified under the contracts, and actions NNSA took or planned to take to hold contractors accountable for their role in the cost increases. We obtained NNSA data on fees it paid to and withheld from the contractors, and we assessed the reliability of the data by checking for obvious errors in accuracy and completeness; comparing the data with other sources of information, such as NNSA’s fee determinations; and interviewing NNSA contracting officers who had knowledge of the data. We determined that NNSA’s data on fees were sufficiently reliable for reporting on the fees paid to and withheld from the contractors.\nTo assess the extent to which NNSA’s most recent estimates of the Plutonium Disposition program’s life-cycle cost and of the cost and schedule for completing the program’s construction projects met best practices we have compiled in guides identifying the characteristics of high-quality, reliable cost and schedule estimates, we tailored our methodology to the differing stages of NNSA’s development and approval of each estimate:\nNNSA’s life-cycle cost estimate for the Plutonium Disposition program. Because NNSA had not finalized a life-cycle cost estimate, we assessed NNSA’s most recent available estimate—spreadsheets dated April 2013 representing NNSA’s draft life-cycle cost estimate. In particular, we assessed the process NNSA used to develop the estimate against the 12 key steps described in the GAO Cost Estimating and Assessment Guide that should result in a high-quality, reliable cost estimate. To provide information on NNSA’s process, NNSA officials responsible for developing the estimate filled out a data collection instrument we developed. The data collection instrument summarized each of the 12 key steps and provided space for NNSA officials to describe actions they had taken to meet the criteria for each step. To review the information provided by NNSA, we checked NNSA’s April 2013 estimate for obvious errors in accuracy and completeness and compared it with previous versions of the life-cycle cost estimate provided by NNSA. In addition, we interviewed NNSA officials to determine what requirements, if any, they followed for developing the estimate, their purpose for developing it, and their plans for presenting it for management approval. Finally, we interviewed NNSA officials from the Office of Analysis and Evaluation, which the Plutonium Disposition program had tasked with conducting an independent assessment of the MOX facility’s operating costs.\nNNSA’s estimate to complete the MOX facility. Because NNSA had not approved a revised cost and schedule estimate for the MOX facility, we assessed the MOX contractor’s September 2012 proposal for increasing the project’s cost, which NNSA had directed the MOX contractor to use as a provisional baseline for purposes of monthly reporting. We compared data presented in various tables of the proposal for consistency and reviewed additional documents, including the technical baseline providing a detailed description of the MOX facility. We provided a draft of our assessment to NNSA and revised the draft, as appropriate, after discussing our assessment with NNSA program officials and the contractor.\nNNSA’s estimate to complete the WSB. We assessed the WSB schedule estimate that the cost increase for the project approved in December 2012 was based on because, as described in the GAO Schedule Assessment Guide, a reliable schedule can contribute to an understanding of the cost impact if a project does not finish on time. Specifically, we compared the contractor’s February 2013 monthly update to its schedule estimate, which was the most recent available update when we conducted our analysis, with the 10 best practices associated with the characteristics of a high-quality schedule. As part of our assessment, we reviewed documents related to the project’s schedule, including NNSA’s project execution plan for the WSB, the project’s work breakdown structure, and the project’s February 2013 update to the document showing the longest path to project completion. In addition, we interviewed the NNSA federal project director for the WSB and the WSB contractor’s project leader and scheduler. We provided a draft of our assessment to NNSA and revised the draft, as appropriate, after discussing our assessment with NNSA program officials and the contractor.\nWe conducted this performance audit from November 2012 to February 2014 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.",
"",
"Detailed assessment Partially met. NNSA assigned a team to develop and update the estimate but did not have a written plan for developing it.\nPartially met. Work breakdown structures to define in detail the work necessary to accomplish objectives were developed for the MOX and WSB projects and other components of the program, but NNSA had not formalized a program-level work breakdown structure.\nSubstantially met. NNSA officials described the purpose as supporting annual budget requests, which include requirements that NNSA (1) present the full life-cycle cost of capital projects, such as the MOX facility, and (2) estimate expenditures for the fiscal year with respect to which the budget is submitted and at least the four succeeding fiscal years.\nSubstantially met. NNSA developed a program requirements document to identify the scope, functions, and requirements of the Plutonium Disposition program. NNSA documented performance characteristics for program components in contracts, technical baselines, and execution plans.\nPartially met. NNSA identified ground rules and assumptions, but NNSA officials said that assumptions for the program change frequently, hindering development of a life-cycle cost estimate.\nSubstantially met. NNSA collected data at the project level, where, according to NNSA, data were documented in contractor systems and estimates were developed by teams of knowledgeable staff using historical information, current cost and pricing information, engineering and vendor quotes, cost guides, and current material and labor costs.\nMinimally met. NNSA documented the estimate on spreadsheets, but it did not develop a single document to describe data sources and steps taken in developing the estimate so that it could be replicated by someone other than those who prepared it.\nNot met. NNSA considered the estimate to be draft and predecisional, and NNSA officials said they did not have plans to present an estimate to management for approval until NNSA completes its reevaluation of its strategy for disposing of surplus weapons-grade plutonium.\nPartially met. NNSA developed a point estimate, but it did not use a program-level work breakdown structure to do so because it had not formalized such a structure.\nPartially met. NNSA updated the estimate periodically to include actual costs and changes to program and project requirements, but it did not clearly document how changes affected the estimate.",
"Detailed assessment Not met. NNSA did not conduct an independent cost estimate for the overall program’s life-cycle cost estimate, and it had not completed independent cost estimates for the program’s two construction projects.\nNot met. NNSA did not conduct a formal sensitivity analysis at the program level.\nNot met. NNSA did not conduct a risk and uncertainty analysis at the program level.",
"",
"Best practice The cost estimate includes all life-cycle costs.\nDetailed assessment Met. The estimate covered construction and startup costs; at NNSA’s direction, the estimate excluded operation and maintenance costs.\nThe cost estimate completely defines the program, reflects the current schedule, and is technically reasonable.\nSubstantially met. The estimate was based on NNSA’s statement of work and the contractor’s technical baseline for the original scope of the MOX facility.\nThe cost estimate work breakdown structure is product-oriented, traceable to the statement of work/objective, and at an appropriate level of detail to ensure that cost elements are neither omitted nor double-counted.\nPartially met. The work breakdown structure clearly outlined the end product and major work of the project, but some cost elements were missing from the work breakdown structure.\nThe estimate documents all cost- influencing ground rules and assumptions.\nPartially met. The estimate documented that it was based on a profile of NNSA’s projected annual funding to complete the project but did not provide justifications for some assumptions, such as not more than a set amount of work being nonstandard.\nThe documentation captures the source data used, the reliability of the data, and how the data were normalized.\nPartially met. The estimate was based on actual costs through May 2012 and used a database of labor and other costs, but it did not state whether or how all data had been normalized to ensure data comparability.\nThe documentation describes in sufficient detail the calculations performed and the estimating methodology used to derive each element’s cost.\nMet. The estimate used a combination of expert opinion and extrapolation from actual data to develop estimates for and sum up individual cost elements of the work breakdown structure.\nThe documentation describes, step by step, how the estimate was developed so that a cost analyst unfamiliar with the program could understand what was done and replicate it.\nPartially met. The estimate used quantities of materials and labor hours to develop estimates for individual cost elements but did not document how these quantities were estimated.\nThe documentation discusses the technical baseline description and the data in the baseline is consistent with the estimate.\nPartially met. The estimate agreed with NNSA’s statement of work and the contractor’s technical baseline for the original scope of the MOX facility, but the technical baseline did not cover the addition of capability to supply plutonium feedstock.\nThe documentation provides evidence that the cost estimate was reviewed and accepted by management.\nPartially met. DOE began a review of the proposed estimate but did not approve it.\nThe cost estimate results are unbiased, not overly conservative or optimistic, and based on an assessment of most likely costs.\nMinimally met. The estimate was higher than needed to achieve an 85 percent confidence level—the level directed by NNSA—that the final cost would be less than the estimate.\nThe estimate has been adjusted properly for inflation.\nSubstantially met. The estimate appeared to adjust cost elements for inflation, but adjustments were not well-documented.",
"Best practice The estimate contains few, if any, minor mistakes.\nDetailed assessment Met. The estimate contained few minor mistakes, and calculations within the estimate were internally consistent.\nThe cost estimate is regularly updated to reflect significant changes in the program so that it always reflects current status.\nPartially met. The estimate was based on actual costs through May 2012 and did not reflect updated costs from the contractor’s system for tracking and reporting cost and schedule performance.\nVariances between planned and actual costs are documented, explained, and reviewed.\nMinimally met. The estimate explained variances between planned and actual costs at a high level but not at the cost element level.\nThe estimate is based on a historical record of cost estimating and actual experiences from other comparable programs.\nPartially met. The estimate did not explain to what extent it was based on historical data from other similar programs or facilities.\nThe estimating technique for each cost element was used appropriately.\nSubstantially met. The estimating method used— developing the estimate at the lowest level of the work breakdown structure, one piece at a time, with the sum of the pieces becoming the estimate—was appropriate for a project under way.\nThe cost estimate includes a sensitivity analysis that identifies a range of possible costs based on varying major assumptions, parameters, and data inputs.\nNot met. The estimate did not include a sensitivity analysis.\nA risk and uncertainty analysis was conducted that quantified the imperfectly understood risks and identified the effects of changing key cost driver assumptions and factors.\nPartially met. The estimate included a risk and uncertainty analysis but did not properly conduct or clearly document all steps in the analysis.\nMajor cost elements were cross-checked to see whether results were similar.\nNot met. The estimate provided no evidence that major cost elements were cross-checked.\nAn independent cost estimate was conducted by a group outside the acquiring organization to determine whether other estimating methods produce similar results.\nNot met. DOE halted its independent cost estimate of the contractor’s proposed estimate as part of DOE’s decision to reevaluate its strategy for disposing of surplus weapons-grade plutonium.",
"",
"Detailed assessment Minimally met. The schedule estimate’s 2,429 activities to complete the project included one summary activity in place of the construction subcontractor’s 3,851 activities and, therefore, did not capture the remaining detailed work to be performed by the subcontractor.\nPartially met. The schedule estimate assigned resources, such as labor and materials, to only about half of the remaining 2,429 activities.\nSubstantially met. The schedule estimate included activity durations that were generally short enough to be consistent with the needs of effective planning.\nMinimally met. The schedule estimate sequenced activities in ways that decreased the probability of activities starting on time and contained activities that were not properly tied with the start or end date of other activities, potentially obscuring the critical path determining the project’s earliest completion date.\nPartially met. Changes to the critical path were evaluated monthly and tracked in monthly status reports, but constraints in scheduled dates of certain activities convoluted the critical path.\nEnsuring reasonable total float Minimally met. The schedule estimate included high total float values—the amount of time by which an activity can slip without affecting a completion date—potentially resulting in an inaccurate assessment of the project’s completion date.\nSubstantially met. The schedule estimate was traceable horizontally (i.e., across sequenced activities) and vertically (i.e., between activities and subactivities).\nMinimally met. The contractor conducted a schedule risk analysis, but the results of the analysis were unreliable for determining the likelihood of the project’s completion date and did not align with DOE’s revised cost and schedule estimate.\nPartially met. According to project officials, the schedule was updated weekly, but no narrative accompanied the weekly updates.\nMaintaining a baseline schedule Minimally met. Project officials stated that they used the schedule to measure performance, but they did not provide thorough documentation enabling the schedule to be validated, such as a narrative providing a log of changes and their effects.",
"",
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"In addition to the individual named above, Daniel Feehan, Assistant Director; Remmie Arnold; Antoinette Capaccio; Juaná S. Collymore; Joseph Cook; Tisha Derricotte; Emile Ettedgui; Cristian Ion; Alison O’Neill; Cheryl Peterson; and Karen Richey made key contributions to this report."
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"question": [
"What has NNSA still not done regarding the program construct cost increases which may be essential to do going forward?",
"How does the NNSA currently decide whether to conduct a root cause analysis of cost increases?",
"Without a root cause analysis, what struggles will the NNSA continue to grapple with?",
"How does the current information NNSA has found differ from information that would be found in a root cause analysis?",
"What did NNSA learn contributed to cost increases?",
"In 2013, how did NNSA hold MOX contractor accountable?",
"How did NNSA hold WSB contractor accountable?",
"Generally, what shortcomings were there in NNSA's most recent estimates?",
"What example does this article provide of a specific shortcoming in the 2012 proposal?",
"Why was the NNSA's draft April 2013 life-cycle cost not credible?",
"How did the monthly update from the WSB contractor obscure the determination of the project's completion date?",
"What was the GAO asked to do in response?",
"What four aspects does their report examine?",
"What methodology did the GAO undertake in order to go about creating this report?"
],
"summary": [
"NNSA has not analyzed the underlying, or root, causes of the Plutonium Disposition program construction cost increases to help identify lessons learned and help address the agency's difficulty in completing projects within cost and schedule, which has led to NNSA's management of major projects remaining on GAO's list of areas at high risk of fraud, waste, abuse, and mismanagement.",
"NNSA officials said that, because the order does not require a root cause analysis of cost increases, NNSA decides on a case-by-case basis whether to conduct one.",
"Without a root cause analysis, it is uncertain whether NNSA will be able to accurately identify underlying causes of the increases to identify and implement corrective measures and identify lessons learned to apply to other projects.",
"Unlike a root cause analysis, the cost drivers NNSA identified provided few details about why the drivers existed, such as DOE's reasons for approving the MOX facility's cost and schedule estimates before the design was complete.",
"After determining that the performance of the contractors for the MOX facility and WSB contributed to cost increases, NNSA took steps to hold the contractors accountable by withholding fees specified under the contracts.",
"In particular, as of November 2013, NNSA withheld $45.1 million or close to one-third of the MOX contractor's fees, including fees tied to meeting the MOX project's cost and schedule estimates.",
"In addition, NNSA withheld $7.7 million or about 40 percent of the WSB contractor's fees tied to various performance measures for the WSB, such as completing construction milestones.",
"NNSA's most recent estimates for the Plutonium Disposition program did not fully reflect all the characteristics of reliable cost estimates (e.g., credible) and schedule estimates (e.g., well-constructed) as established by best practices for cost- and schedule-estimating, placing the program at risk of further cost increases.",
"(2) Because the MOX contractor's September 2012 proposal for increasing the cost of the MOX facility did not include a formal analysis to examine the effects of changing assumptions, it was minimally credible.",
"(1) NNSA's draft April 2013 life-cycle cost estimate of $24.2 billion for the overall program was not credible because NNSA did not conduct an independent cost estimate to provide an unbiased test of whether the estimate was reasonable.",
"(3) The WSB contractor's February 2013 monthly update to its schedule estimate was minimally well-constructed in that it contained activities that were not properly tied with the start or end date of other activities, which could potentially obscure the critical path determining the project's completion date.",
"GAO was asked to review these cost increases and the life-cycle cost estimate.",
"This report examines: (1) drivers NNSA identified for the cost increases; (2) the extent to which NNSA analyzed underlying causes of the cost increases; (3) steps NNSA took to hold construction contractors accountable for their role, if any, in the cost increases; and (4) the extent to which NNSA's most recent estimates met cost- and schedule-estimating best practices.",
"GAO reviewed NNSA's draft life-cycle cost estimate and contractor estimates of the MOX project's cost and WSB schedule, compared the estimates with cost- and schedule-estimating best practices, and interviewed DOE and NNSA officials."
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{
"title": [
"",
"Introduction",
"Overview of CJS",
"FY2014 and FY2015 Appropriations for CJS",
"Survey of Selected Issues",
"Department of Commerce",
"Department of Justice",
"Science Agencies",
"Related Agencies",
"Department of Commerce9",
"FY2014 and FY2015 Appropriations",
"International Trade Administration (ITA)12",
"Bureau of Industry and Security (BIS)13",
"Economic Development Administration (EDA)14",
"Minority Business Development Agency (MBDA)19",
"Economics and Statistics Administration (ESA)21",
"Census Bureau22",
"National Telecommunications and Information Administration (NTIA)28",
"U.S. Patent and Trademark Office (USPTO)31",
"National Institute of Standards and Technology (NIST)32",
"National Oceanic and Atmospheric Administration (NOAA)38",
"Department of Justice (DOJ)45",
"FY2014 and FY2015 Appropriations",
"General Administration",
"General Administration",
"Administrative Review and Appeals (ARA)",
"Office of the Inspector General (OIG)",
"U.S. Parole Commission",
"Legal Activities",
"General Legal Activities",
"Office of the U.S. Attorneys",
"Other Legal Activities",
"U.S. Marshals Service (USMS)",
"National Security Division (NSD)",
"Interagency Law Enforcement",
"Federal Bureau of Investigation (FBI)",
"Drug Enforcement Administration (DEA)",
"Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF)",
"Federal Prison System (Bureau of Prisons, BOP)",
"Office on Violence Against Women (OVW)",
"Office of Justice Programs (OJP)",
"Research, Evaluation, and Statistics",
"State and Local Law Enforcement Assistance",
"Juvenile Justice Programs",
"Public Safety Officers Benefits Program (PSOB)",
"Community Oriented Policing Services (COPS)",
"The Crime Victims Fund",
"Science Agencies92",
"FY2014 and FY2015 Appropriations",
"Office of Science and Technology Policy (OSTP)93",
"National Aeronautics and Space Administration (NASA)98",
"National Science Foundation (NSF)106",
"Related Agencies",
"FY2014 and FY2015 Appropriations",
"Commission on Civil Rights",
"Equal Employment Opportunity Commission (EEOC)126",
"U.S. International Trade Commission (ITC)129",
"Legal Services Corporation (LSC)132",
"Marine Mammal Commission (MMC)",
"Office of the U.S. Trade Representative (USTR)133",
"State Justice Institute (SJI)"
],
"paragraphs": [
"",
"This report tracks and provides an overview of actions taken by the Administration and Congress to provide FY2015 appropriations for Commerce, Justice, Science, and Related Agencies (CJS) accounts. It also provides an overview of enacted FY2014 appropriations for agencies and bureaus funded as a part of the annual appropriation for CJS.\nThe amounts in this report reflect only new appropriations. Therefore, the amounts do not include any rescissions of unobligated or de-obligated balances that may be counted as offsets to newly enacted appropriations, nor do they include any scorekeeping adjustments, such as the balance on the Crime Victims Fund.\nThe FY2014-enacted amounts were taken from the joint explanatory statement to accompany P.L. 113-76 , printed in the January 15, 2014, Congressional Record (pp. H507-H532). The FY2015 requested amounts were taken from the report to accompany H.R. 4660 ( H.Rept. 113-448 ). The FY2015 House-passed amounts were taken from the text of H.R. 4660 and H.Rept. 113-448 . The amounts reported by the Senate Committee on Appropriations were taken from the report to accompany S. 2473 ( S.Rept. 113-181 ). The FY2015-enacted amounts were taken from the joint explanatory statement to accompany P.L. 113-235 , printed in the December 11, 2014, Congressional Record .",
"The annual CJS appropriations act provides funding for the Departments of Commerce and Justice, the science agencies, and several related agencies. Appropriations for the Department of Commerce include funding for agencies such as Census Bureau; the U.S. Patent and Trademark Office; the National Oceanic and Atmospheric Administration; and the National Institute of Standards and Technology. Appropriations for the Department of Justice provide funding for agencies such as the Federal Bureau of Investigation; the Bureau of Prisons; the U.S. Marshals; the Drug Enforcement Administration; the Bureau of Alcohol, Tobacco, Firearms, and Explosives; along with funding for a variety of grant programs for state, local, and tribal governments. The vast majority of funding for the science agencies goes to the National Aeronautics and Space Administration and the National Science Foundation. The annual appropriation for the related agencies includes funding for agencies such as the Legal Services Corporation and the Equal Employment Opportunity Commission.\nThe mission of the Department of Commerce is to promote \"job creation, economic growth, sustainable development and improved standards of living ... by working in partnership with businesses, universities, communities and ... workers.\" The department has wide-ranging responsibilities including trade, economic development, technology, entrepreneurship and business development, monitoring the environment, and statistical research and analysis. The Department of Commerce affects trade and economic development by working to open new markets for U.S. goods and services and promoting pro-growth business policies. The department also invests in research in development to foster innovation. The Department of Commerce, through the National Oceanic and Atmospheric Administration, manages and monitors the nation's natural resources and assets to support both environmental and economic health. The department, through the Census Bureau, conducts the constitutionally mandated decennial census. Finally, the Department of Commerce operates the national patent system.\nThe mission of the Department of Justice (DOJ) is to \"enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans.\" The DOJ provides legal advice and opinions, upon request, to the President and executive branch department heads. The DOJ prosecutes individuals accused of violating federal laws and it represents the U.S. Government in court. The department enforces federal criminal and civil laws, including antitrust, civil rights, environmental, and tax laws. The department, through agencies such as the Federal Bureau of Investigation, the Drug Enforcement Administration, and the Bureau of Alcohol, Tobacco, Firearms and Explosives, investigates organized and violent crime, illegal drugs, and gun and explosives violations. The DOJ, through the U.S. Marshals Service, protects the federal judiciary, apprehends fugitives, and detains individuals who are not granted pretrial release. It incarcerates individuals convicted of violating federal laws. The DOJ also provides grants and training to state, local, and tribal law enforcement agencies.\nThe National Aeronautics and Space Administration (NASA) was created by the National Aeronautics and Space Act of 1958 (P.L. 85-568) to conduct civilian space and aeronautics activities. It has four mission directorates. The Human Exploration and Operations Mission Directorate is responsible for human spaceflight activities, including the International Space Station and development efforts for future crewed spacecraft. The Science Mission Directorate manages robotic science missions, such as the Hubble Space Telescope, the Mars rover Curiosity, and satellites for Earth science research. The Space Technology Mission Directorate develops new technologies for use in future space missions, such as advanced propulsion and laser communications. The Aeronautics Research Mission Directorate conducts research and development on aircraft and aviation systems. In addition to the mission directorates, the Office of Education manages formal and informal education programs for school children, college and university students, and the general public.\nThe National Science Foundation (NSF) supports basic research and education in the non-medical sciences and engineering. Congress established the foundation as an independent federal agency in 1950 and directed it to \"promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes.\" The NSF is a primary source of federal support for U.S. university research. It is also responsible for significant shares of the federal science, technology, engineering, and mathematics (STEM) education program portfolio and federal STEM student aid and support.\nFigure 1 shows the total appropriation, in both nominal and inflation-adjusted dollars, for the CJS act for FY2005-FY2014. The data show that nominal appropriations for CJS increased starting with FY2005, peaked in FY2010, and have generally declined since. After adjusting for inflation, FY2013 and FY2014 appropriations for CJS were generally at the same level they were at in FY2005. The data also show that the nominal increases in appropriations for CJS between FY2005 and FY2008 were generally in-line with inflation.\nFigure 2 shows total appropriations for CJS for FY2005-FY2014 by major component (i.e., the Departments of Commerce and Justice, the National Aeronautics and Space Administration, and the National Science Foundation). The data show that the increase in CJS appropriations in FY2009, FY2010, and FY2011 was the result of Congress appropriating more funding for the Department of Commerce in support of the 2010 decennial census. Since FY2010, total appropriations for CJS have been around $60 billion, with the exception of FY2013 when sequestration cut nearly $4 billion out of the total amount Congress appropriated for CJS for FY2013. While decreased appropriations for the Department of Commerce mostly explain the overall decrease in CJS appropriations since FY2010, there have also been cuts in funding for DOJ and NASA. The DOJ's FY2014 appropriation is 1.9% below its FY2010 appropriation, and NASA's FY2014 appropriation is 5.8% below its FY2010 appropriation. Recent reductions to NASA's appropriation has brought it more in-line with what the agency received in FY2005. However, even with recent cuts to DOJ's appropriation, Congress still appropriated $6.883 billion more for DOJ in FY2014 than it did in FY2005. Appropriations for DOJ increased because Congress appropriated a growing amount for federal law enforcement and counter-terrorism efforts (e.g., the Federal Bureau of Investigation), and Congress appropriated increasing amounts for the Office of the Federal Detention Trustee and the Bureau of Prisons to cover expenses associated with a rising number of federal detainees and prisoners.",
"For FY2015, the Administration requested a total of $62.397 billion for the agencies and bureaus funded as a part of the annual CJS bill. The Administration's request was 1.3%, or $774.4 million, more than the FY2014-enacted appropriation of $61.623 billion. The Administration's request included $8.746 billion for the Department of Commerce, $27.974 billion for the Department of Justice, $24.721 billion for the science agencies, and $956.1 million for the related agencies.\nOn January 17, 2014, President Obama signed into law the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). The act provided a total of $61.623 billion for CJS, of which $8.181 billion was for the Department of Commerce, $27.737 billion was for the Department of Justice, $24.824 billion was for the science agencies, and $881.8 million was for the related agencies.\nOn May 15, 2014, the House Committee on Appropriations reported the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2015 ( H.R. 4660 ). The bill was passed by the House on May 30, 2014. The bill would have provided $62.559 billion for CJS, an amount that would have been 1.5% greater than the FY2014 appropriation and 0.3% more than the Administration's request. The House-passed bill included $8.231 billion for the Department of Commerce, $28.162 billion for the Department of Justice, $25.296 billion for the science agencies, and $870.9 million for the related agencies.\nOn June 5, 2014, the Senate Committee on Appropriations reported its version of the FY2015 CJS appropriations bill ( S. 2437 ). The bill reported by the Senate Committee on Appropriations would have provided a total of $62.636 billion for CJS, an amount that would have been 1.6% more than the FY2014 appropriation, 0.4% more than the Administration's request, and 0.1% more than the House-passed CJS appropriations bill. The bill included $8.556 billion for the Department of Commerce, $27.997 billion for the Department of Justice, $25.161 billion for the science agencies, and $923.0 million for the related agencies.\nOn December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). The act provides a total of $61.753 billion for the agencies and bureaus funded by the annual CJS appropriations act. The FY2015 appropriation for CJS is 0.2% greater than the FY2014 appropriation, but it is 1.0% less than the Administration's request, 1.3% less than the House-passed amount, and 1.4% less than the amount recommended by the Senate Committee on Appropriations. The act provides $8.467 billion for the Department of Commerce, $27.030 billion for the Department of Justice, $25.360 billion for the science agencies, and $895.9 million for the related agencies.\nTable 1 shows the FY2014-enacted appropriations, the Administration's FY2015 request, the amounts recommended by the House and the Senate Committee on Appropriations, and the FY2015-enacted appropriation for the Departments of Commerce and Justice, the science agencies, and the related agencies. Table 14 shows enacted appropriations for these agencies, in detail, for FY2005 through FY2014 (the FY2013 amounts shown in Table 14 reflect sequestration).",
"Some of the issues Congress considered while debating the FY2015 funding levels for the departments and agencies funded as a part of the CJS appropriations bill are as follows:",
"Whether it should have renamed the International Trade Administration (ITA) the International Trade and Investment Administration, as proposed by the President, to emphasize the agency's role in the complementary missions of export and business investment promotion, using both international advocacy and support for U.S. businesses at home. Whether it should have doubled funding for the Interagency Trade Enforcement Center (ITEC) to $15.0 million, as requested in the ITA budget proposal, for the purpose of accelerating the operations of the ITEC. Whether it should have reduced funding for the Economic Development Administration's most highly funded program, public works grants, from $96.0 million in FY2014 to $85.0 million in FY2015, and increase funding to support regional innovation clusters and science parks from $10.0 million in FY2014 to $25.0 million in FY2015. Whether the Census Bureau would have received the funds requested to complete the research and testing necessary for a cost-effective 2020 census design, and to restore 12-month interviewing and the full American Community Survey sample size after a one-month break in data collection caused by the October 2013 federal government shutdown. Whether it should have funded the National Institute of Standards and Technology (NIST) core laboratory and construction accounts at a level consistent with the goal of doubling funding for these and other targeted accounts, as proposed previously by President Obama and adopted implicitly in the America COMPETES Act ( P.L. 110-69 ) and the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ). Whether it should have provided $2.400 billion in funding to NIST for the President's proposed National Network for Manufacturing Innovation (NNMI), included in the President's Opportunity, Growth, and Security Initiative, to support the establishment of up to 45 centers to help accelerate innovation by investing in industrially relevant manufacturing technologies with broad applications, and to support manufacturing technology commercialization by bridging the gap between the laboratory and the market. Whether the National Oceanic and Atmospheric Administration would have received, in addition to the funding requested for the FY2015 budget, $180.0 million from the Administration's Opportunity, Growth, and Security Initiative and $75.0 million from the Climate Resilience Fund.",
"Whether it should have funded the Administration's request for $22.6 million under the Administrative Review and Appeals account to assist the Executive Office of Immigration Review with managing its increasing caseload. Whether it should have provided the $147.0 million in gun- and school violence-related grant funding under the State and Local Law Enforcement Assistance the Administration requests as a part of its \"Now is the Time\" initiative, which is the Administration's effort to combat gun violence. Whether Congress should have provided the funding the Administration requested for DOJ for Mutual Legal Assistance Treaty process reform. Whether the U.S. Marshals Service, in light of an increasing number of responsibilities, has the resources it needs to properly carry-out its mission. Whether the Bureau of Prisons has adequate resources to properly manage the growing number of inmates held in federal prisons. Whether it should have eliminated funding for the State Criminal Alien Assistance Program (SCAAP), as proposed by the Administration. Whether it should have adopted the Administration's proposal to consolidate funding for the drug, mental health, and veterans treatment courts programs into a \"problem solving courts\" program. Whether it should have funded the Administration's request for $35.0 million for Community Teams to Reduce the Sexual Assault Evidence Kit Backlog and Improve Sexual Assault Investigations. Whether Congress should, as requested by the Administration, have reinstated funding for the Juvenile Accountability Block Grant program, a program Congress defunded last fiscal year. Whether it should have accepted the Administration's proposed $65.0 million increase in the obligation cap for the Crime Victims Fund for (1) enhancing formula-based awards to states to support victims' programs and provide additional funding for national scope training and technical assistance and demonstration programs; (2) enhancing services for domestic victims of human trafficking; and (3) supporting the implementation strategies outlined in the Vision 21: Transforming Victim Services report.",
"Whether the current direction for the U.S. human spaceflight program, established in October 2010 by the National Aeronautics and Space Administration Authorization Act of 2010 ( P.L. 111-267 ), can be implemented successfully in a period of increased budgetary constraint, as well as the potential impact of human spaceflight's funding needs on the availability of funding for other National Aeronautics and Space Administration (NASA) programs, such as science, aeronautics, and education. Whether and how to prioritize research initiatives at the National Science Foundation (NSF). Whether it should continue efforts to double funding at NSF and other targeted accounts as previously proposed by the Administration and authorized by Congress, and if so, at what pace. Whether it should have adopted the Administration's proposed government-wide science, technology, engineering, and mathematics (STEM) education program reorganization and consolidation, including proposed changes at NSF, NASA, and the Department of Commerce. Whether to continue to restrict the Office of Science and Technology Policy (OSTP) from engaging in certain activities with China or any Chinese-owned company by prohibiting, with limited exceptions, the use of appropriated funds for such activities.",
"Whether Congress should, per the Administration's proposal, have eliminated the restriction that prevents the Legal Services Corporation's funding from being used for class action suits. Whether the Equal Employment Opportunity Commission has the resources it needs to carry out its mission in light of increased workloads for investigators that resulted from furloughs and a hiring freeze in FY2013. Whether Congress should have adopted the Administration's proposal to focus the Equal Employment Opportunity Commission's funding on technical innovation and hiring of new staff to help reduce backlogs for pending discrimination cases.",
"The Department of Commerce (Commerce Department) originated in 1903 with the establishment of the Department of Commerce and Labor. The separate Commerce Department was established on March 4, 1913. The department's responsibilities are numerous and quite varied; its activities center on five basic missions: (1) promoting the development of U.S. business and increasing foreign trade; (2) improving the nation's technological competitiveness; (3) encouraging economic development; (4) fostering environmental stewardship and assessment; and (5) compiling, analyzing, and disseminating statistical information on the U.S. economy and population.\nThe following agencies within the Commerce Department carry out these missions:\nInternational Trade Administration (ITA) seeks to develop the export potential of U.S. firms and improve the trade performance of U.S. industry; Bureau of Industry and Security (BIS) enforces U.S. export laws consistent with national security, foreign policy, and short-supply objectives; Economic Development Administration (EDA) provides grants for economic development projects in economically distressed communities and regions; Minority Business Development Agency (MBDA) seeks to promote private- and public-sector investment in minority businesses; Economics and Statistics Administration (ESA) , excluding the Census Bureau, provides (1) information on the state of the economy through preparation, development, and interpretation of economic data and (2) analytical support to department officials in meeting their policy responsibilities; Census Bureau , a component of ESA, collects, compiles, and publishes a broad range of economic, demographic, and social data; National Telecommunications and Information Administration (NTIA) advises the President on domestic and international communications policy, manages the federal government's use of the radio frequency spectrum, and performs research in telecommunications sciences; United States Patent and Trademark Office (USPTO) examines and approves applications for patents for claimed inventions and registration of trademarks; National Institute of Standards and Technology (NIST) assists industry in developing technology to improve product quality, modernize manufacturing processes, ensure product reliability, and facilitate rapid commercialization of products on the basis of new scientific discoveries; and National Oceanic and Atmospheric Administration (NOAA) provides scientific, technical, and management expertise to (1) promote safe and efficient marine and air navigation; (2) assess the health of coastal and marine resources; (3) monitor and predict the coastal, ocean, and global environments (including weather forecasting); and (4) protect and manage the nation's coastal resources.",
"Table 2 presents the following funding information for the Department of Commerce as a whole and for each of its agencies or bureaus: the amounts provided under the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ), the Administration's request for FY2015, the amount recommended by the House and the Senate Committee on Appropriations, and the FY2015-enacted amount. For FY2015, the Administration requested a total of $8.746 billion for the Department of Commerce, a proposed 6.9% increase over the FY2014-enacted appropriation of $8.181 billion. The House recommended a total of $8.231 billion for the Department of Commerce. The House's proposal was 0.6% greater than the FY2014 appropriation, but it was 5.9% less than the Administration's request. The Senate Committee on Appropriations recommended $8.556 billion for the Department of Commerce. The amount recommended by the committee was 4.6% greater than the FY2014 appropriation and 4.0% greater than the House recommended amount, but it was 2.2% less than the Administration's request. For FY2015 Congress appropriated $8.467 billion for the Department of Commerce. This amount is 3.5% greater than the FY2014 appropriation, 3.2% less than the Administration's request, 2.9% greater than the House-passed amount, and 1.0% less than the amount recommended by the Senate Committee on Appropriations.",
"The International Trade Administration (ITA) provides export promotion services, works to ensure compliance with trade agreements, administers trade remedies such as antidumping and countervailing duties, and provides analytical support for ongoing trade negotiations. ITA's mission is to improve U.S. prosperity by strengthening the competitiveness of U.S. industry, promoting trade and investment, and ensuring compliance with trade laws and agreements. It strives to accomplish this through several organizational units. ITA went through a major organizational change in October 2013 in which it consolidated four organizational units into three more functionally aligned units. The new organizational units consist of the following: (1) the Industry and Analysis unit, which brings together ITA's industry, trade, and economic experts to advance the competitiveness of U.S. industries through the development and execution of international trade and investment policies and export promotion strategies; (2) the Enforcement and Compliance unit, which is responsible for safeguarding and enhancing the competitiveness of U.S. industries against unfair trade practices through the enforcement of U.S. trade laws and for ensuring compliance with U.S. free trade agreements; and (3) the Global Markets unit, which assists and advocates for U.S. businesses in international markets to help foster U.S. economic prosperity. ITA's fourth organizational unit, the Executive and Administrative Directorate, is responsible for providing policy leadership, information technology support, and administration services for all of ITA. To emphasize the agency's role in the complementary missions of export and business investment promotion, using both international advocacy and support for U.S. businesses at home, the Administration's FY2015 budget proposed to rename the agency the International Trade and Investment Administration (ITIA).\nITA received $460.6 million in direct appropriations for FY2014. The Consolidated Appropriations Act, 2014, anticipated the collection of $9.4 million in user fees, which would have resulted in $470.0 million in total resources for ITA programs in FY2014. The Administration's FY2015 request for ITA in direct appropriations was $497.3 million, a proposed increase of 8.0%. The request proposed to double funding for the Interagency Trade Enforcement Center (ITEC) to $15.0 million, for the purpose of accelerating ITEC operations. The Administration anticipated the collection of $9.4 million in user fees, which would have raised total available funds for ITA to $506.7 million. The House recommended $460.0 million in direct appropriations for ITA, an amount 7.5% less than the Administration's request and 0.1% less than the enacted amount for FY2014. The House anticipated the collection of $10.0 million in user fees, which would have raised total available funds to $470.0 million. The amount recommended by the Senate Committee on Appropriations in direct appropriations was $470.0 million. The Consolidated and Further Continuing Appropriations Act, 2015, provides $462.0 million in direct appropriations for ITA, an amount 7.1% less than the Administration's request and 0.3% more than the enacted amount for FY2014. The act anticipates the collection of $10.0 million in user fees, which would result in $472.0 million in total resources for ITA programs in FY2015, with up to $9.0 million for ITEC operations and $10.0 million for the SelectUSA program.",
"The Bureau of Industry and Security (BIS) administers export controls on dual-use goods and technology through its licensing and enforcement functions. It cooperates with other nations on export control policy and provides assistance to the U.S. business community to comply with U.S. and multilateral export controls. BIS also administers U.S. anti-boycott statutes and is charged with monitoring the U.S. defense industrial base. Authorization for the activities of BIS, the Export Administration Act (50 U.S.C. App. 2401, et seq .), last expired in August 2001. On August 17, 2001, President George W. Bush invoked the authorities granted by the International Economic Emergency Powers Act (50 U.S.C. 1703(b)) to continue in effect the system of controls contained in the act and in the Export Administration Regulations (15 C.F.R., Parts 730-799), and these authorities have been renewed yearly.\nBIS received $101.5 million for FY2014. The Administration's request for FY2015 was $110.5 million, a proposed 9.0% increase. The House recommended $103.5 million, including $56.5 million for export administration, $41.5 million for export enforcement, and $5.5 million for policy coordination. The recommendation included funding for the placement of additional control officers in Germany, Turkey, and the United Arab Emirates. The Senate Committee on Appropriations recommended $105.5 million. P.L. 113-235 appropriated $102.5 million, a 1.0% increase from FY2014, but 7.3% less than the President requested.",
"The Economic Development Administration (EDA) was created pursuant to the enactment of the Public Works and Economic Development Act of 1965, with the objective of fostering growth in economically distressed areas characterized by high levels of unemployment and low per-capita income levels. Federally designated disaster areas and areas affected by military base realignment or closure (BRAC) are also eligible for EDA assistance. EDA provides grants for public works, economic adjustment in case of natural disasters or mass layoffs, technical assistance, planning, and research.\nEDA received $246.5 million for FY2014, including $209.5 million for EDA programs and activities and $37.0 million for salaries and expenses. The Administration's FY2015 budget request for FY2015 was $248.2 million, including $210.0 million for EDA program and activities and $38.2 million for salaries and expenses. The President's budget request would have shifted funding priorities among program activities, while leaving total EDA funding relatively unchanged. The proposed budget would have reduced what is EDA's most highly funded program, public works grants, from $96.0 million in FY2014 to $85.0 million in FY2015. It would have also reduced funding for Trade Adjustment Assistance from $15.0 million in FY2014 to $10.0 million in FY2015.\nThe proposed budget for FY2015 would have placed greater emphasis on projects intended to support job creation through regional innovation clusters and economic adjustment assistance. For FY2015, the Administration proposed a $15.0 million increase in funding for the Regional Innovation Strategies and Science Parks Loan Guarantees Program, from $10.0 million in FY2014 to $25.0 million in FY2015. The Administration also requested a $5.5 million increase in funding for Economic Adjustment Assistance grants, from $42.0 million in FY2014 to $47.5 million in FY2015. The specific programs and their requested funding levels for FY2015, as well as the enacted FY2014 and FY2015 amounts, are shown in Table 3 .\nThe House-passed version of H.R. 4660 recommended $247.5 million in total FY2015 funding for EDA. This total would have included a marginal increase in funding for EDA programs and activities, specifically, $1.0 million more than the $209.5 million appropriated for FY2014, and $0.5 million more than the $210.0 million requested by the Administration. The bill did not recommend funding for the Regional Innovation Program (RIP), which received an appropriation of $10.0 million in FY2014, although the Administration requested $25.0 million for FY2015 for RIP activities. Consistent with the amount appropriated in FY2014, the bill recommended $37.0 million for salaries and expenses, $1.2 million less than requested by the Administration.\nIn addition, the report ( H.Rept. 113-448 ) accompanying H.R. 4660 included language that would have\ndirected EDA to address documentation deficiencies in the award selection process identified in a 2014 Government Accountability Office (GAO) report; included $10.0 million for EDA to develop a comprehensive strategy designed to assist coal mining communities that had experienced significant job losses since 2011; directed EDA to use $5.0 million in Economic Adjustment Assistance to continue encouraging U.S. firms to relocate manufacturing and services jobs back to the United States; provided $5.0 million to fund Innovative Manufacturing loan guarantees; and encouraged EDA to support global competitiveness of small and medium-sized manufacturers through improved access to information technology, education, and training.\nThe FY2015 CJS appropriations bill, S. 2437 , reported by the Senate Committee on Appropriations recommended $232.0 million in funding for EDA programs and salaries and expenses. This was $14.5 million less than approved for FY2014, $16.2 million less than requested by the President, and $15.5 million less than approved in the House-passed bill. S. 2437 , as reported, recommended $5.0 million more in funding for Trade Adjustment Assistance than was requested by the Administration or recommended by the House. It also recommended significantly higher funding for public works activities than the amount appropriated in FY2014 or requested by the Administration or recommended by the House for FY2015. In addition, the report ( S.Rept. 113-181 ) accompanying the bill included language that would have\nprovided access to an additional $40.0 million in prior-year recoveries and unobligated balances; directed EDA to address documentation deficiencies in the award selection process identified in a 2014 GAO report, consistent with language included in the report accompanying the House-passed bill; included $5.0 million to support loan guarantees used to finance science park infrastructure projects and directed EDA to submit status reports on the creation and implementation of loan guarantee programs to the House and Senate Committees on Appropriations committees every 180 days; directed EDA to help identify and develop best practices to aid communities facing nuclear power plant closures; provided no additional funds for FY2015 in support of the Investing in Manufacturing Communities Partnership Program; directed EDA to use $5.0 million in Economic Adjustment Assistance to continue encouraging U.S. firms to relocate manufacturing and services jobs back to the United States; provided $5.0 million to fund Innovative Manufacturing loan guarantees; and encouraged EDA to support global competitiveness of small and medium-sized manufacturers through improved access to information technology, education, and training.\nP.L. 113-235 provides a higher funding level ($250.0 million) for EDA program activities and related salaries and expenses than the amount appropriated in FY2014 ($246.5 million), requested by the President for FY2015 ($248.2 million), approved by the House ($247.5 million), or recommended by the Senate Committee on Appropriations ($232.0 million). Although P.L. 113-235 increases total funding for EDA programs and activities by $3.5 million more than the $209.5 million appropriated in FY2014, it leaves the level of funding for salaries and expenses unchanged from the $37.0 million appropriated in FY2014. P.L. 113-235 shifts funding among EDA programs, including lower funding for Economic Adjustment Assistance activities than appropriated in FY2014, requested by the Administration for FY2015, approved by the House, or recommended by the Senate committee.\nThe explanatory statement accompanying the act, published in the December 11, 2014, Congressional Record , directs EDA to use\nup to $5.0 million to fund Regional Innovation Program planning grants for science park infrastructure; $5.0 million for projects to facilitate the relocation, to the United States, of sources of employment located outside the United States; $4.0 million for Innovative Manufacturing loan guarantees; and $10.0 million for Regional Innovation Program grants.",
"The Minority Business Development Agency (MBDA), established by Executive Order 11625 on October 13, 1971, is charged with the lead role in coordinating all of the federal government's minority business programs. As part of its strategic plan, MBDA seeks to develop an industry-focused, data-driven, technical assistance approach to give minority business owners the tools essential for becoming first- or second-tier suppliers to private corporations and the federal government in the new procurement environment. Progress is measured in increased gross receipts, number of employees, and size and scale of firms associated with minority business enterprise.\nThe Consolidated Appropriations Act, 2014, provided $28.0 million for the MBDA account. For FY2015, the Administration requested $28.3 million, a 1.0% increase, in MBDA funding. According to the budget justification document, this proposed funding level would have assisted in the creation of 7,500 new jobs and $3.000 billion in contracts and financing. The House-passed bill recommended $30.0 million for MBDA activities. This was $2.0 million more than appropriated for FY2014, and $1.7 million more than requested by the Administration. The bill reported by the Senate Committee on Appropriations would have provided $28.3 million for MBDA activities and would have directed the agency to continue to work with the International Trade Administration to support efforts to increase export opportunities and export-related jobs for minority-owned businesses. P.L. 113-235 provides $30.0 million for MBDA activities.",
"The Economics and Statistics Administration (ESA) provides economic data, analysis, and forecasts to government agencies and, when appropriate, to the public. ESA includes the Census Bureau (discussed separately) and the Bureau of Economic Analysis (BEA). ESA has three core missions: to maintain a system of economic data, to interpret and communicate information about the forces at work in the economy, and to support the information and analytical needs of the executive branch. Funding for ESA includes two primary accounts: ESA headquarters and BEA. ESA headquarters staff provide economic research and policy analysis in support of the Secretary of Commerce, as well as oversight of the Census Bureau and BEA. The BEA account funds BEA activities, among which are producing estimates of national gross domestic product and related measures.\nESA received $99.0 million in FY2014. The Administration's FY2015 request for ESA was $111.0 million, a proposed $12.0 million (12.2%) increase over the FY2014-enacted amount. As passed by the House, H.R. 4660 would have provided $99.0 million for ESA, an amount identical to that enacted for FY2014 and 10.8% less than requested for FY2015. The Senate Committee on Appropriations' FY2015 recommendation for ESA was $106.0 million, 7.1% more than enacted for FY2014, 4.5% below the FY2015 request, and 7.1% more than the House approved. P.L. 113-235 provides $100.0 million for ESA, 1.0% more than it received in FY2014, 9.9% less than the FY2015 request, and 1.0% above the House-passed amount.",
"The U.S. Constitution requires a population census every 10 years, to serve as the basis for apportioning seats in the House of Representatives. Decennial census data also are used for within-state redistricting and in certain formulas that determine the annual distribution of more than $450 billion in federal funds to states and localities. The Census Bureau, established as a permanent office on March 6, 1902, conducts the decennial census under Title 13 of the U.S. Code , which also authorizes the bureau to collect and compile a wide variety of other demographic, economic, housing, and governmental data.\nThe Census Bureau's enacted FY2014 appropriation was $945.0 million, divided between the bureau's two major accounts: $252.0 million for salaries and expenses, and $693.0 million for periodic censuses and programs.\nThe Administration's FY2015 requested appropriation for the bureau was $1.211 billion, including $248.0 million under salaries and expenses, and $963.4 million under periodic censuses and programs. Although the total request was 28.2% greater than the FY2014-enacted amount, the request for salaries and expenses was 1.6% less than this account received in FY2014, largely due to expected administrative savings. Periodic censuses and programs would have received 39.0% more than in FY2014, but $1.6 million of the appropriation for this account would have been transferred to the Office of Inspector General for activities related to audits and investigations of the bureau.\nUnder periodic censuses and programs, the 2020 decennial census program would have received $689.0 million, with $443.2 million for the 2020 census itself and $245.8 million for the American Community Survey (ACS). In FY2015, the bureau expects to complete the research and testing necessary to contain the cost of the next census. The ACS request included \"funding to restore field data collection costs associated with a one-month break in data collection at the beginning of ... FY2014, as well as ... to conduct research on content, quality, efficiency, and reducing respondent burden and intrusiveness.\" Also funded under the periodic censuses and programs account are the economic census and the census of governments, which would have received $119.3 million and $9.1 million, respectively. In FY2015, the bureau expects to analyze and release products from the 2012 economic census, and begin planning for the 2017 economic census and census of governments.\nThe House approved $973.5 million in FY2015 funding for the Census Bureau under H.R. 4660 . Of this total, salaries and expenses would have received the requested $248.0 million, 1.6% less than enacted for FY2014. Periodic censuses and programs would have received $725.5 million, 4.7% more than in FY2014. House action on H.R. 4660 , however, including the adoption of five amendments that would have transferred funds from periodic censuses and programs to accounts outside the Census Bureau, would have left periodic programs with 24.7% less than requested. H.R. 4660 passed the House with an additional amendment ( H.Amdt. 752 , Poe) that would have prohibited the use of funds to enforce Title 13, U.S. Code , Section 221, with respect to the ACS. Currently, anyone who, for example, refused to answer ACS questions could face a possible penalty under this section.\nIn reporting S. 2437 , the Senate Committee on Appropriations recommended $1.149 billion for the bureau in FY2015. The $252.2 million recommended for salaries and expenses exceeded the FY2014-enacted amount by 0.1%, the FY2015 request by 1.7%, and the House-passed amount by 1.7%. At the committee's direction, the increase in this account was to have been used to expand the sample for the Current Population Survey's (CPS's) annual social and economic supplement, to permit comparisons with 2010 and 2013 baseline data. The committee recommended $896.7 million for periodic censuses and programs, 29.4% more than enacted for FY2014, 6.9% less than the FY2015 request, and 23.6% more than the House approved. The recommendation would have provided $1.6 million for oversight and audits of periodic censuses by the Office of Inspector General.\nUnder P.L. 113-235 , the Census Bureau's FY2015 funding is $1.088 billion, 15.1% more than in FY2014, 10.2% less than requested for FY2015, 11.8% above the House-passed amount, and 5.3% less than recommended by the Senate Committee on Appropriations. P.L. 113-235 provides $248.0 million for salaries and expenses, which is 1.6% below the FY2014-enacted amount, matches the FY2015 request and the House-passed amount, and is 1.7% less than the Senate committee recommended. The law directs the bureau, in the annual CPS social and economic supplement, to use the same health insurance questions used in previous years, as well as the revised questions first used in February 2014, and adopts by reference the Senate language about comparisons with 2010 and 2013 baseline data. The periodic censuses and programs account is funded at $840.0 million, 21.2% above the FY2014-enacted amount, 12.8% below the FY2015 request, 15.8% more than the House approved, and 6.3% less than the Senate committee recommended. P.L. 113-235 does not include the Poe amendment to H.R. 4660 , Section 545 of the House-passed bill.",
"The National Telecommunications and Information Administration (NTIA) is the executive branch's principal advisory office on domestic and international telecommunications and information policies. Its mandate is to provide greater access for all Americans to telecommunications services; support U.S. efforts to open foreign markets; advise on international telecommunications negotiations; and fund research for new technologies and their applications. It is also responsible for managing spectrum use by federal agencies and, as part of this responsibility, identifying federal radio frequency spectrum that can be transferred to commercial use through the auction of spectrum licenses, conducted by the Federal Communications Commission.\nThe NTIA plays a central role in representing U.S. interests in the Internet internationally, including an active role in the Internet Corporation for Assigned Names and Numbers (ICANN). ICANN is an international entity that develops policies to support the Internet worldwide. The NTIA actively participates in ICANN as a member of the Governmental Advisory Committee, which provides advice to ICANN. The NTIA also currently contracts with ICANN to manage the Internet Assigned Numbers Authority (IANA) and to perform other duties. In March 2014, the NTIA announced its intention to relinquish its authority over ICANN to a multi-stakeholder community when its current contract expires in September 2015.\nTitle VI of the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) gives the NTIA responsibilities for improving public safety communications. It is required to assist the development of the First Responder Network Authority (FirstNet), created by Congress to deploy a nationwide public safety broadband network. It is also required to assist in planning for Next Generation 9-1-1 (NG9-1-1) services, which refers to the transition to digital, Internet-based systems to replace existing analog systems.\nFor FY2015, Congress appropriated $38.2 million for NTIA salaries and expenses. The Administration had proposed $51.0 million. This would have been an increase of $5.0 million (10.9%) over the enacted FY2014 budget amount of $46.0 million. The NTIA attributed the requested increase to an increased focus on policy oversight in two key areas: formulating domestic and international policies, and expanding the availability of broadband communications.\nThe Senate Committee on Appropriations proposed $48.5 million for the NTIA in FY2015, $2.5 million, or 4.9%, below the Administration's request; the House proposed $36.7 million, $14.3 million, or 28.0%, less than what the Administration requested. The enacted budget of $38.2 million for FY2015 is $7.8 million, or 17.0%, less than enacted for FY2014. The FY2015 budget amount eliminates $12.3 million associated with the conclusion of the Broadband Technology Opportunities Program grant awards but includes up to $3.0 million to provide broadband technical assistance to communities. The NTIA is required to provide at least 45 days' notice to the appropriate congressional committees regarding actions taken related to its role in ICANN or IANA, among other reporting requirements, and places constraints on spending.",
"The U.S. Patent and Trademark Office (USPTO) examines and approves applications for patents on claimed inventions and administers the registration of trademarks. It also helps other federal departments and agencies protect U.S. intellectual property in the global marketplace. The USPTO has a somewhat unique funding mechanism—it is funded by user fees paid by customers that are designated as \"offsetting collections\" and subject to spending limits set by Congress.\nFor FY2015, the Administration requested the authority to spend fee collections of $3.458 billion, to fund daily operations of $3.220 billion, and deposit the remainder into the USPTO's operating reserve. The $3.458 billion was to be a 14.4% increase from the enacted USPTO budget of $3.024 billion in fee collections for FY2014. The USPTO contended that the increase in fee authority would reduce patent pendency and backlog, increase efficiencies in examination capacity, and enhance patent and trademark quality of measurement, as well as yield other benefits. The final FY2015 appropriation for the USPTO ( P.L. 113-235 ) matches the Administration's request, and the amount recommended by the House and the Senate Committee on Appropriations, and provides $3.458 billion in budget authority for USPTO for the current fiscal year.",
"The National Institute of Standards and Technology (NIST) is a laboratory of the Department of Commerce with a mandate to increase the competitiveness of U.S. companies through appropriate support for industrial development of pre-competitive, generic technologies and the diffusion of government-developed technological advances to users in all segments of the American economy. NIST research also provides the measurement, calibration, and quality assurance techniques that underpin U.S. commerce, technological progress, improved product reliability, manufacturing processes, and public safety.\nP.L. 113-235 provides total appropriations of $863.9 million for NIST in FY2015, $13.9 million (1.6%) above its FY2014 funding level, $36.1 million less than the President's request, $8.1 million more than the House-passed bill, and $36.1 million less than the Senate committee-recommended amount.\nFunding for NIST is generally provided through three accounts: Scientific and Technical Research and Services (STRS), Industrial Technology Services (ITS), and Construction of Research Facilities (CRF). For the STRS account, P.L. 113-235 provides $675.5 million for FY2015, $24.5 million (3.8%) more than in FY2014, $4.5 million less than the request, $9.5 million less than the Senate committee-recommended amount, and $5.0 million more than the House-passed bill.\nThe act provides $138.1 million for the ITS account in support of two activities: the Manufacturing Extension Partnership (MEP) program and the Advanced Manufacturing Technology Consortia (AMTech). The act provides $130.0 million for MEP in FY2015, $2.0 million (1.6%) more than in FY2014, $11.0 million below the request and the Senate committee-recommended level, and the same as the House-passed level. The act provides $8.1 million for AMTech in FY2015, $6.9 million (46.0%) below the FY2014 level, request, and Senate committee-recommended level, and $8.1 million more than the House-passed amount.\nThe act provides $50.3 million for the CRF account, $5.7 million (10.2%) below the FY2014 level, $8.7 million less than the request and the Senate committee-recommended level, and $5.0 million less than the House-passed amount.\nThe Senate committee-recommended funding level for NIST for FY2015 was $900.0 million, $50.0 million (5.9%) more than in FY2014, an amount equal to the request, and $44.2 million more than the House-passed level. The Senate committee-recommended funding level for FY2015 for\nSTRS was $685.0 million, $34.0 million more than in FY2014, $5.0 million more than the request, and $14.5 million more than the House-passed level; MEP was $141.0 million, $13.0 million more than the FY2014 level, the same as the request, and $11.0 million more than the House-passed level; AMTech was $15.0 million, an amount equal to the FY2014 level and the request, and $15.0 million more than the House-passed level; and CRF was $59.0 million, $3.0 million more than the FY2014 level, equal to the request, and $3.7 million more than the House-passed amount.\nTotal funding for NIST in the House-passed bill was $855.8 million, $5.8 million (0.7%) more than in FY2014 and $44.2 million less than the request. The House-passed bill funding level for\nSTRS was $670.5 million, $19.5 million more than the FY2014 level and $9.5 million below the request; MEP was $130.0 million, $2.0 million more than in FY2014 and $11.0 million below the request; and CRF was $55.3 million, $0.7 million less than the FY2014 level and $3.7 million less than the request.\nThe House-passed bill included no funding for AMTech or coordination of manufacturing innovation institutes.\nTotal funding in the President's request for NIST was $900.0 million, $50.0 million (5.9%) more than the FY2014 level. The requested funding level for\nSTRS was $680.0 million, an increase of $29.0 million above the FY2014 level. The requested amount included an increase of $3.5 million for measurement science standards for forensic science infrastructure, $7.5 million for cyber-physical systems, $5.0 million for advanced materials, $7.0 million for synthetic biology, and $6.0 million for a lab-to-market initiative focused broadly on mechanisms to improve federal technology transfer. The requested funding for: MEP was $141.0 million, $13.0 million more than in FY2014; AMTech was $15.0 million, equal to its FY2014 funding level; and CRF was $59.0 million, $3.0 million more than in FY2014.\nThe President also requested $5.0 million in funding for the coordination of manufacturing innovation institutes, which had received no funding in FY2014.\nThe NIST STRS and construction accounts had been targeted for doubling in recent years by President George W. Bush and President Obama, and implicitly in authorization levels established in the America COMPETES Act ( P.L. 110-69 ) and the America COMPETES Reauthorization Act of 2010 ( P.L. 111-358 ).\nFunding for coordination of manufacturing innovation institutes was intended to support sharing of best practices, reduction of redundant start-up operations, and strengthening of cross-institute collaborations. Though the President's proposed National Network for Manufacturing Innovation (NNMI) program has not been authorized or funded, several NNMI-like institutes have been awarded funding. These centers are led by the Department of Defense and the Department of Energy, with additional funding and/or support being provided by NIST, the National Aeronautics and Space Administration, the National Science Foundation, and other agencies.\nIn addition to the appropriations requested in the base budget, the Administration had proposed an Opportunity, Growth, and Security Initiative (OGSI), which it described as a \"fully paid ... roadmap for how and where additional investments should be made in both domestic priorities and national security.\" The $56.000 billion proposal included $2.400 billion in NIST funding for the President's proposed NNMI to establish up to 45 manufacturing innovation institutes. In his FY2013 and FY2014 budgets, the President proposed $1.000 billion in mandatory funding for the NNMI to establish up to 15 institutes. The OGSI also sought an additional $115.0 million in funding for NIST research and development capabilities and facilities.\nUnder the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ), NIST is authorized $300.0 million from the proceeds of spectrum auctions devoted to the Wireless Innovation (WIN) Fund. These funds are to be used to conduct public safety wireless communications research and development. According to NIST, the laboratory would receive the first $100.0 million after successful spectrum auctions of $7.200 billion or more, and would receive an additional $200.0 million if spectrum auctions net more than $27.600 billion.\nP.L. 113-76 appropriated $850.0 million in FY2014 funding for NIST. This amount included $651.0 million for the STRS account, $128.0 million for MEP, $15.0 million for AMTech, and $56.0 for the CRF account.",
"The National Oceanic and Atmospheric Administration (NOAA) conducts scientific research in areas such as ecosystems, climate, global climate change, weather, and oceans; supplies information on the oceans and atmosphere; and manages coastal and marine resources. NOAA was created in 1970 by Reorganization Plan No. 4. The reorganization plan was designed to unify a number of the nation's environmental activities and to provide a systematic approach for monitoring, analyzing, and protecting the environment. NOAA's current administrative structure has evolved into five line offices, which include the National Environmental Satellite, Data, and Information Service (NESDIS); the National Marine Fisheries Service (NMFS); the National Ocean Service (NOS); the National Weather Service (NWS); and the Office of Oceanic and Atmospheric Research (OAR). In addition to NOAA's five line offices, Program Support (PS), a cross-cutting budget activity, includes the NOAA Education Program, Corporate Services, Facilities, and the Office of Marine and Aviation Operations (OMAO).\nThe Consolidated Appropriations Act, 2014, provided $5.315 billion for NOAA. The Administration's FY2015 request would have funded NOAA at $5.489 billion, which would have been a 3.3% increase over the FY2014 appropriation. The House-passed bill would have provided $5.337 billion for NOAA, an amount which would have been 0.4% more than the FY2014 appropriation, but 2.8% less than the Administration's FY2015 request. The amount recommended by the Senate Committee on Appropriations was $5.420 billion, which would have been 2.0% more than the FY2014 appropriation level, 1.3% less than the Administration's FY2015 request, and 1.6% more than the amount in the House-passed bill. P.L. 113-235 funds NOAA at $5.441 billion, which is 2.4% more than the FY2014 appropriation, 0.9% less than the FY2015 request, 1.9% more than the amount in the House-passed bill, and 0.4% more than the funding level recommended by the Senate Committee on Appropriations.\nThe NOAA budget is divided into two main accounts: Procurement, Acquisition, and Construction (PAC); and Operations, Research, and Facilities (ORF). For FY2015, the Administration requested $3.361 billion for the ORF account, which would have been 2.7% more than the FY2014 appropriation of $3.272 billion. The House-passed bill would have provided $3.217 billion for the ORF account, which was 1.7% less than the FY2014 appropriation and 4.3% less than the Administration's FY2015 request. The Senate Committee on Appropriations recommended $3.345 billion for the ORF account, which was 2.2% more than the FY2014 appropriation, 0.5% less than the Administration's request, and 4.0% more than the House-passed bill. The FY2015 CJS appropriations act funds ORF at $3.318 billion, which is 1.4% more than the FY2014 appropriation,1.3% less than the FY2015 request, 3.1% more than the House-passed bill, and 0.8% less than the funding level recommended by the Senate Committee on Appropriations.\nFor FY2015, the Administration requested $2.206 billion for the PAC account, which would have been 9.1% more than the FY2014 appropriation of $2.023 billion. The House-passed bill would have provided $2.176 billion for the PAC account, which was 7.6% more than the FY2014 appropriation, but 1.4% less than the Administration's request. The Senate Committee on Appropriations recommended $2.132 billion for the PAC account, which would have been 5.4% more than the FY2014 appropriation, 3.4% less than the Administration's request, and 2.0% less than the House approved. The FY2015 CJS appropriations act funds PAC at $2.179 billion, which is 7.7% more than the FY2014 appropriation,1.2% less than the FY2015 request, 0.1% more than the amount in the House-passed bill, and 2.2% more than the funding level recommended by the Senate Committee on Appropriations.\nThe Administration also requested $50.4 million to fund Other Fisheries Activities and -$6.0 million for the Fisheries Finance Program Account. The FY2015 CJS appropriations act funds Other Fisheries Activities at $65.4 million and the Fisheries Finance Program Account at -$6.0 million. These amounts are the same as the funding levels included in the House-passed bill and recommended by the Senate Committee on Appropriations. The FY2015 appropriation for Other Fisheries Activities includes $65.0 million for the Pacific Coastal Salmon Recovery Fund and $350,000 for the Fishermen's Contingency Fund.\nThe Administration's FY2015 request for NESDIS satellite systems acquisition and construction was $2.057 billion, which would have been 8.5% more than the FY2014 appropriation of $1.896 billion. The House-passed bill would have provided $2.032 billion for satellite systems, which was 7.2% more than the FY2014 appropriation, but 1.2% less than Administration's request. The Senate Committee on Appropriations recommended funding satellite systems at $1.987 billion, which would have been 4.8% more than the FY2014 appropriation, 3.4% less than the Administration's request, and 2.2% less than the House approved. The FY2015 CJS appropriations act funds satellite systems acquisition and construction at $2.036 billion, which is 7.4% more than the FY2014 appropriation,1.0% less than the FY2015 request, 0.2% more than the amount in the House-passed bill, and 2.4% more than the funding level recommended by the Senate Committee on Appropriations. FY2015 funding for NESDIS satellite systems acquisition and construction is 93.4% of PAC account funding and 37.4% of the total NOAA appropriation. Most satellite funding is provided for the Geostationary Operation Environmental Satellite (GOES-R) program ($980.8 million) and the Joint Polar Satellite System (JPSS) ($916.3 million). The appropriations agreement reiterates House and Senate Committees on Appropriations language that directs NOAA to provide quarterly updates regarding the satellite portfolio and steps being taken to address any potential gaps in weather satellite coverage.\nIn addition to the funding requested for the FY2015 budget, NOAA would have received funding from the Administration's Opportunity, Growth, and Security Initiative and the Climate Resilience Fund (CRF). The initiative would have provided $180.0 million for expanded weather, climate, and oceans observations and research. The CRF would have provided $25.0 million for oceanic and atmospheric research grants to improve understanding of the effects of climate change on various sectors, and $50.0 million to improve coastal resilience by awarding competitive grants to state, local, and tribal governments and nonprofit organizations. It is possible that some activities related to these areas have been funded in FY2015, but it is not possible to determine specific programs or funding levels solely attributable to these initiatives.",
"Established by an act of 1870 with the Attorney General at its head, DOJ provides counsel for the government in federal cases and protects citizens through law enforcement. It represents the federal government in all proceedings, civil and criminal, before the Supreme Court. In legal matters, generally, the department provides legal advice and opinions, upon request, to the President and executive branch department heads. The major functions of DOJ agencies and offices are described below.\nUnited States Attorneys prosecute criminal offenses against the United States; represent the federal government in civil actions; and initiate proceedings for the collection of fines, penalties, and forfeitures owed to the United States. United States Marshals Service (USMS) provides security for the federal judiciary, protects witnesses, executes warrants and court orders, manages seized assets, detains and transports unsentenced prisoners, and apprehends fugitives. Federal Bureau of Investigation (FBI) investigates violations of federal criminal law; helps protect the United States against terrorism and hostile intelligence efforts; provides assistance to other federal, state, and local law enforcement agencies; and shares jurisdiction with Drug Enforcement Administration over federal drug violations. Drug Enforcement Administration (DEA) investigates federal drug law violations; coordinates its efforts with state, local, and other federal law enforcement agencies; develops and maintains drug intelligence systems; regulates legitimate controlled substances activities; and conducts joint intelligence-gathering activities with foreign governments. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) enforces federal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. It was transferred from the Department of the Treasury to DOJ by the Homeland Security Act of 2002 ( P.L. 107-296 ). Federal Prison System ( Bureau of Prisons, BOP ) provides for the custody and care of the federal prison population, the maintenance of prison-related facilities, and the boarding of sentenced federal prisoners incarcerated in state and local institutions. Office on Violence Against Women (OVW) coordinates legislative and other initiatives relating to violence against women and administers grant programs to help prevent, detect, and stop violence against women, including domestic violence, sexual assault, and stalking. Office of Justice Programs (OJP) manages and coordinates the activities of the Bureau of Justice Assistance, Bureau of Justice Statistics, National Institute of Justice, Office of Juvenile Justice and Delinquency Prevention, and the Office of Victims of Crime. Community Oriented Policing Services (COPS) advances the practice of community policing by awarding grants to law enforcement agencies to hire and train community policing professionals, acquire and deploy crime-fighting technologies, and develop and test innovative policing strategies.\nMost crime control has traditionally been a state and local responsibility. With the passage of the Crime Control Act of 1968 (P.L. 90-351), however, the federal role in the administration of criminal justice has increased incrementally. Since 1984, Congress has approved five major omnibus crime control bills, designating new federal crimes, penalties, and additional law enforcement assistance programs for state and local governments.",
"The FY2014-enacted appropriation for DOJ was $27.737 billion. The Administration requested a total of $27.974 billion for DOJ for FY2015 (see Table 4 ), which was a proposed 0.9%, or $237.0 million, increase over the FY2014-enacted appropriation. The Administration noted that DOJ would have received additional funding, though it did not specify what amount, under the proposed OGSI for the following purposes:\ninvestments in state and local justice assistance grants, including additional resources for the Comprehensive School Safety program and a new youth investment initiative; activating newly constructed or purchased prisons; and investigating and prosecuting financial fraud.\nThe House-passed bill would have provided a total of $28.162 billion for the DOJ, an amount that would have been 1.5% greater than the FY2014 appropriation and 0.7% greater than the Administration's request. The Senate Committee on Appropriations recommended a total of $27.997 billion for the DOJ, an amount that was 0.9% greater than the FY2014 appropriation, 0.1% more than the Administration's request, but 0.6% less than the amount recommended by the House. The FY2015 appropriation for the DOJ is $27.030 billion, which is 2.5% below the FY2014 appropriation, 3.4% less than the Administration's request, 4.0% less than the House-passed amount, and 3.5% below the amount recommended by the Senate Committee on Appropriations.",
"The General Administration account provides funds for salaries and expenses for the Attorney General's office, the Inspector General's office, and other programs designed to ensure that the collaborative efforts of DOJ agencies are coordinated to help represent the government and fight crime as efficiently as possible. The FY2014-enacted appropriation for the General Administration Account was $533.2 million. The Administration's FY2015 request included $590.3 million for General Administration, 10.7% more than the FY2014 appropriation. The House-passed bill would have provided $536.6 million for General Administration, 0.6% more than the FY2014 enacted amount but 9.1% less than the Administration's request. The Senate Committee on Appropriations recommended $576.5 for General Administration, 2.3% less than the Administration's request, but 8.1% more than the FY2014 appropriation and 7.4% more than the House-passed amount. The FY2015 appropriation for the General Administration account is $573.0 million. This amount is 2.9% less than the Administration requested and 0.6% less than the Senate Committee recommended, but it is 7.5% more than the FY2014 enacted appropriation and 6.8% more than the House-passed amount.",
"The General Administration account includes funding for Salaries and Expenses for DOJ administration as well as for Justice Information Sharing Technology. Prior to the National Drug Intelligence Center's (NDIC's) closure, it was funded through the General Administration account. In addition, this account previously funded Law Enforcement Wireless Communications before funding for related activities was shifted to the FBI.\nThe FY2014 appropriation for Salaries and Expenses for DOJ administration and for Justice Information Sharing Technology was $135.8 million. The Administration's FY2015 request included nearly $154.7 million for these activities, 13.9% more than the FY2014 appropriation. The House-passed bill would have provided $116.6 million for this account, 14.1% less than the FY2014 enacted amount and 24.6% below the Administration's requested level. The Senate Committee on Appropriations recommended $140.8 million for this account, 3.7% more than the FY2014 enacted amount, 9.0% less than that recommended by the Senate Committee, and 20.7% more than the House-passed amount. The FY2015 appropriation for DOJ administration Salaries and Expenses and for Justice Information Sharing Technology is $137.3. This amount is 11.2% less than the Administration requested and 2.5% less than the Senate Committee recommended, but it is 1.1% more than the FY2014 enacted appropriation and 17.7% more than the House-passed amount.",
"Administrative Review and Appeals (ARA) includes the Executive Office of Immigration Review (EOIR) and the Office of the Pardon Attorney (OPA). The Attorney General is responsible for the review and adjudication of immigration cases in coordination with the Department of Homeland Security's (DHS's) efforts to secure the nation's borders. The EOIR handles these matters, and the OPA receives and reviews petitions for executive clemency.\nThe Consolidated Appropriations Act, 2014 provided $311.0 million for ARA. The Administration's FY2015 request included $347.0 million for these activities, a proposed increase of 11.6% over the FY2014 appropriation. The Administration's request included an increase of $22.6 million to help the EOIR adjudicate an increasing immigration court caseload. The DOJ reported that the number of matters pending adjudication rose 57% from the end of FY2009 to the end of FY2013. Also, there were 249 EOIR immigration judges at the end of January 2014, down from a high of 272 in mid-December, 2010. In addition, DOJ reported that about one-third of immigration judges will be eligible to retire in FY2014. The proposed increase included $17.0 million to support an additional 35 Immigration Judge Teams and 15 Board of Immigration Appeals attorneys to help adjudicate rising immigration court caseloads; $2.8 million to expand EOIR's Legal Orientation Program (LOP), which improves immigration court proceedings by educating detained alien's about their rights and the overall process; and another $2.8 million to allow EOIR to continue the development and expansion of its pilot program that provides counsel to vulnerable populations, such as unaccompanied alien children.\nThe House-passed bill would have provided $332.0 million for ARA, 6.8% greater than the FY2014 appropriation, but 4.3% less than the Administration's request. The Senate committee-reported bill would have provided $347.1 million for ARA, an amount equal to the Administration's request, but 4.5% less than the House-passed amount. The FY2015 appropriation for ARA is $347.1 million, equal to the Administration's request. The joint explanatory statement to accompany P.L. 113-235 notes that the appropriated amount includes funding for 35 additional Immigration Judge Teams.",
"The Office of the Inspector General (OIG) is responsible for detecting and deterring waste, fraud, and abuse involving DOJ programs and personnel; promoting economy and efficiency in DOJ operations; and investigating allegations of departmental misconduct. The FY2014 enacted appropriation for the OIG was $86.4 million. The Administration's FY2015 request included nearly $88.6 million for the OIG, 2.5% more than the amount provided through the FY2014 appropriation. The House-passed bill would have provided $88.0 million for the OIG, 1.9% more than the FY2014 enacted amount but 0.7% less than the Administration's request. The Senate Committee on Appropriations recommended nearly $88.6 million for the OIG, 2.5% more than the FY2014 enacted appropriation, the same amount as the Administration's request, and 0.7% more than the amount in the House-passed bill. The FY2015 appropriation for the OIG is nearly $88.6 million, equal to the Administration's request and to the amount recommended by the Senate Committee, though 2.5% more than the FY2014 enacted amount and 0.7% more than the House-passed amount.",
"The U.S. Parole Commission adjudicates parole requests for prisoners who are serving felony sentences under federal and District of Columbia code violations. The commission received $12.6 million for FY2014. The Administration's request for the commission for FY2015 was $13.3 million, a proposed increase of 5.6%. The House-passed bill included $13.3 million for the commission, which was equal to the Administration's request and 5.6% greater than the FY2014 appropriation. The Senate Committee on Appropriations recommended $13.3 million for the commission, the same as the amount recommended by the House. Congress appropriated $13.3 million for the commission for FY2015, an amount that is equal to the Administration's request and the amount recommended by the House and the Senate Committee on Appropriations.",
"The Legal Activities account includes several subaccounts: general legal activities, U.S. Attorneys, and other legal activities. The FY2014 enacted appropriation provided nearly $3.181 billion for Legal Activities. The Administration's FY2015 request included almost $3.267 billion for this account, 2.7% more than the FY2014 appropriation. The House-passed bill would have provided $3.230 billion for Legal Activities, 1.5% more than the FY2014 enacted amount but 1.1% less than the Administration's request. The Senate Committee on Appropriations recommended nearly $3.241 billion for Legal Activities for FY2015, 1.9% more than the FY2014 enacted amount, 0.8% less than the Administration's request, and 0.3% more than the House-passed amount. The FY2015 enacted amount for Legal Activities is $3.220 billion, 1.2% more than the FY2014 enacted amount, though 1.4% less than the Administration's request, 0.3% less than the House-passed amount, and 0.6% less than the Senate Committee-recommended amount.",
"The General Legal Activities account funds the Solicitor General's supervision of the department's conduct in proceedings before the Supreme Court. It also funds several departmental divisions (tax, criminal, civil, environment and natural resources, legal counsel, civil rights, INTERPOL, and dispute resolution). The FY2014 appropriation provided $867.0 million for General Legal Activities. The Administration's FY2015 request included nearly $935.9 million for this account, 7.9% over the FY2014 appropriation. The House-passed bill would have provided $884.1 million for General Legal Activities, 2.0% more than the FY2014 enacted amount but 5.5% below the Administration's requested level. The Senate Committee on Appropriations recommended $915.0 million for this account, 5.5% more than the FY2014 enacted amount, 2.2% below the Administration's requested amount, and 3.5% more than the House-passed amount. The FY2015 enacted amount for the General Legal Activities account is $885.0 million, 2.1% more than the FY2014 enacted amount and 0.1% more than the House-passed amount, though 5.4% below the Administration's requested amount and 3.3% below the Senate Committee recommended level.\nAs a part of its FY2015 budget request for this account, the Administration proposed a $2.6 million increase for the criminal division for 25 new positions to help the division combat cybercrime. According to the Administration, the additional funding would have increased the criminal division's capabilities in four areas: \"cybercrime investigations and prosecutions; advice and advocating legal tools and authorities; international cooperation and outreach; and forensic support.\"\nThe Administration also requested a $19.6 million increase for the criminal division as a part of the Administration's Mutual Legal Assistance Treaty (MLAT) reform efforts. MLAT requests are the way in which countries request assistance in obtaining evidence located in a foreign country for criminal investigations and proceedings located in another country, and, according to the Administration, difficulties in obtaining evidence through the MLAT process is starting to frustrate many of the United States' foreign law enforcement partners. The Administration is concerned that continued delays with processing MLAT requests could have adverse consequences for U.S. law enforcement, including, but not limited to, foreign countries reducing their compliance with MLAT requests and their cooperation with U.S. law enforcement agencies. The requested funding for the criminal division would be used to centralize the handling of MLAT requests, primarily through the division's Office of International Affairs (OIA); eliminating the backlog of pending cases; and enhancing the technological resources supporting the MLAT process and OIA's core functions. The FY2015 enacted amount does not include additional funding for these activities.",
"The U.S. Attorneys enforce federal laws through prosecution of criminal cases and represent the federal government in civil actions in all of the 94 federal judicial districts. For FY2015, the President's budget request included $1.955 billion for the U.S. Attorneys, a proposed increase of 0.6% over the Office's FY2014 appropriation ($1.944 billion). Under the Administration's \"Smart on Crime Initiative,\" the FY2015 budget request included $15.0 million in reallocated resources to leverage efforts to lower recidivism through reentry courts, drug or other specialized courts, diversion programs, and prevention outreach. The request also included $1.3 million for MLAT reform. The objective of this reform is to strengthen law enforcement and administration of justice partnerships with foreign government, especially with regard to cyber security threats.\nThe House-passed bill would have provided the U.S. Attorneys with $1.971 billion for FY2015. This amount was 1.4% more than the FY2014 enacted appropriation and 0.8% more than the Administration's FY2015 request. The Senate-committee reported bill included $1.950 billion for the U.S. Attorneys, an amount that was 0.3% greater than the FY2014 appropriation, but 0.3% less than the Administration's request and 1.1% below the House-passed amount. The FY2015 appropriation for the U.S. Attorneys is $1.960 billion, which is 0.8% more than the FY2014 appropriation, 0.2% greater than the Administration's request, 0.5% more than the Senate-committee reported about, but 0.6% less than the House-recommended amount. In the joint explanatory statement to accompany P.L. 113-235 , the appropriators note that Congress provided funding for the U.S. Attorneys to enhance its MLAT processing and backlog reduction.",
"Other Legal Activities includes the Antitrust Division, the Vaccine Injury Compensation Trust Fund, the U.S. Trustee System Fund (which is responsible for maintaining the integrity of the U.S. bankruptcy system by, among other things, prosecuting criminal bankruptcy violations), the Foreign Claims Settlement Commission, the Fees and Expenses of Witnesses, the Community Relations Service, and the Assets Forfeiture Fund. The FY2014 enacted appropriation included $369.8 million for the Other Legal Activities account. The Administration's FY2015 request included nearly $375.9 million for this account, 1.6% more than the FY2014 appropriation. The House-passed bill would have provided $374.9 million for Other Legal Activities, 1.4% more than the FY2014 enacted amount, but 0.3% less than the Administration's request. The Senate Committee on Appropriations recommended nearly $375.9 million for this account, the same amount as requested by the Administration. The FY2015 enacted amount is almost $375.2 for Other Legal Activities, 0.2% less than the amount requested by the Administration and recommended by the Senate Committee, but 1.4% more than the FY2014 enacted amount and 0.1% more than the House-passed amount.",
"The U.S. Marshals Service (USMS) is responsible for the protection of the federal judicial process, including protecting judges, attorneys, witnesses, and jurors. In addition, the USMS provides physical security in courthouses, safeguards witnesses, transports prisoners from court proceedings, apprehends fugitives, executes warrants and court orders, and seizes forfeited property.\nThe USMS received a total of $2.728 billion under the Consolidated Appropriations Act, 2014, of which $1.185 billon was for the Salaries and Expenses (S&E) account and $1.533 billion was for the Federal Prisoner Detention account. For FY2015, the Administration requested a total of $2.790 billion for the USMS, which was 2.3% greater than the FY2014-enacted appropriation. The entire proposed increase for the USMS was the result of the Administration requesting $1.595 billion for the Federal Prisoner Detention account. The proposed increase in funding for the Federal Prisoner Detention account reflected the increased cost of the federal detention population. The Administration requested additional funding to help ensure that the USMS can pay for housing, medical, and transportation costs for the USMS detainee population. The USMS noted that expansion of illegal immigration enforcement activities along the southwest border has increased the service's workload in the region.\nThe House-passed bill would have provided a total of $2.804 billion for the USMS, an amount that was 2.8% greater than the FY2014 appropriation and 0.5% greater than the Administration's request. The House recommended $1.199 billion for the USMS's S&E account (1.2% greater than the Administration's request) and $1.595 billion for the Federal Prisoner Detention account, which was equal to the Administration's request.\nThe Senate committee-reported bill included $2.790 billion for the USMS, an amount that was 2.3% greater than the FY2014 appropriation, equal to the Administration's request, and 0.5% below the amount in the House-passed bill. The amount recommended by the Senate Committee on Appropriations included $1.185 billion for the S&E account and $1.595 billion for the Federal Prisoner Detention account.\nThe FY2015 appropriation for the USMS is $1.700 billion, which includes $1.195 billion for the S&E account and $495.3 million for the Federal Prisoner Detention Account. The FY2015 appropriation is 37.7% less than the FY2014 appropriation, 39.1% less than the Administration's request, 39.4% below the amount recommended by the House, and 39.1% below the Senate Committee on Appropriation's mark. However, P.L. 113-235 directs $1.100 billion in unobligated balances from the DOJ's Assets Forfeiture account to be transferred to the Federal Prisoner Detention account, which means the total budgetary resources available to the USMS for FY2015 is $2.800 billion.\nOne issue Congress considered while it debated FY2015 funding for the USMS is whether it has the resources it needs in light of its expanded mission. As discussed previously, for FY2015 the Administration did not request an increase in funding for the number of positions funded by the USMS's Salaries and Expenses account. In addition to the increased workload along the Southwest border, the USMS reported that since 2000, it has been required to assist state and local law enforcement agencies with apprehending dangerous fugitives; has faced increasing demand for high-level security related to more federal terrorism-related prosecutions; and has been required to assist with the location and apprehension of individuals who fail to register as sex offenders. Congress did provide a 0.8% increase in the USMS's S&E account compared to the FY2014 appropriation. The joint explanatory statement to accompany P.L. 113-235 states that Congress wants the USMS to continue to carry out activities to implement the Adam Walsh Child Protection and Safety Act of 2006 ( P.L. 109-248 ) at no less than the FY2014 level.",
"The National Security Division (NSD) coordinates DOJ's national security and terrorism missions through law enforcement investigations and prosecutions. The NSD was established in DOJ in response to the recommendations of the Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction (WMD Commission), and authorized by Congress on March 9, 2006, in the USA PATRIOT Improvement and Reauthorization Act of 2005 ( P.L. 109-177 ). Under the NSD, DOJ resources of the Office of Intelligence Policy and Review and the Criminal Division's Counterterrorism and Counterespionage Sections were consolidated to coordinate all intelligence-related resources and to ensure that criminal intelligence information is shared, as appropriate. For FY2015, the President's budget request included $91.8 million for the NSD, the same amount as appropriated by Congress for FY2014.\nThe House-passed bill would have provided the NSD with $94.8 million for FY2015. This amount was 3.3% more than either the FY2014 enacted appropriation or the Administration's FY2015 request. The Senate committee-reported bill included $91.8 million for the NSD, an amount equal to the Administration's request and 3.2% below the House-passed amount. The FY2015 appropriation for the NSD is $93.0 million, which is 1.3% greater than the FY2014 appropriation and the Administration's request, but 1.9% below the House-passed amount.",
"The Interagency Law Enforcement account reimburses departmental agencies for their participation in the Organized Crime Drug Enforcement Task Force (OCDETF) program. Organized into nine regional task forces, this program combines the expertise of federal agencies with the efforts of state and local law enforcement to disrupt and dismantle major narcotics-trafficking and money-laundering organizations. From DOJ, the federal agencies that participate in OCDETF are the DEA; the FBI; the ATF; the USMS; the Tax and Criminal Divisions of DOJ; and the U.S. Attorneys. From the Department of Homeland Security, Immigration and Customs Enforcement and the U.S. Coast Guard participate in OCDETF. In addition, from the Department of the Treasury, the Internal Revenue Service and Treasury Office of Enforcement also participate in OCDETF. Moreover, state and local law enforcement agencies participate in approximately 90% of all OCDETF investigations.\nThe FY2014 enacted amount for the Interagency Law Enforcement account was $514.0 million. For FY2015, the Administration requested $505.0 million for this account, 1.8% less than the FY2014 appropriation. The House-passed bill would have provided $519.0 million for this account, 1.0% greater than the FY2014 enacted level and 2.8% greater than the Administration's requested amount. The Senate Committee on Appropriations recommended $505.0 million for the Interagency Law Enforcement account, the same amount as requested by the Administration. The FY2015 enacted amount is nearly $507.2 million for this account, 1.3% less than the FY2014 enacted amount and 2.3% less than the House-passed amount, but 0.4% more than the Administration's request and Senate Committee recommended amount.",
"The FBI is the lead federal investigative agency charged with defending the country against foreign terrorist and intelligence threats; enforcing federal laws; and providing leadership and criminal justice services to federal, state, municipal, tribal, and territorial law enforcement agencies and partners. Since the September 11, 2001 (9/11), terrorist attacks, the FBI has reorganized and reprioritized its efforts to focus on preventing terrorism and related criminal activities. From FY2001 to FY2015, Congress has nearly tripled direct appropriations for the FBI from $3.32 billion to $8.44 billion, or a 154% increase.\nThe House-passed bill would have provided the FBI with $8.468 billion for FY2015. This amount was 1.5% more than the amount Congress appropriated for the FBI for FY2014, and it was 1.4% more than the Administration's FY2015 request. The Senate Appropriations Committee recommended $8.385 billion for the FBI for FY2015. This amount was 0.5% more than both the FY2014 enacted amount and the Administration's FY2015 request. P.L. 113-235 provides 8.437 billion for the FBI, an amount 1.1% greater than both the FY2014 enacted amount and the President's FY2015 request.\nP.L. 113-235 includes $1.0 million to complete an ongoing review of the FBI's implementation of the 9/11 Commission recommendations. In addition, Congress specifies $8.5 million for the Nation Gang Intelligence Center (NGIC), and states that NGIC will coordinate intelligence on human trafficking. In addition, Congress states that NGIC \"shall include a National Sex Trafficking Threat Assessment reflecting detailed analysis of the trafficking carried out by gang organizations\" and directs NGIC to provide a briefing to appropriations committees not later than 180 days after enactment of P.L. 113-235 .\nThe Administration's request included an increase of $15 million to fund operations and maintenance of the new Terrorist Explosive Device Analytical Center (TEDAC) facility in Alabama. While not providing this requested increase, in the language of P.L. 113-235 , Congress outlines the duties of TEDAC and directs DOJ to \"designate a single entity to lead the Counter IED [Improvised Explosive Devices] effort\" and requires DOJ to report to Congress within 30 days of enactment of P.L. 113-235 on the status of this designation. Congress also requested that DOJ describe its efforts to prevent duplicative actions in this area and ensure coordination and colaboration.\nIn addition to these directives, Congress directs the FBI to prioritize sustaining financial and mortgage fraud investigations at not less than the FY2014 level.",
"The Drug Enforcement Administration (DEA) is the only single-mission federal agency tasked with enforcing the nation's controlled substance laws in order to reduce the availability and abuse of illicit drugs and the diversion of licit drugs for illicit purposes. DEA's enforcement efforts include the disruption and dismantling of drug trafficking and money laundering organizations through drug interdiction and seizures of illicit revenues and assets derived from these organizations. DEA continues to face evolving challenges in limiting the supply of illicit drugs as well as reducing drug trafficking from Mexico across the Southwest border into the United States. DEA plays a key role in the Administration's Southwest Border Initiative to counter drug-related border violence, focusing on the convergent threats of illegal drugs, drug-related violence, and terrorism in the region. DEA also has an active role in the Administration's Prescription Drug Abuse Prevention Plan, targeting improper prescribing practices and promoting proper disposal of unused prescription drugs.\nThe DEA received $2.018 billion for FY2014. The Administration's FY2015 budget request for the DEA proposed to maintain FY2014 appropriation levels at $2.018 billion. The House recommended $2.048 billion for the DEA, a proposed 1.5% increase over both the FY2014 enacted amount and the Administration's FY2015 requested amount. The Senate Appropriations Committee recommended $2.018 billion for the DEA for FY2015. This amount was equal to both the FY2014 enacted amount and the Administration's FY2015 request. The FY2015 enacted amount for the DEA is 2.033 billion, an amount 0.8% higher than both the FY2014 enacted amount and the Administration's FY2015 request.\nOf note, while the DEA highlights the recent rise in heroin abuse in the United States in their FY2015 Congressional budget submission, the Administration did not request additional funding to address this issue. The DEA combats the nation's supply of heroin through international and domestic enforcement and state and local assistance. In the report to accompany H.R. 4660 , the House Committee on Appropriations had expressed concern over the increase in prescription drug and heroin abuse, and directed the DEA to report on ways to address prescription drug and heroin abuse and provide more data on the numbers of heroin investigations.\nIn an effort to curtail federal interference with state medical marijuana laws, Congress enacted as part of the FY2015 Appropriations Act language that prohibits DOJ from using funds provided in the act to \"prevent\" 32 states and the District of Columbia from \"implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.\" While media outlets and others have characterized this language as preventing DEA and other DOJ agencies from enforcing federal marijuana laws in states listed in the appropriations law, it remains unclear whether this language will stop DOJ from prosecuting individuals who are in compliance with state law but violating federal law (the Controlled Substances Act).\nThe FY2015 appropriations act included another change that may possibly affect the DEA's operations. P.L. 113-235 prohibits the use of funds \"in contravention of section 7606 (\"Legitimacy of Industrial Hemp Research\") of the Agricultural Act of 2014 ( P.L. 113-79 ) by the Department of Justice or the Drug Enforcement Administration.\" Under the CSA, hemp is considered a Schedule I controlled substance, and there are strict controls on its production and the security conditions under which it may be grown; it is illegal to grow without a DEA permit. The Agricultural Act of 2014 included a provision allowing certain research institutions and also state departments of agriculture to grow industrial hemp, if allowed under state laws where the institution or state department of agriculture is located.",
"The ATF enforces federal criminal law related to the manufacture, importation, and distribution of alcohol, tobacco, firearms, and explosives. ATF works independently and through partnerships with industry groups; international, state, and local governments; and other federal agencies to investigate and reduce crime involving firearms and explosives, acts of arson, and illegal trafficking of alcohol and tobacco products. From FY2001 through FY2014, Congress has increased the direct appropriation for ATF, from $771.0 million to $1.179 billion, a 52.9% increase.\nFor FY2015, Congress has appropriated ATF $1.201 billion, an increase of 1.9% over the amount appropriated by Congress for FY2014 ($1.179 billion), and nearly the same amount as requested by the Administration (less $4,000). According to DOJ, this increase ($22.0 million) is intended to allow ATF to improve its firearms enforcement and regulatory efforts. According to the Attorney General, DOJ was \"taking a hard look\" at federal laws and enforcement priorities to ensure that everything possible is being done to prevent drug traffickers and other criminals from acquiring firearms.\nThe House-passed bill would have provided ATF with $1.114 billion for FY2015. This amount was 5.5% less than the amount appropriated by Congress for FY2014, and was 7.2% less than the Administration's FY2015 request. Report language indicated that the House Committee on Appropriations had yet to receive a briefing and a report that are required as part of ATF's FY2014 appropriation. The briefing was to be on appropriations allocated by ATF for gun law enforcement in the following areas:\n1. violent crime enforcement, 2. firearms regulatory efforts, 3. firearms tracing, and 4. ballistic imaging.\nThe report was to be on ATF's tobacco law enforcement posture and related appropriations allocations. Finally, the Committee voiced concern about increasing processing times (backlogs) for applications submitted under the National Firearms Act of 1934 (NFA), and applications for dealer, manufacturer, and importer licenses submitted under the Gun Control Act of 1968 (GCA).\nThe Senate-reported bill would have appropriated ATF nearly the same amount as in the FY2015 request. Senate-report language indicated that the Committee on Appropriations supports ATF efforts to enforce existing firearms laws and combat weapons trafficking on the Southwest border. Senate report language also calls on the agency to report back to the Committee on its to efforts to see that federal law enforcement agencies submit ballistics evidence recovered at crime scenes to the ATF-administered National Integrated Ballistics Information Network (NIBIN). Finally, Senate report language directed ATF to allocate $4.0 million in existing resources to advance the mission the National Center for Explosives Training and Research (NCETR) and to restart advanced training courses for arson investigators and bomb technicians.\nThe FY2015 budget request collapsed the ATF budget decision units from three to two. For example, the ATF Congressional Budget Submission showed the FY2012 appropriation included $1.113 billion, which was allocated as follows:\n1. Firearms ($876.7 million); 2. Arson & Explosives ($224.4 million); and 3. Alcohol & Tobacco ($12.0 million).\nBy comparison the FY2014 appropriation ($1.179 billion) and FY2015 request ($1.201 billion) were shown allocated as follows:\n1. Law Enforcement Operations ($1.019 billion for FY2014, and $1.039 billion for FY2015); and 2. Investigative Support Services ($159.5 million for FY2014, and $162.5 million for FY2015).\nArguably, this new budget decision unit alignment could make it much more difficult for Congress to determine ATF's budget priorities for regulating the industries under its purview.\nIn addition, the House-passed bill included several domestic gun control provisions directly related to ATF operations. These provisions included the following:\nSection 215 would have prohibited any federal agent from facilitating the transfer of an operable firearm to any individual associated with a drug cartel, unless that firearm were to be continuously monitored or under the federal agent's control at all times; Section 517 would have addressed the export of certain firearms parts and accessories to Canada; Section 518 would have addressed the importation of \"curios or relics\" firearms, parts, or ammunition; Section 533 would have prevented ATF from levying new restrictions on the importation of shotguns; and Section 539 would have prohibited the Attorney General from collecting multiple rifle and shotgun sales reports.\nWith the exception of section 539, the Senate-reported bill included parallel provisions. Like last year, however, the House-passed bill included \"futurity\" language (\"in the current fiscal year and any fiscal year thereafter\") in sections 517 and 518, which appeared to be intended to make them permanent law. This \"futurity\" language was not included in last year's Consolidated Appropriations Act, 2014 ( P.L. 113-76 ), the Senate-reported bill for FY2015, nor the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). Section 539 of the House bill was not included in P.L. 113-235 , either.\nIt is noteworthy that on July 31, 2013, the Senate confirmed B. Todd Jones, the former U.S. Attorney for Minnesota, as ATF's Director. This confirmation ended a seven-year period, during which ATF was headed by five acting directors. In the area of firearms enforcement, ATF was the subject of congressional and departmental oversight for a Southwest border gun trafficking operation known as Fast and Furious and, more recently, several storefront undercover operations. The DOJ Office of Inspector General issued reports on these matters.",
"The Bureau of Prisons (BOP) was established in 1930 to house federal inmates, to professionalize the prison service, and to ensure consistent and centralized administration of the federal prison system. The mission of the BOP is to protect society by confining offenders in prisons and community-based facilities that are safe, humane, cost-efficient, and appropriately secure, and that provide work and other self-improvement opportunities for inmates so that they can become productive citizens after they are released. The BOP currently operates 119 correctional facilities across the country. The BOP also contracts with Residential Re-entry Centers (RRCs) (i.e., halfway houses) to provide assistance to inmates nearing release. RRCs provide inmates with a structured and supervised environment along with employment counseling, job placement services, financial management assistance, and other programs and services.\nCongress funds the BOP's operations through two accounts under the Federal Prison System heading: Salaries and Expenses (S&E) and Buildings and Facilities (B&F). The S&E account (i.e., the operating budget) provides for the custody and care of federal inmates and for the daily maintenance and operations of correctional facilities, regional offices, and BOP's central office in Washington, DC. It also provides funding for the incarceration of federal inmates in state, local, and private facilities. The B&F account (i.e., the capital budget) provides funding for the construction of new facilities and the modernization, repair, and expansion of existing facilities. In addition to appropriations for the S&E and B&F accounts, Congress usually places a cap on the amount of revenue generated by the Federal Prison Industries (FPI) that can be used for administrative expenses in the annual CJS appropriations bill. Although Congress does not appropriate funding for the administrative expenses of FPI, the administrative expenses cap is scored as enacted budget authority.\nThe BOP received a total of $6.862 billion for FY2014, the vast majority of which was for the S&E account ($6.769 billion). For FY2015, the Administration requested $6.897 billion, a proposed increase of 0.5%. All of the proposed increase in the BOP's funding was the result of the Administration requesting more for the BOP's S&E account ($6.804 billion). The Administration was requesting a $193.0 million base adjustment for the S&E account, of which $158.0 million would have been offset by \"proposed miscellaneous program and administrative reductions.\" The proposed increase in the S&E account was to pay for the increased costs associated with managing a growing federal prison population (e.g., increased pay and benefits for the current BOP workforce, higher rents, and increasing costs associated with providing for the care and management of inmates). The BOP did not request any additional full-time equivalents (FTEs) for FY2015.\nThe House-passed bill would have provided a total of $6.973 billion for the BOP. The amount recommended by the House was 1.6% greater than the FY2014 appropriation and 1.1% greater than the Administration's request. The House-passed bill included $6.863 billion for the BOP's S&E account (0.9% more than the Administration's request) and $107.3 million for the B&F account.\nThe Senate Committee on Appropriations recommended $6.912 billion for the BOP, of which, $6.804 billion was for the S&E account. The amount recommended by the committee would have been 0.7% greater than the FY2014 appropriation, 0.2% above the Administration's request, but 0.9% less than the House-passed amount.\nThe FY2015 appropriation for the BOP is $6.924 billion, which includes $6.815 billion for the S&E account. The FY2015 appropriation is 0.9% greater than the FY2014 appropriation, 0.4% greater than the FY2015 request, 0.7% less than the House-passed amount, and 0.2% more than the amount recommended by the Senate Committee on Appropriations.\nA recurring issue is whether the BOP has adequate resources, both in terms of personnel and infrastructure, to properly manage the burgeoning federal prison population. Prison population growth and prison crowding continue to be a major concern for the BOP. The number of inmates held in BOP facilities grew from 125,560 in FY2000 to 176,849 in FY2014. During that same time period, prison crowding grew from 32% over rated capacity to 36% over rated capacity, even though the BOP's capacity increased by approximately 35,000 beds. The BOP estimates that by FY2019 the federal prison system will be operating at 41% over rated capacity. However, despite the problem the BOP has with overcrowding, the Administration did not request funding under the B&F account to start work on any new prison construction. In addition, the BOP did not request any additional funding to expand the amount of contract bedspace. Congress appropriated $106.0 million for the B&F account for FY2015, a 17.8% increase over the FY2014 appropriation.\nThe growing federal prison population has not only resulted in more crowded prisons, but it has also strained the BOP's ability to manage and care for federal inmates. The BOP reports that the staff-to-inmate ratio has increased from 3.6 to 1 in FY1997 to 4.8 to 1 in FY2013. The growing federal prison population has also required the BOP to dedicate more resources to caring (e.g., providing health care, food, and clothing) and providing programming (e.g., substance abuse treatment, educational programming, and work/vocational opportunities) for inmates. The BOP is statutorily required (18 U.S.C. § 3621) to provide residential drug abuse treatment to all inmates who volunteer and are eligible for the program. Prisoners who are convicted of nonviolent crimes and who successfully complete a residential substance abuse treatment program are eligible to have their sentence reduced by not more than one year; as such, the BOP notes, inmates are strongly motivated to participate. The BOP reported that due to limited capacity, inmates receive, on average, only a 10 month reduction. The BOP's budget request preserved funding Congress provided for FY2014 to expand the residential drug treatment program. The BOP reported that the expanded residential substance abuse treatment program will allow the BOP to treat all eligible inmates and extend sentence reductions for those who qualify from the current 10 months average to the full 12 months allowed by statute.",
"The Office on Violence Against Women (OVW) was created to administer programs created under the Violence Against Women Act (VAWA) of 1994 and subsequent legislation. These programs provide financial and technical assistance to communities around the country to facilitate the creation of programs, policies, and practices designed to improve criminal justice responses related to domestic violence, dating violence, sexual assault, and stalking.\nIn FY2014, OVW received $417.0 million. The President's FY2015 budget request for OVW included $422.5 million, or a proposed 1.3% increase from the FY2014 enacted appropriation. The FY2015 request included a proposal to increase funds for the Legal Assistance for Victims, Grants to Support Families in the Justice System (+ $1.0 million), Violence on Campus (+ $2.0 million), and Transitional Housing (+ $0.25 million) programs and decrease funds (- $0.25 million) for Research and Evaluation of Violence Against Women. The House recommended $429.5 million for OVW which was 3.0% more than the FY2014-enacted amount and 1.7% more than the Administration's FY2015 request. The Senate Appropriations Committee recommended $430.0 million for OVW for FY2015. This amount was 3.1% higher than the FY2014 enacted amount and 1.8% higher than the Administration's FY2015 request. P.L. 113-235 includes $430.0 million for OVW, an increase of 3.1% over the FY2014 enacted amount and 1.8% more than the President's request.\nOf note, Congress specifies in the explanatory statement to P.L. 113-235 that OVW shall report within 90 days on its efforts \"to improve grant funding execution and efficiency\" and specifically addresses the allocation of resources for the Rural Domestic Violence Grant Program. In the requested report, Congress asked for an explanation as to how OVW is trying to raise awareness of the program in rural communities.",
"The Office of Justice Programs (OJP) manages and coordinates the National Institute of Justice, Bureau of Justice Statistics, Office of Juvenile Justice and Delinquency Prevention, Office of Victims of Crimes, Bureau of Justice Assistance, and related grant programs. The FY2014-enacted appropriation for OJP was $1.643 billion. For FY2015, the Administration requested $1.567 billion, which was 4.7% less than the FY2014-enacted appropriation. H.R. 4660 included $1.722 billion for OJP, which would have been 4.8% greater than the FY2014 appropriation and 10.6% greater than the Administration's request. The Senate committee-reported bill included $1.609 billion for OJP, which would have been a 2.1% decrease compared to the FY2014 appropriation and 6.5% less than what the House recommended, but it would have been 3.4% greater than the Administration's request. The FY2015 appropriation for OJP is $1.691 billion, an amount that is 2.9% above the FY2014 appropriation, 8.6% greater than the Administration's request, 1.8% less than the House-passed amount, and 5.1% more than the amount recommended by the Senate Committee on Appropriations.",
"The Research, Evaluation, and Statistics account (formerly the Justice Assistance account), among other things, funds the operations of the Bureau of Justice Statistics and the National Institute of Justice. The Consolidated Appropriations Act, 2014 provided $120.0 million for this account. The Administration requested $136.9 million for the Research, Evaluation, and Statistics account, an amount that was 14.1% greater than the FY2014-enacted appropriation. The House-passed bill would have provided $120.0 million for this account, which would have been the same as the FY2014 appropriation, and 12.3% less than the Administration's request. The Senate committee-reported bill included $115.0 million for this account, an amount that was 4.2% less than the FY2014 appropriation, 16.0% less than the Administration's request, and 4.2% below the House-passed amount. For FY2015, Congress appropriated $111.0 million for the Research, Evaluation, and Statistics account. The FY2015 appropriation is 7.5% less than the FY2014 appropriation, 18.9% less than the Administration's request, 7.5% less than the House-passed amount, and 3.5% below the Senate committee-reported amount.",
"The State and Local Law Enforcement Assistance (S&LLEA) account includes funding for a variety of grant programs to improve the functioning of state, local, and tribal criminal justice systems. Some examples of programs that have traditionally been funded under this account include the Edward Byrne Memorial Justice Assistance Grant (JAG) program, the Drug Courts program, the State Criminal Alien Assistance Program (SCAAP), and DNA backlog reduction grants. Congress appropriated $1.172 billion for the S&LLEA account for FY2014. The Administration's request for FY2015 was $1.033 billion, which was 11.8% less than the FY2014-enacted appropriation. The House recommended $1.291 billion for the S&LLEA account, which would have been 10.2% greater than the FY2014 appropriation and 25.0% greater than the Administration's request. The Senate Committee on Appropriations recommended $1.150 billion for this account, an amount that was 1.9% less than the FY2014 appropriation, 11.3% greater than the Administration's request, and 11.0% below the Senate committee-reported amount. The FY2015 appropriation for the S&LLEA account is $1.241 billion. The FY2015 appropriation is 5.9% greater than the FY2014 appropriation, 20.1% greater than the Administration's request, 3.9% below the House-passed amount, and 8.0% greater than the amount recommended by the Senate Committee on Appropriations.\nFor FY2015, the Administration proposed to eliminate several grant programs, including, the State Criminal Alien Assistance Program (SCAAP). SCAAP provides partial reimbursement to states and localities for prior year costs of incarcerating illegal aliens with at least one felony or two misdemeanor convictions for violations of state or local law, and who are incarcerated at least four consecutive days. In justifying the proposal to eliminate SCAAP, the Administration noted that the program does not promote correctional reforms or offer strategies or tools that will help jurisdictions reduce corrections costs or improve public safety. However, this is the one source of federal funding to help state correctional systems and county jails offset the cost of incarcerating individuals who are not legally in the country. Congress did not accept the Administration's proposal and instead provided $185.0 million for SCAAP for FY2015.\nThe Administration also proposed to consolidate funding for the drug and mental health courts into a \"problem solving justice\" program. The Administration requested $44.0 million for this program. The proposed program would have assisted state, local, and tribal governments with developing and implementing strategies, including specialized courts, which can divert offenders with drug, mental health, and special needs away from prosecution and incarceration. Congress did not adopt the Administration's proposal. Instead, Congress provided funding for individual problem-solving court programs for FY2015, including $8.5 million for mental health courts, $4.0 million for drug courts, and $5.0 million for veterans' treatment courts.\nFor FY2015, the Administration requested $35.0 million for Community Teams to Reduce the Sexual Assault Evidence Kit Backlog and Improve Sexual Assault Investigations (hereinafter, \"Community Teams program\"). Proposed funding under this program could be used for a wide variety of purposes, including the following:\nsupporting law enforcement to conduct inventories of untested kits; assessment of current sexual assault investigation practices and identification of law enforcement training needs to improve current practices; strategic planning to determine the extent to which the kits need to be tested; development and/or implementation of evidence-tracking systems; sexual assault kit testing; enhancement of investigative and prosecutorial resources needed to follow up on the outcomes of increased sexual assault testing and/or implement new investigative or prosecutorial practices in sexual assault; development or strengthening of cold case units and systems for communication between laboratories, prosecutors, and law enforcement regarding the status of evidence; law enforcement training on recent findings in neurobiology of trauma to help them work more effectively with victims of sexual assault; development of victim notification procedures; and enhancement of victim services for past and current victims of sexual assault.\nFunding from the Community Teams program may also be used to support further research by the National Institute of Justice on issues related to preventing sexual assault and improving the system's response to sexual assault victims. The House recommends $41.0 million for the Community Teams program. Congress provided $41.0 million for this program for FY2015.\nThe Administration also requested a total of $147.0 million under the State and Local Law Enforcement Assistance account for grants to support its \"Now is the Time\" initiative, which focuses on decreasing gun violence across the country. This amount included $15.0 million for the VALOR program (a set-aside under the Edward Byrne Memorial Justice Assistance Grant (JAG) program), $75.0 million for the comprehensive school safety program, $5.0 million for NICS Act Record Improvement Program (NARIP) Grants, and $50.0 million for the National Criminal History Improvement Program (NCHIP). Congress included the $15.0 million set-aside under the JAG program for the VALOR program and $75.0 million for the comprehensive school safety program in the FY2015 CJS appropriation act. Congress also provided $78.0 million for a National Instant Criminal Background Check System (NICS) Initiative (which would combine the NCHIP and NARIP programs) and a $3.0 million set-aside under the JAG program for grants for firearms safety materials and gun locks.\nThe Administration requested funding for several programs that could be used to address issues related to drug abuse. As previously discussed, the Administration requested funding for drug courts under its proposed problem solving justice program. In addition, the Administration requested $14.0 million for the Residential Substance Abuse Treatment (RSAT) program, which provides funding to state and local governments for substance abuse treatment for prison and jail inmates, and $7.0 million for prescription drug monitoring programs. Congress provided $10.0 million for RSAT and $11.0 million for prescription drug monitoring programs.",
"The Juvenile Justice Programs account includes funding for grant programs to reduce juvenile delinquency and help state, local, and tribal governments improve the functioning of their juvenile justice systems.\nThe FY2014 enacted appropriation included $254.5 million for juvenile justice programs. For FY2015, the Administration's request included $299.4 million for this account, what would have been an increase of 17.6% over the FY2014 level. Of note, the FY2014 enacted appropriation had eliminated funding for the long-funded Juvenile Accountability Block Grant (JABG) Program. The Administration's FY2015 request would have reinstated funding for JABG. The House-passed bill would have provided $223.5 million for juvenile justice programs, which would have been 12.2% less than the FY2014 enacted amount and 25.4% less than the Administration's request. The Senate Committee on Appropriations recommended $257.5 million for juvenile justice programs, 1.2% more than the FY2014 enacted amount, $14% less than the Administration's request, and 15.2% more than the House-passed amount. The FY2015 enacted funding includes $251.5 million for juvenile justice programs, 1.2% less than the FY2014 enacted level, 16.0% less than the Administration's request, 12.5% more than the House-passed amount, and 2.3% less than the Senate Committee recommended amount. Notably, the FY2015 juvenile justice appropriation does not reinstate funding for the JABG program as had been requested by the Administration.",
"The Public Safety Officers Benefits (PSOB) program provides three different types of benefits to public safety officers and their survivors: death, disability, and education. The PSOB program is intended to assist in the recruitment and retention of law enforcement officers, firefighters, and first responders and to offer peace of mind to men and women who choose careers in public safety. The FY2014-enacted appropriation for PSOB was $97.3 million. The Administration requested $87.3 million for PSOB for FY2015, an amount that was 10.3% below the FY2014 appropriation. The House and the Senate Committee on Appropriation's recommendations for the PSOB program were equal to the Administration's request. The FY2015 appropriation for PSOB is $87.3 million, the same as the FY2015 request.",
"The Community Oriented Policing Services (COPS) Office awards grants to state, local, and tribal law enforcement agencies throughout the United States so they can hire and train law enforcement officers to participate in community policing, purchase and deploy new crime-fighting technologies, and develop and test new and innovative policing strategies. Congress appropriated $214.0 million for the COPS program for FY2014. The Administration proposed a $60.0 million, or 28.0%, increase in funding for the COPS program for FY2015. Language in the Administration's FY2015 request would have allowed up to $50.0 million of the $247.0 million requested for the COPS hiring program to be used for hiring non-sworn law enforcement personnel (such as crime and intelligence analysts).\nThe House-passed bill included $209.5 million for the COPS account, which would have been 2.1% less than the FY2014 appropriation and 23.5% less than the Administration's request. The Senate Committee on Appropriations recommended $224.0 million for COPS, an amount that was 4.7% more than the FY2014 appropriation, 18.2% less than the Administration's request, and 6.9% greater than the House-passed amount. The FY2015 appropriation for COPS is $208.0 million, which is 2.8% less than the FY2014 appropriation, 24.1% less than the FY2015 request, 0.7% less than the House-passed amount, and 7.1% less than the Senate Committee reported amount. The FY2015 CJS appropriations act does not include language that would allow funds under the hiring program to be used to hire non-sworn personnel.",
"The Crime Victims Fund (CVF) was established by the Victims of Crime Act of 1984 ( P.L. 98-473 , VOCA). It is administered by the Office for Victims of Crime (OVC), and provides funding to the states and territories for victim compensation and assistance programs. This account does not receive appropriations but instead is largely funded by criminal fines, forfeited bail bonds, penalties, and special assessments that are collected by U.S. Attorneys' Offices, U.S. courts, and the BOP.\nIn FY2014, the obligation cap on the CVF was set at $745.0 million. In the FY2015 Budget Request, the Administration requested to raise the cap by $65.0 million to a total of $810.0 million. The House recommended $770.0 million which was 3.4% greater than the FY2014 amount and 4.9% less than the Administration's FY2015 request. The Senate Appropriations Committee recommended $775.0 million the CVF cap for FY2015. This amount was 4.0% higher than the FY2014 enacted amount and 4.1% lower than the Administration's FY2015 request. The FY2015 enacted amount for the CVF cap is $2.361 billion, a 216.9% increase over the FY2014 enacted amount and an amount 191.5% higher than the Administration's request.\nThe Administration had proposed an increase for the Crime Victims Fund in order to (1) enhance formula-based awards to states to support victims' programs and provide additional funding for national scope training and technical assistance and demonstration programs; (2) enhance services for domestic victims of human trafficking; and (3) support the implementation strategies outlined in the Vision 21: Transforming Victim Services report. In the report to accompany H.R. 4660 , the House Committee on Appropriations stated that OVC may implement Vision 21 within available resources.\nIn an unprecedented move, Congress more than tripled the CVF cap. The CVF currently has a balance of nearly $13 billion, which indicates that receipts to the fund are exceeding the congressionally specified cap each year. Congress did not specify directions for the increase in CVF funds, which will be distributed to crime victims programs according to a formula established by VOCA.",
"The Science Agencies fund and otherwise support research and development (R&D) and related activities across a wide variety of federal missions, including national competitiveness, energy and the environment, and fundamental discovery.",
"The science agencies received a total of $24.824 billion under the Consolidated Appropriations Act, 2014 ( P.L. 113-76 ). For FY2015, the Administration requested a total of $24.721 billion for the science agencies, a proposed 0.4% reduction. The House-passed bill included a total of $25.296 billion for the science agencies, which would have been 1.9% greater than the FY2014 appropriation and 2.3% more than the Administration's request. The Senate Committee-reported bill included a total of $25.161 billion for the science agencies, an amount that was 1.4% greater than the FY2014 appropriation and 1.8% more than the 2015 request, but 0.5% less than the amount recommended by the House. The FY2015 appropriation for the science agencies is $25.360 billion. The FY2015 appropriation is 2.2% greater than the FY2014 appropriation, 2.6% more than the Administration's request, 0.3% greater than the House-passed amount, and 0.8% greater than the Senate Committee-reported amount.",
"Congress established the Office of Science and Technology Policy (OSTP) through the National Science and Technology Policy, Organization, and Priorities Act of 1976 ( P.L. 94-282 ). The act states that \"the primary function of the OSTP director is to provide, within the Executive Office of the President, advice on the scientific, engineering, and technological aspects of issues that require attention at the highest level of Government.\" The OSTP director, often referred to informally as the President's science advisor, also manages the National Science and Technology Council (NSTC), which coordinates science and technology policy across the executive branch of the federal government, and co-chairs the President's Council of Advisors on Science and Technology (PCAST), a council of external advisors that provides advice to the President on matters related to science and technology policy. OSTP is one of two offices in the Executive Office of the President (EOP) that is funded in the CJS appropriations bill.\nP.L. 113-235 provides $5.6 million for OSTP, the same as the Administration's request and the FY2014 appropriation. The joint explanatory statement approves all report language from the House and Senate bills unless changed by the joint explanatory statement. The only report language expressly addressed refers to public access to federally funded research, which states that OSTP shall report quarterly and include cost information as described in the Senate report.\nThe House-passed bill would have provided $5.6 million for OSTP, the same as the Administration's request and the FY2014 appropriation. The report accompanying the House-passed bill urged OSTP to begin implementing key recommendations made by the Interagency Working Group on Neuroscience and to brief the House Committee on Appropriations within 120 days on the prioritization and implementation status of these recommendations. It also urged OSTP to promote and encourage international collaboration in neuroscience and to brief the House Committee on Appropriations within 180 days on the results of these efforts. In addition, the report encouraged OSTP to establish a committee to coordinate federal investments in medical imaging research and develop a roadmap for the full scope of imaging research and development. Finally, the report directed OSTP to report semiannually to the House Committee on Appropriations regarding the progress made by each major federal research agency in developing, finalizing and implementing its plan to enable public access to federally funded research findings.\nThe amount recommended for OSTP by the Senate Committee on Appropriations was $5.6 million, the same as the Administration's request and the FY2014 appropriation. The report accompanying the Senate-committee recommended bill directed OSTP to report quarterly to the committee on timelines for implementation of open access to federal research, including cost estimates. Also, the report directed OSTP to establish an NSTC subcommittee on medical imaging and develop a roadmap for the full scope of imaging research and development. In addition, the report directed OSTP to report to Congress on revising the National Strategic Plan for Advanced Manufacturing, including identifying relevant agencies, topics, stakeholders, international perspectives, resources, and metrics for inclusion in the strategy development process. Finally, the report encourages OSTP to work with non-federal education and outreach communities in order to preserve effective science, technology, engineering, and math education programs designed to directly support the STEM-related mission needs of the agencies administering the programs.\nThe Administration's request for FY2015 was $5.6 million, the same as appropriated for FY2014. According to the Administration, its request would have enabled \"OSTP to carry out its significant national security emergency preparedness communications responsibilities that must be performed in times of national crisis,\" and supported the director of OSTP, the federal Chief Technology Officer, three Senate-confirmed associate directors, and other professional staff members.\nCongress has for several years restricted OSTP from engaging in certain activities with China or any Chinese-owned company by prohibiting the use of appropriated funds for these activities. The OSTP may proceed with activities that it certifies pose no risk of transferring technology or information with security implications to China and will not involve knowing interactions with officials who have been determined by the United States to have direct involvement with violations of human rights. Such certification must be submitted to the House and Senate Committees at least 30 days prior to such activities. Congress may continue its interest in the debate over its ability to restrict the activities of OSTP and the scope of such restrictions. P.L. 113-235 continues this restriction through FY2015. The House-passed bill would have continued this restriction through FY2015. The Senate committee-recommended bill was silent on the topic.",
"The National Aeronautics and Space Administration (NASA) was created in 1958 by the National Aeronautics and Space Act (P.L. 85-568) to conduct civilian space and aeronautics activities. Congress appropriated $17.647 billion for NASA for FY2014. The Administration's request for FY2015 was $17.461 billion, a proposed decrease of 1.1%. In addition to the regular budget request, NASA would have received $885.5 million under the President's proposed Opportunity, Growth, and Security Initiative (OGSI). The House-passed bill would have provided $17.896 billion. The Senate-reported bill would have provided $17.900 billion. The final appropriation was $18.010 billion. See Table 11 for a breakdown of these amounts by appropriations account. There is no authorized level for NASA funding in FY2015; the most recent authorization act (the NASA Authorization Act of 2010, P.L. 111-267 ) authorized appropriations through FY2013.\nThe FY2015 request for Science was $4.972 billion, a decrease of 3.5%.The House-passed bill would have provided $5.193 billion. The Senate-reported bill would have provided $5.200 billion. The final appropriation for FY2015 was $5.245 billion.\nIn Planetary Science, an element of the Science account, the request of $1.280 billion, down from $1.345 billion in FY2014, included $15.0 million for continued study of a potential future mission to Jupiter's moon Europa. Congress provided $69.7 million in FY2013 and $80.0 million in FY2014 for formulation of a Europa mission, which was a high priority of the 2011 National Research Council (NRC) decadal survey of planetary science. The NRC expressed reservations, however, at the mission's estimated a cost of $4.7 billion, and in April 2014, NASA issued a request for information seeking Europa mission concepts costing less than $1 billion. The House-passed bill for FY2015 would have provided $100.0 million for \"a mission that meets the science goals outlined for the Jupiter Europa mission in the most recent planetary science decadal survey,\" plus an additional $18.0 million for assessment and development of related technologies. The House report stated that \"the Committee has not seen any credible evidence\" that a $1 billion cost is feasible and directed NASA \"not to use further project resources in pursuit of such an unlikely outcome.\" The Senate report directed NASA to use the Space Launch System as the baseline launch vehicle for planning a Europa mission in order to maximize the scientific return. The heavy lift capability of this rocket suggested Senate support for a larger-scale Europa mission. Congress ultimately appropriated $100 million for FY2015 for planning a Europa mission in line with the planetary science decadal survey. The explanatory statement directed NASA to evaluate use of the Space Launch System as the launch vehicle for such a mission.\nIn Astrophysics, also funded in the Science account, the request of $607.0 million, down from $668.0 million in FY2014, included $12.3 million for the Stratospheric Observatory for Infrared Astronomy (SOFIA). SOFIA reached full operating capability in February 2014, and previous budgets envisioned 20 years of operations at a cost of about $85 million per year. According to NASA, however, \"because SOFIA development has taken much longer than originally envisioned ... the observatory will no longer provide the kind of scientific impact and synergies with other missions as once planned.\" NASA proposed to place the SOFIA aircraft in storage unless international partners could support the U.S. share of its operating costs. The House report rejected NASA's proposal to terminate SOFIA, recommended $70.0 million for the project, and directed NASA to \"continue seeking third-party partners whose additional funding support would restore SOFIA's budget to its full operational level.\" The Senate report also disagreed with the proposal to terminate SOFIA; it recommended $87 million. Congress ultimately appropriated $70 million for FY2015 for SOFIA to maintain core operations. The explanatory statement directed NASA to \"continue to seek partners to restore SOFIA to its full operational level\" and stated that \"any science mission terminations should be made only after a senior review that evaluates the relative scientific benefit and return on investment.\"\nThe OGSI proposal included an additional $187.3 million for Science, above the Administration's base request. Although the House and Senate bills included comparable amounts above the request, their increases did not appear to correspond closely to the content of the OGSI. For example, the House report did not mention the Orbiting Carbon Observatory 3 (OCO-3), which would have received $29.3 million under the OGSI, or the Pre-Aerosols, Carbon, and Ecosystems (PACE) mission, which would have received an additional $50 million. While the Senate report recommended $25 million for PACE, it also included funds for Jason-3 and DSCOVR, two Earth science satellites that the Administration proposed to fund through the National Oceanographic and Atmospheric Administration (NOAA) budget rather than NASA's. The final explanatory statement included $20 million for PACE for FY2015 and funded Jason-3 and DSCOVR in the NOAA budget.\nThe FY2015 request for Aeronautics was $551.1 million, a decrease of 2.6%. NASA proposed reorganizing its aeronautics research to align with a new strategic vision announced in August 2013. Following this realignment, most individual projects were to continue, but funding for rotorcraft research was to decrease by $7.9 million. The OGSI proposal included an additional $43.9 million for Aeronautics and would have restored the proposed reduction in rotorcraft funding. The House-passed bill would have provided $666.0 million. The House report accepted the proposed restructuring and directed NASA to allocate the recommended funding increase proportionally across the new programs. It did not mention rotorcraft. The Senate bill would have provided $551.0 million. Like the House report, the Senate report supported the proposed reorganization, but it expressed disappointment with the requested reduction for rotorcraft research. The final appropriation for FY2015 was $651.0 million, with the increase above the request to be applied proportionally across the restructured programs.\nThe FY2015 request for Space Technology was $705.5 million, an increase of 22.5%. Support for the Asteroid Redirect Mission, including the accelerated development of high-power solar electric propulsion technology for future spacecraft, was proposed to increase from $38.0 million to $93.0 million. The OGSI proposal included an additional $100.0 million for Space Technology. The House-passed bill would have provided $627.0 million. Noting several specific examples, the House report encouraged the Space Technology Mission Directorate to prioritize technologies that have \"the broadest applicability across [its] customer base.\" Separately, the report found it unclear whether Congress will commit to the Asteroid Redirect Mission and directed NASA to spend funds on that mission only in areas that \"are also applicable to other current NASA programs, clearly extensible to other potential future exploration missions ... or have broad applicability to other future non-exploration activities.\" The Senate bill would have provided $580 million. The Senate report directed NASA to prioritize ongoing activities, recommended continued funding for the development of satellite servicing technology, and directed NASA to increase its focus on Small Business Innovation Research (SBIR) awards to companies with fewer than 50 employees. The final appropriation for FY2015 was $596.0 million.\nThe FY2015 request for Exploration was $3.976 billion, a decrease of 3.3%. This account funds development of the Orion Multipurpose Crew Vehicle (MPCV) and the Space Launch System (SLS) heavy-lift rocket, which were mandated by the 2010 authorization act for human exploration beyond Earth orbit. The account also funds development of a commercial crew transportation capability for future U.S. astronaut access to the International Space Station. The request of $2.784 billion for Orion, the SLS, and related ground systems (known collectively as Exploration Systems Development) was a decrease of 10.6%, while the request of $848.0 million for commercial crew was an increase of 21.8%. The OGSI proposal included an additional $100.0 million for SLS and Orion and an additional $250.0 million for commercial crew. As in past years, many in Congress saw the budget request as evidence of a difference in human spaceflight priorities between Congress and the Administration, and this perceived difference was controversial. The House-passed bill would have provided $4.167 billion for Exploration, including $3.055 billion for Exploration Systems Development and $785.0 million for commercial crew. The House report expressed frustration with the \"arbitrarily reduced funding levels for SLS\" and the increased request for commercial crew. It stated that the recommended funding for commercial crew was intended to support only one provider (in September 2014, NASA awarded commercial crew contracts to two providers). The Senate bill would have provided $4.368 billion for Exploration, including $3.251 billion for Exploration Systems Development and $805 million for commercial crew. The Senate report stated that the request for Orion and the SLS had \"again fallen below what is necessary\" and \"far short of requirements.\" For commercial crew, the Senate report would have required certified cost and pricing data for commercial crew contracts. Advocates of this language described it as promoting transparency. Others, noting that it was drawn from federal cost-plus contracting, argued that it was not suitable for the fixed-price commercial approach that NASA is using for the commercial crew program. The final appropriation for FY2015 of $4.357 billion included $3.245 billion for Exploration Systems Development and $805 million for commercial crew. The explanatory statement did not include the Senate language about certified cost and pricing data.\nThe FY2015 request for Space Operations was $3.905 billion, an increase of 3.4%. Although the request of $3.051 billion for the International Space Station (ISS) was a 3.2% increase, NASA planned to eliminate one previously planned cargo flight to the ISS in FY2015. The OGSI proposal included an additional $100.6 million and would have funded the restoration of the eliminated ISS cargo flight. The House-passed bill would have provided $3.878 billion for Space Operations, including $3.040 billion for the ISS. The Senate bill would have provided $3.831 billion, including $3.013 billion for the ISS. The final appropriation for FY2015 was $3.828 billion; the explanatory statement did not specify how much of that total was for the ISS.\nThe FY2015 request for Education was $88.9 million, a decrease of 23.8%. NASA education programs are affected by a government-wide consolidation and reorganization of activities in science, technology, engineering, and mathematics (STEM) education. Among the programs included in the FY2015 request for the Education account were the National Space Grant College and Fellowship Program ($24.0 million), the Experimental Program to Stimulate Competitive Research (EPSCoR, $9.0 million), and the Minority University Research Education Program (MUREP, $30.0 million). In addition, the request for the Science account included $6.0 million for the Global Learning and Observations to Benefit the Environment (GLOBE) program and $15.0 million for other STEM education and public outreach activities. However, the previous Science Mission Directorate policy, under which 1% of all Science mission funding was allocated to education and public outreach, has been terminated. The OGSI proposal included an additional $10.0 million for Education; it would not have affected education activities funded in other NASA accounts. The House-passed bill would have provided $106.0 million for the Education account, including $30.0 million for Space Grant, $9.0 million for EPSCoR, and $32.0 million for MUREP. It would also have provided $30.0 million, double the request, for general STEM education and public outreach activities in the Science account. The Senate bill would have provided $108.0 million in the Education account, including $40.0 million for Space Grant, $18.0 million for EPSCoR, and $30.0 million for MUREP, plus $42.0 million in the Science account. The final appropriation for FY2015 was $119.0 million, including $40.0 million for Space Grant, $18.0 million for EPSCoR, and $32.0 million for MUREP, plus $42.0 million in the Science account.",
"The National Science Foundation (NSF) supports basic research and education in the non-medical sciences and engineering. Congress established the foundation as an independent federal agency in 1950 and directed it to \"promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense; and for other purposes.\" The NSF is a primary source of federal support for U.S. university research. It is also responsible for significant shares of the federal science, technology, engineering, and mathematics (STEM) education program portfolio and federal STEM student aid and support.\nP.L. 113-235 provides $7.344 billion to the NSF in FY2015. This amount is $172.3 million (2.4%) more than the FY2014 estimated level of $7.172 billion. The House sought $7.394 billion for NSF in FY2015. The Senate Committee on Appropriations would have provided the requested level ($7.255 billion). (See Table 12 .)\nAs requested, NSF's FY2015 program priorities included four programs that were also foundation priorities in FY2013 and FY2014: Cyber-enabled Materials, Manufacturing, and Smart Systems (CEMMSS, $213.2 million); Cyberinfrastructure Framework for 21 st Century Science, Engineering, and Education (CIF21, $124.8 million); Science, Engineering, and Education for Sustainability (SEES, $139.0 million); and Secure and Trustworthy Cyberspace (SaTC, $99.8 million). The Administration added Cognitive Science and Neuroscience ($29.0 million) in its FY2015 request. Of these programs and activities, the Administration sought an increase over FY2014 estimated levels for only Cognitive Science and Neuroscience. The House report recommended $35.0 million for Cognitive Science and Neuroscience in FY2015, $21.2 million (152.5%) more than the FY2014 estimate of $13.9 million. The explanatory statement, which accompanied P.L. 113-235 , endorses the House recommendation for neuroscience. The Senate report recommended the full request ($139.0 million) for SEES.\nCongress typically appropriates to NSF at the major account level. NSF's major accounts are Research and Related Activities (R&RA); Education and Human Resources (E&HR); Major Research Equipment and Facilities Construction (MREFC); Agency Operations and Awards Management (AOAM); National Science Board (NSB); and Office of Inspector General (OIG).\nR&RA is the largest NSF account and the primary source of research funding at the NSF. P.L. 113-235 provides $5.934 billion to R&RA in FY2015. This amount is $124.7 million (2.1%) over the FY2014 estimated funding level of $5.809 billion. The House-passed bill would have provided $5.974 billion to R&RA in FY2015. The Senate Committee on Appropriations recommended $5.839 billion.\nThe Administration's request held six of eight R&RA subaccounts at close to FY2014 levels (actual range: -1.8% to 0.8%) in FY2015. Two subaccounts, Social, Behavioral, and Economic Sciences (SBE) and the U.S. Artic Research Commission would have increased by more substantial percentages: 6.0% and 8.5%, respectively, with SBE receiving the largest increase by amount—$15.4 million over the FY2014 estimate. Most of the SBE increase ($11.5 million) was intended for the National Center for Science and Engineering Statistics.\nThe enduring debate over NSF support for research in the social sciences—which dates to NSF's establishment—resurfaced in the 113 th Congress. For example, during consideration of the FY2013 CJS Appropriations Act ( P.L. 113-6 ), legislators debated funding for NSF's Political Science program and ultimately restricted it to projects that met certain national interests. In FY2015, the House report recommended that any R&RA appropriations above the request \"shall be applied to math and physical sciences [MPS], computer and information science and engineering [CISE], engineering [ENG], and biological sciences [BIO].\" This language appears to be designed to prevent R&RA accounts in the geosciences (GEO) and international and integrative activities (IIA), as well as SBE and the U.S. Arctic Research Commission (USARC), from receiving increases over requested levels. The House report further notes both the \"intrinsic value in SBE sciences,\" while recognizing \"longstanding Congressional concerns\" about SBE-funded activities. A House floor amendment to H.R. 4660 sought to effectively hold funding for SBE at the FY2014 level ($256.9 million). (Some House authorizers also sought to make similar changes in proposed NSF reauthorization bills during the 113 th Congress. ) P.L. 113-235 does not incorporate language from the House floor amendment to H.R. 4660 that would have held SBE at FY2014 levels; but, the explanatory statement effectively adopts House report language requiring NSF to apply any funding increases it receives for R&RA (above requested levels) to MPS, CISE, ENG, and BIO.\nWidely tracked R&RA programs include the Experimental Program to Stimulate Competitive Research (EPSCoR) and Advanced Manufacturing programs. P.L. 113-235 provides $159.7 million to EPSCoR in FY2015; which is the same as the request, House recommendation, and Senate Committee on Appropriations' recommendation. EPSCoR received $158.2 million in FY2014 (estimated). For Advanced Manufacturing, the House report recommended the FY2014 current plan funding level ($164.7 million) in FY2015. The Senate report further recommended that NSF target $15.0 million of the funding it receives for Advanced Manufacturing to biomanufacturing.\nP.L. 113-235 provides $866.0 million to E&HR, NSF's main education account, in FY2015; including $60.9 million for the Robert Noyce Teacher Scholarship Program (NOYCE). The FY2015 enacted funding level for E&HR is $19.5 million (2.3%) more than the FY2014 estimated funding level of $846.5 million. The House-passed bill would have provided $876.0 million to E&HR in FY2015. The Senate Committee on Appropriations recommended the request ($889.8 million).\nBy amount, the largest requested E&HR increase was for Improving Undergraduate STEM Education (IUSE). The FY2014 IUSE estimate was $74.1 million. The Administration sought $99.1 million for IUSE in FY2015, a proposed increase of $25.0 million (33.7%).\nSome of the most widely tracked E&HR programs include the Graduate Research Fellowship (GRF), the Integrative Graduate Education and Research Traineeship or IGERT (now called the NSF Research Traineeship or NRT), and the Advanced Technological Education (ATE) program. The FY2015 request for the GRF was $333.4 million, about 11.1% over the FY2014 estimate. (NSF also sought to increase the GRF stipend from $32,000 to $34,000 in FY2015.) The FY2015 request for NRT was $58.0 million, an increase of 7.8% over the FY2014 estimate. The FY2015 request for ATE was $64.0 million, the same as the FY2014 estimate. The House report recommended $66.0 million for ATE in FY2015; the Senate report recommended $64.0 million. The explanatory statement endorses the House recommendation.\nOther widely tracked E&HR programs include those that are commonly referred to as \"broadening participation\" programs. These include the Historically Black Colleges and Universities Undergraduate Program (HBCU-UP), Tribal Colleges and Universities Program (TCUP), and Louis Stokes Alliances for Minority Participation (LSAMP). The FY2015 requests for these broadening participation programs were the same as the FY2014 estimated levels—$31.9 million (HBCU-UP), $13.5 million (TCUP) and $45.6 million (LSAMP). The House and Senate reports both recommended $32.0 million for HBCU-UP, $13.5 million for TCUP, and $46.0 million for LSAMP in FY2015. The Senate report also recommended $8.0 million for the Alliances for Graduate Education and the Professoriate (AGEP) and $24.0 million for the Centers for Research Excellence in Science and Technology (CREST) in FY2015. The explanatory statement provides $32.0 million for HBCU-UP, $13.5 million for TCUP, and $46.0 million for LSAMP; as well as $8.0 million for AGEP and $24.0 million for CREST.\nIn addition to these programs, the House report directed NSF to provide at least $30.0 million in \"targeted opportunities\" for Hispanic-Serving Institutions (HSIs). (Legislators had previously encouraged NSF to establish a separate HSI program. However, according to the House report, NSF has not done so due to \"technical challenges.\") The Senate report, on the other hand, specifically provided $5.0 million for a separate HSI program at NSF. The explanatory statement endorses the House recommendation.\nNSF's MREFC account supports large construction projects and scientific instruments. P.L. 113-235 provides $200.8 million to MREFC in FY2015; a small increase over the FY2014 estimated level of $200.0 million. The request notes that MREFC will support three projects in FY2015. Historically, this account has typically supported between four and six projects per fiscal year.\nThe FY2015 Administration request for AOAM was $338.2 million, or $40.2 million (13.5%) more than the FY2014 estimate. Most of this increase was intended to fund the next phase of NSF's headquarters relocation effort. P.L. 113-235 provides $325.0 million to AOAM in FY2015.",
"The annual CJS appropriations act includes funding for seven related agencies with missions or responsibilities similar to those of the Departments of Commerce and Justice or the science agencies. The related agencies funded as a part of the annual CJS appropriations act are: the U.S. Commission on Civil Rights; the Equal Employment Opportunity Commission; the International Trade Commission; the Legal Services Corporation; the Marine Mammal Commission; the Office of the U.S. Trade Representative; and the State Justice Institute.",
"The related agencies received a total of $881.8 million under the Consolidated Appropriations Act, 2014. For FY2015, the Administration requested a total of $956.1 million for the related agencies, which represented a proposed 8.4% increase in appropriations. The House-passed bill would have provided a total of $870.9 million for the related agencies, a proposed decrease of 1.2% compared to the FY2014 appropriation and an amount that would be 8.9% less than the Administration's request. The Senate Committee-reported bill would have provided $923.0 million for the related agencies, which would have been 4.7% greater than the FY2014 appropriation and 6.0% greater than the House-passed amount, but 3.5% below the Administration's request. The FY2015 appropriations act provides $895.9 million for the related agencies, an amount that is 1.6% greater than the FY2014 appropriation, 6.3% below the Administration's request, 2.9% greater than the House-passed amount, and 2.9% less than the amount recommended by the Senate Committee on Appropriations.",
"Established by the Civil Rights Act of 1957, the U.S. Commission on Civil Rights (the commission)\ninvestigates allegations of citizens who may have been denied the right to vote based on color, race, religion, or national origin; studies and gathers information on legal developments constituting a denial of the equal protection of the laws; assesses the federal laws and policies in the area of civil rights; and submits reports on its findings to the President and Congress when the commission or the President deems it appropriate.\nUnder the Consolidated Appropriations Act, 2014, the commission received $9.0 million. The Administration requested $9.4 million for the commission, a proposed 4.4% increase compared to the FY2014-enacted appropriation. H.R. 4660 included $9.0 million for the commission, an amount equal to the FY2014 appropriation and 4.3% less than the Administration's request. The Senate Committee on Appropriations recommended $9.4 million for the commission, an amount that is equal to the Administration's request. For FY2015, Congress provides $9.2 million for the commission, an amount that is 2.2% greater than the FY2014 appropriation and the House-passed amount, but 2.1% less than the Administration's request and the Senate committee-reported amount.",
"The Equal Employment Opportunity Commission (EEOC) enforces several laws that ban employment discrimination based on race, color, national origin, sex, age, or disability. In recent years, appropriators were particularly concerned about the agency's ability to reduce the pending inventory of charges due to rising caseloads and limited staff. Due to new hires of enforcement staff and developments in technology, the EEOC continues to reduce the pending inventory of cases.\nThe FY2015 CJS appropriations act provided $364.5 million for the Equal Employment Opportunity Commission, $0.5 million more than the FY2014 amount of $364.0 million. Of the funds provided in FY2015, up to $30.0 million would be for payments to state and local entities with which the agency has work-sharing agreements to address workplace discrimination within their jurisdictions (i.e., Fair Employment Practices Agencies (FEPAs) and Tribal Employment Rights Organizations (TEROs)).\nThe amount recommended by the Senate Committee on Appropriations for FY2015 was $365.0 million or $0.5 million more than the FY2015 amount. The House-passed bill would have provided $364.0 million for the EEOC in FY2015, $0.5 million less than the FY2015 amount. The Administration had recommended $365.5 for the EEOC in FY2015.\nAlthough the pending inventory of private sector cases filed with the EEOC was reduced from 78,136 at the end of FY2011 to 70,312 at the end of FY2012, the inventory increased slightly in FY2013 to 70,781. The increase in FY2013 reflects hiring freezes imposed by the FY2013 budget cycle. The FY2015 request includes 60 additional investigators and 6 mediator hires, positions which help the agency improve staffing levels and subsequent workloads.\nThe EEOC federal sector hearings workload was 15,301 hearings in FY2013 and estimated to increase slightly to 15,500 in FY2014. The commission continues to implement technology initiatives to support the federal sector program, such as the ongoing development of the EEOC File Exchange (EFX) web-based portal system. The commission also continues to expand the use of the HotDocs commercial document assembly software, which streamlines the writing phase of the hearings process.",
"The U.S. International Trade Commission (ITC) is an independent, quasi-judicial federal agency with broad investigative responsibilities on matters related to international trade. The ITC's activities include investigating the effects of dumped and subsidized imports on domestic industries; conducting global safeguard investigations; and adjudicating disputes involving imported goods that allegedly infringe U.S. intellectual property rights. The ITC also serves as a federal resource for trade data and other trade policy information. It makes most of its information and analyses available to the public to promote understanding of competitiveness, international trade issues, and the role that international trade plays in the U.S. economy. The ITC has two strategic goals that guide its programmatic activities: (1) to produce sound, objective, and timely determinations in investigations; and (2) to produce objective, high-quality, and responsive analysis and information on tariffs, trade, and competitiveness. As a matter of policy, its budget request is submitted to Congress by the President without revision.\nThe ITC received $83.0 million for FY2014. The Administration's request for the ITC for FY2015 was $86.5 million, a proposed increase of 4.2%. The House-passed bill would have provided $86.0 million for ITC, 0.5% less than the Administration's request and 3.6% more than the enacted amount for FY2014. The amount recommended by the Senate Committee on Appropriations was $85.0 million, 1.7% less than the Administration's request and 2.4% more than the FY2014 enacted amount. The FY2015 CJS Appropriations Act provided $84.5 million for the ITC, an amount 2.3% less than the Administration's request and 1.8% above the FY2014 enacted amount.",
"The Legal Services Corporation (LSC) is a private, nonprofit, federally funded corporation that provides grants to local offices that, in turn, provide legal assistance to low-income people in civil (noncriminal) cases. The LSC has been controversial since its incorporation in the early 1970s and has been operating without authorizing legislation since 1980. There have been ongoing debates over the adequacy of funding for the agency and the extent to which certain types of activities are appropriate for federally funded legal aid attorneys to undertake. In annual appropriations bills, Congress traditionally has included legislative provisions restricting the activities of LSC-funded grantees, such as prohibiting any lobbying activities or prohibiting representation in certain types of cases.\nThe authorization of appropriations for the LSC expired at the end of FY1980. Since then the LSC has operated under annual appropriations laws.\nThe LSC received $365.0 million for FY2014. The Obama Administration's budget request for the LSC for FY2015 was $430.0 million, a proposed increase of 17.8%. The Administration's FY2015 budget request included $395.0 million for basic field programs and required independent audits, $20.0 million for management and grants oversight, $4.8 million for client self-help and information technology, $4.4 million for the Office of the Inspector General, $1.0 million for loan repayment assistance, and $4.9 million for a pro bono innovation fund. The Obama Administration also proposed that LSC restrictions on class action suits and attorneys' fees be eliminated.\nThe House-passed bill would have provided $350.0 million for the LSC for FY2015. This amount is 4.1% less than the FY2014-enacted amount and 18.6% less than the Administration's FY2015 budget request. The amount recommended by the Senate Committee on Appropriations was $400.0 million. This amount is 9.6% more than the FY2014-enacted amount and 7.0% less than the Administration's FY2015 budget request.\nPursuant to P.L. 113-235 , the LSC received $375 million for FY2015. This amount is 2.7% more than the FY2014-enacted amount, 7.1 % more than the House-passed amount, and 12.8% less than the Administration's FY2015 budget request. The FY2015 LSC appropriation included $343.2 million for basic field programs and required independent audits, $18.5 million for management and grants oversight, $4.0 million for client self-help and information technology, $4.4 million for the Office of the Inspector General, $1.0 million for loan repayment assistance, and $4.0 million for a pro bono innovation fund.",
"The Marine Mammal Commission (MMC) is an independent agency of the executive branch, established under Title II of the Marine Mammal Protection Act (MMPA; P.L. 92-522). The MMC and its Committee of Scientific Advisors on Marine Mammals provide oversight and recommend actions on domestic and international topics to advance policies and provisions of the Marine Mammal Protection Act. As funding permits, the Marine Mammal Commission supports research to further the purposes of the MMPA. The FY2014-enacted appropriation for the MMC was $3.3 million. The Administration proposed a 5.6% increase for MMC for FY2015. The House recommended $3.3 million for the MMC for FY2015. The House's recommendation would have been the same as the FY2014 appropriation and 5.3% less than the Administration's request. The Senate Committee on Appropriations recommended $3.4 million for the MMC, equal to the Administration's request. The FY2015 appropriation for the MMC is $3.3 million, which is 2.8% greater than the FY2014 appropriation and the House-passed amount, but 2.7% less than the Administration's request and the Senate committee-reported amount.",
"The Office of the U.S. Trade Representative (USTR), located in the Executive Office of the President, is responsible for developing and coordinating U.S. international trade and direct investment policies. The USTR is the President's chief negotiator for international trade agreements, including commodity and direct investment negotiations. USTR also conducts U.S. affairs related to the World Trade Organization. The USTR is leading the negotiations for the United States for the ongoing talks for the proposed Trans-Pacific Partnership agreement (TPP) and for the Transatlantic Trade and Investment Partnership (T-TIP).\nThe USTR received $52.6 million for FY2014. The Administration's request for USTR was $56.2 million, a proposed increase of 6.8%. The House-passed bill would have provided $53.5 million for USTR, 4.8% less than the Administration's request and 1.7% more than the FY2014 enacted amount. The Senate Committee on Appropriations recommended $55.0 million for the USTR for FY2015, the same amount as the Administration's request and 4.6% above the FY2014 enacted amount. The FY2015 CJS Appropriations Act provided $54.3 million for the USTR, an amount 3.4% less than the Administration's request and 3.1% more than the FY2014 enacted amount.",
"The State Justice Institute (SJI) is a nonprofit corporation that makes grants to state courts and funds research, technical assistance, and informational projects aimed at improving the quality of judicial administration in state courts across the United States. It is governed by an 11-member board of directors appointed by the President and confirmed by the Senate. Under the terms of its enabling legislation, SJI is authorized to present its budget request directly to Congress, apart from the President's budget. For FY2014 the SJI received $4.9 million. The Administration requested $5.1 million for FY2015, a proposed 4.5% increase in funding. The House-passed and Senate committee-reported bills would have provided a total of $5.1 million for SJI, equal to the Administration's request . The FY2015 appropriation for SJI is equal to the Administration's request."
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{
"question": [
"How have appropriations for CJS changed from 2005 to 2014?",
"Why did CJS appropriations peak in 2010?",
"What has been the state of CJS appropriations since 2010?",
"What caused the decline in CJS appropriations from 2010 to 2014?",
"How have the funding cuts affected NASA?",
"How have the funding cuts affected DOJ?",
"What question was asked of the funding for the Census Bureau?",
"What was President Obama's proposal regarding NIST funding?",
"What question was asked about the Administration's efforts to reduce gun violence?",
"What are concerns regarding the Bureau of Prisons?",
"What are some factors to consider when considering NASA's human spaceflight program?",
"What education reform for NASA and other organizations was proposed?"
],
"summary": [
"Over the past 10 fiscal years, appropriations for CJS increased from FY2005 to FY2010, and they have generally declined since. After adjusting for inflation, FY2013 and FY2014 appropriations for CJS were generally at the same level as in FY2005.",
"The peak in CJS appropriations around FY2010 was the result of increased appropriations for the Department of Commerce to support the 2010 decennial census.",
"Since FY2010, total appropriations for CJS have been around $60 billion, with the exception of FY2013 when sequestration cut nearly $4 billion out of the total FY2013 CJS appropriations.",
"While decreased appropriations for the Department of Commerce mostly explain the overall decrease in CJS appropriations since FY2010, there have also been cuts in funding for DOJ and NASA.",
"Recent reductions to NASA's appropriation have brought it more in-line with what the agency received in FY2005.",
"In addition, despite recent cuts to DOJ's appropriation, Congress still appropriated $6.883 billion more for DOJ in FY2014 than it did in FY2005.",
"Whether the Census Bureau would receive the funds requested to complete the research and testing necessary for a cost-effective 2020 census design, and to restore 12-month interviewing and the full American Community Survey sample size after a one-month break in data collection that was caused by the October 2013 federal government shutdown.",
"Whether to fund the National Institute of Standards and Technology (NIST) core laboratory and construction accounts at a level consistent with the goal of doubling funding for these and other targeted accounts, as proposed previously by President Obama and adopted implicitly in the America COMPETES Act (P.L. 110-69) and the America COMPETES Reauthorization Act of 2010 (P.L. 111-358).",
"Whether Congress should have provided the $147.0 million in gun- and school violence-related grant funding under the State and Local Law Enforcement Assistance the Administration requests as a part of its \"Now is the Time\" initiative, which is the Administration's effort to combat gun violence.",
"Whether the Bureau of Prisons has adequate resources to properly manage the growing number of inmates held in federal prisons.",
"Whether the current direction for the U.S. human spaceflight program, established in October 2010 by the National Aeronautics and Space Administration Authorization Act of 2010 (P.L. 111-267), can be implemented successfully in a period of increased budgetary constraint, as well as what the potential impact of human spaceflight's funding needs will be on the availability of funding for other NASA programs, such as science, aeronautics, and education.",
"Whether Congress should have adopted the Administration's proposed government-wide science, technology, engineering, and mathematics (STEM) education program reorganization and consolidation, including proposed changes at NSF, NASA, and the Department of Commerce."
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CRS_R43300
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{
"title": [
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"Structure of this Report",
"Other CRS Reports on CCS",
"Background",
"Overview",
"Current Research and Development (R&D) Activities",
"Future Outlook"
],
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"",
"Congressional interest in carbon capture and sequestration (or carbon capture and storage, CCS) has been renewed since the U.S. Environmental Protection Agency (EPA) re-proposed standards for carbon dioxide (CO 2 ) from new fossil-fueled power plants on September 20, 2013. As re-proposed, the standards would limit emissions of CO 2 to no more than 1,100 pounds per megawatt-hour of production from new coal-fired power plants and between 1,000 and 1,100 (depending on size of the plant) for new natural gas-fired plants. The standards would not apply to existing facilities. EPA proposed the standard under Section 111 of the Clean Air Act. According to EPA, new natural gas-fired stationary power plants should be able to meet the proposed standards without additional cost or the need for add-on control technology. However, new coal-fired plants only would be able to meet the standards by installing carbon capture and sequestration (CCS) technology. The proposed standard would allow an option of up to seven years for a new coal-fired plant to comply. But that option would require a more stringent standard for those plants and limit CO 2 emissions to an average of 1,000-1,050 pounds per megawatt-hour over the seven-year period.\nThe promise of CCS lies in the potential for technology to capture CO 2 emitted from large, industrial sources, thus significantly decreasing CO 2 emissions without drastically changing U.S. dependence on fossil fuels, particularly coal, for electricity generation. The future use of coal—a significant component of the U.S. energy portfolio—in the United States will likely depend on whether and how CCS is deployed if legislative or regulatory actions curtail future CO 2 emissions. The September 20, 2013, proposed rule for limiting CO 2 emissions from new fossil-fueled power plants is one such action. In addition, Section 111 of the Clean Air Act requires that EPA develop guidelines for pollutants—which has been interpreted to include greenhouse gas emissions—for existing plants whenever it promulgates standards for new power plants. In a June 25, 2013, memorandum, President Obama directed the EPA to issue proposed guidelines for existing plants by June 1, 2014, and to issue final guidelines a year later. These proposed actions will likely draw additional congressional scrutiny of the viability of large-scale CCS as the primary technology for mitigating CO 2 emissions from coal-fired power plants.\nUnlike the other two components of CCS, transportation and geologic storage, the first component of CCS—CO 2 capture—is almost entirely technology-dependent. For CCS to succeed at reducing CO 2 emissions from a significant fraction of large sources in the United States, CO 2 capture technology would need to be deployed widely. Widespread commercial deployment would likely depend on the cost of capturing CO 2 , although other factors, such as incentives for reducing greenhouse gas emissions, would also influence deployment.\nThe transportation and storage components of CCS are not nearly as technology-dependent as the capture component. Nonetheless, transportation and sequestration costs, while generally much smaller than capture costs, could be very high in some cases. They would depend, in part, on how long it would take to reach an agreement on a regulatory framework to guide long-term CO 2 injection and storage, and on what those regulations would require. CCS deployment would also depend on the degree of public acceptance of a large-scale CCS enterprise. Several CRS reports (see below) address these policy issues of CO 2 transportation and storage.",
"This report is a brief summary of a longer study—CRS Report R41325, Carbon Capture: A Technology Assessment —that provides a \"snapshot\" of technological development current through mid-2010. The technology assessment is both prospective and retrospective in that it examines emerging or advanced technologies that may affect future CCS deployment, and looks at lessons from past experience with large-scale technological development and deployment as guidelines that could be used to shape energy policy. The longer report consists of 10 chapters, together with figures and tables.\nThis report and the longer CRS report focus on the first component of a CCS system, namely, the CO 2 capture process. The goal of these reports is to provide a realistic assessment of prospects for improved, lower-cost technologies for each of the three current approaches to CO 2 capture.\nThe technology assessment was undertaken by Carnegie Mellon University, Department of Engineering and Public Policy, under the leadership of Edward S. Rubin, together with Aaron Marks, Hari Mantripragada, Peter Versteeg, and John Kitchin. The work was performed under contract to CRS, and is part of a multiyear CRS project to examine different aspects of U.S. energy policy. [author name scrubbed], CRS Specialist in Energy and Natural Resources Policy, served as the CRS project coordinator.\nCRS Report R41325, Carbon Capture: A Technology Assessment , was funded, in part, by a grant from the Joyce Foundation.",
"CRS has written a suite of products on different aspects of CCS that complement this assessment of carbon capture technologies. These include:\nCRS Report R42532, Carbon Capture and Sequestration (CCS): A Primer , by [author name scrubbed]. CRS Report R42496, Carbon Capture and Sequestration: Research, Development, and Demonstration at the U.S. Department of Energy , by [author name scrubbed]. CRS Report R43028, FutureGen: A Brief History and Issues for Congress , by [author name scrubbed]. CRS Report R42950, Prospects for Coal in Electric Power and Industry , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report RL33971, Carbon Dioxide (CO2) Pipelines for Carbon Sequestration: Emerging Policy Issues , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. CRS Report R40103, Carbon Control in the U.S. Electricity Sector: Key Implementation Uncertainties , by [author name scrubbed]. CRS Report RL34316, Pipelines for Carbon Dioxide (CO2) Control: Network Needs and Cost Uncertainties , by [author name scrubbed] and [author name scrubbed]. CRS Report RL34307, Legal Issues Associated with the Development of Carbon Dioxide Sequestration Technology , by [author name scrubbed] and [author name scrubbed]. CRS Report RL34601, Community Acceptance of Carbon Capture and Sequestration Infrastructure: Siting Challenges , by [author name scrubbed]. CRS Report R43127, EPA Standards for Greenhouse Gas Emissions from Power Plants: Many Questions, Some Answers , by [author name scrubbed].",
"Global climate change is an issue of major international concern and the focus of proposed mitigation policy measures in the United States and elsewhere. In this context, CCS technology has received increasing attention over the past decade as a potential method of limiting atmospheric emissions of CO 2 —the principal \"greenhouse gas\" linked to climate change.\nWorldwide interest in CCS stems principally from three factors. First is a growing consensus that large reductions in global CO 2 emissions are needed to avoid serious climate change impacts. Because electric power plants are a major source of CO 2 , curtailing their emissions has become a focus.\nSecond is the growing realization that large emission reductions cannot be achieved easily or quickly simply by using less energy or by replacing fossil fuels with alternative energy sources that emit little or no CO 2 . The reality is that the world (and the United States itself) today relies on fossil fuels for over 85% of its energy use (including fuel for transportation, not just electricity generation). Changing that picture dramatically would take time. CCS thus offers a way to get large CO 2 reductions from power plants and other industrial sources until cleaner, sustainable energy technologies can be widely deployed.\nFinally, energy-economic models show that adding CCS to the suite of other GHG reduction measures significantly lowers the cost of mitigating climate change. Studies also have affirmed that by 2030 and beyond, CCS is a major component of a cost-effective portfolio of emission reduction strategies.\nFigure 1 depicts the overall CCS process applied to a power plant or other industrial process. The CO 2 produced from carbon in the fossil fuels or biomass feedstock is first captured, then compressed to a dense liquid to facilitate its transport and storage. The main storage option is underground injection into a suitable geological formation.\nAt the present time, CCS is not commercially proven in the primary large-scale application for which it is envisioned—electric power plants fueled by coal or natural gas. Furthermore, the cost of CCS today is relatively high, due mainly to the high cost of CO 2 capture (which includes the cost of CO 2 compression needed for transport and storage). This has prompted a variety of government and private-sector research programs in the United States and elsewhere to develop more cost-effective methods of CO 2 capture.",
"The following is an assessment of prospects for CCS capture technologies; namely, post-combustion capture from power plant flue gases using amine-based solvents such as monoethanolamine (MEA) and ammonia; pre-combustion capture (also via chemical solvents) from the synthesis gas produced in an integrated coal gasification combined cycle (IGCC) power plant; and oxy-combustion capture, in which high-purity oxygen rather than air is used for combustion in a pulverized coal (PC) power plant to produce a flue gas with a high concentration of CO 2 amenable to capture without a post-combustion chemical process.\nCurrently, post-combustion and pre-combustion capture technologies are commercial and widely used for gas stream purification in a variety of industrial processes. Several small-scale installations also capture CO 2 from power plant flue gases to produce CO 2 for sale as an industrial commodity. Oxy-combustion capture, however, is still under development and is not currently commercial.\nThe advantages and limitations of each of these three methods are discussed in CRS Report R41325, Carbon Capture: A Technology Assessment , along with plans for their continued development. While all three approaches are capable of high CO 2 capture efficiencies (typically about 90%), the major drawbacks of current processes are their high cost and the large energy requirement for operation (which significantly reduces the net plant capacity and contributes to the high cost of capture). Another drawback in terms of their availability for greenhouse gas mitigation is that at present, there are still no applications of CO 2 capture on a coal-fired or gas-fired power plant at full scale (i.e., a scale of several hundred megawatts of plant capacity).",
"To address the current lack of demonstrated capabilities for full-scale CO 2 capture at power plants, a number of large-scale demonstration projects at both coal combustion and gasification-based power plants are planned or underway in the United States and elsewhere. These projects and the technologies they plan to employ are summarized in CRS Report R41325, Carbon Capture: A Technology Assessment . Many of these demonstrations are expected to begin operation in 2014 or 2015. Planned projects for other types of industrial facilities also are discussed.\nAlso elaborated in the longer report are the substantial R&D activities underway in the United States and elsewhere to develop and commercialize lower-cost capture systems with smaller energy penalties. To characterize the status of capture technologies and the prospects for their commercial availability, five stages of development are defined: conceptual designs; laboratory or bench scale; pilot plant scale; full-scale demonstration plants; and commercial processes. The CRS report reviews current activities at each of these stages for each of the three major capture routes.\nCurrent R&D activities include development and testing of new or improved solvents that can lower the cost of current post-combustion and pre-combustion capture, as well as research on a variety of potential \"breakthrough technologies\" such as novel solvents, sorbents, membranes, and oxyfuel systems that hold promise for even lower-cost capture systems. Most of the latter processes, however, are still in the early stages of research and development (i.e., conceptual designs and laboratory- or bench-scale processes), so that credible estimates of their performance and (especially) cost are lacking at this time. Table 1 lists the major approaches being pursued for post-combustion capture, although many of these approaches apply to pre-combustion and oxy-combustion capture as well.\nProcesses under development at the more advanced pilot plant scale are, for the most part, new or improved solvent formulations (such as ammonia and advanced amines) that are undergoing testing and evaluation. These advanced solvents could be available for commercial use within several years if subsequent full-scale testing confirms their overall benefit. Pilot-scale oxy-combustion processes also are currently being tested and evaluated for planned scale-up, while two IGCC power plants in Europe are installing pilot plants to evaluate pre-combustion capture options.\nIn general, the focus of most current R&D activities is on cost reduction rather than additional gains in the efficiency of CO 2 capture (which can result in cost increases rather than decreases). A number of R&D programs emphasize the need for lower-cost retrofit technologies suitable for existing power plants. As a practical matter, however, most technologies being pursued to reduce capture costs for new plants also apply to existing plants. As the fleet of existing coal-fired power plants continues to age, the size of the potential U.S. retrofit market for CO 2 capture will continue to shrink, as older plants may not be economic to retrofit (although the situation in other countries, especially China, may be quite different).",
"Whether for new power plants or existing ones, the key questions are the same: When would advanced CO 2 capture systems be available for commercial rollout, and how much cheaper would they be compared to current technology?\nTo address the first question, CRS Report R41325, Carbon Capture: A Technology Assessment , reviews a variety of \"technology roadmaps\" developed by governmental and private-sector organizations in the United States and elsewhere. All of these roadmaps anticipate that CO 2 capture will be available for commercial deployment at power plants by 2020. Current commercial technologies like post-combustion amine systems could be available sooner. A number of roadmaps also project that novel, lower-cost technologies like solid sorbent systems for post-combustion capture will be commercial in the 2020 time frame. Such projections acknowledge, however, that this will require aggressive and sustained efforts to advance promising concepts to commercial reality.\nThat caveat is strongly supported by a review of experience from other recent R&D programs to develop lower-cost technologies for post-combustion SO 2 and NO x capture at coal-fired power plants. Those efforts typically took two decades or more to bring new concepts (like combined SO 2 and NO x capture processes) to commercial availability. By then, however, the cost advantages initially foreseen for these novel systems had largely evaporated in most cases: the advanced technologies tended to get more expensive as their development progressed (consistent with \"textbook\" descriptions of the innovation process), while the cost of formerly \"high-cost\" commercial technologies gradually declined over time. The absence of a significant market for the novel technologies put them at a further disadvantage. This may be similar to the situation for CO 2 capture systems today. Thus, the development of advanced CO 2 capture technologies is not without financial risks.\nWith regard to future cost reductions, based on past experience, the costs of environmental technologies that succeed in the marketplace tend to fall over time. For example, after an initial rise during the early commercialization period, the cost of post-combustion SO 2 and NO x capture systems declined by 50% or more after about two decades of deployment at coal-fired power plants. This trend is consistent with the \"learning curve\" behavior seen for many other classes of technology. It thus appears reasonable to expect a similar trend for future CO 2 capture costs once these technologies become widely deployed. Note, too, that the cost of CO 2 capture also depends on other aspects of power plant design, financing, and operation—not solely on the cost of the CO 2 capture unit. Future improvements in net power plant efficiency, for example, would tend to lower the unit cost of CO 2 capture.\nOther cost estimates for advanced CO 2 capture systems are based on engineering-economic analysis of proposed system designs. For example, recent studies by the U.S. Department of Energy (DOE) foresee the cost of advanced PC and IGCC power plants with CO 2 capture falling by 27% and 31%, respectively, relative to current costs as a result of successful R&D programs. No estimates are provided, however, as to when the various improvements described are expected to be commercially available. In general, the farther away a technology is from commercial reality, the lower its estimated cost tends to be. Thus, there is considerable uncertainty in cost estimates for technologies that are not yet commercial, especially those that exist only as conceptual designs.\nMore reliable estimates of future technology costs typically are linked to projections of their expected level of commercial deployment in a given time frame (i.e., a measure of their market size). For power plant technologies like CO 2 capture systems, this is commonly expressed as total installed capacity. However, as with other technologies whose sole purpose is to reduce environmental emissions, there is no significant market for power plant CO 2 capture systems absent government actions or policies that effectively create such markets—either through regulations that limit CO 2 emissions, or through voluntary incentives such as tax credits or direct financial subsidies. The technical literature and historical evidence examined in CRS Report R41325, Carbon Capture: A Technology Assessment , strongly link future cost reductions for CO 2 capture systems to their level of commercial deployment. In widely used models based on empirical \"experience curves,\" the latter measure serves as a surrogate for the many factors that influence future technology costs, including the level of R&D expenditures and the new knowledge gained through learning-by-doing (related to manufacturing) and learning-by-using (related to technology use).\nBased on such models, published estimates project the future cost of electricity from power plants with CO 2 capture to fall by as much as 30% below current values after roughly 100,000 megawatts (MW) of capture plant capacity is installed and operated worldwide. That estimate is in line with the DOE projects noted above. If achieved, it would represent a significant decrease from current costs—one that would bring the cost and efficiency of future power plants with CO 2 capture close to that of current plants without capture. For reference, it took approximately 20 years following passage of the 1970 Clean Air Act Amendments to achieve a comparable level of technology deployment for SO 2 capture systems at coal-fired power plants.\nUncertainty estimates for these projections, however, indicate that future cost reductions for CO 2 capture also could be much smaller than indicated above. Thus, whether future cost reductions would meet, exceed, or fall short of current estimates will only be known with hindsight.\nIn the context of this report and CRS Report R41325, Carbon Capture: A Technology Assessment , the key insight governing prospects for improved carbon capture technology is that achieving significant cost reductions would require not only a vigorous and sustained level of R&D, but also a substantial level of commercial deployment. That would necessitate a significant market for CO 2 capture technologies. At present such a market does not exist. While various types of incentive programs can accelerate the development and deployment of CO 2 capture technology, actions that significantly limit emissions of CO 2 to the atmosphere ultimately would be needed to realize substantial and sustained reductions in the future cost of CO 2 capture."
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"question": [
"What are the drawbacks of current carbon capture processes?",
"What is the drawback of coal-fired and gas-fired power plants in U.S. CO2 emissions?",
"How are new projects affecting power plants?",
"How do current R&D activities seek to improve carbon capture technology?",
"What factors will affect the future use of coal in the U.S.?",
"Why was congressional interest in CCS renewed?",
"How would these new standards affect existing plants?",
"How would these new standards affect new plants?",
"How would the new standards affect coal and gas-fired plants differently?",
"What is the focus of most R&D activities related to CO2 capture?",
"What are the key questions of these R&D activities?",
"What are the findings of current \"technology roadmaps?\"",
"What do these projections show about the commercial viability of CO2 capture?"
],
"summary": [
"While all three approaches are capable of high capture efficiencies (typically about 90%), the major drawbacks of current processes are their high cost and the large energy requirements for operation.",
"Another drawback is that at present there are still no full-scale applications of CO2 capture on a coal-fired or gas-fired power plant; these plants produce over a third of total U.S. CO2 emissions from fossil fuel combustion.",
"However, a number of large-scale demonstration projects at both coal combustion and gasification-based power plants are planned or underway in the United States and elsewhere. Substantial research and development (R&D) activities are also underway in the United States and elsewhere to develop and commercialize lower-cost capture systems with smaller energy penalties.",
"Current R&D activities include development and testing of new or improved solvents that can lower the cost of current post-combustion and pre-combustion capture, as well as research on a variety of potential \"breakthrough technologies\" such as novel solvents, sorbents, membranes, and oxyfuel systems that hold promise for even lower-cost capture systems.",
"The future use of coal in the United States will likely depend on whether and how CCS is deployed if legislative or regulatory actions curtail future CO2 emissions.",
"Congressional interest in CCS was renewed when the U.S. Environmental Protection Agency (EPA) re-proposed standards for carbon dioxide (CO2) emissions from new fossil-fueled power plants on September 20, 2013.",
"These re-proposed standards would not apply to existing power plants.",
"As re-proposed, the standards would limit emissions of CO2 to no more than 1,100 pounds per megawatt-hour of production from new coal-fired power plants and between 1,000 and 1,100 for new natural gas-fired plants.",
"According to EPA, new natural gas-fired stationary power plants should be able to meet the proposed standards. However, new coal-fired plants only would be able to meet the standards by installing CCS technology, which could add significant capital costs.",
"In general, the focus of most current R&D activities is on cost reduction rather than additional gains in CO2 capture efficiency.",
"Key questions include: when would advanced CO2 capture systems be available for commercial rollout; and how much cheaper they would be compared to current technology.",
"\"Technology roadmaps\" developed by governmental and private-sector organizations anticipate that CO2 capture may be available for commercial deployment at power plants by 2020. Some roadmaps also project that some novel, lower-cost technologies may be commercial by 2020.",
"Such projections acknowledge, however, that this will require aggressive efforts to advance promising concepts to commercial viability."
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CRS_R45736
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{
"title": [
"",
"Introduction",
"Effects on Output and Investment",
"Projections of Output Effects",
"Output Growth in 2018",
"Contribution of Consumption Growth",
"Contribution of Investment Growth",
"Effects on Revenues",
"Effects on Effective Tax Rates",
"Effective Corporate Tax Rate",
"Effective Individual Income Tax Rates",
"Effects on Wages",
"Effects on Repatriation and International Investment Flows",
"Use of Funds for Worker Bonuses and Share Repurchase",
"Effects on Inversions",
"Appendix. The User Cost of Capital",
""
],
"paragraphs": [
"",
"The 2017 tax revision, P.L. 115-97 , often referred to as the Tax Cuts and Jobs Act, and referred to subsequently as the Act, was estimated to reduce taxes by $1.5 trillion over 10 years. The Act permanently reduced the corporate tax rate to 21%, made a number of revisions in business tax deductions (including limits on interest deductions), and provided a major revision in the international tax rules. It also substantially revised individual income taxes, including an increase in the standard deduction and child credit largely offset by eliminating personal exemptions, along with rate cuts, limits on itemized deductions (primarily a dollar cap on the state and local tax deduction), and a 20% deduction for pass-through businesses (businesses taxed under the individual rather than the corporate tax, such as partnerships). These individual provisions are temporary and are scheduled to expire after 2025. The Act also adopted temporary provisions allowing the immediate deduction for equipment investment and an increase in the exemption for estate and gift taxes.\nThe Congressional Budget Office (CBO) estimated in April of 2018 that the Act would result in a $65 billion reduction in individual income taxes, a $94 billion reduction in corporate taxes, and a $3 billion reduction in other taxes, for a total of $163 billion (after rounding) for FY2018.\nNumerous effects of the Act were projected during consideration of the law and shortly after, including\nan increase in output and investment; an increase in the debt to GDP ratio; possible benefits for workers from tax cuts for businesses; the repatriation of income held abroad by U.S. subsidiaries in the form of dividends; and a decreased likelihood of inversions (U.S. companies moving their headquarters abroad).\nSome claimed that business investment would increase because of (1) the flow of investment from abroad due to the lower corporate tax rate and (2) no longer imposing a tax penalty on paying dividends from foreign subsidiaries would free up resources.\nThis analysis examines the preliminary effects of the Act during the first year, 2018. In some cases it is difficult to determine the effects of the tax cuts (e.g., on economic growth) given the other factors that affect outcomes. In other cases, such as the level of repatriation and use of repatriated funds, the evidence is more compelling. This report discusses these potential consequences in light of the data available after the first year.",
"",
"During consideration of the Act and subsequently, various claims were made about the growth effects of the tax change. A variety of organizations, including private and government forecasters, projected economic growth rates that tended to be modest. In its April 2018 report on the budget outlook, CBO projected the tax change to increase GDP by 0.3% in calendar year 2018. Prorating the FY2019 revenue loss estimate indicated that the tax cut in calendar year 2018 accounted for about 1.2% of GDP. Assuming a tax rate on marginal output of around 20%, this projection would imply a feedback effect of 5%.\nThe Joint Committee on Taxation (JCT) also projected the economic effects of the proposal, and while it did not report year-by-year estimates, its revenue feedback effect for calendar year 2018 was larger than that suggested by the CBO numbers—around 20%, which in turn indicates a projected increase in GDP four times larger, 1.2%. Given the baseline prior to the Act, that effect would have suggested a growth rate of 4.2% in 2018.\nThe CBO output estimate (i.e., the amount of GDP growth attributed to the tax change) was compared with projections by other forecasters and organizations. Of the seven other forecasts projecting the effects of the Act for 2018, five ranged from 0.3% to 0.5%, one was for 0.1%, and another for 0.8%.\nCBO also disaggregated its output effect into an increase in potential GDP of 0.2%, with the remaining 0.1% reducing the gap between output with and without full employment. The increase in potential output reflects increases in investment and in the labor supply. The 0.1% increase might be characterized as a demand-side effect and the remainder as a supply-side effect. Because the economy was at full employment and most of the tax cut went to businesses and higher-income individuals who are less likely to spend the increases, a small demand-side effect would be expected. Demand-side effects are transitory, whereas supply-side effects are permanent.\nCBO and other organizations also produced longer-term forecasts. CBO projected output effects rising to 0.6% in 2019, then rising slightly and peaking in 2022, and finally declining, with an estimated 0.5% effect in 2028, the last year reported. The decline in later years might be partially traced to the expiration of some provisions. Compared with other forecasts for the average over the 10-year period 2018-2027, CBO's 0.7% effect was similar to other forecasts. For the 10 th year, 2027, CBO projected an effect of 0.6%; there was considerably more divergence in the estimates for this year, with one organization projecting a negative effect by that time. This divergence presumably reflected competing views of the effects on capital formation due to lower tax rates on returns to investment and crowding out of private investment due to accumulating debt.\nDuring the debate, some argued for much larger growth effects, including arguments that the tax cuts would produce so much growth that they would largely or entirely pay for themselves, or even raise revenues. These statements, however, were not supported by most of the published analysis.",
"In April 2018, CBO projected real GDP growth for the calendar year 2018 of 3.3% (indicating a projected 3% growth rate without the tax cut). According to the National Income and Product Accounts (NIPA), actual growth rate was 2.9%, which is consistent with a small effect of the tax revision, perhaps even smaller than projected by most analysts. Quarterly growth rates are shown in Figure 1 . The revenue loss from the tax cut without incorporated growth effects was estimated at about 1.2% of GBP in 2018.\nThe 2.9% annual growth rate for 2018 was higher than the 2.2% growth rate in 2017 and the 1.6% growth rate in 2016. In previous years, output grew by 2.9% in 2015 and 2.5% in 2014, thus the increase in growth is in line with the trend in growth over the period examined in Figure 1 . Forecasters had already projected an increase in growth rates in most cases that was similar to CBO's. In addition to the effect from the tax cuts, there was also some stimulus due to the increase in spending enacted in the Consolidated Appropriations Act of 2018 ( P.L. 115-141 ) and the Bipartisan Budget Act of 2018 ( P.L. 115-123 ). Growth may have also been negatively affected by tariffs.\nThe high rate of growth in the second quarter of 2018 shown in Figure 1 may have been due to the demand-side stimulus of the tax cuts, which began to be reflected in withholding beginning in the first quarter, as well as the possibly delayed receipt of tax refunds.\nOn the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although examining the growth rates cannot indicate the effects of the tax cut on GDP, it does tend to rule out very large effects in the near term.\nThe data appear to indicate that not enough growth occurred in the first year to cause the tax cut to pay for itself. Assuming a tax rate of 18% (based on CBO estimates), and estimating the tax cut to reduce revenue in calendar year 2018 by about 1.2% of GDP, a 6.7% GDP increase due to the tax cuts alone would be required. Rather, the combination of projections and observed effects for 2018 suggests a feedback effect of 0.3% of GDP or less—5% or less of the growth needed to fully offset the revenue loss from the Act.",
"Consumption grew at 2.6% in 2018 in real terms, as shown in Figure 2 , about the same as 2017 (which was 2.5%) and below 2014-2016 (although higher than 2013). As shown in Figure 2 , there was a drop in the first quarter followed by a rise in the second quarter that was unexpected by most forecasters and may have reflected a delay in tax refunds. The initial effect of a demand side is likely to be reflected in increased consumption and the data indicate little growth in consumption in 2018. Much of the tax cut was directed at businesses and higher-income individuals who are less likely to spend. Fiscal stimulus is limited in an economy that is at or near full employment.",
"Although it is difficult to determine the Act's overall first-year impact on GDP, other than to confirm that the evidence is consistent with a small projected first-year effect, it is possible to discuss supply-side effects on investment in more detail.\nCBO estimated that the 0.3% increase in growth from the Act is the result of a 0.4% increase in GDP due to private consumption and a 0.2% increase due to nonresidential fixed investment (with a negligible effect on residential investment and government consumption and investment). This 0.6% increase was projected to be offset by a decrease in net exports of 0.3% of GDP (from both a decline in imports and an increase in exports). This decrease is expected as a consequence of net capital flowing in from abroad to finance the deficit or due to capital inflows used for investment in response to tax changes.\nGiven the shares of GDP that went to consumption (70%) and investment in nonresidential fixed investment (14%) in 2017, these growth contributions indicated an additional growth in consumption of 0.7% and in fixed nonresidential investment of 1.5%.\nIn 2018, consumption grew at 2.6% and nonresidential investment grew at 7%. Such numbers might suggest a supply-side effect. There are reasons, however, not to necessarily view that growth as a supply-side effect of the tax change.\nFirst, the growth rates of investment and its subcomponents are much more volatile than the growth rates of GDP, as shown in Figure 3 , making it hard to assign causation.\nSecond, the largest effects occurred in the first and second quarters of 2018, which allowed very little time to be the result of investments that must be planned in advance (even if the tax cut was anticipated in late 2017). Furthermore, structures growth rates were negative in the last two quarters.\nThird, real growth in the subcategories of equipment, structures, and intellectual property products is inconsistent with the incentive effects of the tax change. Over the entire year, intellectual property products grew at the fastest rate (7.7%), equipment at a slightly lower rate (7.5%), and structures at 5.0%. To assess the incentive effects of the tax changes (which included a lower tax rate and faster depreciation for equipment), consider the change in the user cost of capital (or rental price of capital). It is the equivalent of the \"price\" of capital as an input (just as the wage is the price of labor input). It includes two costs of using capital: the opportunity cost of using funds (i.e., the required pretax rate of return on the asset) and depreciation (i.e., the cost of using up the asset). The user cost reflects the required rate of return at the margin (i.e., for an investment that earns just enough to be worth making). Estimates indicate that the user cost of capital for equipment declined by 2.7% and the user cost of structures declined by 11.7%, but the user cost of R&D (intellectual property products) increased by 3.4%. (See the Appendix for details on the derivation of these results.) The user cost of capital for equipment declined by less than that of structures primarily because more of the cost for equipment is for depreciation. The decline in the required rate of return was somewhat smaller for equipment as well because it was already favorably treated (eligible for expensing half of the cost). The benefits of lower rates are also moderated by the use of debt-financed capital, where a lower tax rate reduces the subsidy (or negative tax rate) that applies to debt-financed investment because of the deduction of nominal interest by businesses.\nThus, while it is possible that the Act increased the investment due to supply-side effects, it would be premature to conclude that the higher rate of growth of nonresidential fixed investment was due to the tax changes. Looking at changes in the user cost of capital, effects of investments in structures would be expected to be largest, with small (or negative) effects on intellectual property. To date this pattern has not been observed.",
"Overall revenue changes were close to projections, with revenues only $9 billion smaller than projected, due to a $45 billion increase in individual income tax revenues, but a $7 billion decrease in payroll taxes, along with a $40 billion decline in corporate revenues.\nAs noted above, data on GDP are not consistent with a large growth effect in 2018, and thus the tax cut is unlikely to provide enough growth to significantly offset revenue losses in 2018. Data from FY2018 suggest that the tax cut for corporations may have been larger than the $94 billion CBO projected in its April 2018 baseline. That baseline projected corporate revenues of $243 billion, but actual corporate revenues were $38 billion lower at $205 billion, 16% lower than projected. CBO's January 2019 report on the budget and economic outlook indicated that these lower corporate tax revenues could not be explained by economic conditions and stated that the causes will not be apparent until information from tax returns becomes available over the next two years. CBO also expected this decline in revenues to dissipate over time. With little evidence of whether the decline will actually be temporary or permanent, CBO may have relied on the historical tendency of unexplained changes to dissipate over time. It is also possible that estimated revenue losses from the corporate tax changes were too low in their earlier estimates.\nThe overall revenues were close to those projected as the lower corporate revenues were offset by gains from other taxes: a $45 billion increase in individual income tax revenues and a $7 billion decrease in payroll taxes. These differences, particularly for payroll taxes, are much smaller as a percentage of revenue, and CBO does not indicate any need for an explanation of these changes outside of economic forces.",
"Effective tax rates fell, with corporate effective tax rates declining significantly and individual effective income tax rates by a small amount.",
"Much of the tax revision was focused on corporations. Although the statutory corporate tax rate was reduced from 35% to 21%, the average effective tax rate decline (taxes divided by profits) would be smaller because of existing tax benefits (which lead to a smaller initial effective tax rate) and base-broadening effects. Such an effective tax rate can be calculated using aggregate data from the national income and products accounts, which attempt to measure economic income. The effective average tax rate for corporations was 17.2% in calendar year 2017, and fell to 8.8% in calendar year 2018. This estimate includes worldwide income, but not worldwide taxes. Although actual data on the division of domestic and worldwide income are not available for 2018, using the ratios projected by CBO to eliminate foreign-source income from the measure results in an average effective tax rate of 23.4% in 2017, falling to 12.1% in 2018. Either scenario suggests that the ratio of effective to statutory tax rate dropped following the tax revision. The statutory tax rate dropped by 40%, but the effective rate dropped by 48% (although the percentage point drop was smaller for the effective tax rate).\nAnother measure of effective rate is the marginal effective tax rate on income, a tax rate that is a component of the user cost of capital. These tax rates are prospective and capture the main elements of the tax code: tax rates, depreciation, and research credits. They also apply to domestic investment. Using a weighted average of equipment, structures, and intangibles, the effective marginal tax rate on equity investment was estimated to fall from 15.6% to 3.2% from 2017 to 2018. If the effects of reducing subsidies for debt-financed investment are accounted for, marginal tax rates are lower (actually slightly negative) and change less, from a -0.3% rate in 2017 to a -6.6% rate in 2018. Marginal tax rates are likely to be below average tax rates because they capture timing benefits (e.g., accelerated depreciation). Marginal effective tax rates are relevant to economic growth effects because they measure the incentive effects for investment.",
"The individual income tax changes for 2018 were smaller than the corporate tax changes in absolute size and substantially smaller as a percentage of income. The effective individual tax rate for federal income taxes as a percentage of personal income is estimated at 9.6% in 2017 and 9.2% in 2018, based on data in the National Income and Product Accounts. This change constitutes a reduction in effective tax rate of 4%. The Treasury Department's Office of Tax Analysis estimates a larger reduction in effective tax rate as a percentage of adjusted family cash income, with the rate falling from 10.1% in 2017 to 8.9% in 2019, although this estimate is based on projected rather than actual data. Both of these declines are smaller than the corporate tax rate decline. As noted earlier, the increase in the standard deduction and child and dependent credit was roughly offset by the elimination of the personal exemption. Statutory rate reductions for individuals were relatively small compared with the corporate rate reduction (the top rate of 39.6% was reduced by 2.6 percentage points, compared with 14 percentage points for the corporate rate), and the benefits of rate reductions were offset by restrictions on itemized deductions. Business income was in some cases eligible for a 20% reduction, which was more significant (an additional 20% deduction at the 37% rate is 7.4 percentage points), but not all business income qualified.\nThere are also effective marginal tax rates, although these are generally divided into rates on labor income and capital income. The marginal tax rate for labor income is typically above the average tax rates because of graduated tax rates and lack of timing benefits. CBO estimates that marginal tax rates on labor income fell from 29.4% to 27.2%. CBO also estimates the marginal tax rate for all capital income (which would include unincorporated businesses, owner-occupied housing, and taxes on interest, dividends, and capital gains, as well as corporate taxes). This value is estimated to fall from 16.5% to 14.7%. Although different from the marginal rates reported above for corporations, both estimated measures find small changes in marginal tax rates, which is consistent with an expected small behavioral response.",
"Distributional analyses of the tax change suggested that the tax revision favored higher-income taxpayers, in part because most of the tax cut benefited corporations and in part because the individual income tax cut largely went to higher-income individuals. During the debate about taxes, however, arguments were made that these corporate tax cuts would benefit workers due to growth in investment and the capital stock.\nAfter enactment, CBO projected these effects to be relatively small, with increases in labor productivity (which should affect the wage rate) negligible in 2018 and growing to 0.3% of GDP after 10 years. CBO projected that the total wage bill would grow because of the increase in employment and hours per worker of 0.2% in 2018. The labor supply response would rise through 2024, peaking at 0.8% and then decline as the individual tax cuts expired.\nA Council of Economic Advisors (CEA) October 2017 study suggested a corporate rate reduction from 35% to 20%, if enacted, would eventually increase the average household's income by a conservative $4,000 a year. This was a longer-run estimate, but the study also estimated that workers would immediately get a significant share (30%) of the profits repatriated from abroad due to tax changes. Another CEA October 2017 report suggested wages could increase by up to $9,000 with such a corporate rate change using more optimistic assumptions. While the CEA study with respect to the $4,000 to $9,000 amounts referred to a long-term effect, the study was portrayed by the Administration as indicating an immediate effect. The amounts associated with repatriation were short term. A $4,000 to $9,000 effect per household, given the 126 million households that were estimated at that time, would produce a total effect ranging from $504 billion to $1,134 billion, or between 2.5% and 5.7% of GDP in 2018. The corporate rate cut from 35% to 21% cost about $125 billion over a full year, and it would cost about $133 billion with the additional percentage point rate reduction (to 20%) considered at that time. Thus, in these scenarios, the effects of the tax cuts would be many times (3.8 to 8.5) larger than the costs. The projections for long-run growth in the CEA study relied on a range of empirical economics literature, including the effects of changes in user cost on investment cost and corporate tax incidence. The econometric estimates of corporate tax incidence are problematic for a number of reasons, and the effects on investment considering user cost did not appear to take into account the direct effect of the tax rate change on the interest.\nIn the absence of the tax cuts, wages should grow with the economy and wage rates should grow as the capital stock grows. In addition, tight labor markets resulting from the approach to full employment should have put upward pressure on wage rates in any case. Evidence from 2018 indicated that labor compensation, adjusted to real values by the price indices for personal consumption expenditures, grew slower than output in general, at a 2.3% rate compared with a 2.9% growth rate overall. If adjusted by the GDP deflator, labor compensation grew by 2.0%. With labor representing 53% of GDP, that implies that the other components grew at 3.8%. Thus, pretax profits and economic depreciation (the price of capital) grew faster than wages.\nFigure 4 shows the growth rate of real wages compared with the growth rate of real GDP for 2013-2018, indicating that wage growth has sometimes been faster than GDP growth and sometimes slower. There is no indication of a surge in wages in 2018 either compared to history or relative to GDP growth. This finding is consistent with the CBO projection of a modest effect.\nThe Department of Labor reports that average weekly wages of production and nonsupervisory workers were $742 in 2017 and $766 in 2018. Wages, assuming full-time work, increased by $1,248 annually. But this number must account for inflation and growth that would otherwise have occurred regardless of the tax change. The nominal growth rate in wages was 3.2%, but adjusting for the GDP price deflator, real wages increased by 1.2%. This growth is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates.",
"One of the major sources of anticipated increased investment through supply-side effects is international capital flows, particularly in the short and medium term. Savings rates tend to be relatively unresponsive to changes in the rate of return and savings accumulate slowly. Thus the increased investment in the United States (in the aggregate) would need to come from abroad. Some expected foreign investment to flow due to the reduction in the user cost of capital.\nSome also argued that eliminating the tax barrier to repatriating funds (as was done with the tax revision) would lead to reinvestment in the United States of unrepatriated earnings held abroad in U.S. subsidiaries. Under prior law, these earnings would have been taxed at 35%, adjusted for credits on foreign taxes paid, if paid as dividends to the parent company. The tax change exempted dividends from tax, imposed a transition tax on deemed repatriations of existing untaxed earnings at a rate lower than the new corporate rate of 21% (15.5% on liquid assets and 8% on illiquid assets), and imposed a global minimum tax on intangible income. These changes meant paying dividends resulted in no tax consequences. Although estimates varied, they indicated close to $3 trillion of unrepatriated earnings. There were a number of criticisms of the possibility that repatriation of these earnings would stimulate investment, considering the evidence that a repatriation holiday in 2004 had not affected investment.\nNot all of these amounts were held in cash, as some were earnings reinvested in physical assets (such as plant and equipment) and some might be invested in other assets that were not cash equivalents. A Federal Reserve study estimated that $1 trillion was held in cash.\nA significant amount of repatriations occurred in 2018, as compared both to history and 2017. Dividends in the previous three years ranged from $144 billion to $158 billion, as shown in Figure 5 , whereas $664 billion was repatriated in 2018. Simultaneously, reinvested earnings declined sharply before returning to more normal levels in the 4 th quarter of 2018.\nIt is important, however, to measure international capital flows in true terms that reflect the inflow of resources for capital investment and not by financial transactions, such as repatriation of income earned abroad through dividend payments from foreign subsidiaries. Capital investment involves resources that reflect actual investment in the United States. It could involve imports of investment goods directly, or it could involve imports of consumption goods that free up other resources for investment. In either case, the true capital invested in the United States is largely measured by the excess of exports over imports, or more precisely by the current account, which can also include a small amount of net income payments. In more fundamental terms, investment from abroad occurs in a real sense only when the amount of imported goods exceeds the amount of U.S. exports.\nTo measure this aggregate change in net capital inflows, examine the balance on the current account, which is generally negative, indicating a net capital inflow (imports exceed exports, or a trade deficit). Adjusting these amounts by the GDP deflator and looking at the change, there was a small increase that amounted to 0.8% of private investment. This change is relatively small and is not out of line with historical fluctuations; see Figure 6 .\nAgain, many factors can affect net capital inflows, including domestic borrowing by the government and domestic saving, but the evidence does not suggest a surge in investment from abroad in 2018.",
"Increased funds, whether accessed from abroad or through tax cuts, could be used in several ways: investment, paying down debt, increasing wages, paying wage bonuses, paying dividends, or repurchasing shares.\nDuring the passage of the tax revision and in the immediate aftermath, some argued that firms would use these funds to pay worker bonuses (as discussed in the previous section on wages). Subsequently, a number of firms announced bonuses, which in some cases they attributed to the tax cut. One organization that tracks these bonuses has reported a total of $4.4 billion. With US employment of 157 million, this amount is $28 per worker. This amount is 2% to 3% of the corporate tax cut, and a smaller share of repatriated funds. It is consistent with what most economists would expect that a small percentage of increased corporate profits or repatriated funds (if any) would be used to compensate workers, as economic theory indicates that firms would pay workers their marginal product, a result of fundamental supply and demand forces. The bonus announcements could have reflected a desire to pay bonuses when they would be deducted at 35% rather than 21% (in late 2017 for firms with calendar tax years but in 2018 for firms with different tax years). Worker bonuses could also be a result of a tight labor market and attributed to the tax cut as a public relations move.\nMuch of these funds, the data indicate, has been used for a record-breaking amount of stock buybacks, with $1 trillion announced by the end of 2018. A similar share of repurchases happened in 2004, when a tax holiday allowed firms to voluntarily bring back earnings at a lower rate.",
"During the discussion of corporate tax revision over a number of years, one important issue repeatedly raised was the effect of the current tax system on incentives for firms to relocate abroad, or \"invert.\" Inversions involved firms relocating their headquarters to low-tax jurisdictions that generally had territorial taxes, allowing firms to shift profits out of their U.S. operations (so-called earnings stripping) as well as providing potential paths to repatriate earnings without taxes. The earliest of these inversions, beginning in the early 1980s, were called \"naked inversions,\" where a company simply relocated its headquarters without otherwise changing its activities. A number of legislative and regulatory actions largely ended these types of inversions. In 2004, the American Jobs Creation Act ( P.L. 108-357 ) required that any firm in which the former U.S. owners owned 80% or more of the new firm would continue to be treated as a U.S. firm. Firms with 60% to 80% ownership by former shareholders of the U.S. firm were considered inverted firms and subject to certain penalty taxes. This legislation allowed naked inversions in cases where the firm had substantial business activity in the new headquarters country, but regulations issued in 2012 tightened these requirements after a series of inversions used this rule to relocate.\nIn 2014, a new wave of inversions that involved mergers with smaller foreign firms began, with one of the most prominent being an announcement that Pfizer, the pharmaceutical company, would acquire Astra-Zeneca with a UK headquarters (although this merger never took place).\nThese inversions gave rise to a number of legislative proposals, but also led to numerous regulatory proposals, which were released in 2014, 2015, and 2016. These regulations addressed a number of issues, including restricting the use of serial inversions to allow a firm to fall under the ownership limits, limiting the ability to access earnings of subsidiaries abroad, and limiting earnings stripping through locating debt in the United States.\nThe 2017 Act contained several provisions that made inversions less attractive (aside from the lower corporate tax rate). One notable provision required firms that inverted in the next 10 years to pay a deemed repatriation tax at 35%, rather than at the lower rates of 8% for non-cash holdings and 15.5% for cash or cash equivalents.\nThe Act introduced a new minimum tax to address international profit shifting, the base erosion and anti-abuse tax (BEAT), which adds back payments between related domestic and foreign companies to base income and then taxes that base at a lower rate. BEAT excludes payments which reduce gross receipts with the result that payment for the cost of goods sold is not included under BEAT. An exception applies for firms that invert after November 9, 2017, where payments to a foreign parent or any foreign firm in the affiliated group for cost of goods sold is included in BEAT. The legislation also contained some other provisions making inversions less attractive.\nThe Act also modified asset attribution rules. The constructive ownership rules for purposes of determining 10% U.S. shareholders, whether a corporation is a Controlled Foreign Corporation (CFC), and whether parties satisfy certain relatedness tests, which can trigger certain tax provisions including restrictive ones, were expanded in the 2017 tax revision. Specifically, the new law treats stock owned by a foreign person as attributable to a U.S. entity owned by the foreign person (so-called \"downward attribution\"). As a result, stock owned by a foreign person may generally be attributed to (1) a U.S. corporation, 10% of the value of the stock of which is owned, directly or indirectly, by the foreign person; (2) a U.S. partnership in which the foreign person is a partner; and (3) certain U.S. trusts if the foreign person is a beneficiary or, in certain circumstances, a grantor or a substantial owner.\nThe downward attribution rule was originally conceived to deal with inversions. In an inversion, without downward attribution, a subsidiary of the original U.S. parent could lose CFC status if it sold enough stock to the new foreign parent so the U.S. parent no longer had majority ownership. With downward attribution, the ownership of stock by the new foreign parent in the CFC is attributed to the U.S. parent, so that the subsidiary continues its CFC status, making it subject to any tax rules that apply to CFCs (such as Subpart F and repatriation taxes under the old law, and Subpart F and Global Low-Taxed Income (GILTI) under the new law).\nThe Act also contained other provisions affecting stockholders and stock compensation. These provisions were intended to discourage inversions. Dividends (like capital gains) are taxed at lower rates than ordinary income. The rates are 0%, 15%, and 20% depending on the rate bracket that ordinary income falls into. Certain dividends received from foreign firms (those that do not have tax treaties and Passive Foreign Investment Companies (PFICs)) are not eligible for these lower rates. Dividends paid by firms that inverted after the date of enactment of P.L. 115-97 are added to the list of those not eligible for the lower rates. Also, in 2004, an excise tax of 15% was imposed on stock compensation received by insiders in an expatriated corporation; the 2017 Act increased it to 20%, effective on the date of enactment for corporations that first become expatriated after that date.\nThese new laws did not change the definition of inverted firms but rather the consequences of inversions.\nAlthough the legislative changes in the 2017 Act contributed to making inversions less attractive, announced inversions had already slowed substantially following the regulatory changes implemented in 2014, 2015, and 2016. In addition, data released by the Bureau of Economic Analysis indicated that foreign acquisitions of US companies, which rose substantially in 2015, fell by 15% in 2016 and 32% in 2017 (data not available for 2018). Some of the largest declines were in inversion-associated countries, such as Ireland, where acquisitions fell from $176 billion in 2015, to $35 billion in 2016, and to $7 billion in 2017.",
"The user cost of capital is the sum of the pretax required return for a marginal investment and the economic depreciation, or\n(1) C = R/(1-t)+d\nWhere C is the user cost, R is the required after-tax return, t is the effective marginal rate, and d is the economic depreciation rate. Economic depreciation is the decline in the value of the asset in real terms, and belongs in the cost term because it compensates the investor for the wearing away, or using up, of the asset. The user cost calculations use a weighted pretax rate of return that reflects both debt and equity finance to simplify the analysis. The effective marginal tax rate, in turn, depends on the statutory tax rate, the present value of economic depreciation, the inflation rate, the return on equity, the share debt-financed, and the nominal interest rate.\nTable A-1 reports the effective tax rate for corporate and non-corporate investment before and after the 2017 changes for the basic types of nonresidential fixed capital.\nThe overall user cost also depends on the economic depreciation rates and the relative sizes of each type of capital stock in the corporate and non-corporate sector. For equipment, the economic depreciation rate is 12.95% per year, and corporate equipment comprises 67% of all equipment. Structures are composed of two types: (1) public utility structures (accounting for 23% of the total) with a depreciation rate of 2.24% and (2) buildings with a depreciation rate of 2.8%. Within public utility structures, corporations account for 84%; within buildings, corporate structures account for 55%. Intangible assets have a depreciation rate of 17%, and corporations account for 86%. User costs and their percentage changes are shown in Table A-2 .",
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"question": [
"How did the GDP change in 2018?",
"How do GDP growth rates reflect the effect of tax cuts?",
"How were the growth patterns inconsistent with expectations?",
"How might this outcome affect further growth?",
"How did CBO's first baseline update estimate changes to taxes?",
"How were revenues affected?",
"How did taxes change during the previous year?"
],
"summary": [
"In 2018, gross domestic product (GDP) grew at 2.9%, about the Congressional Budget Office's (CBO's) projected rate published in 2017 before the tax cut.",
"On the whole, the growth effects tend to show a relatively small (if any) first-year effect on the economy. Although growth rates cannot indicate the tax cut's effects on GDP, they tend to rule out very large effects particularly in the short run.",
"Although investment grew significantly, the growth patterns for different types of assets do not appear to be consistent with the direction and size of the supply-side incentive effects one would expect from the tax changes.",
"This potential outcome may raise questions about how much longer-run growth will result from the tax revision.",
"CBO, in its first baseline update post enactment, initially estimated that the Act would reduce individual income taxes by $65 billion, corporate income taxes by $94 billion, and other taxes by $3 billion, for a total reduction of $163 billion in FY2018.",
"Corporate revenues were about $40 billion less than projected whereas individual revenues were higher, with an overall revenue reduction of about $9 billion.",
"From 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%."
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CRS_RS21232
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"title": [
"",
"Introduction",
"Current Grazing Fee Formula and Distribution of Receipts",
"The Fee Formula",
"Distribution of Receipts",
"History of Fee Evaluation and Reform Attempts",
"Current Issues",
"Fee Level",
"State and Private Grazing Fees",
"Grazing Without Paying Fees",
"Voluntary Permit Retirement",
"Extension of Expiring Permits"
],
"paragraphs": [
"",
"Charging fees for grazing private livestock on federal lands is statutorily authorized and has been the policy of the Forest Service (FS, Department of Agriculture) since 1906, and of the Bureau of Land Management (BLM, Department of the Interior) since 1936. Today, fees are charged for grazing on BLM and FS land basically under a fee formula established in the Public Rangelands Improvement Act of 1978 (PRIA) and continued administratively.\nBLM manages a total of 245.7 million acres, primarily in the West. Of total BLM land, 154.1 million acres were available for livestock grazing in FY2017. The acreage used for grazing during 2017 was 138.7 million acres. FS manages a total of 192.9 million acres. Although this land is predominantly in the West, FS manages more than half of all federal lands in the East. Of total FS land, more than 93 million acres were available for grazing in FY2017, with 74 million used for livestock grazing. For both agencies, the acreage available for livestock grazing reflects lands within grazing allotments. However, the acreage in those allotments that is capable of forage production is substantially less, according to the FS, because some lands lack forage (e.g., are forested or contain rockfalls). In addition, for both agencies, acreage used for grazing is less than the acreage available due to voluntary nonuse for economic reasons, resource protection needs, and forage depletion caused by drought or fire, among other reasons. Because BLM and FS are multiple-use agencies, lands available for livestock grazing generally are also available for other purposes.\nOn BLM rangelands, in FY2017, there were 16,357 operators authorized to graze livestock, and they held 17,886 grazing permits and leases. Under these permits and leases, a maximum of 12,333,568 animal unit months (AUMs) of grazing potentially could have been authorized for use. Instead, 8,820,617 AUMs were authorized for use. BLM defines an AUM, for fee purposes, as a month's use and occupancy of the range by one animal unit, which includes one yearling, one cow and her calf, one horse, or five sheep or goats.\nOn FS rangelands, in FY2017, there were 5,725 permit holders permitted (i.e., allowed) to graze commercial livestock, with a total of 6,146 active permits. A maximum of 8,238,429 head-months (HD-MOs) of grazing were under permit and thus potentially could have been authorized for use. Instead, 6,803,425 HD-MOs were authorized for use. FS uses HD-MO as its unit of measurement for use and occupancy of FS lands. This measurement is nearly identical to AUM as used by BLM for fee purposes. Hereinafter, AUM is used to cover both HD-MO and AUM.\nBLM and FS are charging a 2019 grazing fee of $1.35 per AUM. This annual fee is in effect from March 1, 2019, through February 29, 2020. This is the minimum fee allowed. (See \" The Fee Formula \" section, below.) BLM and FS typically spend more managing their grazing programs than they collect in grazing fees. For example, $79.0 million was appropriated to BLM for rangeland management in FY2017. Of that amount, $32.4 million was used for administration of livestock grazing, according to the agency. The remainder was used for other range activities, i ncluding weed management, habitat improvement, and water development. For the same fiscal year, BLM collected $18.3 million in grazing fees. The FY2017 appropriation for FS for grazing management was $56.9 million. The funds are used primarily for grazing permit administration and planning. FS collected $7.6 million in grazing fees during FY2017.\nGrazing fees have been contentious since their introduction. Generally, livestock producers who use federal lands want to keep fees low. They assert that federal fees are not comparable to fees for leasing private rangelands because public lands often are less productive; must be shared with other public users; and often lack water, fencing, or other amenities, thereby increasing operating costs. They fear that fee increases may force many small and medium-sized ranchers out of business. Conservation groups generally assert that low fees contribute to overgrazing and deteriorated range conditions. Critics assert that low fees subsidize ranchers and contribute to budget shortfalls because federal fees are lower than private grazing land lease rates and do not cover the costs of range management. They further contend that, because some of the collected fees are used for range improvements, higher fees could enhance the productive potential and environmental quality of federal rangelands.",
"",
"The fee charged by BLM and FS is based on the grazing on federal rangelands of a specified number of animals for one month. PRIA establishes a policy of charging a grazing fee that is \"equitable\" and prevents economic disruption and harm to the western livestock industry. The law requires the Secretaries of Agriculture and the Interior to set a fee annually that is the estimated economic value of grazing to the livestock owner. The fee is to represent the fair market value of grazing, beginning with a 1966 base value of $1.23 per AUM. This value is adjusted for three factors based on costs in western states of (1) the rental charge for pasturing cattle on private rangelands, (2) the sales price of beef cattle, and (3) the cost of livestock production. Congress also established that the annual fee adjustment could not exceed 25% of the previous year's fee.\nPRIA required a seven-year trial (1979-1985) of the formula while BLM and FS undertook a study to help Congress determine a permanent fee or fee formula. President Reagan issued Executive Order 12548 (February 14, 1986) to continue indefinitely the PRIA fee formula, and established the minimum fee of $1.35 per AUM.\nThe 2019 grazing fee of $1.35 per AUM represents a 4% decrease from the 2018 fee. Since 1981, BLM and FS have been charging the same fee, as shown in Table 1 . The fee has ranged from $1.35 per AUM (for about half of the years during the 39-year period) to $2.31 per AUM (for 1981). The fee averaged $1.55 per AUM over the period.",
"Fifty percent of grazing fees collected by each agency, or $10.0 million—whichever is greater—go to a range betterment fund in the Treasury. BLM and FS grazing receipts are deposited separately. Monies in the fund are subject to appropriations. BLM typically has requested and received an annual appropriation of $10.0 million for the fund. FS generally requests and receives an appropriation that is less than the $10.0 million minimum authorized in law. For instance, for FY2017, the agency received an appropriation of $4.2 million, roughly half the fees collected.\nThe agencies use the range betterment fund for range rehabilitation, protection, and improvement, including grass seeding and reseeding, fence construction, weed control, water development, and fish and wildlife habitat. Under law, one-half of the fund is to be used as directed by the Secretary of the Interior or of Agriculture, and the other half is authorized to be spent in the district, region, or forest that generated the fees, as the Secretary determines after consultation with user representatives. Agency regulations contain additional detail. For example, BLM regulations provide that half of the fund is to be allocated by the Secretary on a priority basis, and the rest is to be spent in the state and district where derived. Forest Service regulations provide that half of the monies are to be used in the national forest where derived, and the rest in the FS region where the forest is located. In general, FS returns all range betterment funds to the forest that generated them.\nThe agencies allocate the remaining 50% of the collections differently. For FS, 25% of the funds are deposited in the Treasury and 25% are subject to revenue-sharing requirements. The revenue-sharing payments are made to states, but the states do not retain any of the funds. The states pass the funds to specified local governmental entities for use at the county level (16 U.S.C. §500; see Figure 1 ). For BLM, states receive 12.5% of monies collected from lands defined in Section 3 of the Taylor Grazing Act and 37.5% is deposited in the Treasury. Section 3 lands are those within grazing districts for which BLM issues grazing permits. (See Figure 2 .) By contrast, states receive 50% of fees collected from BLM lands defined in Section 15 of the Taylor Grazing Act. Section 15 lands are those outside grazing districts for which BLM leases grazing allotments. (See Figure 3 .) For both agencies, any state share is to be used to benefit the counties that generated the receipts.",
"PRIA directed the Interior and Agriculture Secretaries to report to Congress, by December 31, 1985, on the results of their evaluation of the fee formula and other grazing fee options and their recommendations for implementing a permanent grazing fee. The Secretaries' report included (1) a discussion of livestock production in the western United States; (2) an estimate of each agency's cost for implementing its grazing programs; (3) estimates of the market value for public rangeland grazing; (4) potential modifications to the PRIA formula; (5) alternative fee systems; and (6) economic effects of the fee system options on permittees. A 1992 revision of the report updated the appraised fair market value of grazing on federal rangelands, determined the costs of range management programs, and recalculated the PRIA base value through the application of economic indexes. The study results, criticized by some as using faulty evaluation methods, were not adopted.\nIn the 1990s, grazing fee reform was considered by Congress but no change was enacted. In particular, in the 104 th Congress (1995-1996), the Senate passed a bill to establish a new grazing fee formula and alter rangeland regulations. The formula was to be derived from the three-year average of the total gross value of production for beef and no longer indexed to operating costs and private land lease rates, as under PRIA. By one estimate, the measure would have resulted in an increase of about $0.50 per AUM. In the 105 th Congress (1997-1998), the House passed a bill with a fee formula based on a 12-year average of beef cattle production costs and revenues. The formula would have resulted in a 1997 fee of about $1.84 per AUM. Since the 1990s, it appears that no major bills to alter the grazing fee have passed the chambers.\nAlso in the 1990s—and in subsequent years—certain Presidents proposed changes to grazing fees and related policies. However, these changes were not adopted. As one example, in 1993, the Clinton Administration proposed an administrative increase in the fee and revisions of other grazing policies. The proposed fee formula started with a base value of $3.96 per AUM and was to be adjusted to reflect annual changes in private land lease rates in the West (called the Forage Value Index). The current PRIA formula is adjusted using multiple indexes. As a second example, for some fiscal years (e.g., FY2008), President George W. Bush proposed terminating the deposit of 50% of BLM's grazing fees into the range betterment fund. The fee collections would have gone instead to the General Fund of the U.S. Treasury. As a third example, for some fiscal years, President Obama proposed a grazing administrative fee for BLM and FS (e.g., of $1.00 per AUM in FY2015 and $2.50 per AUM in FY2017). These administrative fees would have been additional to the annual grazing fee, and the agencies would have used them to offset the cost of administering the livestock grazing programs.",
"",
"There is ongoing debate about the appropriate grazing fee, with several key areas of contention. First, there are differences over which criteria should prevail in setting fees: fair market value; cost recovery (whereby the monies collected would cover the government's cost of running the program); sustaining ranching, or resource-based rural economies generally; or diversification of local economies. Second, there is disagreement over the validity of fair market value estimates for federal grazing because federal and private lands for leasing are not always directly comparable. Third, whether to have a uniform fee, or varied fees based on biological and economic conditions, is an area of debate. Fourth, there are diverse views on the environmental costs and benefits of grazing on federal lands and on the environmental impact of changes in grazing levels. Fifth, it is uncertain whether fee increases would reduce the number of cattle grazing on sensitive lands, such as riparian areas. Sixth, some environmentalists assert that the fee is not the main issue, but that all livestock grazing should be barred to protect federal lands.\nAs noted, there have been proposals to alter the grazing fee in recent years, but these proposals have not been adopted. For example, the Obama Administration's proposed grazing administration fee of $2.50 per AUM in 2017 would have been in addition to the annual fee of $2.11 per AUM. The monies would have been used for administering grazing to shift a portion of the costs to permit holders. Use of the fees would have been subject to appropriations. BLM estimated that the proposed administrative fee would have generated $16.5 million in FY2017, and FS estimated revenues of $15.0 million in FY2017. Livestock organizations, among others, opposed the proposal as an unnecessary and burdensome cost for the livestock industry. The Administration had included similar proposals in earlier budget requests; none of these proposals were enacted.\nAs another example, in 2005, several groups petitioned BLM and FS to raise the grazing fees, asserting that the fees did not reflect the fair market value of federal forage. When the agencies did not respond to the petition, the groups sued. In addition to asserting that BLM and FS unreasonably delayed response to their petition, the petitioners argued that the agencies were required to conduct a study under the National Environmental Policy Act (NEPA) to determine the environmental impacts of the current grazing fee rate. In January 2011, BLM and FS responded to the petition, denying the request for a fee increase, and the lawsuit was settled.",
"The BLM and FS grazing fee has generally been lower than fees charged for grazing on other federal lands as well as on state and private lands, as shown in studies over the past 15 years. For instance, a 2005 Government Accountability Office (GAO) study found that other federal agencies charged $0.29 to $112.50 per AUM in 2004, when the BLM and FS fee was $1.43 per AUM. While BLM and FS use a formula to set the grazing fee, most agencies charge a fee based on competitive methods or a market price for forage. Some seek to recover the costs of their grazing programs. GAO also reported that in 2004, state fees ranged from $1.35 to $80 per AUM and private fees ranged from $8 to $23 per AUM.\nIn 2010, when the BLM and FS fee was $1.35 per AUM, state grazing fees continued to show wide variation. They ranged from $2.28 per AUM for Arizona to $65-$150 per AUM for Texas. Moreover, some states did not base fees on AUMs, but rather had fees that were variable, were set by auction, were based on acreage of grazing, or were tied to the rate for grazing on private lands. Further, a 2018 study of state grazing fees in 11 western states continued to show widely differing fees, ranging from $3.50 per AUM for New Mexico to $65-$100 per AUM for Texas. Fees for these states were higher than the 2018 BLM and FS fee ($1.41 per AUM).\nFor grazing on private lands in 2017, the average monthly lease rate for lands in 16 western states was $23.40 per head. Fees ranged from $11.50 in Oklahoma to $39.00 in Nebraska. For comparison, in 2017, the BLM and FS grazing fee was $1.87 per AUM.\nComparing the BLM and FS grazing fee with state and private fees is complicated due to a number of factors. One factor is the varying purposes for which the fees are charged. Many states and private landowners seek market value for grazing. As noted above, PRIA established the BLM and FS fee in accordance with multiple purposes. They included preventing economic disruption and harm to the western livestock industry as well as being \"equitable\" and representing the fair market value of grazing. While the base fee originally reflected what was considered to be fair market value, the adjustments included in the formula have not resulted in fees comparable to state and private fees. According to GAO's 2005 study, \"it is generally recognized that while the federal government does not receive a market price for its permits and leases, ranchers have paid a market price for their federal permits or leases—by paying (1) grazing fees; (2) nonfee grazing costs, including the costs of operating on federal lands, such as protecting threatened and endangered species (i.e., limiting grazing area or time); and (3) the capitalized permit value.\" Regarding the latter, the capitalized value of grazing permits typically is reflected in higher purchase prices that federal permit holders pay for their ranches.\nA second factor is the quality of resources on the lands being grazed and the number and types of services provided by the landowners. For example, in its 2005 study, GAO noted advantages of grazing on private lands over federal lands. They included generally better forage and sources of water; services provided by private landowners, such as watering, fencing, feeding, veterinary care, and maintenance; the ability of lessees to sublease, thus generating revenue; and limited public access. With regard to state lands, the study indicated that states also typically limit public access to their lands, while the quality of forage and the availability of water are more comparable to federal lands.\nA third factor is whether the federal grazing fee alone or other nonfee costs of operating on federal lands are considered in comparing federal and nonfederal costs. Some research suggests that ranchers might spend more to graze on federal lands than private lands when both fee and nonfee costs are considered. Nonfee costs relate to maintenance, herding, moving livestock, and lost animals, among other factors.",
"Unauthorized grazing occurs on BLM and FS lands in a variety of ways, including when cattle graze outside the allowed areas or seasons or in larger numbers than allowed under permit. According to GAO, the frequency and extent of unauthorized grazing is not known, because many cases are handled informally by agency staff. However, during the five-year period spanning 2010 to 2014, BLM and FS documented nearly 1,500 instances of unauthorized grazing, some of which involved the livestock owners having to pay penalties and, less frequently, livestock impoundment.\nIn many cases the unauthorized grazing is unintentional, but in other cases livestock owners have intentionally grazed cattle on federal land without getting a permit or paying the required fee. The livestock owners have claimed that they do not need to have permits or pay grazing fees for various reasons, such as that the land is owned by the public; that the land belongs to a tribe under a treaty; or that other rights, such as state water rights, extend to the accompanying forage.\nA particularly long-standing controversy involves cattle grazed by Cliven Bundy in Nevada. After about two decades of pursuing administrative and judicial resolutions, in April 2014, BLM and the National Park Service began impounding Mr. Bundy's cattle on the grounds that he did not have authority to graze on certain federal lands and had not been paying grazing fees for more than 20 years. BLM estimated at that time that Mr. Bundy owed more than $1 million to the federal government (including grazing fees and trespassing fees) as a result of unauthorized grazing. However, the agencies ceased the impoundment of the cattle due to fears of confrontation between private citizens opposed to the roundup and federal law enforcement officials present during the impoundment. Mr. Bundy had not been paying grazing fees to the federal government primarily on the assertion that the lands do not belong to the United States but rather to the state of Nevada, and that his ancestors used the land before the federal government claimed ownership. However, courts determined that the United States owns the lands, enjoined Mr. Bundy from grazing livestock in these areas, and authorized the United States to impound cattle remaining in the trespass areas. BLM continues to seek to resolve the issue through the judicial process.\nBLM estimated that during the two decades prior to the 2014 intended impoundment of Mr. Bundy's cattle, the agency had impounded cattle about 50 times. The operation to remove Mr. Bundy's cattle from federal lands in Nevada was the biggest removal effort, in terms of the number of cattle and the area involved, according to BLM. It was also one of the most controversial, in part because of the number and role of law enforcement officials and the temporary closures of land to conduct the impoundment.",
"There have been efforts to end livestock grazing on certain federal lands through voluntary retirement of permits and leases and subsequent closure of the allotments to grazing. This practice is supported by those who view grazing as damaging to the environment, more costly than beneficial, and difficult to reconcile with other land uses. This practice is opposed by those who support ranching on the affected lands, fear a widespread effort to eliminate ranching as a way of life, or question the legality of the process. In some cases, supporters seek to have ranchers relinquish their permits to the government in exchange for compensation by third parties, particularly environmental groups. The third parties seek to acquire the permits through transfer, and advocate agency amendments to land use plans to permanently devote the grazing lands to other purposes, such as watershed conservation.\nLegislation to authorize an end to grazing in particular areas through voluntary donations of the permits by the permit holders has been introduced in recent Congresses. These measures generally provide for the Secretary of the Interior and/or the Secretary of Agriculture to accept the donation of a permit, terminate the permit, and end grazing on the associated land (or reduce grazing where the donation involves a portion of the authorized grazing). Provisions authorizing such voluntary permit donations in specific areas have sometimes been enacted.\nOther bills have sought to establish pilot programs for livestock operators to voluntarily relinquish permits and leases in particular states. Still other measures have proposed allowing the Secretary of the Interior and the Secretary of Agriculture to accept a certain number of waived permits, such as a maximum of 100 each year. Under both types of measures, when the Secretaries accept waived permits, they would permanently retire such permits and leases and end grazing on the affected allotments (or reduce grazing where the relinquishment involves a portion of the authorized grazing). Provisions authorizing such pilot programs for particular states or authorizing acceptance of a certain number of waived permits have not been enacted.\nIn earlier Congresses, legislation was introduced to buy out grazing permittees (or lessees) on federal lands generally or on particular allotments. Such legislation provided that permittees who voluntarily relinquished their permits would be compensated at a certain dollar value per AUM, generally significantly higher than the market rate. The allotments would have been permanently closed to grazing. Such legislation, which had been backed by the National Public Lands Grazing Campaign, was advocated to enhance resource protection, resolve conflicts between grazing and other land uses, provide economic options to permittees, and save money. According to proponents, while a buyout program would be costly if all permits were relinquished, it would save more than the cost over time. Opponents of buyout legislation include those who support grazing, others who fear the creation of a compensable property right in grazing permits, some who contend that it would be too costly, or still others who support different types of grazing reform.",
"The extension, renewal, transfer, and reissuance of grazing permits have been issues for Congress. Both BLM and FS have a backlog of permits needing evaluation for renewal. For instance, BLM's backlog has been increasing for more than a decade, with a backlog of more than 7,000 permit renewals as of September 30, 2017. To allow for continuity in grazing operations, Congress had enacted a series of temporary provisions of law allowing the terms and conditions of grazing permits to continue in effect until the agencies complete processing of a renewal. The most recent provision, P.L. 113-291 (Section 3023), made permanent the automatic renewal (until the renewal evaluation process is complete) of grazing permits and leases that expire or are transferred.\nAgency decisions regarding permit issuance are subject to environmental review under the National Environmental Policy Act (NEPA). That environmental review would include the identification of any additional state, tribal, or federal environmental compliance requirements, such as the Endangered Species Act (ESA), that would apply to a permitted grazing operation. P.L. 113-291 provided that the issuance of a grazing permit \"may\" be categorically excluded from this NEPA requirement under certain conditions. Provisions regarding categorical exclusions have been controversial. Supporters assert that they will expedite the renewal process, foster certainty of grazing operations, and reduce agency workload and expenses. Opponents have expressed concern that categorical exclusions could result in insufficient environmental review and public comment to determine range conditions."
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{
"question": [
"What new change will affect BLM and FS in 2019?",
"What are the attributes of this new fee?",
"How has the BLM and FS grazing fee changed over time?",
"How has the fee changed in recent decades?",
"How are grazing fees used?",
"How is the agency's portion of the fee used?",
"How are the remaining portions allocated?",
"What issues face Congress related to grazing fees?",
"How does the current BLM and FS grazing fee compare to other grazing fees?",
"Why is it difficult to compare the BLM and FS fee to other fees?",
"How has the government attempted to end livestock grazing in specific areas?",
"How is Congress involved in these efforts?",
"Why have these efforts been both supported and opposed?",
"How does permit expiration affect BLM and FS?",
"How did P.L. 113-291 allow for continuity in grazing operations in spite of expiring permits?",
"Why might a permit be excluded from NEPA review under this legislation?",
"How have people reacted to this potential for NEPA exclusion?"
],
"summary": [
"For 2019, BLM and FS are charging a grazing fee of $1.35 per AUM.",
"This fee is in effect from March 1, 2019, through February 29, 2020, and is the minimum allowed.",
"Since 1981, when BLM and FS began charging the same grazing fee, the fee has ranged from $1.35 per AUM (for about half the years) to $2.31 per AUM (for 1981). The average fee during the period was $1.55 per AUM.",
"In recent decades, grazing fee reform has occasionally been considered by Congress or proposed by the President, but no fee changes have been adopted.",
"The grazing fees collected by each agency essentially are divided between the agency, Treasury, and states/localities.",
"The agency portion is deposited in a range betterment fund in the Treasury and is subject to appropriation by Congress. The agencies use these funds for on-the-ground activities, such as range rehabilitation and fence construction.",
"Under law, BLM and FS allocate the remaining collections differently between the Treasury and states/localities.",
"Issues for Congress include whether to retain the current grazing fee or alter the charges for grazing on federal lands.",
"The current BLM and FS grazing fee is generally lower than fees charged for grazing on state and private lands.",
"Comparing the BLM and FS fee with state and private fees is complicated, due to factors including the purposes for which fees are charged, the quality of the resources on the lands being grazed, and whether the federal grazing fee alone or other nonfee costs are considered.",
"There have been efforts to end livestock grazing in specific areas through voluntary retirement of permits and leases and subsequent closure of the allotments to grazing.",
"Congress has enacted some such proposals. Congress also has considered measures to reduce or end grazing in specified states or to allow a maximum number of permits to be waived yearly.",
"Among other reasons, such measures have been supported to protect range resources but opposed as diminishing ranching operations.",
"Another issue involves expiring grazing permits. Both BLM and FS have a backlog of permits needing evaluation for renewal.",
"To allow for continuity in grazing operations, P.L. 113-291 made permanent the automatic renewal (until the evaluation process is complete) of permits and leases that expire or are transferred.",
"The law provided that the issuance of a grazing permit \"may\" be categorically excluded from environmental review under the National Environmental Policy Act (NEPA) under certain conditions.",
"NEPA categorical exclusions have been controversial."
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GAO_GAO-13-27
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{
"title": [
"Background",
"FECA Eligibility",
"Application Process for FECA Program Benefits for Volunteers",
"From 2009 through 2011, DOL Provided about $36 Million in Health Care and Other Benefits for Volunteers",
"The Peace Corps Uses Information on Volunteers’ Awareness of FECA, but Neither DOL Nor the Peace Corps Use Other Available Information to Monitor Access and Quality",
"Conclusions",
"Recommendation for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Comments from the Peace Corps",
"Appendix II: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"After volunteers separate from the Peace Corps they typically return to the United States, and may transition into new employment. As they make this employment transition, the Peace Corps offers various health care services and benefits to returned volunteers. First, each volunteer receives a close-of-service medical evaluation that assesses their health status as they complete their service. The Peace Corps also has a contract with an insurance company to make a health insurance policy— AfterCorps—available for volunteers to purchase. This policy covers non-service-connected illnesses or injuries. The Peace Corps also pays for certain health examinations for 6 months after a volunteer’s service is completed. Finally, volunteers may also be eligible for reimbursements under the FECA program for medical expenses associated with service- connected illnesses or injuries, such as those identified during the physical conducted at the close-of-service medical evaluation.",
"The FECA program provides health benefits—reimbursement for medical expenses related to illnesses or injuries that DOL determines are service connected—as well as other benefits, such as wage-loss (death and disability) compensation. To receive benefits through FECA, a volunteer must establish that, among other things, he or she was in the performance of duty at the time the illness or injury occurred. Under the FECA program, volunteers are considered to be in the performance of duty 24 hours a day while abroad during the period of their Peace Corps service. DOL requires that if an illness or injury is first discovered after a volunteer has returned from service, then the medical evidence must show that the injury or illness was sustained while overseas or in the performance of duty. In order to be eligible for FECA health care benefits for preexisting illnesses or injuries—a condition that existed prior to service—the volunteer’s medical evidence must demonstrate that the volunteer’s service was the proximate cause of or aggravated, accelerated, or precipitated the illness or injury. Further, volunteers must apply for FECA benefits within 3 years of the date of injury or illness, or within 3 years after they recognize that a health condition is service- connected. In 2010, the FECA program provided about $2.8 billion in health and other benefits to about 251,000 federal and postal employees—including volunteers—who suffered a service related illness or injury.",
"Volunteers who apply for FECA benefits typically go through the following steps: 1. Each volunteer is informed of the availability of FECA benefits at the close-of-service medical evaluation. a. Each volunteer is expected to receive a close-of-service medical evaluation that assesses his or her health status prior to leaving service to document any service-connected illnesses or injuries. Should a volunteer terminate service early—before completing his or her assignment—the volunteer will also undergo a complete medical and dental exam to identify any unmet health care needs and potential medical issues. 2. Volunteers complete a FECA application and submit it to DOL through the Peace Corps’ Post-Service Unit.a. The Peace Corps—through its Post-Service Unit—assists volunteers applying for benefits by helping them to complete the appropriate forms and providing the appropriate medical evidence from volunteers’ Peace Corps medical records. b. The Peace Corps’ Post-Service Unit sends all FECA applications—which includes information on the injury or illness reported by the volunteer—to DOL for review and eligibility determination. 3. FECA applications submitted for volunteers are reviewed by DOL, and the agency then makes an eligibility determination. a. For those applications that do not include sufficient information and require further development, volunteers are given approximately 30 days to submit additional information to support their request for FECA benefits. If the additional information submitted is sufficient, the application is approved. If the additional information is not sufficient, the FECA application is denied and medical treatment is not authorized. b. For those applications that are approved, DOL assigns a medical diagnosis on the basis of medical evidence submitted in the FECA application. This assigned medical diagnosis defines the medical treatment and services for which the volunteer is eligible for FECA reimbursement. 4. Typically, after benefits are approved by DOL, a volunteer obtains health care services through a medical provider. After receiving these services, the volunteer or the volunteer’s medical provider submits a bill to DOL for reimbursement. DOL provides reimbursement for medical expenses. 5. On an annual basis, DOL requires the Peace Corps to pay DOL back for these reimbursements.",
"From 2009 through 2011, DOL provided a total of about $36 million in FECA benefits for volunteers, providing about $22 million in health care benefits—reimbursements for medical expenses to treat service- connected injuries and illnesses for Peace Corps volunteers—and $13.8 million in other benefits. During this period, almost 1,400 volunteers each year received health care benefits. The average reimbursement for medical expenses per volunteer was about $5,000 in 2009, and about $5,600 in 2011. The most-common medical conditions for which DOL provided health care benefits—reimbursements for medical services— were mental, emotional, and nervous conditions; dental; other/nonclassified diseases; and infectious or parasitic diseases.These four medical conditions represented about 40 percent of all medical conditions and accounted for about $5.9 million—or more than a quarter—of all medical reimbursements for volunteers under FECA between 2009 and 2011. See table 1 for the medical conditions for which DOL provided reimbursements for volunteers under FECA.\nIn addition to health care benefits, volunteers also received other benefits—such as wage-loss compensation and reimbursement for travel to receive medical treatment. Specifically, from 2009 through 2011, these other benefits received by volunteers totaled about $13.8 million. In 2011, the total reimbursements for both health care and other benefits were about $12 million, which represents about 3.3 percent of the Peace Corps’ 2012 appropriation of $375 million. According to Peace Corps officials, these health care and other expenses represent a growing portion of its annual budget. These officials explained that from 2009 through 2011 these expenses have increased a total of approximately 7.2 percent.\nVolunteers who received FECA benefits from 2009 through 2011 are unique in several ways when compared to other recipients of these benefits. Specifically, our analysis of DOL’s FECA program claims data found that the volunteers were generally younger and more likely to be female when compared to others who received benefits under the FECA program. Volunteers were, on average, 12 years younger than others who received FECA benefits. About two-thirds of volunteers receiving FECA benefits were female, whereas less than half of others receiving FECA benefits were female. These differences in age and gender are consistent with the overall demographics of these two populations—the volunteers and federal workers.\nIn addition, the medical conditions for which volunteers received FECA benefits were different than those for others who received FECA benefits. For example, volunteers were more likely than others to receive FECA benefits for mental, emotional, or nervous conditions; dental conditions; other/nonclassified diseases; and infectious or parasitic diseases. While these four medical conditions represented 40 percent of the conditions for volunteers, they represented less than 2 percent for the others receiving FECA benefits.",
"The Peace Corps uses information it has to monitor volunteers’ awareness of the FECA program; however, in general, neither DOL nor the Peace Corps use information in the remaining three areas in our review to monitor the accessibility and quality of FECA benefits for volunteers. These areas are (1) information on volunteers’ knowledge of FECA program and application requirements, such as medical documentation that is required to be submitted with an application; (2) information on DOL’s timeliness in reviewing FECA applications and reimbursing medical expenses, and on the level of customer satisfaction with the FECA program; and (3) information on the availability of FECA- Table 2 summarizes the extent to which registered medical providers.DOL and the Peace Corps use information available in the four key areas to monitor the accessibility and quality of FECA benefits for volunteers.\nAs shown in table 2, the Peace Corps uses information related to volunteers’ awareness of the FECA program. Specifically, to monitor volunteers’ awareness, the Peace Corps currently documents that volunteers have acknowledged that they have been informed of their potential eligibility for FECA during their close-of-service evaluation. Peace Corps officials told us the agency uses this information to help ensure all volunteers are made aware of their possible eligibility for FECA benefits.\nWhile the Peace Corps uses information on volunteer awareness, neither DOL nor the Peace Corps use available information related to the remaining three areas of our review to monitor the accessibility and quality of FECA benefits for volunteers.\nVolunteers’ knowledge of FECA program and application requirements. As table 2 shows, neither DOL nor the Peace Corps use available information, such as data on FECA application denial rates, and information on reasons for denials, in order to monitor the accessibility and quality of FECA benefits for volunteers. DOL officials told us that it is not their responsibility to use this information for this type of monitoring. However, by not using this available information to review volunteers’ level of knowledge of the FECA requirements, DOL and the Peace Corps may be unaware, for example, of the extent to which volunteers experience difficulties accessing FECA benefits because of limited understanding of certain application requirements, such as in (a) providing appropriate and sufficient medical evidence and (b) establishing a service connection for the illness or injury for which the volunteer is seeking FECA benefits.\nAccording to volunteer advocates, volunteers and their physicians may lack knowledge of certain FECA documentation requirements, such as the need to include a medical diagnosis rather than just the symptoms of an injury or illness in the FECA application. Furthermore, our examination of a limited number of FECA denial letters confirms that these difficulties are often a contributing factor in the FECA applications that were not approved from 2009 through 2011. For example, our review of denial letters showed that the most-common reasons for denial were lack of sufficient medical documentation and inability to establish a service connection. Further, DOL and the Peace Corps also do not work together to use the information available to them on volunteers’ knowledge of program and application requirements.\nDOL maintains metrics for measuring performance for the overall FECA program, including those that are part of the Protecting Our Workers and Ensuring Reemployment (POWER) Initiative, the Government Performance and Results Act of 1993 (GPRA), as amended, and measures outlined in DOL’s Operational Plan. The POWER Initiative established goals related to FECA—such as the timeliness of filing a FECA application. Under GPRA, DOL established customer satisfaction measures for the FECA program. Under its Operational Plan, DOL established additional timeliness and customer satisfaction measures, such as those to monitor the timeliness of the FECA application review process. of the overall FECA population. Instead, DOL’s focus has been on using the data in order to monitor FECA program timeliness and customer satisfaction for all individuals who receive FECA benefits. While it is reasonable that DOL focus on the entire FECA program, DOL and the Peace Corps also do not work together to use the timeliness and customer satisfaction information to help the Peace Corps gauge whether volunteers are receiving FECA benefits in a timely and satisfactory manner. For example, Peace Corps officials told us that a survey of former volunteers specifically about access and satisfaction issues would be useful. According to Peace Corps officials, the results of such a survey could help clarify whether volunteers have access to the care they need and what the volunteers think about the quality of the care they receive. Without this information, DOL and the Peace Corps may be unable to determine volunteers’ level of satisfaction with the FECA program.\nOur review of DOL timeliness data suggests that between 2009 and 2011, the agency met its timeliness benchmarks related to review of FECA applications for volunteers. these data to determine the timeliness in reviewing volunteers’ FECA applications, DOL may not be able to determine whether or to what extent its performance on timeliness is sustained in the future. Furthermore, a lack of ongoing examinations of timeliness may make it difficult for DOL to identify problems if they should arise in the future or to provide information to alleviate the concerns of advocates and Peace Corps officials regarding the timeliness of the review of FECA applications.\nFor example, our review of information showed that DOL reviewed about 97 percent of all volunteers’ applications related to traumatic cases within 45 days of receiving the application—meeting its benchmark to review 90 percent within that time frame. geographic areas and for certain medical specialties.information DOL has on the geographic location and medical specialty of FECA-registered providers, DOL and the Peace Corps cannot determine the extent to which there are limitations in the availability of FECA- registered providers in certain geographic areas and for certain medical specialties.\nDOL’s available information on FECA-registered providers suggests that volunteers may face some challenges accessing registered providers. Officials stated that although it is the responsibility of the volunteer to find a FECA-registered provider, DOL publishes an online search tool that contains a partial listing of the available FECA-registered providers as a service to FECA beneficiaries, including volunteers, to help locate providers. Officials also noted the agency does not actively manage or Although the online search tool is recognized by DOL as update the list. incomplete, it does provide some partial information about the availability of FECA-registered providers. We reviewed this online search tool and found, for example, that as of June 2012 there were no FECA-registered providers in the online search tool listed as mental health specialists in Peace any of the 10 states with the largest population of volunteers.Corps officials and volunteer advocates also noted there are a limited number of FECA-registered providers in some geographic locations and medical specialties. In addition, Peace Corps officials told us that they have assisted volunteers in finding and enrolling providers, and have had difficulty in doing so. Although the information on FECA-registered providers in the online search tool that DOL provides as a resource to volunteers may be incomplete, it includes information that could be used to help identify potential access issues and areas for monitoring the accessibility of FECA benefits for volunteers.",
"The Peace Corps and DOL both have certain responsibilities related to the provision of FECA benefits for eligible volunteers who return from service abroad. Specifically, DOL administers the FECA program and the Peace Corps pays for the expenses incurred by volunteers in the program. From DOL’s perspective, volunteers do not represent a large proportion of the overall FECA population. However, FECA is a relatively larger issue from the Peace Corps’ perspective. The volunteers are a unique population compared to others who receive benefits under FECA—for example, they are more likely to have mental, emotional, or nervous conditions that are service-connected—and, according to Peace Corps officials, the amount the Peace Corps pays DOL for FECA reimbursements represents an increasing portion of the Peace Corps’ annual budget. Because both of the agencies have certain responsibilities related to the provision of FECA benefits for eligible volunteers who return from service abroad, it is especially important that the Peace Corps and DOL jointly monitor the accessibility and quality of the FECA program to ensure that the FECA program is achieving its intended objectives— including ensuring that eligible volunteers receive needed FECA health care benefits.\nThe Peace Corps and DOL have information available to them in the four key areas we reviewed that could be used to monitor the accessibility and quality of FECA benefits for volunteers: (1) volunteers’ awareness of FECA; (2) volunteers’ knowledge of program and application requirements; (3) DOL’s timeliness in reviewing FECA applications and reimbursing medical expenses, and the level of customer satisfaction with the FECA program; and (4) availability of FECA-registered medical providers. However, in general, the two agencies are not using this information for such monitoring. For example, the agencies do not use the information they have to determine whether there is a gap in the number and geographic location of FECA-registered providers, such as the potential gap we identified in the number and geographic location of FECA-registered providers who treat mental health conditions—the most common medical condition for which volunteers received reimbursement.\nWhile information is available to DOL and the Peace Corps that could be used for monitoring, the agencies are generally not working together to use the available information to monitor the accessibility and quality of FECA benefits for volunteers. Working together is important because neither agency has all the information to monitor the program on its own. Finally, because the information we identified under the four areas is not a comprehensive list of all the information the agencies could use to monitor FECA benefits for volunteers, the Peace Corps and DOL may be able to identify other information that could be used for this purpose. Unless the two agencies work together on monitoring, they will miss the opportunity to make use of the available information to help ensure the accessibility and quality of FECA benefits for volunteers.",
"We recommend that the Secretary of Labor and the Director of the Peace Corps jointly develop and implement an approach for working together to use available information to monitor the access to and quality of FECA benefits provided to returned volunteers.",
"We provided a draft of this report to the Department of Labor (DOL) and the Peace Corps for review. Peace Corps provided written comments (reprinted in app. I), and both provided technical comments, which we incorporated as appropriate. Neither DOL nor the Peace Corps indicated whether or not they agreed with our recommendation. Instead, among other things, DOL’s technical comments identified examples of the agency’s collaboration with the Peace Corps to provide benefits under the FECA program. For example, DOL noted that officials from both agencies have met multiple times over the last 2 years to try to improve the handling of volunteers’ claims, and that DOL officials are available to work with the Peace Corps to improve the process of providing benefits to volunteers. In contrast, the Peace Corps noted specific improvements that it believes could assist returned volunteers, but stated that it cannot make these reforms on its own and needs action from DOL. DOL’s and the Peace Corps’ comments further underscore that the two agencies do not have a joint approach for monitoring the quality and accessibility of benefits for returned volunteers under the FECA program. As a result, we are concerned that the two agencies are missing opportunities to collaborate. We also remain convinced that DOL and the Peace Corps should, as we recommended, work together and develop an approach for using available agency information to monitor the accessibility and quality of FECA benefits for returned volunteers.\nWe are sending copies of this report to the Secretary of Labor, the Director of the Peace Corps, and other interested parties. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at (202) 512-7114 or at kohnl@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix II.",
"",
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"In addition to the contact named above, Will Simerl and Cynthia Grant, Assistant Directors; N. Rotimi Adebonojo; Melinda Cordero; Carolyn Fitzgerald; Krister Friday; Marina Klimenko; Amy Leone; and Jennifer Whitworth made key contributions to this report."
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"question": [
"How did the DOL support Peace Corps volunteers from 2009 through 2011?",
"How was this money allocated to various types of benefits?",
"What was the scale of the volunteer population during this period?",
"What were the most common health conditions treated under DOL reimbursements?",
"How did these health issues compare to other medical conditions treated under FECA?",
"How is available information used by DOL and Peace Corps to monitor FECA benefits?",
"How does the Peace Corps use information from the four identified areas?",
"What are the three ignored areas reviewed by GAO in this report?",
"How does not using all available information affect DOL and the Peace Corps?",
"Why did GAO conduct this report?",
"What topics are examined in this report?",
"How did GAO collect information for this report?",
"Why did GAO develop the four-area framework?"
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"summary": [
"From 2009 through 2011, the Department of Labor (DOL) provided a total of about $36 million in Federal Employees' Compensation Act (FECA) benefits--health and other benefits--for Peace Corps volunteers who have returned from service abroad (volunteers).",
"Specifically, DOL provided about $22 million in health care benefits for these volunteers in the form of reimbursements for medical expenses related to service-connected injuries and illnesses, and $13.8 million in other benefits, such as reimbursement for travel expenses incurred when seeking medical care.",
"During this period, approximately 1,400 volunteers each year received these health care benefits under the FECA program.",
"The most common types of medical conditions for which DOL provided reimbursements were mental, emotional, and nervous conditions; dental; other/nonclassified diseases; and infectious or parasitic diseases.",
"These four medical conditions accounted for more than a quarter of all medical reimbursements for volunteers under FECA from 2009 through 2011.",
"In general, neither DOL nor the Peace Corps use all available information in the four areas GAO reviewed to monitor access and quality of FECA benefits for volunteers.",
"GAO found that the Peace Corps uses information in just one of the areas--volunteers' awareness of the FECA program; however, in general, neither agency uses information in the remaining three areas.",
"These areas are (1) information on volunteers' knowledge of FECA program and application requirements, such as required medical documentation; (2) information on DOL's timeliness in reviewing FECA applications and reimbursing medical expenses, and on the level of customer satisfaction; and (3) availability of FECA-registered medical providers.",
"By not using information available to the agencies, DOL and the Peace Corps are missing an opportunity to determine whether, or to what extent, volunteers face access and quality issues in the FECA program. For example, DOL and the Peace Corps may not be able to determine the extent to which there are limitations in the availability of FECA-registered providers for certain medical specialties.",
"GAO was mandated to report on the access and quality of health care benefits for Peace Corps volunteers.",
"This report (1) identifies the health care and other benefits provided to volunteers from 2009 through 2011 under the FECA program, and (2) examines the extent to which DOL and the Peace Corps use available agency information to monitor the accessibility and quality of FECA health care benefits provided to volunteers.",
"GAO reviewed agency documents, interviewed agency officials, and analyzed DOL data.",
"GAO developed a framework with four areas to define access and quality and examined available information in these areas that could be used for monitoring."
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GAO_GAO-12-112
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{
"title": [
"Background",
"In Addition to Its Selection Criteria, ARPA-E Also Considers Applicants’ Prior Sources of Private Funding; However, Most Award Winners We Reviewed Did Not Explain This Information",
"ARPA-E Program Directors Use the Agency’s Four Selection Criteria and Other Considerations to Select Projects",
"ARPA-E Also Considers Applicants’ Prior Sources of Private Funding, but Most Award Winners We Reviewed Did Not Explain This Information",
"Most ARPA-E Projects Likely Could Not Have Been Funded Solely by Private Investors",
"Venture Capitalists Generally Do Not Fund Projects That ARPA-E Looks to Fund",
"Few Contingently Selected Applicants Found Funding from Private Investors or Public Sources",
"ARPA-E Officials Have Taken Steps to Coordinate with Other Department of Energy Offices in Advance of Awarding Funds",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Scope and Methodology",
"Appendix II: ARPA-E Program Technology Areas",
"Appendix III: Description of ARPA-E Award Winners with Prior Private Investment",
"Appendix IV: Comments from ARPA-E",
"Appendix V: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"In 2005, the National Academies recommended to Congress the creation of an organization within DOE like DARPA. In 2007, the America COMPETES Act created a new agency within DOE called ARPA-E. In line with the National Academies’ recommendation, the America COMPETES Act as amended directs ARPA-E to achieve its goals by identifying and promoting revolutionary advances in fundamental and applied sciences, translating scientific discoveries and cutting-edge inventions into technological innovations, and accelerating transformational technological advances in areas that industry by itself is not likely to undertake because of technical and financial uncertainty. As such, ARPA-E officials told us that ARPA-E was designed to sponsor research beyond basic science, yet riskier than what the private sector (See fig. 1.) The National alone or DOE’s applied offices would support.Academies recommended that ARPA-E should not perform research and development itself, but should fund it to be conducted by universities and others in the private sector. In 2009, the American Recovery and Reinvestment Act of 2009 appropriated $400 million for ARPA-E.\nARPA-E is an agency with fewer than 30 federal employees, and its eight program directors, who are generally scientists and engineers, create and manage funding programs for the agency. ARPA-E’s program development and award selection process takes 6 to 8 months from start to finish, beginning when the agency hires a program director for a 3-year term and tasks the program director with identifying a gap in energy technology research and developing a program to fill that gap. For example, ARPA-E’s batteries for transportation program, called the Batteries for Electrical Energy Storage in Transportation (BEEST) program, was established to fill a gap in existing federal research programs on batteries for electric vehicles. Identifying these gaps and designing the program involves research; consultation with scientific experts, including a workshop with outside experts; and internal discussion at ARPA-E. From this process, program directors develop funding announcements that describe the technical requirements specific to each program’s technology area that applicants have to meet and the four criteria that ARPA-E uses in its selection process. The four criteria are the Impact of the proposed technology relative to the state of the art. The applicant must demonstrate the potential for a transformational—not incremental––advancement over current technologies. (See fig. 2.) More specifically, the applicant must demonstrate an awareness of competing commercial and emerging technologies and identify how its proposed concept/technology provides significant improvement over these other solutions.\nOverall scientific and technical merit. The applicant must demonstrate that the work is unique and innovative. The applicant must also demonstrate a sound technical approach to accomplish the proposed research and development objectives. The outcome and deliverables of the program, if successful, should be clearly defined. Specific technical requirements that are unique to each individual ARPA-E program funding announcement must also be addressed.\nQualifications, experience, and capabilities. The applicant must demonstrate that it has the expertise and experience to accomplish the proposed project. In addition, the applicant must have access to all facilities required to accomplish the research and development effort.\nSound management plan. The applicant must have a workable plan to manage people and resources. Major technical research and development risks should be identified. The schedule and budget should be reasonable.\nARPA-E employs the following three-stage application process:\nConcept paper. Applicants initially submit a 5- to 7-page abstract of their projects. Scientific experts from industry, government, and academia serve as reviewers.\nFull application. After reviews of the concept paper, ARPA-E encourages some applicants to submit full applications using ARPA-E’s online application system. ARPA-E’s current instructions request that applicants provide, among other things, information about other prior, current, and pending public and private sources of funding, as well as why other funding sources are not willing to fund the projects. Full applications are then reviewed by leading scientific experts in the field, who evaluate them against the four criteria and assign numerical scores.\nReply to reviewer comments. After assessing the full applications, reviewers provide comments and questions to the applicants, who then have the opportunity to respond.\nThe applications with the reviewers’ comments are forwarded to a three- person panel beginning the next three phases of ARPA-E’s award funding process, which are as follows:\nSelection. The three-person panel, usually chaired by the relevant program director, considers the reviewers’ comments and numerical scores, and recommends applications to award. The final decisions on which applicants to select are made by the selecting official, which is usually the ARPA-E Director.\nAward negotiations. Negotiations proceed for approximately 2 months. Program directors work closely with the award winners to set up a project plan with technical milestones that are to be met during the funding of the award, which are planned to last between 2 and 3 years. Funds are awarded following the negotiations.\nMonitoring. ARPA-E monitors and supports the project through quarterly reviews and site visits. After about 1 year, the agency decides whether to continue or terminate the project if the agreed-to milestones are not met.\nIn April 2009, ARPA-E started its funding award process by releasing a funding announcement soliciting proposals for all energy ideas and technologies. Following the review process, 36 projects were awarded funds after being selected from 3,700 applications that spanned the technology areas of 10 programs. ARPA-E released additional funding announcements in December 2009, March 2010, and April 2011. (See table 1.) Money appropriated by the American Recovery and Reinvestment Act of 2009 funded ARPA-E’s first three funding rounds. After receiving an appropriation in DOE’s fiscal year 2011 appropriations act, ARPA-E announced a fourth round of funding in April 2011.",
"In addition to applying its four criteria, ARPA-E gives program directors discretion to use additional considerations to award funds to projects, including whether ARPA-E applicants received private funding. Most ARPA-E award winners did not receive prior private funding, but for those that did, most award winners we reviewed did not explain these funds.",
"Of the 20 applications we reviewed for award selection criteria, all contained supporting information addressing the agency’s four criteria. In our analysis of the ARPA-E reviewers’ evaluations from these 20 applications, we noted regular assignment of numerical scores rating applicants on the extent to which they met the criteria. All eight ARPA-E program directors told us they considered or, if they were recently hired, will consider all four criteria, but several focused more heavily on two criteria—the impact of the proposed technology relative to the state of the art and its overall scientific and technical merit.\nIn addition to basing the numerical scores applicants receive on the extent to which they meet the four selection criteria, program directors told us the agency gives them the ability to take other qualitative considerations into account when awarding funds. One of those considerations is to fund a broad range of potential technological solutions with varying levels of risk in solving a given technical problem. Two program directors selected projects to reflect a variety of technologies, and they told us they believe that this approach increases their programs’ overall chances of success. Specifically, one program director told us he chose projects that employed a variety of new battery technologies, a strategy that should increase the likelihood that at least one of them will work. This program director also chose some battery projects with much higher potential storage capacity but with a lower probability of success in achieving project milestones and in ultimately being brought to market. In those cases, ARPA-E provided smaller awards to the projects with the lower probability of success.\nSeveral program directors also told us that during the selection process, they considered the applicants’ projects’ proposed project scope and duration, requested funding levels, and technical milestones and negotiated to revise these, if necessary, to better align applicants’ projects with ARPA-E’s program goals. According to our review of ARPA- E data from the first three rounds of funding, the agency reduced requested award amounts by 5 percent or more on 31 out of 121 projects, for a total of $59 million below total requested award amounts for these rounds. When ARPA-E makes these kinds of adjustments, the agency may also reduce the proposed project scope to fund only what the program directors consider to be the transformational part of the project and to avoid funding applied research or development work that would be outside ARPA-E’s program goals. For example, the agency reduced the award amount and proposed project scope for an energy storage technology project designed to improve energy storage on the electrical grid. The project proposal initially requested nearly $5 million to demonstrate the technology at nearly full scale. During award negotiations, ARPA-E reduced this amount to $750,000 to focus the project only on smaller-scale development and testing of the technology. ARPA-E officials told us the larger-scale demonstration could likely be funded by the private sector.",
"When making award decisions or adjusting the scope of proposed projects, ARPA-E program directors may also consider the identification in applications of sources of private funding and the extent to which that funding might support the proposed projects. This information can help provide program directors with assurance that ARPA-E funds do not overlap with private investment. During the first two funding rounds, ARPA-E required that applicants identify relevant private investors if the applicant believed these funds were related to the proposed project. Of the 18 applications we reviewed from award winners that we identified as having received private venture capital, 14 applied during ARPA-E’s first and second funding rounds. Most of these award winners did not explain why investors were not willing to fund proposed work. ARPA-E program directors and an ARPA-E official, speaking on behalf of the agency, told us they took additional steps to clarify outstanding prior funding questions when ARPA-E was aware that applicants had received private sector funding. For example, one applicant we reviewed from the first funding round had previously received substantial private funding for work that appeared very similar to its proposed ARPA-E project. ARPA-E officials told us they were initially unable to determine why the private investor was not willing to also fund the proposed ARPA-E project and that the company’s application did not include an explanation. ARPA-E officials told us that getting this information required them to draft a series of direct and detailed questions that elicited several pages of written responses from the applicant. ARPA-E officials also told us they conducted multiple rounds of written and oral follow-up with the applicant and the private investor. Through these efforts, ARPA-E determined that the technological risks of key parts of the project were too high for the private investor and therefore decided to fund the research.\nBecause ARPA-E officials recognized the need for applicants to provide better prior funding explanations, beginning with its third funding announcement, the agency required applicants to explain why proposed work was not sponsored internally if the applicant was a large company, or why private investors were not willing to support the project if the applicant was a small business or start-up company. ARPA-E did not provide guidance on how applicants should respond to this additional requirement by, for example, providing a sample response. Of the 18 ARPA-E award-winning companies, 4 applied during the third funding round, and these companies provided a range of information in response to this new requirement in their funding applications. Two explained how ARPA-E funds would allow them to go beyond currently funded work but did not provide reasons why investors were not willing to support the proposed work. Another wrote only that the ARPA-E research was too risky for the company’s private investors. One application contained an explanation outlining the specific research its private investors were and were not willing to fund. This applicant explained that private funds were directed toward lower-risk and higher-cost technologies. This application also included a letter from the company’s venture capital investors that explained which parts of its research the investors were planning to continue funding and which research was too risky for them, although not requested by ARPA-E. This letter provided additional third-party support for the funding information in the application. Officials from the National Institute of Standards and Technology’s (NIST) Technology Innovation Program told us they request that applicants provide letters from private investors to document why applicants’ projects could not be privately funded.\nWhen we followed up with the 18 companies, they were generally able to explain to us why their private investors were not willing to undertake the additional risk and uncertainty associated with the proposed projects. When we examined the data in the VentureDeal database for a number of applicants, the data allowed us to quickly cross-check the names of prior private investors that applicants reported to ARPA-E. ARPA-E officials said that they have not used such data for these purposes but that they have considered doing so. Without an examination of outside venture capital data on its applicants, the agency may be missing a time-saving opportunity to check information on private funding provided in applications, especially in instances where applicants may not have been thorough in their explanations. We found a number of readily available subscription-based venture capital data services that provided company names, transaction amounts, and funding purposes. We found that the web-based VentureDeal database matched formats and data available from other venture capital data services.",
"Our review suggests that most ARPA-E-type projects could not be funded solely by private investors. Private venture capital firms told us that, among other considerations, they generally do not invest in projects that cannot be commercialized in less than 3 years. Nearly all of the 13 ARPA-E award winners and most of the 22 of the contingently selected applicants we spoke with estimated that their projects were 3 or more years away from a potential market-ready product (i.e., commercialization). In addition, we found that only 2 of the 22 contingently selected applicants we spoke with that met ARPA-E’s selection criteria but were not selected for an award subsequently secured private funding.",
"The representatives we spoke with from six venture capital firms identified three factors that limit the general availability of venture capital funding for new energy technologies. These factors were consistent with data we analyzed for the 121 award winners from ARPA-E’s first three funding rounds, the sample of 13 award winners we interviewed from these funding rounds, and the 22 contingently selected applicants we interviewed.\nFirst, venture capital firms generally do not fund projects that rely on unproven technological concepts or lack working prototypes demonstrating the technology. A number of venture capital firm representatives told us that they are generally not willing to fund the applied scientific research sometimes required by ARPA-E-type projects. Projects they fund generally focus on developing technologies based on known scientific principles. Data from ARPA-E on award winners show that 91 out of 121 ARPA-E projects from the first three funding rounds had technological concepts that had not yet been demonstrated in a According to a recent report from the American laboratory setting.Energy Innovation Council, private investors consider these projects too high risk for investment, even for concepts with promising technological potential. Most of the contingently selected applicants we spoke with–– 17 out of the 22––told us they were unlikely to receive funding from other sources for their proposed projects because of high levels of scientific uncertainty, an unavailable or undeveloped market, or a lack of a working prototype. For example, one such applicant said that he only had a computer model suggesting that his high-efficiency air conditioning device would work, which was insufficient to convince potential private investors. In addition, many of the ARPA-E award winners we surveyed also recognized the inherent uncertainty in their research; 5 of the 13 told us that their projects had a fairly low probability of success.\nSecond, venture capital firms seek more rapid returns on investment and closely analyze a project’s potential return on investment over time, a factor that influences their decisions to invest in projects that are in later stages of development and closer to commercialization. Venture capital firm officials told us that they focused closely on the timeliness of investment returns, with one firm noting that the industry tended to invest in technologies that could be commercialized in less than 3 years and that would potentially exhibit exponential market growth in approximately 5 to 7 years. However, we found that nearly all of the ARPA-E award winners and most contingently selected applicants we spoke with estimated that their projects were 3 or more years away from potential commercialization. estimated that it would take at least 3 years for their ARPA-E projects to For example, 12 out of 13 ARPA-E award winners reach the commercialization stage with ARPA-E funding. Had they not received ARPA-E funding, most of these award winners––10 out of 13–– told us they either would not have pursued their ARPA-E project or that they would not have been able to develop a commercial product in less than 10 years. At the same time, 18 out of 22 ARPA-E contingently selected applicants estimated it would take at least 3 years for their projects to reach commercialization if they had been able to secure funding for the proposal they submitted to ARPA-E.\nThird, venture capital firms may not be comfortable investing in new energy technologies, noting the historical lack of successful venture capital investments in these types of projects. Venture representatives said that venture firms were more comfortable investing in software companies or other businesses with higher potential profit margins and less costly product development than new energy technologies. One venture representative noted that his firm looked to invest in products with potential gross profit margins of 50 percent or more. In addition, these representatives noted that it is difficult for new advanced energy technologies to compete with well-established and low-margin traditional sources of energy like natural gas. Venture representatives also noted that venture firms had become more risk averse and reluctant to fund new energy technologies after lackluster investment returns have made the venture industry more aware of the challenges associated with investing in unproven energy technologies.\nWhile venture capital firms generally do not fund projects that ARPA-E looks to fund, our work suggests that receiving ARPA-E project funding may have a positive effect on some award winners’ ability to attract follow-on funding from the private sector for their ARPA-E work. For example, ARPA-E’s data indicate that 18 out of 121 ARPA-E award winners from ARPA-E’s first three rounds of funding had received private sector funding totaling $318 million after receiving ARPA-E funding. In some cases, award winners received private follow-on funding immediately after receiving ARPA-E funding. A number of the award winners we spoke with stated that, given the highly competitive nature of the program, receiving ARPA-E funding served as a “stamp of approval” to venture capital or other private firms. These award winners told us that an ARPA-E award served as a signal of scientific and financial approval for potential investors. Economists call this rapid follow-on private funding a certification effect, which may explain the experiences of some of these award winners. This effect suggests that public awards address information gaps that might have otherwise precluded private investment. Some award winners and economists we spoke with told us that the government was suited to identifying technical risks because of its ability to draw on the expertise of many scientific reviewers, while venture firms may not have the scientific expertise on hand to fully understand potential investments. Furthermore, economic literature suggests that the certification effect may be particularly relevant in the high-technology industries, where the venture capital community plays an important role and in which traditional financial measures of risk and returns on investments may prove insufficient.information on the difference between research funded by selected award winners’ prior investors and ARPA-E funded work.",
"Eighteen of the 22 ARPA-E contingently selected applicants we interviewed sought funding after being turned down for ARPA-E funds. Of the 18 that sought funding elsewhere, 13 submitted project proposals to government sources, such as other DOE offices, the National Science Foundation, or nonprofit academic research institutes, and the remaining 5 submitted proposals to private investors such as venture capital firms. As of September 2011, we found that 2 out of the 22 contingently selected applicants secured funding from venture capital firms for work that was very similar to their ARPA-E project proposals.that 4 contingently selected applicants secured funding from a We also found government or nonprofit source for their projects. In addition, we found that most contingently selected applicants modified their ARPA-E project proposals to attract subsequent funding for their projects by reducing the scope of their proposals or by focusing on more basic science research. For example, the 4 contingently selected applicants that secured funding from a government or nonprofit source modified their ARPA-E proposals to be more focused on basic science research, rather than on developing a commercial technology. In addition, 1 of these applicants told us that the funding will allow it to continue exploring fundamental materials science rather than developing a product. Also, many contingently selected applicants and award winners said that other government sources were limited. Some noted that Small Business Innovation Research (SBIR) grants would not allow them to make as much progress as larger ARPA-E awards.military funding agencies were not as focused on developing low-cost technologies with broader market appeal, because aerospace or military applications do not need to achieve the same low costs and market appeal as consumer or commercial applications.",
"According to ARPA-E officials and documents, agency officials have taken steps to coordinate with other DOE offices in advance of awarding ARPA-E funds to help avoid duplication of efforts. These coordination efforts can be categorized into three areas: Prefunding coordination. ARPA-E officials told us that program directors engage with officials from related DOE offices in advance of announcing the availability of ARPA-E funds. ARPA-E program directors told us that early in the development of a funding announcement, they conduct outreach with industry, academic, and government officials both inside and outside of DOE in an attempt to identify funding gaps related to the technology they wish to develop. For example, by doing such outreach, one program director determined that there had been little funding at DOE or elsewhere for lithium air or lithium sulfur batteries, which have the potential to last significantly longer than existing lithium ion batteries. Program directors also hold workshops and invite relevant participants, including those from other DOE offices and from other federal agencies, to identify technologies that have little to no existing research funding but that have transformational potential. ARPA-E officials told us that directors use the workshops and other meetings to identify research areas that other DOE offices are not working on, and the other DOE officials provide insights on funding areas where they are not active. For example, one of these ARPA-E program directors told us that he met with officials from DOE’s Office of Electricity Delivery and Energy Reliability and the Solar Energy Technologies Program within the Office of Energy Efficiency and Renewable Energy (EERE) before announcing available funds for the electrical power electronics funding announcement. According to this program director, this coordination helped him identify that there had been little funding for the development of magnetic devices for use in electrical power electronics. He ultimately designed the ARPA- E electrical power electronics funding announcement to focus, in part, on the development of improved magnetic devices because of the lack of funding elsewhere.\nIn addition to inviting officials from other DOE offices to ARPA-E workshops, program directors told us they also engage with other DOE officials in other ways, both formally and informally. The program director responsible for ARPA-E’s work on advanced batteries said that he was a member of DOE’s Energy Storage Technology Development Team and regularly met with other officials who are engaged in applied battery research. This director said that it had become clear that DOE’s Vehicle Technologies Program will continue to focus on incremental improvements to existing lithium ion battery technologies that are currently on the market, while ARPA-E will fund newer, alternative battery technologies. Other program directors told us that they have regular discussions with counterparts within DOE to avoid duplicating efforts, although through other means than a formal committee.\nCoordination of application reviews. Some ARPA-E program directors told us that they have recruited officials from other DOE offices to review applications submitted to ARPA-E and that these officials made up as many as one-third of the reviewers for one director. These application reviewers rate and recommend proposals for potential ARPA-E funding. ARPA-E program directors told us that these DOE reviewers help them stay aware of the types of projects that other DOE offices are funding. For example, according to one program director, DOE reviewers indicated on a number of occasions that an ARPA-E advanced battery applicant would be better suited for funding under DOE’s Vehicle Technologies Program because it was for a more developed technology. ARPA-E has also used application reviewers from other federal agencies, such as the Department of Defense. One program director told us that these reviewers have also helped avoid funding projects similar to those potentially funded elsewhere.\nOfficial DOE coordination groups. ARPA-E is also a participant in DOE’s SunShot Initiative within the Solar Energy Technologies Program. The SunShot Initiative is an effort to coordinate solar energy research across DOE’s Office of Science, four national laboratories, the National Science Foundation, and ARPA-E, with the goal of achieving costs of $1 per watt for solar-generated electricity. One ARPA-E program director is a member of the SunShot Initiative advisory board and therefore able to coordinate ARPA-E solar-related activities with other SunShot Initiative members. SunShot Initiative officials told us that DOE plans to make it a model for DOE’s internal coordination efforts and that DOE hopes to expand the approach to other research areas.\nAdditionally, the ARPA-E Director created the Panel of Senior Technical Advisors (PASTA), which is a group of high-level DOE managers that meet periodically to discuss current and future DOE research efforts. ARPA-E officials told us that PASTA is an attempt to avoid duplicating efforts within DOE. PASTA meeting attendees have included officials from DOE’s applied and basic science offices.\nWe were not able to directly evaluate the effectiveness of ARPA-E’s efforts to coordinate with other DOE offices. Nevertheless, we found that on the basis of our interviews with ARPA-E award winners and contingently selected applicants, four award winners and two contingently selected applicants had received prior funding from other DOE offices.According to these award winners and contingently selected applicants, the prior funding was either for more proven technologies or was focused on more basic or foundational research than was the ARPA-E funded project.",
"ARPA-E recognizes the need to ensure that the agency is not funding projects that would be otherwise funded by the private sector, and has taken steps to get information from applicants on their other sources of funding. The agency has also taken steps to coordinate with other DOE offices in advance of awarding ARPA-E funds. However, for the applications we reviewed, we found that ARPA-E’s current funding announcements have generally yielded limited information from applicants that had prior sources of private funding. Where applicants provided little information, ARPA-E’s program directors spent time and resources to determine the extent of such funding for projects related to or similar to the applicants’ proposed ARPA-E projects. The agency’s requirements for information on private sector funding could be improved. For example, ARPA-E does not provide guidance to applicants, such as a sample response, on how to meet its information requirement on prior private funding. An approach used by another federal program that funds advanced research is for applicants to provide letters from private investors to document why their projects could not be privately funded. This approach was used by one ARPA-E award winner, who included a letter from the company’s venture capital investors to explain why the investors were not willing to fund the project proposed to ARPA-E. Also, ARPA-E officials said that they have not used venture capital data to identify applicants with prior private investors and to check information applicants provide to them, but that they have considered doing so. Examining such data allowed us to quickly cross-check applicants’ self- reported prior private funding. Without additional tools to better understand prior private funding, ARPA-E program directors will continue to spend time and agency resources taking additional steps to clarify prior private funding and may miss opportunities to avoid duplication with private investors.",
"To ensure that ARPA-E uses a more complete range of methods to ensure that limited federal funds are targeted appropriately, we recommend that the Secretary of Energy consider taking the following three actions: provide guidance with a sample response to assist applicants in providing information on sources of private funding for proposed ARPA-E projects, require that applicants provide letters or other forms of documentation from private investors that explain why investors are not willing to fund the projects proposed to ARPA-E, and use venture capital funding databases to help identify applicants with prior private investors and to help check information applicants provide on their applications.",
"We provided a copy of our draft report to ARPA-E for review and comment. ARPA-E concurred with key findings and our recommendations in its written comments, which are reproduced in appendix IV. In its comments, ARPA-E outlined the steps that the agency plans to take to address our recommendations. ARPA-E also provided additional clarifying comments, which we incorporated.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, the report will be 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) 512-3841 or ruscof@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 major contributions to this report are listed in appendix V.",
"To examine the Advanced Research Projects Agency-Energy’s (ARPA-E) use of criteria and other considerations for making awards and the extent to which applicants identify and explain other private funding information, we reviewed 20 applications drawn from a nonprobability sample of the 4,788 applicants ARPA-E received during its first three funding rounds. We selected applications from a range of ARPA-E technology program areas to which the applications were submitted and applicant institution types (e.g., small company or university). Because we selected a nonprobability sample of applications to review, information we collected cannot be generalized to all applicants; however, it provided us with an understanding of ARPA-E’s criteria and other considerations for making an award. We also interviewed and reviewed the applications from our sample of 18 award winners, which were private companies that we identified as having received funding from private investors prior to receiving an ARPA-E award. We identified these 18 companies by searching for evidence of prior private funding for the 121 award winners in the VentureDeal venture capital database. In our review of these applications, we focused on the extent to which applicants disclosed prior private funding. We also spoke with all eight ARPA-E program directors to discuss ARPA-E’s process for making awards and managing projects of award winners.\nTo analyze the extent to which ARPA-E projects could have been funded through the private sector, we conducted three sets of interviews with ARPA-E applicants and award winners. Specifically,\nWe conducted structured interviews with 22 of the 33 contingently selected applicants that ARPA-E encouraged to submit full applications during its second and third funding rounds.\nEach of the contingently selected applicants fulfilled ARPA-E’s selection criteria, had the same characteristics as ARPA-E award winners, and, according to ARPA-E officials with whom we spoke, would have been selected for an award had additional funds been available. This approach allowed us to consider the potential of ARPA-E-type projects to receive private funding.\nWe conducted structured interviews with a nonprobability sample of 13 award winners selected from ARPA-E’s first three funding rounds. We selected subjects for this sample across a range of ARPA-E award winner characteristics, including the technology program area for which an award winner received funding, the stage of development of an award winner’s project, and an award winner’s type of institution (e.g., small company or university). Because this was a nonprobability sample, the information from these structured interviews cannot be generalized to all award winners but can provide examples about award winners’ experiences. We conducted content analyses of the award winners’ and contingently selected applicants’ interview responses to quantify issues such as the ability of each group to secure private sector funding for ARPA-E-type projects.\nThird, we spoke with the 18 ARPA-E award winners we identified through the VentureDeal database to discuss key differences between their prior research and their ARPA-E-funded projects.\nWe also conducted interviews with a variety of companies and individuals knowledgeable about research associated with ARPA-E-type projects, including six venture capital firms and the National Venture Capital Association (NVCA), a trade association, to determine the availability of private capital for ARPA-E-type projects and the criteria venture capital firms apply in making their investment decisions; two additional public companies that were awarded ARPA-E funding to discuss the ability of a public company to internally fund research; and three economists to discuss the role and effectiveness of government-funded research and development of technology.\nTo examine the extent to which ARPA-E coordinates with other DOE programs to avoid duplicating efforts, we spoke with the ARPA-E program directors as well as officials from other DOE program offices including the Office for Energy Efficiency and Renewable Energy (EERE) and the Office of Science. In addition, we met with officials from the SunShot Initiative, which is a collaboration among EERE, the Office of Science, and ARPA-E to make solar energy technologies cost-competitive with other forms of energy. We also spoke with officials from the Defense Advanced Research Projects Agency (DARPA) and the Department of Energy (DOE) Office of Inspector General. During our interviews with the award winners and contingently selected applicants previously mentioned, we asked them to discuss their understanding of other potential sources of DOE funding for their projects.\nTo assess the reliability of data from ARPA-E and VentureDeal, we reviewed relevant documentation and interviewed key data system officials at ARPA-E and VentureDeal and determined that the data were sufficiently reliable for the purposes of this report.\nWe conducted this performance audit from November 2010 to December 2011 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.",
"Biomass energy. Biomass energy projects focus on means to convert crops, along with plant waste from other industrial processes, into energy through chemical, biological, or thermal techniques.\nBuilding efficiency. Building efficiency projects focus on technologies that heat, power, and maintain buildings.\nCarbon capture. Carbon capture and sequestration projects seek to create new methods to prevent the release of carbon dioxide into the atmosphere from traditional fossil fuel sources such as coal, natural gas, and petroleum.\nConventional energy. Conventional energy projects seek to significantly increase the efficiency of traditional fossil fuel power production and reduce waste generated from this use.\nDirect solar fuels. Direct solar fuel projects seek to utilize photosynthetic microorganisms to produce liquid fuels and fuel precursors directly from solar energy.\nEnergy storage. Energy storage projects seek to revolutionize battery, capacitor, and other energy storage methods for significantly improved efficiency.\nEnergy-efficient water purification. Water technology projects seek to reduce the water intensity of the electricity and fuel sectors and, reciprocally, to reduce the energy intensity of the water sector.\nRenewable power. Renewable power projects focus on innovative technologies in several sustainable energy areas such as extremely efficient photovoltaic solar collectors, wind turbines, and geothermal energy.\nVehicle technologies. Vehicle technology projects seek to advance efficiency in vehicles through technologies like new hybrid engines to those that convert on-board waste heat to electricity.\nWaste heat capture. Waste heat capture projects seek to use thermal energy expelled by traditional industrial processes, such as coal smokestacks, and efficiently convert that heat into electricity.\nBatteries for transportation. Batteries for Electrical Energy Storage in Transportation (BEEST) projects seek to develop batteries for plug-in hybrid electric vehicles (PHEV) and electric vehicles (EV) that can make a 300- to 500-mile-range electric car.\nMaterials for carbon capture. Innovative Materials and Processes for Advanced Carbon Capture Technologies (IMPACCT) projects seek to reduce the cost of carbon capture significantly through a combination of new materials, improvements to existing processes, and demonstration of new capture processes.\nElectrofuels. Electrofuels projects intend to explore new paradigms for the production of renewable liquid fuels that are compatible with today’s infrastructure. They seek to use microorganisms to harness chemical or electrical energy to convert carbon dioxide into liquid fuels without using petroleum or biomass.\nGrid-scale electricity storage. Grid-Scale Rampable Intermittent Dispatchable Storage (GRIDS) projects seek to develop new energy storage technologies that are comparable in reliability and cost to pumped hydropower and that are modular and can be deployed in any location in the country.\nBuilding efficiency. Building Energy Efficiency Through Innovative Thermodevices (BEETIT) projects focus on developing new approaches and technologies for cooling equipment used in heating, ventilating, and air conditioning (HVAC) systems in buildings, as well as in refrigeration.\nElectrical power electronics. Agile Delivery of Electrical Power Technology (ADEPT) projects strive to reinvent the basic building blocks of circuits from transistors, inductors, and transformers to capacitors for a broad spectrum of power applications. ADEPT focuses on two areas: (1) creating the world’s first kilovolt-scale integrated circuits, and (2) developing transistor switches operating at grid-level voltages that would exceed 13 kilovolts.\nAdvanced thermal storage. High Energy Advanced Thermal Storage (HEATS) projects seek to develop revolutionary cost-effective thermal energy storage technologies. HEATS focuses on three areas: (1) high-temperature storage systems to deliver solar electricity more efficiently around the clock to allow nuclear and fossil base load resources the flexibility to meet peak demand, (2) fuel produced from the sun’s heat, and (3) HVAC systems that use thermal storage to dramatically improve the driving range of electric vehicles.\nElectricity network integration. Green Electricity Network Integration (GENI) projects focus on innovative control software and high-voltage hardware to reliably control the grid network. GENI focuses on two areas: (1) cost-optimizing controls to manage sporadically available sources, such as wind and solar, alongside coal and nuclear, and (2) resilient power flow control hardware to enable automated, real-time control of grid components.\nPlants Engineered To Replace Oil (PETRO). PETRO projects seek to advance technologies that optimize the biochemical processes of energy capture and conversion in plants to develop farm-ready crops that deliver more energy per acre with less processing.\nRare earth alternatives for energy technologies. Rare Earth Alternatives in Critical Technologies for Energy (REACT) projects work on early-stage technology alternatives that reduce or eliminate dependence on rare earth materials that may jeopardize the widespread adoption of many critical energy solutions by developing substitutes in two key areas: electric vehicle motors and wind generators.\nSolar electrical power technology. Solar Agile Delivery of Electrical Power Technology (Solar ADEPT) projects focus on integrating advanced power electronics into solar panels to extract and deliver energy more efficiently. Solar ADEPT projects are centered on advances in magnetics, semiconductor switches, and charge storage.",
"The 18 award winners we identified as having received prior private venture capital told us that with the ARPA-E funding, they were generally able to pursue the development of energy technologies with greater scientific or technical uncertainty than they had when they were working with their private funding. About two-thirds of these award winners told us that the ARPA-E funding is allowing them to develop prototypes or to prove basic technology concepts on more advanced ideas than their prior work—6 of these award winners said this was for completely new research and 7 said it was for major advancements to prior research. A few of these award winners also told us they were able to work on projects with outstanding scientific research questions that private investors would not have funded. Five of these award winners reported that they would likely have been able to pursue some research similar to their ARPA-E projects, but it would have taken years longer without ARPA-E funding.\nThe following three examples reflect in more detail much of what we heard from these 18 award winners regarding the distinction between research funded by their prior investors and ARPA-E funded work:\nSun Catalytix. Sun Catalytix was founded by a professor at the Massachusetts Institute of Technology to commercialize a set of catalysts to split water into hydrogen and oxygen gases. This reaction allows these gases to be cheaply produced for a variety of purposes, including renewable energy. Sun Catalytix was initially funded by a Boston area venture capital firm to develop a product based on these catalysts. According to a representative from this firm, the venture capital funding allows Sun Catalytix to attempt to develop a product that would potentially earn the venture firm a return on investment in a reasonable amount of time. At the time of the ARPA-E award, Sun Catalytix representatives told us they were still some years away from a commercial product using this new technology. According to these representatives, had the firm not won an ARPA-E award, further venture capital might not have been available to develop an initial version of their products. Sun Catalytix representatives told us that ARPA-E funds allowed the company to conduct additional applied scientific research that led to their discovery of a new platinum-free and therefore lower-cost catalyst with much wider market potential, including renewable energy applications. A representative from the venture firm told us that the firm would not have funded the additional advanced scientific research needed to develop the new, cheaper catalyst.\nAgrivida. This small biotechnology company based in the Boston area is developing genetically modified sorghum, corn, and switchgrass crops for use in biofuel production. Agrivida representatives explained that the goal of their ARPA-E project is to generate crops capable of producing enzymes within the plant itself to internally break down the plant’s own cellulose after harvest. This technology would significantly lower the costs of cellulosic biofuel production, because enzyme treatments are currently a large part of the costs of current production methods. Before winning an award from ARPA-E, Agrivida had received venture capital funding to develop the technology. We spoke with a representative of the venture firm that funded Agrivida, who told us that this venture funding was only for research on the corn crop enzymes; the firm was not willing to fund additional research on other crops because the amount of funding it could provide to any one company in the early stages of research was limited. Agrivida officials told us that the ARPA-E award allowed them to expand the scope of their work and conduct additional research on switchgrass, which may have potential to become a major biofuel crop. They said that the ARPA-E funds have enabled rapid progress, allowing them to complete laboratory work in 1 year that would have otherwise taken 5 years. Officials from Agrivida said they hope to have made enough progress by the time they complete their ARPA-E research to be able to attract additional investors and secure commercialization partners.\n24M. This is a startup company that is developing flow batteries for use in transportation and electrical grid applications. Unlike normal batteries, flow batteries generate electrical current by internally circulating electrically active liquids, which allows for much lower costs than traditional batteries. However, flow batteries do not exist for use in tight spaces like cars where their cost advantages could allow for significant improvements to electric vehicles. In 2010, concurrent with its ARPA-E award, 24M received $10 million from two venture capital firms to develop flow batteries for consumer and commercial applications. A representative from one of these venture firms told us that his firm would not have been confident in funding the 24M project without ARPA-E involvement. Representatives from 24M said that the ARPA-E award was critical to their ability to secure private investment and to launch the company and that they now expect to have a working prototype by the end of their ARPA-E project.\nIn addition, the two public companies we spoke with that were awarded ARPA-E money told us that although their companies had internal resources devoted to research and development, they were not able to internally fund the projects they proposed to ARPA-E. They told us there were two reasons for this. First, the companies said that existing product lines placed heavy demands on their internal research and development budgets, and that there is continuous pressure from existing customers and competitors to improve existing products; since ARPA-E projects were still a number of years away from a return on investment, these investments could not be justified. Second, these companies told us that internal investments had to meet minimum investment return thresholds, and that ARPA-E-type projects were not able to meet these thresholds. Officials from one company told us that the rate of return on investment required by its management was at least 20 percent per year.",
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"In addition to the individual named above, Tim Minelli (Assistant Director), Paola Bobadilla, Cindy Gilbert, Robert Marek, Justin Mausel, Alison O’Neill, Jeanette Soares, and Franklyn Yao made important contributions to this report."
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"ARPA-E officials have taken steps to coordinate with other DOE offices to avoid duplication.",
"For example, ARPA-E program directors told GAO they engage in outreach with officials from related DOE offices in advance of funding announcements to identify funding gaps in research.",
"In addition, program directors have recruited officials from other DOE offices and the Department of Defense (DOD) to review ARPA-E applications.",
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"title": [
"",
"Why a U.S.-Thailand FTA?",
"Thailand's Economy and Trade Orientation",
"U.S.-Thailand Commercial Relations",
"Issues in the FTA Negotiations",
"Trade in Goods",
"Agricultural Trade",
"Intellectual Property Rights",
"Trade in Services",
"Investment",
"Status of FTA Negotiations",
"Congress and the U.S.-Thailand FTA"
],
"paragraphs": [
"",
"The Bush Administration notified Congress on February 12, 2004, that it intends to begin free trade agreement (FTA) negotiations with Thailand. This notification, which follows an October 19, 2003 announcement by President Bush and former Thai Prime Minister Thaskin of their agreement to launch negotiations, allows for talks to begin within 90 days or by mid-May 2004, after required consultations with Congress. Two negotiating sessions took place in 2004, and a third was held April 4-8, 2005, in Thailand. The fourth and fifth sessions were held July 15, 2005, in Montana, and September 26-30, 2005, in Hawaii. The sixth was held in Thailand from January 10-13, 2006. But Thailand suspended negotiations on February 24, 2006, when it was decided that a new election would be held in April. Since the April election, no decision has been made yet to resume the negotiations due to ongoing political turmoil (the April election was invalidated by the constitutional court and a new general election is to take place this fall).\nIn the notification letter sent to the Speaker of the House and the Senate Majority Leader, then-U.S. Trade Representative Robert Zoellick put forth an array of potential commercial and foreign policy gains that could be derived from the agreement. At the same time, Mr. Zoellick alluded to sensitive issues that require attention: trade in automobiles, protection of intellectual property rights, and labor and environmental standards.\nZoellick's letter states that an FTA would be particularly beneficial to U.S. agricultural producers who have urged the administration to move forward, as well as to U.S. companies exporting industrial goods and services. For agricultural producers, by eliminating or reducing Thailand's high tariffs and other barriers, the FTA offers the opportunity to significantly increase export sales to Thailand. In 2005, Thailand was the 16 th largest market for U.S. farm exports.\nThe administration also argued that an FTA would help boost U.S. exports of goods and services in sectors such as information technology, telecommunications, financial services, audiovisual, automotive, and medical equipment. In 2005, U.S. companies exported to Thailand $7.4 billion in goods and over $1 billion in services. Maintaining preferential access for U.S. investors in Thailand is also a top priority for U.S. business. Given that Thailand is a relatively small economy compared to the United States (1/100 th \"the size\"), the agreement by itself will have limited effects on the overall U.S. economy.\nFrom the standpoint of U.S. foreign policy interests, the Administration views the proposed FTA as strengthening cooperation with Thailand in bilateral, regional, and multilateral fora. Bilaterally, the FTA is seen as strengthening Thailand's position as a key military ally, particularly in the war on terrorism. Regionally, the FTA is viewed as advancing President Bush's Enterprise for ASEAN Initiative (EAI). The goal of the EAI is to negotiate a network of bilateral trade agreements with the 10 members of ASEAN. Multilaterally, Thailand plays a key leadership role in the World Trade Organization (WTO). An FTA could encourage Thailand to actively cooperate with the United States in supporting multilateral trade negotiations under the aegis of the Doha Development Agenda, particularly in the area of agricultural liberalization.\nAs for Thailand, similar broad economic and political calculations explain its interest in an FTA. In economic terms, Thailand is very concerned that its exports to the United States have been losing market share in recent years to countries such as Mexico and China. By eliminating U.S. tariff and non-tariff barriers to Thai exports, an FTA could help increase the competitiveness and market share of Thai products in the U.S. market. Thailand also does not want to be excluded from FTA benefits the U.S. has negotiated with other countries, particularly the potential of an FTA to increase U.S. investment in Thailand. Modernization of the services economy and diffusion of higher levels of technology, know-how, and labor management skills are essential for the Thai economy to advance beyond the competition from lower-wage emerging market economies such as China, Vietnam, and Laos. In addition, a closer political and economic relationship with the United States could provide Thailand with more leverage to play a larger role in Southeast Asia.\nGeneral opposition to the FTA in both countries is expected from workers and companies in import-competing industries that bear the brunt of the adjustment costs of a trade agreement. Despite the welfare gains to society as a whole (e.g. more efficient resource allocation, lower priced imports, and greater selection of goods), those industries subject to increased competition face additional pressure to cut costs, wages, and prices. Some companies may not be able to withstand these pressure and may be forced out of business, accompanied by a loss of jobs. Under these circumstances, certain stakeholders, as a matter of self-interest, may oppose trade agreements that accelerate competition and structural changes in an economy.\nSpecific opposition in Thailand has arisen from stakeholders in the agricultural and services sectors. Given that close to 50 percent of the Thai labor force is employed in agriculture, liberalization of this sector has been contentious. Similarly, in a number of services sectors, Thai companies feel they are at a competitive disadvantage in opening up to U.S. competitors. Thailand's banking and financial services industry, in particular, is wary of further liberalization after the financial crisis of 1997. Thai stakeholders are also particularly wary, given the high incidence of AIDS infections, in U.S. efforts to secure data exclusivity for patented pharmaceuticals. In addition, a number of Thai business interests reportedly are concerned over potential U.S. investment in newly privatized companies such as the Electricity Generating Authority of Thailand and the Mass Rapid Transit Authority.\nOpposition in the United States may arise from groups concerned about the impact of the trade agreement on labor and environmental standards. Often joined by anti-globalization activists, these interest groups question whether trade agreements enhance the social welfare of participating countries. Other issues such as transparency in government decision-making, human rights, and freedom of the press could also be raised. Increased market access for Thai agricultural products such as rice and sugar, as well as a reduction of the 25% U.S. tariff on lightweight pick-up trucks, is already controversial. In addition, Thailand is a persistent opponent and critic of U.S. trade remedy laws, which many U.S. interests groups don't want to see weakened.\nIn short, competing viewpoints have surfaced regarding the desirability of an FTA. As in most FTAs that the United States has negotiated, the distribution of gains and losses would depend on the details of the provisions.\nAs background for congressional oversight, this report examines Thailand's economy and trade orientation, the scope and significance of the U.S.-Thai commercial relationship, and the likely top issues in the negotiations. The report concludes with a short summary of the Congressional role and interest in the FTA.",
"Thailand was severely affected by the Asian Financial Crisis, which hit the Thai economy in July 1997 and subsequently affected several other East Asian economies. The economic crisis in Thailand was characterized by a significant depreciation of its currency (the baht), depletion of nearly all of Thailand's foreign exchange reserves, a decline in the stock market, bankruptcies among a number of major Thai banks and corporations, and a sharp deterioration of property prices. The combination of these shocks led to a sharp economic downturn. Ten years prior to the 1997 crisis, Thailand had been one of the world's fastest growing economies. Between 1990 and 1996, gross domestic product (GDP) averaged 8.6%, fueled in large part by rapid export growth. However, in 1998, GDP fell by 10.5% while, exports and imports dropped by 6.7% and 33.0%, respectively, over 1997 levels (see Table 1 ). In addition, the unemployment rate rose from 3.2% in 1997 to 7.3% in 1998, and living standards (measured according to per capita GDP measured on a purchasing power parity basis), plummeted by 11%.\nThailand's economy was stabilized by a $17.2 billion loan from the International Monetary Fund. Real GDP grew by 4.4% in 1999 and by 4.8% in 2000, but slowed to 2.2% in 2001. Public dissatisfaction in Thailand with the way the government was handling economic restructuring brought about the election of a new coalition government in 2001 (headed by the Thai Rak Thai Party) with Thaksin Shinawatra as prime minister. He launched a series of economic initiatives designed to stabilize the economy, boost domestic demand, encourage the growth of small and medium-sized businesses, and improve rural incomes. Thailand's economy experienced relatively strong growth from 2002-2004; real GDP growth averaged 6.2%. Real GDP growth was more modest in 2005 at 4.5%, due to a number of factors, including the December 2004 tsunami, higher energy prices, rising inflation, concerns over the avian influenza (bird flu), and domestic insurgencies. Global Insight, an international economic forecasting firm, estimates Thailand's real GDP will rise by 4.6% in 2006 and 5.2% in 2007. Major economic challenges include reducing the high level of corporate debt and the amount of non-performing loans held by the banking sector.\nThailand's economy is heavily dependent on international trade and foreign investment. In 2005, the value of Thailand's merchandise exports was equal to 63% of its GDP. Foreign direct investment (FDI) is an important source of exports, employment, and access to new technologies and processes. Thailand's top five trading partners in 2005 were ASEAN, Japan, the European Union, the United States, and China (see Table 2 ). The United States was Thailand's second largest export market and its fifth largest supplier of imports. Thailand's major exports (2004 data) included machinery and mechanical appliances (mainly computers and computer parts), electrical apparatus for electrical circuits, and electrical appliances. Major imports included mineral and metal products, electronic parts, and crude oil. Annual FDI flows to Thailand have been relatively flat over the past few years, averaging about $1.5 billion annually from 2002 to 2005. Some analysts contend that China may be drawing FDI away from Thailand and other East Asian countries.",
"The United States and Thailand maintain extensive commercial ties. Thailand affords the United States preferential treatment vis-a-vis other countries for certain types of investment under the U.S.-Thai Treaty of Amity and Economic Relations of 1966. The American Chamber of Commerce in Thailand estimates that the United States is the second largest foreign investor in Thailand (after Japan), with cumulative investment at over $21 billion through 2004. U.S.-invested firms in Thailand employ over 200,000 Thai nationals. Major sectors for U.S. FDI in Thailand include petroleum, banking, electronics, and automotive. In recent years, U.S. auto companies have invested heavily in Thailand.\nIn 2005, Thailand was the 23 rd largest U.S. export market ($7.4 billion) and its 16 th largest source of imports ($20.0 billion) (see Table 3 ). U.S. exports to, and imports from, Thailand expanded by 15.6% and 14.0%, respectively over the previous period in 2004. Major U.S. exports to Thailand include semiconductors and other electronic components; computer equipment; basic chemicals, navigational, measuring, electromedical, and control instruments; miscellaneous manufactured products ; and basic chemicals. Major U.S. imports from Thailand include computer equipment, semiconductors and other electronic components, communications equipment, apparel, and miscellaneous manufactured products (mainly jewelry).\nThai-U.S. economic relations continue to deepen, as Thailand continues to reform its economy and lower its trade barriers. Still, a number of contentious issues persist. Thai officials have criticized U.S. agricultural subsidy programs, contending that they give U.S. farmers an unfair competitive advantage. In addition, Thailand has participated in two WTO dispute resolution cases against the United States: U.S. anti-dumping subsidy offsets (the \"Byrd Amendment\"), and U.S. restrictions on shrimp imports. While the United States has not filed any cases against Thailand in the WTO, it has pressed Thailand to liberalize its trade and investment regimes and to improve protection of U.S. intellectual property rights (IPR).",
"Countries that form FTAs agree at a minimum to phase out tariff and non-tariff barriers (NTBs) on mutual trade in goods in order to enhance market access between trading partners. Most U.S. FTAs, including NAFTA and agreements with Chile and Singapore, are more comprehensive. Because the U.S.- Thailand FTA is being modeled on the Singapore FTA, no sector, product, or functional issue can expect to be excluded from the liberalization process. This approach is favored by many Members of Congress. As a result, the negotiation is covering trade in goods and services, agriculture, investment, and intellectual property rights, as well as other issues such as government procurement, competition policy, and customs procedures.",
"Tariffs are the major barrier to liberalized trade in goods. Thailand's reliance on import licensing, opaque customs procedures, and excise taxes are also issues the U.S. is addressing.\nThailand's simple average applied tariff rate of about 13% for non-agricultural imports provides a relatively high level of protection. Many Thai tariff rates are much higher than the average and tend to be applied to imports competing with locally produced products. These include tariffs on autos and auto parts, alcoholic beverages, fabrics, footwear and headgear, and some electrical appliances. For example, the tariff on passenger cars and sport utility vehicles is 80%, the tariff on motorcycles 60%, and the tariff on completely knocked down (CKD) auto kits 33%. Tariffs on fabrics range from 25%-40%.\nBeyond cuts in tariffs, market access for U.S. goods could be improved by reducing excessive paperwork and undue processing delays in Thai customs procedures. In addition, import licensing requirements on various items remains opaque and can sometimes serve as a quantitative restriction.\nU.S. tariffs imposed on Thai non-agricultural exports are relatively low, averaging around 2-3%, but U.S. tariffs on some items such as textiles and apparel and light trucks are much higher. Thai concerns may also focus on U.S. trade remedy measures, such as use of antidumping and countervailing duty procedures to protect U.S. industry.",
"The United States and Thailand are important trading partners in agricultural products, but the U.S. market is more important for Thailand than the Thai market is for U.S. exporters. The United States is the second largest market for Thai agricultural exports and Thailand is the fourth largest supplier of U.S. agricultural imports. At the same time, even though the United States has been the largest supplier of Thailand's agricultural imports, Thailand ranks only as the 16 th largest market for U.S. agricultural exports.\nThe total value of bilateral farm trade was about $1.2 billion in 2002 with the U.S. running a $377 million deficit. The major Thai exports to the United States are processed seafood, frozen shrimp, rubber, rice, tapioca, sugar, and fruits and vegetables. Major Thai imports from the U.S. are oil seeds, cotton, cereals (especially wheat), soybean oil and cake.\nThai-U.S. agricultural trade is more restricted than trade in manufactured goods. Both countries impose higher tariffs on agricultural products than on manufactured goods. The Thai average MFN applied tariff on agricultural products is about 24 percent compared to about 7% for the United States.\nMore than 43% of the Thai tariff lines for agricultural products have applied rates exceeding 20%, compared to only 1.3% of the U.S. tariff lines. Consumer-ready products, meats, fresh fruits and vegetables face tariffs ranging from 40-60%. Excise taxes and surcharges, licensing fees, and labeling and certification standards can further boost the tax burden considerably.\nU.S. fruit growers estimate lost sales of up to $25 million annually from the combined effect of Thailand's high tariffs and surcharge. Other U.S. exports that could benefit from liberalization include meat and dairy products, sugar, alcoholic beverages, and tobacco. U.S. tariff rates that Thailand may want to see reduced include vegetables and fruits with tariff rates exceeding 10%, pineapples with a tariff rate of 29%, and fish and fish products with a tariff rate of 26%. Thailand, which is the world's third largest producer of sugar, will also seek substantial liberalization of the U.S. sugar quotas.\nSince agricultural barriers are higher than non-agricultural barriers, liberalization could boost trade more in agricultural products than in manufactured goods. U.S. farm groups estimate that potential U.S. agricultural exports to Thailand could increase by around $300 million annually if Thailand's tariffs and other trade-distorting measures were substantially reduced. Similar large increases in Thai agricultural exports to the United States can be expected if substantial liberalization occurs.",
"Deficiencies in Thai protection of U.S. IPR, such as patents, copyrights, and trademarks, have been a longstanding U.S. concern. The USTR's 2005 \"Special 301\" report acknowledged that Thailand had taken a number of measures in 2004 to improve IPR protection, such as conducting raids on illegal production facilities, but expressed concern over transshipments of illegal IPR products through Thailand and the continued high piracy rates of copyrighted materials (such as optical disks, software, and books). The International Intellectual Property Rights Alliance (IIPA) estimates that IPR piracy in Thailand cost U.S. firms $175 million in 2004.\nU.S. IPR stakeholders lobbied hard to see Thailand make more progress on IPR enforcement before the FTA negotiations were formally announced. In a March 2004 press release, IIPA president Eric Smith stated: \"The Thai Government harbors dozens of CD plants capable of producing over 400 million discs per year—more than seven times any justifiable legitimate domestic demand. It is clear Thailand has become a major exporter of pirate discs.\" In deference to these concerns, then-U.S. Trade Representative Zoellick, in announcing the intention to begin negotiations, recognized their \"... concerns about the deficiencies in Thailand's protection of intellectual property and in its customs regime. Addressing these issues, as well as other areas such as strengthening measures against the production of illegal optical discs, will be essential for the successful conclusion of these negotiations.\" In August 2005, the Thai government reportedly implemented new regulations that would enforce stringent restrictions on the sale and transfer of CD production equipment in order to combat piracy. All CDs will be required to display a \"mark certifying manufacture\" issued by the government.",
"Services such as commerce (wholesale and retail trade), transportation, telecommunications, and finance account for a growing share of economic activity in Thailand. In 2002, services accounted for about 55% of GDP and about 40% of employment. A large share of foreign investment goes into services, especially in finance and retail trade.\nU.S. negotiating objectives are likely to include improvements in access for U.S. providers of financial, telecommunications, and professional services, and other sectors. Liberalization of these sectors is likely to be accompanied by improvements in Thailand's regulatory environment, as well as capacity to oversee and insure effective competition.\nIn pursuing these objectives, U.S. negotiators are insisting on according greater market access across each other's entire services sector, subject to a few exceptions that must be in writing. This so-called negative list approach was used in the Singapore FTA and is supported by many Members of Congress. Exceptions in the Singapore agreement deal with sectors that usually require government certification or licenses (lawyers, accountants) involve government institutions (airports, provision of social security, public hospitals, government corporations), or involve national policy (atomic energy).\nMajor financial institutions in Thailand include the central bank, commercial banks, finance companies, securities companies, and insurance companies. Following the 1997 Asian financial crisis, Thailand increasingly deregulated and liberalized access of foreign firms to its financial sector. For example, foreign equity limits were relaxed for ten years to allow foreign ownership of up to 100% (previously 25%) in commercial banks and finance companies. However, new capital invested in these companies after the ten-year period must be provided by domestic investors until foreign-held equity share falls to 49%. Other restrictions concerning the number branches foreign banks may operate, as well as limits on the number of expatriate professionals that can be employed, could also be raised in the negotiations. Similarly, in the area of brokerage services, foreign firms are allowed to own shares greater than 49% of Thai securities firms only on a case-by-case basis.\nThailand's communications market is characterized by limited competition and relatively high prices. While Thailand has committed to open up telecommunications services to direct foreign competition by early 2006, the reform process has lagged. Although the Thai Government has allowed foreign participation in the telecommunications sector since 1989, the market is still dominated by two state-owned companies: the Communications Authority of Thailand, which controls international services, and the TOT Corporation and Public Company Limited, which controls domestic services. A few private sector companies have been awarded concessions by the Thai government to provide wireless and fixed-line services. Pending establishment of a National Telecommunications Commission to serve as an independent regulator, deregulation and full liberalization of the telecommunications market is likely to be difficult.\nLiberalization of other services such as legal, construction, architecture, engineering, and accounting are also U.S. negotiating objectives. Various Thai laws currently make it very difficult for foreign-owned companies and nationals to operate in these industries.",
"The United States has an investment agreement with Thailand under the 1966 Treaty of Amity and Economic Relations (AER). The treaty accords the same rights to U.S. and Thai citizens and companies to own and operate in each other's territory with the exception of professional services and several sectors such as communications, transportation, and depository banking.\nInitially, the AER provided few benefits to U.S. investors because Thailand at the time had few laws and regulations restricting foreign investment. Over time, however, Thailand instituted new laws and regulations that limited foreign nationals' operations in Thailand. As a result, the legal treatment accorded by the 1966 treaty became preferences extended only to U.S. investors. Consequently, the AER came to violate Thailand's WTO obligations to accord equal treatment to all member states. Thailand received an exemption from the WTO for ten years, but the exemption expired in January 2005.\nThe FTA negotiations may consider ways to construct a bilateral investment agreement that is WTO-consistent but still retains current privileges for U.S. companies and nationals. With over 1200 U.S. companies currently taking advantage of the rights protected by the AER, the issue is a top priority for the U.S. business community.\nU.S. negotiators may also make establishment of a special investor-state dispute mechanism a priority objective. Such a mechanism could ensure neutral and binding third-party resolution of disputes involving foreign investors and the host country.\nThailand's plans for reforming and privatizing a number of state-owned companies continues to be a matter of great interest to foreign investors. The Thai government's plan to overhaul state-owned telecommunications, energy, and transport companies has encountered widespread opposition from labor unions, causing indefinite delays in planned share offerings of the Electricity Generating Authority of Thailand, Thailand's largest state-owned company.",
"The two sides completed their sixth round of FTA negotiations in Chiang Mai, Thailand on January 10-13, 2006. While U.S. negotiators stated that some progress was made, they expressed disappointment over the lack of progress in the talks. Major stumbling blocks reportedly include U.S. proposals on IPR, and liberalization of the services sector, including distribution, financial services (such as banking, insurance, and securities brokerage), and telecommunications. Thai officials have sought to reduce high U.S. tariffs on light trucks (25%) and restrictions on sugar imports. In addition, the January 2006 FTA talks were reportedly temporarily disrupted by an estimated 10,000 Thai protesters. On January 19, 2006, Thailand's lead negotiator in the U.S.-Thailand FTA talks, Nitya Pibulsonggram resigned. Press reports stated that the resignation was induced in part by political opposition to the FTA by various groups. In March 2006 Thailand suspended the negotiations pending the outcome of the snap April general election (which was subsequently invalidated by a constitutional court). With a new general election scheduled for this fall, the FTA negotiations remain suspended. Thus, it appears that even if they were to restart unexpectedly before the election, it is unlikely an agreement could be completed in time to be considered under the current Trade Promotion Authority statute, which expires on July 1, 2007.",
"The U.S.-Thailand FTA negotiations are of interest to Congress because (1) an agreement would require passage of implementing legislation to become operational; (2) an agreement could increase U.S. exports of goods, services, and investment; (3) an agreement could increase competition for U.S. import-competing industries such as textiles and apparel and pick-up trucks; and (4) if an agreement is implemented, Thailand would become the second Asian FTA partner (the first was Singapore) for the United States.\nMany Members of Congress support an aggressive FTA strategy because of the potential to open foreign markets further to U.S. exports and investment. While the Administration's policy of negotiating multiple FTAs has not been very controversial, some Members have expressed concerns that the Administration's criteria for deciding on FTA partners has relied too heavily on foreign policy considerations. In the case of Thailand, however, the same Members welcomed the announcement of the Thailand FTA because Thailand represents a relatively large market that offers significant commercial gains, particularly to U.S. agricultural producers.\nAt the same time, some congressional concern has surfaced in regard to automotive trade, centered on the impact that a reduction of the current 25% U.S. tariff on pick-up trucks could have on imports and U.S. jobs. Auto companies based in Thailand produce more than 500,000 pick-ups a year, making the country the world's second largest producer. None of these vehicles, however, are exported to the United States, but the United Auto Workers argue that if the 25% tariff were removed, some 80,000 auto jobs would be jeopardized. (More than a million pick-ups are currently produced in the United States.)\nSenators George Voinovich (R-OH) and Carl Levin (D-MI), co-chairs of the Senate Auto Caucus, in a November 12, 2003 letter, urged the Bush Administration to retain the 25% tariff out of concern that its elimination would open the door for Japan to export trucks from Thailand to the United States. A similar letter was signed by the chairs of the House Auto Caucus, Representatives Dale Kildee (D-MI) and Fred Upton (R-MI). On the Senate side, a group of 40 Senators (36 Democrats and 4 Republicans) sent a similar letter to U.S. trade officials on March 18, 2005.\nA different approach to this concern is embodied in S.Con.Res. 90 introduced by Senators Levin and Voinovich on February 23, 2004, and H.Con.Res. 366 , introduced February 24, 2004, by Representatives Kildee, Quinn, and Levin. Because Japan and other countries could benefit from bilateral concessions agreed to between the United States and Thailand, the resolutions maintain that negotiations affecting access to the U.S. automotive market should only take place if all major automobile producing countries participate.\nOne House Ways and Means Committee member Phil English announced on June 8, 2006 that he would not support the FTA if it were brought to Congress. English said that \"Thailand continues to demonstrate that it does not share common views with the United States with respect to the World Trade Organization and a country's right to police its markets effectively from predatory or illegally traded imports.\"\nOther members of Congress may wish to consider how a U.S.-Thai FTA could affect U.S. commercial relations in Asia in general, particularly in light of the trend among Asian countries for bilateral trade agreements. China's growing economic role in Asia and its quest for new markets, materials, and trade deals is pushing almost every other major Asian country, including Japan and South Korea, to consider FTAs with each other. Given the increased competition, the U.S.-ASEAN Business Council has called for a vigorous timetable for the completion of the U.S.-Thai FTA talks and designation of the next ASEAN country with which the United States will seek an FTA. Accordingly, U.S. trade strategy toward the ten-nation ASEAN grouping, which is the third largest market for U.S. exports, could be an important congressional consideration."
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"question": [
"What information was included in the letter from Robert Zoellick?",
"Why did the letter state that an FTA would be beneficial?",
"What other issues needed to be addressed, according to the letter?",
"Why is Thailand considered a strong candidate for an FTA with the U.S.?",
"How would an FTA with Thailand benefit American exporters?",
"How would an FTA with Thailand affect other countries outside of the agreement?",
"What is the minimum requirement of an FTA?",
"How will the Thailand FTA compare to this minimum benchmark?"
],
"summary": [
"In the notification letter sent to the congressional leadership, then-U.S. Trade Representative Robert Zoellick put forth an array of commercial and foreign policy gains that could be derived from the agreement.",
"The letter stated that an FTA would be particularly beneficial to U.S. agricultural producers, as well as to U.S. companies exporting goods and services to Thailand and investing there.",
"Mr. Zoellick also alluded to sensitive issues that would need to be addressed: trade in automobiles, protection of intellectual property rights, and labor and environmental standards.",
"Thailand has been viewed as a strong candidate for an FTA with the United States. Its economy has shown relatively healthy growth in recent years, rising by 6.2% in 2004 and 4.5% in 2005. Yet, Thailand maintains relatively high tariff and non-tariff barriers on a number of products and services.",
"Secondly, an FTA with Thailand would allow U.S. exporters to gain access to Thai markets similar to that obtained by other countries through bilateral and plurilateral agreements with Thailand.",
"Third, a U.S.-Thailand FTA would likely induce other countries to seek a trade liberalization agreement with the United States.",
"Countries that form FTAs agree at a minimum to phase out or reduce tariff and non-tariff barriers (NTBs) on mutual trade in order to enhance market access between the trading partners.",
"The U.S.-Thailand FTA is expected to be comprehensive, seeking to liberalize trade in goods, agriculture, services, and investment, as well as intellectual property rights. Other issues such as government procurement, competition policy, environment and labor standards, and customs procedures are also on the negotiating table."
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CRS_RL34249
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"title": [
"",
"Major Provisions",
"Individual Tax Revision",
"Revisions in the AMT",
"Tax Benefits for Lower-Income Individuals",
"Tax Increases on High-Income Individuals",
"Individual Base Broadening",
"Distributional Effects",
"Extenders",
"Corporate Tax Provisions",
"Appendix. A Discussion of Extenders"
],
"paragraphs": [
"On October 25, 2007, Chairman Charles B. Rangel of the House Ways and Means Committee announced his tax revision proposal, H.R. 3970 , the Tax Reduction and Tax Reform Act of 2007. The most significant provisions, measured by revenue effect, were a revision in 2007 and subsequent repeal of the individual alternative minimum tax (AMT) and an additional tax on high-income individuals. The proposal also contained tax cuts for lower-income taxpayers, some tax increases on high-income individuals, several base broadening provisions, one-year extensions of a number of expiring tax provisions, and a corporate and business revision package that included rate reduction and base broadening. The 2007 AMT provision, the extenders, and some other provisions are also included in a tax bill subsequently passed by the House ( H.R. 3996 ). The 2007 AMT provision was eventually enacted in P.L. 110-166 . Current bills also include some provisions, including some revenue raisers: H.R. 6275 to extend the AMT revision for another year, and H.R. 6049 , which includes the extension of expiring provisions.",
"Table 1 shows the major provisions and categories of minor provisions of H.R. 3970 . The AMT provision includes a one year \"patch\" that would extend temporary increases in the exemption and credits that prevent the AMT, a provision originally targeted at very high-income individuals, from affecting many upper middle class taxpayers. The AMT revisions would lose revenues projected at $845.2 billion over the 10-year period FY2008-FY2017. Roughly offsetting this loss is an increase in taxes on higher-income individuals, in the form of an increased tax rate of 4% and 4.6%, which would gain $831.7 billion in revenues. These amounts are slightly under 5% of total individual income tax revenue projected to be collected over the 10-year period.\nIn addition to these major provisions, there are $86 billion in tax cuts for lower-income individuals, including an increase in the standard deduction, the earned income credit, and the refundability of the child credit. There are also additional taxes on higher-income individuals in the form of restrictions on itemized deductions and personal exemptions. There are also a series of base broadening provisions, with the most significant ones increases in taxes on investment managers.\nThe proposal also includes one-year extensions of 37 tax benefits that are scheduled to expire, mostly at the end of 2007. The most significant of these are the research and experimentation credit, the deduction for state and local sales taxes, and the 15-year recovery period for certain lease-hold improvements and restaurant property.\nFinally the proposal reduces the top corporate tax rate from 35% to 30.5%, with the change offset by a series of base broadening provisions, with the most important ones repealing the domestic production activities deduction, a set of international tax provisions, and two inventory revisions.\nAs indicated by the table, the individual section is essentially revenue neutral (raising as much revenue as it loses), the extenders have a very small loss, and the corporate revisions a very small gain. Overall the bill has a negligible effect on revenues over a 10-year period. Note, however, that these measures reflect the standard baseline for legislative proposals that assumes the 2001 tax cuts are allowed to expire. Were the tax cuts to be extended, the revenue loss associated with the repeal of the AMT would be larger, or, to put it another way, if H.R. 3970 were enacted, the cost of extending the tax cuts would be larger. This interaction occurs because the lower tax rates enacted in 2001 were not fully realized (were \"taken back\") for many taxpayers, especially as time passed, because these taxpayers were subject to (or became subject to) the AMT.\nThe provisions in the bill that provide the AMT patch through 2007 and the extenders are included in H.R. 3996 , a bill passed by the House on November 9, 2007 that deals with more immediate issues. The revenue cost of the AMT patch in that bill is $50.6 billion, as compared to $49.6 billion in H.R. 3970 . The difference apparently reflects a larger increase in the AMT exemption to allow for real income growth.",
"The individual tax revisions constitute the major portion of the bill, in size of tax changes. The individual tax package is roughly revenue neutral, but it redistributes tax burdens. The sections below discuss the revisions and some of the issues associated with them. The final section summarizes the overall distributional effect.",
"The AMT has become a major issue and eliminating it and paying for the resulting revenue cost is the most important feature of the bill in terms of revenue. The objective of the AMT was originally to impose taxes on higher-income individuals who were otherwise paying low taxes because of tax preferences (i.e., tax benefits). Because AMT exemptions were not indexed for inflation, and because of other revisions, the AMT began to affect individuals in the upper middle incomes, and no longer affected the very highest income individuals. Increasingly the AMT is a tax that is triggered by provisions that it was not originally focused on, such as personal exemptions and certain itemized deductions.\nThe bill's AMT provisions are in two parts: an extension of the \"patch\" for 2007 (costing $49.6 billion) which increases and indexes the exemption from the AMT and extends allowances of certain credits, and the subsequent repeal of the AMT (costing $797.7 billion). Without the patch, the AMT, which initially applied to less than 20,000 taxpayers, and applied to 3.5 million in 2006, will affect 24 million taxpayers in 2007. These amounts will grow over time.",
"H.R. 3970 contains three provisions targeted at lower-income individuals that cost $86 billion overall: an increase in the standard deduction; an increase in the earned income credit for families without children; and an increase in the refundability of the child credit. The revenue cost of the components is shown in Table 2 .\nThe bill would increase the standard deduction by $850 for married couples, $425 for singles, and $625 for heads of households. The standard deductions for 2007 are currently $10,700, $5,350, and $7,850 respectively. This change would increase the number of lower-income taxpayers who do not pay taxes, and also decrease the share of taxpayers that itemize, a change that would simplify tax compliance. This increase in the standard deduction accounts for $47.9 billion of the revenue loss.\nThe proposal would also increase the earned income tax credit for single individuals and married couples without children, as well as the credit's phase out range. These families receive a small earned income tax credit of 7.65% on income up to $5,590, compared to a 34% credit for families with one child and 40% for families with two children, both applicable to larger incomes. The credit phases out (for 2007) at $12,590 for singles and $14,590 for childless couples. The proposal would increase the amount eligible for the credit from $5,280 to $10,900 and the credit rate to 15.3%. This provision costs $29.1 billion.\nSome might resist the expansion of the earned income credit to families without children, taking the view that the program is a welfare program run through the tax system and thus should be directed at the more vulnerable population as are many other welfare programs (such as Medicaid and general income support programs). From the viewpoint of tax equity, however, the restricted benefits for those without children cause poor families without children to pay taxes while families with children that have a much higher standard of living have tax subsidies, which are enhanced by the child tax credit.\nThe third proposal would increase the refundability of the child tax credit, that is, the rebate of the tax for families with little or no tax liability. Currently, the child tax credit is refundable for 15% of income over $11,300; hence the credit is not refundable or fully refundable to low-income families. The proposal would decrease the threshold to $8,500 and no longer index it, so it would continually decline in real value over time. This provision costs $9.1 billion.",
"Three revenue raising provisions apply to high-income individuals and roughly offset the losses associated with the repeal of the AMT: a tax on high adjusted gross incomes, a restoration of provisions that phase out personal exemptions and itemized deductions for high-income taxpayers, and an increase in the floor for miscellaneous itemized deductions. The revenue impact of the provisions is shown in Table 3 .\nBy far the largest of these provisions, an $831.7 billion revenue gain, is a proposal to impose a surtax of 4% on adjusted gross income above an amount that would be set by the Treasury Secretary where 90% of individuals above that amount would otherwise be subject to the AMT. This amount would, however, not be less than $200,000. There would be an additional 0.6% tax on incomes above $500,000 ($250,000 for singles), for a total additional tax of 4.6% on such income. Unlike an ordinary rate increase, these increased taxes would apply to adjusted, not taxable, income. Thus they would increase tax rates on all income whether or not it is eligible for preferences such as itemized deductions or lower rates (Capital gains and dividends are taxed at a maximum rate of 15% through 2010; after that point the dividend preference will end and the capital gains tax will rise to 20%).\nThe second provision would restore the phase out of personal exemptions and itemized deductions for high-income individuals, commonly referred to as PEP and Pease. Under the terms of the 2001 tax cut, these phase outs were to be gradually eliminated. This provision has no effect on revenues after FY2012 because this phaseout's elimination occurs only through 2010, as the 2001 tax cuts sunset in 2010, but overall would raise $28.6 billion.\nThe third provision would increase the current 2% floor under miscellaneous itemized deductions to 5% for income over $500,000 ($250,000 for single returns). This is a deduction that was not allowed under the AMT. It raises $7.1 billion. Also included in the table is an interaction term to cover the relationships among these provisions and with the AMT repeal.\nThe rationale for these increases is that the AMT was aimed at higher-income individuals and thus taxes should be raised on these individuals to pay for AMT repeal. The use of adjusted gross income as a base imposes the tax on items such itemized deductions and preferentially taxed dividends and capital gains, the latter a very significant share of income at high income levels. When the original AMT was imposed, the major preference subject to the AMT was excluded capital gains. But when capital gains preferences, which were eliminated in 1986 when the capital gains exclusion was eliminated, were restored and expanded in 1997 and 2003 via a lower rate, they were not included as preferences. That is, capital gains, and subsequently dividends, are still taxed at the lower rate of 15% as they are under the regular tax, rather than the 26% (or 28%) AMT rate.\nAt the same time, there is some resistance to increasing marginal tax rates, and also resistance to increasing taxes on dividends and capital gains which form part of the double taxation of corporate income (although the corporate rate is lowered in the proposal as well). In addition, some economists believe that higher capital gains taxes significantly deter capital gains realizations and may even lose revenue; other researchers have, however, found a negligible response.",
"The bill also includes several individual provisions that are virtually all base broadening provisions and raise revenue. As shown in Table 4 , only one of these individual provisions, which affects taxes on tax exempt organizations, loses revenue.\nThe first provision addresses the tax treatment of investment managers, such as managers of hedge funds, and would treat investment income that is currently treated as capital gains as ordinary income, based on the view that this income is not investment income, but compensation for services. This income is commonly referred to as \"carried interest.\"\nThere are two provisions relating to the investment in offshore hedge funds by tax exempt investors. Earnings of domestic tax exempt investors are exempt from income tax, but there is an unrelated business income tax (UBIT) which applies to certain investments not related to their tax-exempt purpose. Currently, debt-financed investments are subject to the these taxes. In the case of partnership investments, the flow through of attributes can result in an imposition of the UBIT. In the case of domestic corporations there is no flow through, but a tax is imposed at the corporate level. Offshore investments in some cases use corporate \"blocker\" firms that are structured to avoid corporate tax but prevent the flow through of attributes, so no tax is applied to tax exempt investors at any point. They also attract non-taxable foreign investors. The first of these two provisions relating to offshore investments by tax exempt entities would require investment managers who have deferred compensation through these operations to be taxed currently. Normally, where deferred compensation benefits are paid, the employee is not taxed but the firm is not able to take a deduction. The lack of a corporate deduction, which gains revenue, offsets the failure to tax the employee, which loses revenue. This offsetting revenue gain does not occur when the effective employer is tax exempt, and the bill's current taxation of deferred compensation restores the tax.\nThe second provision relating to tax exempt hedge fund investment (the third provision listed in Table 4 , which loses revenue) would eliminate the UBIT for partnerships, which would remove the differential tax treatment that encourages offshore investment in corporate blocker hedge funds relative to domestic partnerships. The revenue loss may be small because very little investment involves domestic partnership investments. There is some disagreement about the direction to take for UBIT. The provision is this bill mirrors H.R. 3501 , introduced by Congressman Levin. Supporters of this view may wish to reduce the incentive to invest through offshore entities, or may view the inclusion of debt financed passive investment as too broad a scope for the UBIT. An alternative approach would be to conform the offshore treatment to the domestic investment by taxing these investments under the UBIT. The Senate Finance Committee, which held hearings on offshore investments on September 26, 2007, included witnesses that discussed the growth of educational institution endowments in part via these offshore investments because they continued low spending rates out of these returns. This hearing also considered direct requirements for spending as an alternative to addressing the offshore UBIT issue.\nThe fourth provision in Table 4 refers to sales of depreciable property between related parties, where any gain on the sale is taxed as ordinary income. The provision treats as a sale between related parties any sale where there is a payment from the buyer to the seller for depreciation-related tax benefits realized by the transferee.\nThe fifth provision in Table 4 would impose the same payroll treatment on Subchapter S service firms (Subchapter S firms are incorporated as businesses but elect to be taxed as partnerships) that apply to ordinary partnerships and proprietorships in active business, namely that all income is subject to the payroll tax. Currently, Subchapter S partners are required to pay payroll taxes on an amount that in theory should reflect the value of their labor services, while ordinary partners and proprietors must pay tax on all income. S Corporations have an incentive to evade the payroll tax by understating the value of labor services for their shareholders. The tax would apply to all income received as shares relating to service income and there would be conforming changes to limited partners of service partnerships.\nThe final provision in Table 4 would require brokers to report the basis of sales of securities to the Internal Revenue Service (IRS). Basis is generally the amount originally paid for the security and is subtracted from gross proceeds to measure capital gains. Currently only gross proceeds are reported. Basis reporting should help reduce evasion of capital gains taxes because the IRS currently has no third party information on the basis of assets which is necessary to determine capital gain.",
"The package of individual changes in the individual tax portion of the bill would be roughly revenue neutral (a slight revenue loss) but would redistribute tax burdens. Table 5 shows the change in tax liability and the percentage change in after tax income (a measure of the effect on income distribution, due to the broad based individual provisions) reported in a study of the broad based individual provisions by the Urban Institute-Brookings Institution Tax Policy Center . The distributional effects would change over time, so the initial and final years are shown.\nAs Table 5 indicates, the tax burden would be reduced on lower, middle, and upper middle income taxpayers, but increased on very high incomes. The reduction at the lower incomes is due to the set of low-income tax provisions: the standard deduction, earned income credit, and refundable child credit. The reduction in the middle and upper middle classes is due to the repeal of the AMT, while the increases at the top reflect the surtax on adjusted gross incomes.\nIn terms of dollar amounts (not shown here but available in the Tax Policy Study) even the $200,000 to $500,000 income class on average receives a tax cut; on average tax increases do not begin until the $500,000 to $1,000,000 income class.",
"Extenders are provisions that are enacted on a temporary basis and that must be reauthorized if they are not to expire. The revenue table provided by the Joint Committee on Taxation (JCT) divides extenders into those primarily affecting individuals, those primarily affecting businesses, and others (excise taxes and administrative issues).\nHistorically, most tax provisions were enacted on a permanent basis. Beginning in the early 1980s, with the temporary research credit, the number of extenders has grown dramatically. While some provisions were enacted on a temporary basis to permit their evaluation, budgetary constraints may be argued to be the major reason for the growth in the number of extenders, as a temporary provision has a smaller revenue cost than a permanent one.\nIn keeping with this growth, there are 37 extenders in the bill, which cost a total of $21 billion over a 10-year period. Many of these provisions have a negligible revenue effect. The most significant ones are the research and experimentation (R&E) tax credit, the optional state sales tax deduction, and the 15-year depreciation recovery period for leasehold and restaurant improvements. The R&E credit accounts for 40% of the total cost and the three provisions together account for 75%.\nA more detailed discussion of these extenders and an individual listing is presented in the Appendix .",
"This section includes tax revisions that largely affect corporations, although some provisions also affect unincorporated businesses. The provisions, which involve both a rate reduction and broadening of the base, have a small net revenue gain. The major tax reduction is a reduced corporate tax rate (from 35% to 30.5%) that costs $364 billion over the 10-year period. The 2001 tax cuts generally focused on individual taxes, although there were some revisions in the corporate tax in 2004, and the 2003 reduction in tax rates on capital gains and dividends reduced the combined (firm and individual) tax burden on corporate investment. This proposal is the first since 1986 to include an overall corporate rate reduction.\nA proposal to cut the corporate tax and broaden the base has also been recently discussed by the administration, which convened a conference on July 27, 2007 to address corporate issues. Some of that discussion focused on the expectation that other countries will lower their corporate tax rates. These discussions included the possibility of lowering the corporate statutory tax rate and broadening the base, although the base broadeners in H.R. 3970 are different in many cases from those explored by the administration. In general, a lower base and a broader base tends to lead to smaller economic distortions from a tax cut, although the merits of each base broadener are relevant to evaluating the proposal. There is, however, a limit to the degree to which the statutory tax rate can be lowered without transforming the corporation into a tax shelter for individuals.\nThe second provision that loses revenue involves the small business expensing deduction. The law has a permanent provision that allows the expensing of $25,000 of equipment purchases, a provision that is phased out as income rises. A provision that increases the deduction to $125,000 and indexes it for inflation is effective through 2010. This provision would make the higher temporary level and indexing permanent. While such a provision favors small businesses over large ones, it simplifies tax compliance for smaller firms. It costs $20.5 billion over 10 years.\nTable 6 lists the corporate and business base broadening provisions. The most important provisions in revenue gain are the repeal of the production activities deduction, a repeal of last-in, last-out (LIFO) inventory accounting, and a provision to disallow expenses of parent corporations to the extent foreign source income is deferred.\nThe production activities deduction was enacted in 2004 and allowed a deduction for 9% of taxable income from domestic manufacturing and other production activities (such as construction). When fully effective it is the equivalent of reducing the top corporate tax rate from 35% to 31.85%. Trading off this provision for a rate reduction could also be seen as exchanging a somewhat more limited provision for a rate reduction that affects all corporations.\nSome of the benefit of the deduction is received by unincorporated firms. In a letter dated September 22, 2004 to Senate staff members Mark Prator and Patrick Heck, responding to a query about the similar (although slightly different) Senate version of the provision, the Joint Tax Committee indicated that three quarters of the benefit would have gone to corporations, 12 percent would have gone to Subchapter S firms (smaller incorporated firms that elect to be treated as partnerships) and cooperatives, 9 percent would have gone to partnerships, and 4 percent to sole proprietorships.\nThe production activities deduction has been the subject of some criticism by both economists and other tax professionals. It distorts investment and, perhaps more importantly, presents difficult administrative issues which require firms that perform a variety of activities and who import intermediate goods from related firms to allocate profits to domestic use and to qualified activities. Aside from increasing compliance costs, the provision gives firms an incentive to characterize their activities as eligible (i.e., related to domestic production) and to allocate as much profit as possible into the eligible categories. Canada adopted a similar provision several years ago and repealed it because of the administrative complications.\nThe next four base-broadening provisions relate to international tax issues. Under current law, income from foreign subsidiaries of U.S. firms is not taxed until it is repatriated (in the form of dividends) to the parent. At the same time, the parent is able to deduct costs, the most important of which is interest, even though some of that cost is associated with income that is not immediately subject to U.S. tax. Such treatment essentially allows firms to use foreign tax havens to effectively shift profit out of the United States and its tax system. The allocation rule would deny the portion of deductions associated with this income until the income is repatriated and subject to tax. Companies investing in non-tax-haven countries could avoid the allocation rule by repatriating income.\nThis allocation provision would also revise the foreign tax credit. Under current law firms are able to offset U.S. tax due on income that is received currently by the amount of foreign tax credits. The foreign tax credit is limited to U.S. tax due, but on an overall basis so that firms can use credits from high tax jurisdictions or imposed on highly taxed income to offset tax on income subject to lower foreign taxes. The allocation provision would allow credits for the share of foreign taxes paid that is equal to the share of total foreign income taxed currently, so that firms would not be able to choose repatriations to eliminate U.S. tax.\nA provision allocating deductions was included in the proposals of the President's Advisory Panel on Tax Reform in 2005, but would have been coupled with an exemption of active dividends of foreign subsidiaries. This change adopts the allocation rule, but not the exemption. Although there has been some support for an exemption provision, such a change is unlikely to contribute to economic efficiency or U.S. welfare.\nAn additional allocation provision would repeal a rule that involved world wide interest for the foreign tax credit. When income from abroad is subject to U.S. tax (either as branch income or repatriated income), a foreign tax credit is allowed for foreign taxes paid up to the U.S. tax due. For firms that have more foreign taxes paid than allowable credits, increasing the amount of income allocated abroad increases allowable foreign tax credits and reduces U.S. tax liability. Prior to 2004, U.S. source interest was allocated between foreign and domestic incomes based on relative magnitude of foreign and domestic assets. The 2004 provision included interest on foreign borrowing as well as debt-financed investment in the calculation, which would allocate more domestic interest to domestic source income, a reduction in interest allocated to foreign income and a resulting increase in the foreign tax credit limit. While there is some argument to be made for a worldwide allocation in measuring income more precisely, the allocation rules produce undesirable distortionary effects.\nAnother provision relating to international tax issues is intended to reduce \"treaty-shopping.\" The United States imposes withholding taxes on interest, royalties and similar payments to foreigners, but also engages in a number of treaties with other countries where these withholding rates are reduced. A firm in a country without a treaty can benefit by setting up a subsidiary in a treaty country to avoid the withholding tax, and this provision would eliminate that benefit.\nTwo provisions relate to inventory accounting. Inventories are most important in the manufacturing and trade sectors of the economy. The most significant is repeal of a provision that allows last-in, first-out (LIFO) accounting for inventories. In this form of inventory, the good being sold is assumed to be the last acquired and since, in general, prices tend to rise over time, this method increases the cost of the good sold and reduces profit (and therefore tax liability). The other inventory method is first-in, first out (FIFO), where the good sold is assumed to be the first acquired and thus includes any price increases in income. Firms must use the same inventory method for tax and book purposes, and as a result many firms that would find LIFO advantageous nevertheless use FIFO because profits reported to shareholders would be lower under LIFO. LIFO accounting may on average result in a more accurate measure of income because it has the effect of indexing cost and not capturing increases in value due to inflation. At the same time, when relative prices are changing, such as oil prices, it allows firms to avoid tax on windfall gains. In general, the economic consequences of taxing the return to inventories at a higher or lower rate are probably not very important: because of the short holding period for most inventories, the tax on the return is a very small part of the cost.\nA second inventory provision eliminates the option to value inventories at market value rather than cost. Allowing this option permits the recognition of losses in inventory even though the items have not been sold, a treatment inconsistent with the general realization principle for gains and losses.\nAside from the domestic production activity deduction and the foreign and inventory provisions, three other provisions with significant revenue gains are amortization of intangibles, the economic substance doctrine, and the dividends received deduction. Under current law, acquired intangibles (the excess of the value of a business over the value of its physical assets) are deducted over a 15 year period. The provision in H.R. 3970 increases the period to 20 years. The treatment for intangibles was enacted to simplify compliance and end disputes about the proper recovery period for intangibles which were not easily classified or separated from good will, which was assumed to be non-depreciable. At the time the issue was discussed, there was an argument that most intangibles for which depreciation was being argued to be appropriate by taxpayers (such as customer lists) were not really depreciable, since they were either self-generating or expenses undertaken to generate them were currently deductible. Thus, for most intangibles, recovery of acquired intangibles on acquisition is more appropriately regarded as a reduction in the capital gains tax, rather than a depreciation issue. In any case, there is likely to be relatively little effect on the decision to undertake the original investment, since the depreciation by subsequent purchasers is far in the future and subject to uncertainty.\nFirms that enter into tax savings arrangements that are found not to have economic substance can have their tax benefits disallowed by the courts under what has become known as the economic substance doctrine. Proposals to introduce legislative standards into the doctrine, which is sometimes interpreted differently by different courts, have been included in a number of recent legislative proposals, especially by the Senate Finance Committee. In a manner similar to other proposals, H.R. 3970 would require a transaction to meet both an objective test (profit was made) and a subjective test (profit was intended). Penalties are also imposed. Supporters argue that the stricter test will not only reduce tax avoidance but also make treatment more consistent across the courts. Some tax attorneys are concerned that more specific rules might provide a roadmap to structuring arrangements that will pass the test. The U.S. Treasury disputes the revenue gains projected by the Joint Committee on Taxation and the current administration opposes the change, while the Clinton Administration supported it.\nThe third provision relates to inter-corporate dividend deductions. To prevent too much double tax at the corporate level, while still discouraging chains of partially owned corporations (which allows one corporation to exert control over many others) current law allows a partial, but not full, deduction for certain dividends paid between corporations. For a firm 80% owned, there is a 100% dividend deduction, for firms with 20% or more ownership, there is an 80% deduction, and for firms with less than 20% ownership there is a 70% deduction. The bill would reduce the 80% and 70% deductions to 70% and 60% (other than wholly owned subsidiaries). This provision would prevent a reduction in the intercorporate tax burden as a result of the rate cut. These taxes would actually rise slightly. For 20% owned the tax rises from 7% (0.3 times 35%) to 9.15% (0.2 times 30.5%); for less than 20% owners, the tax rises from 10.5% (0.3 times 35%) to 12.2% (0.4 times 30.5%).\nThe remaining provisions are relatively small in revenue impact. They include a provision that would prevent corporations from currently excluding payments from tax that may be uncollectible in the future, rather than taking these losses into account in the future. The stock option provision is aimed at taxpayers who hold options in Subchapter S corporations (corporations that elect to be taxed as partners) in combination with a large share of the stock held by a tax exempt employee stock ownership plan (ESOP). This treatment allows much of the S corporation to avoid tax while taxable shareholders accumulate value through options. Another provision would eliminate benefits for the remaining domestic international sales corporations (a form of organization that was eliminated in general many years ago). The final provision relates to tax free spin-offs of subsidiaries by parents, where tax is imposed on the parent if the parent receives value in excess of their tax basis in the subsidiary. Included in the definition of value is debt of the parent assumed by the subsidiary. This provision would apply that tax to debt assumed prior to the spin-off.",
"Most of these extenders are discussed in a CRS Report RL32367, Certain Temporary Tax Provisions ( \" Extenders \" ) Expired in 200 7 , by [author name scrubbed] and [author name scrubbed].\nOf the individual items in Table A-1 , the most significant in revenue impact is the optional deduction for state and local sales taxes. The state and local deduction for sales taxes was repealed in 1986; in 2004 it was reinstated as an optional alternative to the deduction for state income tax and primarily benefits taxpayers in those states with no income tax.\nThe second largest in revenue cost of the extenders is the deduction for tuition, which covers some individuals who are not eligible for the permanent tuition tax credit. There is also another education provision, allowing deductions for classroom teachers. Three other provisions cost more than $100 million. The provision allowing individuals to contribute to charity from their Individual Retirement Accounts without including distributions in income and then deducting them was enacted in 2006. This provision was part of President Bush's original charity proposals and was contained in a number of legislative proposals relating to charitable deductions. It benefits older individuals who do not itemize, those whose taxable social security benefits rise with their adjusted gross income, and persons who are subject the charitable contribution limits. The provision relating to combat pay addresses a problem created when, as a simplification measure, Congress did not allow tax exempt income to be considered in calculating the earned income tax credit. After the September 11 attack, many lower-income enlisted soldiers serving in combat zones lost the earned income credit and were actually harmed by the combat pay exclusion. This provision allows them the option of including their combat pay in determining the earned income credit. The provision relating to mortgage revenue bonds of veterans provides an exception to the requirement that tax exempt mortgage revenue bonds must be used essentially for first time home-buyers.\nTable A-2 lists the extenders that primarily affect businesses. By far the largest of these provisions is the tax credit for research and experimentation (R&E) expenditures, which was initially adopted in the early 1980s and has been extended numerous times. There are justifications for subsidies for research investments, given evidence that the social returns to this investment exceed the private returns, but the credit is criticized as being poorly targeted and subject to abuse.\nThe second largest provision, measured by revenue loss, shortens to 15 years from 39 years the recovery period for improvements in real property made to accommodate lessors and restaurant improvements. These expenditures are likely to have shorter lives than industrial and commercial structures in general and there is some evidence that depreciation rules currently favor equipment over structures. The third largest provision is the new markets credit, a provision targeted to lower-income areas.\nOther provisions costing at least $100 million include a tax credit for railroad track maintenance enacted in 2004 and designed to assist short line railroads; tax benefits for investments in Indian reservations and the District of Columbia, areas that targeted for economic development assistance; a provision allowing costs of cleaning up brownfields to be deducted immediately rather than over time as depreciation, a provision with an environmental objective; provisions allowing a tax credit for bonds used to financed certain special schools (zone academies) ; and a provision allowing a charitable deduction in excess of the basis of donated property to the firm (which is the cost or depreciated price) for computers. There are two other provisions that allow contributions in excess of basis: food inventory and for books. The enhanced food inventory provision for corporations is already a permanent part of the tax code; the temporary aspect of this food inventory provision is the extension of it to unincorporated businesses.\nTwo provisions not included in the CRS summary of extenders are the provision to extend the production activities deduction to Puerto Rico (this provision is repealed after 2007 elsewhere in the bill and discussed previously), and a provision that limits the imposition of the unrelated business income tax to rents, royalties and other passive income received by tax exempt entities from controlled organizations.\nTable A-3 summarizes other extenders that do not fall naturally into \"individual\" and \"corporate\" categories. Four of these provisions extend the authority to provide information to other government agencies to facilitate certain activities, and one extends IRS authority for undercover operations; these provisions have no revenue effect. A disclosure provisions relating to veterans raises a negligible amount. The other provision continues a temporary increase (from $10.50 per proof gallon to $13.50 per proof gallon) the payments made to Puerto Rico and the Virgin Islands to cover the U.S. excise taxes imposed on distilled spirits produced in those countries and imported into the United States."
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"question": [
"How was the Tax Reduction and Tax Reform Act of 2007 introduced?",
"Why is the AMT increasingly problematic?",
"What were the main provisions of the Act?",
"How did the plan address corporate taxes and businesses?",
"How did the plan propose offsetting these expenses?",
"What were the main revenue raisers proposed?"
],
"summary": [
"On October 25, 2007, Chairman Charles B. Rangel of the House Ways and Means Committee announced his tax revision proposal, H.R. 3970, the Tax Reduction and Tax Reform Act of 2007.",
"One of the objectives of the plan was to address the problem with the individual alternative minimum tax (AMT), a provision that was originally aimed at high-income taxpayers' preferences but, because it was not indexed, is increasingly reaching upper middle class taxpayers.",
"The most significant provisions, measured by revenue effect, were a revision in 2007 and subsequent repeal of the AMT (costing $845 billion over 10 years) and an additional tax on high-income individuals (raising $832 billion).",
"The plan also included a corporate/business package that cut the corporate tax rate from 35% to 30.5% (costing $364 billion over 10 years) and made an increased expensing allowance for small business equipment permanent (a $21 billion cost).",
"Offsetting these losses were revenue raisers that resulted in a small net gain of $14 billion for this portion of the plan.",
"The major revenue raising provisions were a repeal of the domestic production activity deduction, increased taxes for multinational corporations, and changes in inventory accounting."
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CRS_RL34263
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"title": [
"",
"Sputnik and America's \"Sputnik Moment\"",
"Why Was Sputnik So Influential?",
"Why Is Sputnik Important to Today's Policies?",
"What Are the Activities of Other Nations and the Commercial Sector in Space Exploration?",
"What Is the Nation's Current Civilian Space Policy?",
"Bush Administration Civilian Space Policy",
"NASA Activities",
"Why Invest in Space Exploration?",
"What Is the Public's Attitude Toward Space Exploration?",
"What Are the Nation's Priorities for Civilian Space Exploration and Its Implications for Future Space Policy?",
"Congressional Activities",
"Appendix. Possible U.S. Civilian Space Policy Objectives"
],
"paragraphs": [
"Current U.S. space policy is based on a set of fundamental factors which, according to an Eisenhower presidential committee, \"give importance, urgency, and inevitability to the advancement of space technology.\" These factors were developed fifty years ago as a direct result of the Soviet Union's (USSR) launch of the first artificial satellite, Sputnik. This launch began the \"space age\" and a \"space race\" between the United States and USSR.\nThe four factors are the compelling need to explore and discover; national defense; prestige and confidence in the U.S. scientific, technological, industrial, and military systems; and scientific observation and experimentation to add to our knowledge and understanding of the Earth, solar system, and universe. They are still part of current policy discussions and influence the nation's civilian space policy priorities—both in terms of what actions NASA is authorized to undertake and the appropriations each activity within NASA receives.\nNASA has active programs that address all four factors, but many believe that it is being asked to accomplish too much for the available resources. An understanding of how policy decisions made during the Sputnik era influence U.S. space policy today may be useful as Congress considers changing that policy. The response of Congress to the fundamental question, \"Why go to space?,\" may influence NASA's programs, such as its earth-observing satellites, human exploration of the Moon and Mars, and robotic investigation of the solar system and wider universe as well as its policies on related activities, including spinoff technological development, science and mathematics education, international relations, and commercial space transportation.\nThis report describes Sputnik and its influence on today's U.S. civilian space policy, the actions other nations and commercial organizations are taking in space exploration, and why the nation invests in space exploration and the public's attitude toward it. The report concludes with a discussion of possible options for future U.S. civilian space policy priorities and the implication of those priorities.",
"On October 4, 1957, the USSR launched Sputnik, the world's first artificial satellite. Sputnik (Russian for \"traveling companion\") was the size of a basketball and weighed 183 pounds (see Figure 1 ). Sputnik's launch and orbit still influences policy decisions 50 years later.\nThe USSR's ability to launch a satellite ahead of the United States led to a national concern that the United States was falling behind the USSR in its science and technology capabilities and thus might be vulnerable to a nuclear missile attack. The resulting competition for scientific and technological superiority came to represent a competition between capitalism and communism.\nBoth the 85 th Congress and President Eisenhower undertook an immediate set of policy actions in response to the launch of Sputnik. Congress established the Senate Special Committee on Space and Astronautics on February 6, 1958, and the House Select Committee on Science and Astronautics on March 5, 1958—the first time since 1892 that both the House and Senate took action to create standing committees on an entirely new subject. Each committee was chaired by the Majority Leader. The Preparedness Investigating Subcommittee of the Senate Armed Services Committee was also active in analyzing the nation's satellite and missile programs.\nMultiple congressional hearings were held in the three months following Sputnik, and President Eisenhower addressed the nation to assure the public that the United States was scientifically strong and able to compete in space. Within 10 months after Sputnik's launch, the Eisenhower Administration and Congress took actions that\nestablished the National Aeronautics and Space Administration (NASA) through the National Aeronautics and Space Act (P.L. 85-568), established the Defense Advanced Research Projects Agency (DARPA) within the Department of Defense through DOD Directive 5105.15 and National Security - Military Installations and Facilities (P.L. 85-325), increased its appropriation for the National Science Foundation to $134 million, nearly $100 million higher than the previous year, and reformed elementary, secondary, and postsecondary science and mathematics education (including gifted education) and provided incentives for American students to pursue science, technology, engineering, and mathematics postsecondary degrees via fellowships and loans through the National Defense Education Act (P.L. 85-864).\nFigure 2 provides a timeline of the some of the major policy events in the year following the Sputnik launch.\nWhen people today speak of a \"Sputnik moment,\" they often refer to a rapid national response that quickly mobilizes major policy change as opposed to a response of inaction or incremental policy change. The term is also used to question inaction—as in whether or not the nation is prepared to respond to a challenge without an initiating Sputnik moment.",
"The Sputnik launch captured the public's attention at a time of heightened U.S. tension regarding the threat posed by the USSR and communism. Societal focus on civil defense, including \"duck and cover\" drills and the establishment of some personal bomb shelters, predisposed the nation towards identifying the potential threat posed by the Sputnik launch. In this climate, many Americans became concerned that if the USSR could launch a satellite into space, it could also launch a nuclear missile capable of reaching the United States.\nThe Sputnik launch was immediately viewed as a challenge to U.S. scientific and technological prowess. The Soviet Union launched both Sputnik and Sputnik 2 before the United States was able to attempt a satellite launch. Additionally, the Soviet launch was of a far heavier satellite than the U.S. had planned. The net result of the Sputnik launch was called a \"Pearl Harbor for American Science\"—a sign that the United States was falling behind the USSR in science and technology. The ensuing competition in scientific and technological skills came to represent a competition to determine the political superiority of capitalism versus communism.\nThe Senate Majority Leader at the time, future President Lyndon B. Johnson, illustrated the concern of many Americans in his own observations of the night sky: \"Now, somehow, in some new way, the sky seemed almost alien. I also remember the profound shock of realizing that it might be possible for another nation to achieve technological superiority over this great country of ours.\"",
"The Sputnik launch prompted rapid development of new federal policies and programs. In particular, federal investment in NASA is still influenced by the Sputnik-era principles as illustrated in the Space Act, both in terms of what actions NASA is authorized to undertake and the extent to which each activity is funded.\nIn 2008, NASA was reauthorized for FY2009. As Congress considers future reauthorization of NASA, the status of the nation's space policy, and the relative importance of the various objectives underlying this policy may become topics of debate.\nThe United States faces a far different world today than 50 years ago. No Sputnik moment, Cold War, or space race exists to help policymakers clarify the goals of the nation's civilian space program. The Hubble telescope, Challenger and Columbia space shuttle disasters, and Mars exploration rovers frame the experience of current generations, in contrast to the Sputnik launch and the U.S. Moon landings that form the experience of older generations.",
"According to an analysis conducted by the Space Foundation, the global space industry in 2007 generated $251.16 billion in revenues. (See Figure 3 .) The United States faces a possible new set of competitors or collaborators in civilian space exploration. China, India, Japan, Russia, and Europe are taking an active role in space exploration as are commercial companies. If China is the first to land humans on the Moon and establish a Moon base in the 21 st century or the European Space Agency is the first to land humans on Mars, will policymakers and the public view these activities as a loss in United States status and leadership? If so, what are the policy implications? Would such activities become this century's \"Sputnik moment\" that would spur further investment in U.S. space exploration activities? If not, how might this affect U.S. space policy priorities?\nFuture spacecraft are being developed. For example, the X-Prize Foundation Google Lunar X Prize ($30 million) invites private teams from around the world to build a robotic rover capable of landing on the Moon. Virgin Galactic, currently based in California with a spaceport under construction in New Mexico, has plans for SpaceShipTwo, a six-passenger spaceliner. In Europe, EADS-Astrium is developing a four-person spacecraft to make suborbital trips. According to press reports, a number of venture capitalists are also planning to build spaceships or develop private space programs. Should these efforts prove successful, what implications might this have for U.S. space policy priorities?",
"The Obama Administration has stated the following regarding its proposed civilian space policy:\nThe United States must maintain and take full advantage of its technical and strategic superiority in space, which can simultaneously enhance our national security and provide crucial information about environmental and climatologic trends. The administration and OSTP will develop policies that will:\n• Close the gap between retirement of the Space Shuttle and launch of the next generation of space vehicles to minimize any interruption in access to low-earth orbit, and take full advantage of the research opportunities provided by the International Space Station.\n• Strengthen NASA's missions in space science, weather, climate research, and aeronautical research.\n• Help establish a robust and balanced civilian space program, and engage international partners and the private sector to amplify NASA's reach.\n• Re-establish the National Aeronautics and Space Council, which will report to the President and oversee and coordinate civilian, military, commercial and national security space activities.\n• Ensure Freedom of Space by assessing possible threats to U.S. space assets and identifying the best options, military and diplomatic, for countering them; accelerating programs to harden U.S. satellites against attack; and establishing contingency plans to ensure that U.S. forces can maintain or duplicate access to information from space assets if necessary.\nOn May 7, 2009, John Holdren, Director of the President's Office of Science and Technology Policy (OSTP), sent a letter to the Acting NASA Administrator requesting that an independent review of planned U.S. human space flight activities. The blue-ribbon panel, chaired by Norman Augustine, the former CEO of Lockheed Martin, is to work closely with NASA and seek input from Congress, the White House, the public, industry, and international partners. According to OSTP,\nThe review panel will assess a number of architecture options, taking into account such objectives as: 1) expediting a new U.S. capability to support use of the International Space Station; 2) supporting missions to the Moon and other destinations beyond low Earth orbit; 3) stimulating commercial space flight capabilities; and 4) fitting within the current budget profile for NASA exploration activities. Among the parameters to be considered in the course of its review are crew and mission safety, life-cycle costs, development time, national space industrial base impacts, potential to spur innovation and encourage competition, and the implications and impacts of transitioning from current human space flight systems. The review will consider the appropriate amounts of R&D and complementary robotic activity necessary to support various human space flight activities, as well as the capabilities that are likely to be enabled by each of the potential architectures under consideration. It will also explore options for extending International Space Station operations beyond 2016.\nThe results of the review are to be completed in sufficient time so that the Administration decision may consider the results of the panel's deliberations in deciding what action to take regarding human space flight by August 2009.\nOn May 23, 2009, President Obama nominated General Charles Bolden to be NASA Administrator and Lori Garver to be Deputy Administrator. Both positions require Senate confirmation.",
"During the Bush Administration, a U.S. National Space Policy defined the key objectives of defense and civilian space policy. This policy incorporated key elements of the Vision for Space Exploration (\"Vision\"), often referred to as the Moon/Mars program. In the Vision, the President directed NASA to focus its efforts on returning humans to the Moon by 2020 and eventually sending them to Mars and \"worlds beyond.\" The President further directed NASA to fulfill commitments made to the 13 countries that are its partners in the International Space Station (ISS). In the 2005 NASA authorization act ( P.L. 109 - 155 ), Congress directed NASA to establish a program to accomplish the goals outlined in the Vision, which are that the United States\nImplement a sustained and affordable human and robotic program to explore the solar system and beyond; Extend human presence across the solar system, starting with a human return to the Moon by the year 2020, in preparation for human exploration of Mars and other destinations; Develop the innovative technologies, knowledge, and infrastructures both to explore and to support decisions about the destinations for human exploration; and Promote international and commercial participation in exploration to further U.S. scientific, security, and economic interests.\nMore specifically, the Vision included plans, via a strategy based on \"long-term affordability,\" to\nreturn the Space Shuttle safely to flight (which has been accomplished), complete the International Space Station (ISS) by 2010 but discontinue its use by 2017, phase out the Space Shuttle when the ISS is complete by 2010, send a robotic orbiter and lander to the Moon, send a human expedition to the Moon (sometime between 2015-2020), send a robotic mission to Mars in preparation for a future human expedition, and conduct robotic exploration across the solar system.",
"NASA is developing a new spacecraft called Orion (formerly the Crew Exploration Vehicle) and a new launch vehicle for it called Ares I (formerly the Crew Launch Vehicle). An Earth-orbit capability is planned by 2014 (although NASA now considers early 2015 more likely) with the ability to take astronauts to and from the Moon following no later than 2020.\nThe Vision had broad implications for NASA, especially since almost all the funds to implement the initiative are expected to come from other NASA activities. Among the issues Congress is debating are the balance between NASA's exploration activities and its other programs, such as science and aeronautics research; the impact of the Vision on NASA's workforce needs; whether the space shuttle program might be ended in 2010; and if the United States might discontinue using the International Space Station.\nDuring the Bush Administration, NASA stated that its strategy is to \"go as we can afford to pay,\" with the pace of the program set, in part, by the available funding. Affording such a program is challenging, however, with a 2006 National Research Council report finding \"NASA is being asked to accomplish too much with too little.\" The report recommended that \"both the executive and the legislative branches of the federal government need to seriously examine the mismatch between the tasks assigned to NASA and the resources that the agency has been provided to accomplish them and should identify actions that will make the agency's portfolio of responsibilities sustainable.\"",
"The Table A-1 compares The National Aeronautics and Space Act of 1958 as amended (\"Space Act\"), the oldest and most recent Presidential commission reports (Killian and Aldridge ), the U.S. National Space Policy (\"Space Policy\"), and the National Aeronautics and Space Administration Authorization Act of 2008 ( P.L. 110-422 ). The analyses identify the following reasons why the United States might explore space:\nknowledge and understanding, discovery, economic growth—job creation and new markets, national prestige, and defense.\nSome also include the following reasons:\ninternational relations, and education and workforce development.\nAlthough there is broad agreement on the reasons for space exploration, there is a great deal of variation in the details. Among the chief differences in these documents are the degree to which\ndiscovery is the major reason for space exploration as opposed to meeting needs here on Earth; creation of jobs and new markets should be a major focus of NASA activities as opposed to a side effect; science and mathematics education and workforce development should be a goal of NASA in addition to other federal agencies; and relationships with other countries should be competitive or cooperative regarding space exploration.\nComparing the Aldridge Commission themes, the Space Policy goals, and the Space Act objectives on the issue of the relationship of the space program to economic growth provides some insights. While the Aldridge committee has a much broader view of the industries related to space exploration, focusing on the potential role of space exploration in job generation and new market development, the Space Act and Space Policy focus on only one sector, the aeronautical and space vehicle industry.\nThe two Presidential commissions have two key differences. One is the first theme outlined in the Sputnik-era Killian Committee report: \"the compelling urge of man to explore and discover.\" This is quite different from the recent Aldridge Commission report, which, although indicating exploration and discovery should be among NASA goals, states that \"exploration and discovery will perhaps not be sufficient drivers to sustain what will be a long, and at times risky, journey.\" The implication is that, today, solely responding to the challenge of going to the Moon or Mars is not sufficient to energize public support for space exploration.\nThe second key difference is the focus of the Aldridge Commission on economic growth as a proposed space exploration theme. The Aldridge Commission identifies the ability of investments in civilian space programs to generate new jobs within current industries and spawn new markets. The contribution that federal space investments make to the nation's economy was not a key factor identified by the Killian Committee.\nAs a result of its focus on economic growth as a key theme of space exploration, the Aldridge Commission recommended that \"NASA's relationship to the private sector, its organizational structure, business culture, and management processes—all largely inherited from the Apollo era—must be decisively transformed to implement the new, multi-decadal space exploration vision.\" Two of its specific recommendations were that NASA recognize and implement a far larger private industry presence in space operations, with the specific goal of allowing private industry to assume the primary role of providing services to NASA, and that NASA's centers be reconfigured as Federally Funded Research and Development Centers (FFRDCs) to enable innovation, work effectively with the private sector, and stimulate economic development.\nFFRDCs are not-for-profit organizations which are financed on a sole-source basis, exclusively or substantially by an agency of the federal government, and not subject to Office of Personnel Management regulations. They operate as private non-profit corporations, although they are subject to certain personnel and budgetary controls imposed by Congress and/or their sponsoring agency. Each FFRDC is administered by either an industrial firm, a university, or a nonprofit institution through a contract with the sponsoring federal agency. FFRDC personnel are not considered federal employees, but rather employees of the organization that manages and operates the center. NASA has not fully adopted the Aldridge Commission recommendations. NASA has 10 centers (see Table 1 ). One, the Jet Propulsion Laboratory (JPL), is already an FFRDC and is managed by the California Institute of Technology.",
"Some editorialists question whether investing in space exploration is relevant today. Others question if NASA has the right priorities. Would the public care if the country's investment in space exploration ended? Does the public believe it would be better to invest in social needs here on Earth rather than space exploration? Does the public support the current prioritization of the nation's space exploration activities?\nAccording to poll data, Americans do not rank space exploration as a high priority for federal government spending. For example, in an April 10, 2007 Harris poll, respondents were given a list of twelve federal government programs and asked to pick two which should be cut \"if spending had to be cut.\" Space programs led the list (51%), followed by welfare programs (28%), defense spending (28%), and farm subsidies (24%). Space exploration was also near the bottom of a University of Chicago National Opinion Research Center survey reported in January 2007 that asked Americans about how they would prioritize federal spending.\nOn the other hand, Americans are interested in space exploration. According to a May 2008 Gallup Poll, sponsored by the Coalition for Space Exploration, most Americans (69%) believe that the space program benefits the nation's economy by inspiring young people to consider STEM education, and believe that the benefits of space exploration outweigh the risks of human space flight (68%). The poll also found that most Americans (67%) indicated that they would not be concerned if the United States loses its leadership in space exploration to China, while almost half (47%) of the public surveyed expressed concern regarding the five-year gap between the end of the space shuttle program and the first scheduled launch of the Constellation program. Just over half (52%) of those surveyed in the Gallup Poll said they would support increasing NASA's budget from 0.6% to 1.0% of the federal budget; however, when the public was asked how willing they would be to support an increase in taxes if the money was to go to NASA to help close the budget deficit, more than half (57%) reported they would not be willing.\nNASA's Office of Strategic Communication funded several analyses of the public's attitude toward space exploration based on focus groups and a survey, the results of which were presented in June 2007. According to an analysis conducted for NASA, the focus group participants were ambivalent about going to the Moon and Mars and wanted to know why these missions were important. Reasons such as leadership, legacy, and public inspiration were found to be less persuasive, especially for future Moon exploration, than NASA-influenced technologies. Most participants agreed that partnership with other countries would be beneficial, but doubted whether it can be achieved realistically.\nIn addition, one of the analysis conducted for NASA found that most survey respondents rated NASA-influenced technologies as somewhat or extremely relevant to them. Over 52% of participants said such technologies were a \"very strong\" reason to go to space. In contrast, the public's response to a mission to send humans to the Moon by the year 2020 was less strong with 15% of respondents very excited and 31% somewhat excited. Results for a mission to send humans to the Mars were similar to those for the Moon.\nThe public opinion analysis has found that there are generational differences in regard to NASA's proposed activities. For example, NASA's base support came from those who encompass \"The Apollo Generation\" (45-64 year olds), the majority (79%) of whom support NASA's new space exploration mission, particularly the return to the Moon. By contrast, the majority (64%) of those between 18-24 years of age are uninterested or neutral about a human Moon mission. Those between 25 and 44 years of age are approximately evenly split between those who are interested/excited and those who are either uninterested or neutral. Those over 65 were more likely to be neutral or disinterested in a Moon mission, with those over 75 years of age the least interested of all age groups.",
"Current U.S. civilian space policy is based on a set of fundamental objectives in the Space Act, based on policy discussions that occurred following the launch of Sputnik over 50 years ago. Those objectives are still part of current policy discussions and influence the nation's civilian space policy priorities—both in terms of what actions NASA is authorized to undertake and the degree of appropriations each activity within NASA receives. NASA has active programs that address all its objectives, but many believe that it is being asked to accomplish too much for the available resources.\nNASA was last reauthorized in 2008 for FY2009. Thus, the reauthorization of NASA for FY2010 and beyond, along with a new Presidential Administration, may provide an opportunity for Congress to rethink the nation's space policy. The goals of the nation's investment in space exploration may be a key factor in determining the focus of NASA's activities and the degree of funding appropriated for its programs. Congress and outside experts have concerns as to whether the United States can afford to implement President Bush's Vision for Space Exploration without adversely influencing NASA's other programs. Congress may need to make challenging decisions to determine how to reap the most benefit from the nation's civilian space program investment. These decisions might answer questions such as\nWhat are the priorities among the many reasons for U.S. space exploration? For example, what might be the priority ranking among the previously identified reasons as to why the United States might explore space—knowledge and understanding, discovery, economic growth, national prestige, defense, international relations, and education and workforce development? What implications would this prioritization have for NASA's current and future budgets and the balance among its programs? For example, what is the proper balance between human and robotic space activities? What influence might the timing of other countries' space exploration activities have on U.S. policy? For example, what would be the impact of the United States, China, or another country, or a commercial organization, establishing the first Moon base or landing on Mars?\nNew objectives and priorities might help determine NASA's goals. This, in turn, might potentially help Congress determine the most appropriate balance of funding available among NASA's programs during its authorization and appropriation process. For example, if Congress believes that national prestige should be the highest priority, they may choose to emphasize NASA's human exploration activities, such as establishing a Moon base and landing a human on Mars. If they consider scientific knowledge the highest priority, Congress may emphasize unmanned missions and other science-related activities as NASA's major goal. If international relations are a high priority, Congress might encourage other nations to become equal partners in actions related to the International Space Station. If spinoff effects, including the creation of new jobs and markets and its catalytic effect on math and science education, are Congress' priorities, then they may focus NASA's activities on technological development and linking to the needs of business and industry, and expanding its role in science and mathematics education.",
"On October 15, 2008, the NASA Authorization Act of 2008 ( P.L. 110-422 ) was signed into law. This act authorized appropriations for FY2009, and prohibited NASA from taking any steps prior to April 30, 2009, that would preclude the President and Congress from being able to continue to fly the Space Shuttle past 2010. When the law was passed, the Chair of the House Science and Technology Committee stated\nThe [Space Shuttle] provision should not be construed as a congressional endorsement of extending the life of the Shuttle program beyond the additional flight added by this bill to deliver the AMS [Alpha Magnetic Spectrometer] to the International Space Station. Rather, it reflects our common belief that the decision of whether or not to extend the Shuttle past its planned 2010 retirement date should be left to the next President and Congress, especially since both of the Presidential candidates have asked for the flexibility to make that decision.\nDuring the 111 th Congress, policymakers may discuss another authorization bill for future years, and identify new priorities for civil space exploration.",
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"question": [
"What was Sputnik?",
"Why did the \"space age\" begin?",
"How did the Cold War impact U.S. policymakers' perception of the Sputnik launch?",
"How did the U.S. government respond to the \"Sputnik moment\"?",
"According to an Eisenhower presidential committee, what are the fundamental factors that advanced space technology?",
"How are these factors still present and influential in the nation's space policy priorities?",
"Why does the United States face a different world today?",
"How are experts handling the 21st century space policies?",
"What was the response of the Obama Administration on reflection after the Sputnik?",
"What were the proposed actions of the Obama Administration?",
"How did the proposed action items of the Obama Administration affect human flight activities?",
"How is the report going to be conducted?",
"What may be discussed during the 111th Congress in regard to civil space exploration?",
"How might the prioritization of civil space exploration help Congress during the discussion?",
"How will Congress's decision be impacted if Congress believes national prestige should be the highest priority?",
"How will Congress's decision be impacted if Congress believes scientific knowledge is the highest priority?",
"How will Congress's decision be impacted if Congress believes international relations is the highest priority?",
"How will spinoff effects affect Congress's decision?"
],
"summary": [
"The \"space age\" began on October 4, 1957, when the Soviet Union (USSR) launched Sputnik, the world's first artificial satellite.",
"Some U.S. policymakers, concerned about the USSR's ability to launch a satellite, thought Sputnik might be an indication that the United States was trailing behind the USSR in science and technology.",
"The Cold War also led some U.S. policymakers to perceive the Sputnik launch as a possible precursor to nuclear attack.",
"In response to this \"Sputnik moment,\" the U.S. government undertook several policy actions, including the establishment of the National Aeronautics and Space Administration (NASA) and the Defense Advanced Research Projects Agency (DARPA), enhancement of research funding, and reformation of science, technology, engineering and mathematics (STEM) education policy.",
"These four factors include the compelling need to explore and discover; national defense; prestige and confidence in the U.S. scientific, technological, industrial, and military systems; and scientific observation and experimentation to add to our knowledge and understanding of the Earth, solar system, and universe.",
"They are still part of current policy discussions and influence the nation's civilian space policy priorities—both in terms of what actions NASA is authorized to undertake and the appropriations each activity within NASA receives.",
"No Sputnik moment, Cold War, or space race exists to help policymakers clarify the goals of the nation's civilian space program. The Hubble telescope, Challenger and Columbia space shuttle disasters, and Mars exploration rovers frame the experience of current generations, in contrast to the Sputnik launch and the U.S. Moon landings.",
"As a result, some experts have called for new 21st century space policy objectives and priorities to replace those developed 50 years ago.",
"The Obama Administration has stated that the U.S. must maintain and take full advantage of its technical and strategic superiority in space.",
"Among its proposed actions are closing the gap between retirement of the Space Shuttle and launch of the next generation of space vehicles; strengthening NASA's missions in space science, weather, climate research, and aeronautical research; helping establish a robust and balanced civilian space program, and engaging international partners and the private sector to amplify NASA's reach; re-establishing the National Aeronautics and Space Council, which will report to the President and oversee and coordinate civilian, military, commercial and national security space activities; and ensuring freedom of space.",
"In addition, the administration has decided to conduct an independent review of planned U.S. human space flight activities.",
"The panel's report is to be completed in sufficient time so it will serve as input for Obama Administration's decisionmaking scheduled for August 2009.",
"During the 111th Congress, policymakers may discuss a NASA authorization bill including identifying priorities for U.S. civil space exploration.",
"This might help Congress determine the most appropriate balance of funding for NASA's programs during its authorization and appropriation process.",
"For example, if Congress believes that national prestige should be the highest priority, they may choose to emphasize NASA's human exploration activities.",
"If scientific knowledge is the highest priority, Congress may emphasize unmanned missions and other science-related activities.",
"If international relations are a high priority, Congress might encourage other nations to become equal partners in actions related to the International Space Station.",
"If spinoff effects are of interest, they may focus on technological development and linking to the needs of business and industry, and expanding its role in science and mathematics education."
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CRS_R43211
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{
"title": [
"",
"Introduction",
"Background",
"Geological and Ecological Characteristics of the Salton Sea",
"Salton Sea and the Quantification Settlement Agreement",
"Environmental Concerns in the Salton Sea",
"Restoration Efforts in the Salton Sea",
"Current Restoration in the Salton Sea",
"State Actions in the Salton Basin",
"Federal Actions in the Salton Basin",
"Additional Restoration Measures",
"Potential Issues for Congress",
"Is There a Federal Role in Restoring the Salton Sea?",
"Comprehensive Plan and Governance for Restoration",
"Funding",
"What If No Restoration Occurs?",
"Conclusion",
"Appendix. Chronology of Federal Management and Restoration Activities in and Around the Salton Sea"
],
"paragraphs": [
"",
"The Salton Sea is located in southern California and is considered the largest inland water body in the state. The Salton Sea was formed in 1905 when the Colorado River broke through a canal gate, allowing water to flow into the Salton Basin uninterrupted for 18 months. Since its formation, the Sea has been maintained largely through agricultural runoff from surrounding areas. The Salton Sea was not the first body of water in the basin; several other lakes have existed in the Basin throughout its geological history. The creation of the Salton Sea in 1905 eventually led to development of its shoreline and its waters were stocked with sportfish. Until the late 1960s, the Salton Sea was one of the most prolific sport fisheries in the country, with a high diversity of birds and wildlife. The Salton Sea also serves as an important wetland area along the Pacific Flyway, a migratory route for birds stretching from Alaska to Patagonia.\nThe ecology and economy surrounding the Salton Sea has deteriorated steadily over the past several decades due, in part, to a changing ecosystem marked by decreasing water flows and increasing salinity. The Salton Sea has shrunk due to evaporation and declining water inflows, resulting in increased salinity and deteriorating fish and wildlife habitat. High salinity levels combined with toxic concentrations of substances have led to disease and widespread mortality of fish and birds. Current saline levels are nearing fatal levels for all fish, leading some scientists to predict that fatal saline levels will occur by 2018. The subsequent population decline of fish could have severe effects on migratory birds that use the Salton Sea as a primary stopover point on the Pacific Flyway. Furthermore, exposed lake beds could allow toxins and dust to enter the air, which could lead to air pollution and human health problems.\nAttention to the ecological condition of the Salton Sea and efforts to restore the Sea have existed for several decades. However, interest in the ecological health of the Salton Sea has amplified since 2003, when the Quantification Settlement Agreement (QSA) was signed by several water districts in California, the state of California, and the Department of the Interior (DOI), and signed into California law. QSA requires California to gradually reduce its consumption of Colorado River water to 4.4 million acre-feet a year (AFY) through voluntary agriculture-to-urban water transfers and other water efficiency measures. The implementation of this agreement has resulted in less water flowing into the Salton Sea, thus accelerating its ecological decline. However, as part of the QSA, participating water districts agreed to contribute $163 million toward mitigation and restoration. In addition, the water districts agreed to provide 200,000 AFY of Colorado River water to the Sea though December 31, 2017. While some of these mitigation efforts have been implemented, longer-term restoration efforts and the distribution of these costs are still contested and uncertain.\nCongressional concern for restoring the Salton Sea stems, in part, from the value of the Sea as habitat for federal and state listed endangered species, as well as other migrating and resident bird species; a reservoir for agricultural drainage waters; a center for recreation; and a large wetland ecosystem, among other things. Concerns over air pollution from exposed sea beds have also been expressed by Members of Congress. These concerns have been reflected, in part, by efforts to address the restoration of the Salton Sea and its ecosystem. Congress has passed laws addressing the restoration of the Salton Sea and authorized funds for restoring the Salton Sea in the Water Resources Development Act of 2007. Current restoration efforts have been led mainly by the state and local governments.\nConsensus around restoring the Salton Sea has not been fully attained. Some contend that the Salton Sea should not be restored. They argue that the geological history of the Salton Sea demonstrates a pattern of water bodies naturally shrinking and disappearing, and then reforming over time. They note that the Salton Sea will follow a similar process and that countering this natural process will be costly and ultimately not worth the cost. These opponents argue that the restoration funds should instead be used to restore other natural wetlands in California, such as the Sacramento and San Joaquin rivers' delta confluence with San Francisco Bay (Bay-Delta). To counter this argument, some respond by noting that the natural inflows of water into the Salton Sea have been artificially diverted by humans when the Colorado River was diverted into a canal and that natural processes and cycles will not exist again with these structures in place. Further, they note that the value of restoring the Salton Sea lies in its ecological significance as a large wetland along the Pacific Flyway and a habitat for fish and wildlife, and its potential to stimulate economic development in the region through tourism, recreation, and energy development.",
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"The Salton Sea is located in southern California and is considered the largest inland water body in the state. The Salton Basin, where the Salton Sea is located, has supported many lakes and water bodies throughout its geological history. The last of these prehistoric water bodies was Lake Cahuilla, which dried up nearly 400 years ago. In 1901, a portion of the Colorado River was diverted through the Imperial canal to irrigate agricultural fields in the Salton Basin. Water flowed through the New Alamo River and into the Imperial Valley from this channel. In 1905, water from spring floods broke through a canal head-gate diverting a portion of the Colorado River into the Basin and forming the Salton Sea. Water flowed uninterrupted for nearly 18 months into the Salton Sea before it could be redirected to the Gulf of California. The new Sea formed as a closed basin with no outlets, which is still its condition today. The Sea consisted largely of fresh water at its inception; however, the water immediately began to evaporate and increase in salinity.\nThe construction of Hoover Dam and the All American Canal in 1928 allowed water from the Colorado River to be transferred directly to the Imperial Valley for irrigation. After flowing through agricultural lands, this water drained into the Salton Sea, thereby preventing the Sea from evaporating. In 1924 and 1928, President Coolidge executed Public Water Reserve Orders 90 and 114 for the withdrawal of lands located in and around the Salton Sea. These lands were designated as a repository for agricultural, subsurface, and surface water drainage.\nThe ecosystem properties of the Salton Sea are largely determined by its water level, chemical and salt concentration, and balance between the rate of evaporation and water inflow. Nearly 75% of the water flowing into the Sea comes from agricultural runoff originating in the Imperial and Coachella valleys in California, the other 25% is from rain and other surface inflows. As water in the Sea evaporates, the concentration of salt increases. Presently, the salinity level in the Sea is approximately 52 parts per thousand (ppt), which is approximately 50% greater than ocean water and one-fifth that of the Great Salt Lake in Utah (270 ppt) (See Figure 2 ). At 52 ppt, the Salton Sea is considered to be hypersaline. High salinity combines with extreme eutrophication to cause fish kills in the Sea. Eutrophication can result in anoxic conditions leading to fish death.\nIn 1950, the Sea reached salinity levels similar to the Pacific Ocean. At this time, the California Department of Fish and Game began transferring saltwater fish species to the Sea. During the 1950s, and in the next two decades, the Sea became a popular destination for sport fishing and tourism. However, changes to the Sea, including flooding of resort areas and wildlife habitat, bird and fish die-offs, and health threats of untreated water, led to a decline in recreation and development around the Sea in the 1960s. The current salinity levels in the Sea are too high to support the former diversity of fish. The most ubiquitous species in the Salton Sea now is the tilapia ( Oreochromis mossambicus ), which was introduced by farmers to control weeds in their ponds in 1964. In addition, the Sea also houses the endangered desert pupfish ( Cyprinodon macularius ), the only native fish species in the Sea. Deteriorating water quality has also had a large detrimental impact on the invertebrate life in the Sea, such as on pileworms and barnacles, two important components of the Salton Sea food web. Currently, few fish can survive in the hypersaline waters of the Sea. Future salinity predictions indicate that all species of fish may disappear from the Sea as early as 2023.\nThe Salton Sea ecosystem provides a variety of habitat for fish and wildlife species, including open water, estuaries, salt marshes, and riparian corridors. Due to the loss of wetland habitat in southern California and throughout the state's vast Central Valley, the Salton Sea is a primary stopover point for birds on the Pacific Flyway. The Sea supports more than 400 species of resident and migratory birds, of which more than 50 are species of special status (including three listed under the Endangered Species Act (ESA)). Surveys have estimated that the total population of birds in the Salton Sea can reach up to 500,000 birds per month. Many of these birds are piscivorous, relying on fish in the Salton Sea for sustenance. Other birds can feed on both the fish and invertebrates found in the basin.\nThe mortality of bird and fish species in and around the Salton Sea is of concern because of federal and state listed endangered species that inhabit the Sea. For example, the Yuma clapper rail ( Rallus longirostris yumanensis ) is a federally listed endangered species, residing in and around the Sea during the year. Other state listed species of special interest, such as the peregrine falcon ( Falco peregrinus ) and the bald eagle ( Haliaeetus leucocephalus ), are occasionally seen at the Sea as they make their way along the Pacific Flyway. The desert pupfish ( Cyprinodon macularius ) is the only endemic fish species in the Salton Basin, and was listed as a federally endangered species in 1986.\nConserving endangered species in the Salton Basin is one of the objectives of the Salton Sea Authority, which was chartered by the State of California in 1993 to remedy problems facing the Salton Sea. The Salton Sea Authority is a \"joint powers\" agency chartered to ensure the beneficial uses of the Salton Sea, such as maintaining the Sea as an agricultural drainage reservoir, restoring the wildlife resources and habitats around and in the Sea, stimulating recreational use, and providing an environment for economic development around the Sea. This agency is comprised of representatives from Riverside and Imperial counties, the Coachella Valley Water District, the Imperial Irrigation District, and the Torres Martinez Desert Cahuilla Tribe. Federal and state agencies have representatives on the Authority as ex-officio members.",
"Farmlands in the Imperial and Coachella valleys have historically been irrigated with approximately 3.3 million AFY of Colorado River water. From this amount, the Salton Sea received approximately 1.4 million AFY of this water in the form of agricultural runoff. However, under the Quantification Settlement Agreement (QSA), which was passed in October 2003, around 300,000 AFY of Colorado River water that flows from these valleys are being supplied to other urban water districts and not all reaching the Salton Sea. (See below for a summary of the QSA.) These agriculture-to-urban transfers will reduce agricultural inflows to the Sea by an estimated 30% by 2018, according to stakeholders. The Bureau of Reclamation modeled flow changes after 2018 with the implementation of the QSA and determined that 95% of all future inflows would less than or equal to 835,000 AFY between 2018 and 2077, with a mean of all inflows equaling 727,000 AFY. The Salton Sea Authority estimated a relatively similar scenario, where water flowing to the Salton Sea would stabilize at 800,000 AFY after 2018 with the implementation of the QSA (see Figure 3 ).\nThe QSA contains multiple provisions to mitigate environmental effects of its implementation on the Salton Sea, including the following:\nIID is to directly transport 200,000 AFY of Colorado River water to the Salton Sea for 15 years from 2003 to January 1, 2018. IID, CVWD, and SDCWA are to provide $133 million for environmental mitigation related to the water transfers, and for IID to deposit an additional $30 million into a restoration fund. The State of California is to assume all additional costs of mitigation and restoration. The legality of this cost provision was recently upheld. Concurrent legislation also set up a Salton Sea Restoration Fund (SSRF), overseen by the Department of Fish and Game to be used for environmental and engineering projects (Fish and Game Code Section 2931). The California Secretary for Resources, in consultation with the Salton Sea Authority, was to present the state legislature with a preferred alternative restoration plan for the Salton Sea by December 31, 2006.\nIn addition, this legislation stated that restoration of the Salton Sea was of state and national interest; it authorized the state to develop a long-term, adaptive conservation and restoration plan for species in the Salton Sea. However, the development and implementation of any restoration plan is conditional on the state legislature appropriating funds and not required by the QSA. The California Secretary for Resources was required to present the state legislature with a preferred alternative restoration plan, but there is no requirement to implement or fund this preferred alternative. Some have used this premise to assert that there is no unconditional obligation for the State of California to develop and implement a long-term restoration plan that would aim to restore the Sea to a previous state that could support the fish and migratory birds that currently reside and visit there (for a visual representation of mitigation versus restoration impacts in salinity, see Figure 4 ).\nThere is still disagreement on the extent to which the state is responsible for restoration. Some contend that the recent state court ruling established that the QSA requires the state to restore the Salton Sea. However, in recent QSA litigation, IID and CVWD have argued that actual Salton Sea restoration was never a commitment by the state. The state legislation implementing the QSA requires IID, CVWD, SDCWA, and the State of California to fund the costs of environmental mitigation deemed necessary to avoid environmental harm due to the water transfers. The Environmental Impact Assessment determined that appropriate mitigation could be met by 200,000 AFY of Colorado River water transferred annually to the Salton Sea for the first 15 years after water transfers commenced; the construction of a pupfish refugium pond and the development of a plan to provide pupfish connectivity between drains; up to 652 acres, and at least 190 acres, of managed marsh for rail birds; two roost sites for brown pelicans; monitoring programs for all state and federally listed species; and a study program to determine the impacts of selenium on wildlife. IID, CVWD, and SDCWA, were required to pay up to $133 million of these environmental mitigation costs, with the state required to pay any and all additional costs, regardless of legislative appropriations. IID, CVWD, and SDCWA also agreed to place $30 million into the Salton Sea Restoration Fund (SSRF).",
"Some contend that the most pressing issue for the Salton Sea is increasingly high salinity. Some experts state that, without intervention, the Salton Sea will reach fatal salinity levels for most aquatic wildlife in the Sea between 2018 and 2028. Scientists have predicted that the Salton Sea could exceed 60 ppt by 2018 after the water transfers under the Quantitative Settlement Agreement (QSA) ramp up and mitigation water transfers to the Sea end. According to some, salinity levels beyond 40 ppt might result in fish with limited reproductive success, suppressed immune systems, and physiological stress. At 60 ppt and above, the water would be too saline to support tilapia, the main food source for birds in the area. Some contend that the Salton Sea would have naturally increased in salinity over time, thereby reducing its ability to sustain aquatic wildlife. Others describe increasing salinity in the Sea as predominately a result of human activities (e.g. water transfers and agriculture), which have decreased the potential for restoration.\nOther water quality issues, such as toxic chemicals and low oxygen levels, are also directly related, in part, to diminishing water flows. Toxic levels of selenium and elevated levels of Dichlorodiphenyldichloroethylene (DDE) have been found in the Sea. These substances have been detected at toxic levels in fish and wildlife in and around the Sea. Both DDE and selenium can cause reproductive problems in fish and birds. In addition, DDE and selenium can have adverse health effects on humans. Some contend that toxic levels of these substances were attained due to agricultural areas being the main source of water inflows to the Sea. There were widely publicized mortalities of fish and birds in and around the Salton Sea in the 1990s thought to be associated with toxins. In 1996, an estimated 15% to 20% of the western population of white pelicans and more than 1,000 endangered brown pelicans died. In August 1999, more than 7.6 million tilapia and croakers died due to low levels of dissolved oxygen in the Sea.\nWater quality issues have raised concerns about the future of endangered species that depend on the Salton Sea ecosystem. The loss of fish populations in the Sea could significantly reduce and possibly eliminate use of the Salton Sea by piscivorous birds by the early 2020s, according to some scientists. Some state and federally listed piscivorous birds such as the Yuma clapper rail (federal and state endangered) could be affected initially. Some invertebrates and possibly desert pupfish could survive at higher salinity levels, according to some scientists. For example, desert pupfish have survived in waters with salinity as high as 90 ppt in various locations. Some birds that rely on both fish and invertebrates may still be able to forage under high salinity conditions; however, the species composition of birds would be expected to change as the makeup of invertebrates shifts due to changes in salinity. Some nonnative fish species might still be found in the Salton Basin in areas of lower salinity around the Salton Sea, such as the rivers, creeks, and agricultural drains that feed into the Sea.\nAir pollution may emerge as an environmental issue as the Salton Sea shrinks in size. As the shoreline recedes, areas of lake bed would be exposed to heat and wind. As the lake bed dries and erodes, dust could enter the air and be circulated across large areas. Air-borne dust from dry beds in the Sea could contain harmful levels of pesticides, herbicides, and naturally occurring selenium. People in the surrounding Coachella and Imperial counties could be affected by this contaminated dust and contract respiratory problems. Presently, some counties near the Salton Sea have significantly higher rates of respiratory problems compared to other nearby counties. While there are many possible causes for these increased numbers of respiratory issues around the Salton Sea area, some attribute the problems, in part, to contaminated air derived from dry areas around the Salton Sea. Some also note that salt in the dust upwelling from dry areas around the Sea can damage crops. The Pacific Institute has estimated that the loss of water due to water transfers will expose an additional 130 square miles of seabed and increase the amount of dust in the air by a third over what is currently found. The Salton Sea Authority estimates that if the Sea dries up, the cost to mitigate the effects of dust alone will be upwards of $1 billion, with annual maintenance cost of around $48 million.\nIn the fall of 2012, a strong southern wind stirred the Salton Sea waters, bringing decayed material to the surface. This released hydrogen sulfide and produced a very strong rancid odor that was reported more than 200 miles away in both Simi Valley and Los Angeles County. This incident was dubbed the \"Big Stink\" and captured the attention of national media outlets. After this incident, funds were allocated to install monitoring equipment to measure gases rising from the sea. While there are no known human health concerns linked to the odorous gases, the incident stimulated attention about the poor condition of the Salton Sea, according to some. Further, the hydrogen sulfide released from the Sea (the source of the smell) consumes oxygen in Sea waters. This could result in fish kills, and if severe enough, could deplete all the oxygen in the Sea and cause the ecosystem to collapse.",
"Some of the ecological problems in the Salton Sea were foreseen by scientists who noted that salinity in the Sea was increasing at a rate that would eventually render the Sea uninhabitable for fish and wildlife. Early studies focused on understanding the hydrological and saline properties of the Sea. Since then, several federal, state, and private entities have developed proposals to restore the Sea, primarily by controlling its salinity and maintaining its water level.\nFederal efforts to restore the Salton Sea can be traced to the passage of the Reclamation Projects Authorization and Adjustment Act of 1992 (Title XI, §1101 of P.L. 102-575 ). The act directed the Secretary of the Interior to conduct research on projects to control salinity levels, provide habitat for endangered species, enhance fisheries, and protect recreational values in the Salton Sea. Seven years later, authorized restoration activities in the Salton Sea expanded with the passage of the Salton Sea Recovery Act of 1998 ( P.L. 105-372 ). This act authorized the Secretary of the Interior to conduct feasibility studies and economic analyses of various options for restoring the Salton Sea. Further, the secretary was authorized to conduct studies of wildlife and species' responses to the hydrology and toxicology of the Sea. This act also authorized river reclamation activities for the New and Alamo Rivers (tributaries that flow into the Salton Sea). In addition, several restoration projects have been administered through the state-funded Salton Sea Authority, including efforts in collaboration with the U.S. Bureau of Reclamation (BOR).\nEarly restoration work conducted by both state and federal entities consisted of feasibility studies focused on solar pools and salt evaporation technology. Both of these approaches aim to reduce the salinity of the Salton Sea by evaporating a portion of the seawater and disposing resulting salt deposits. To maintain a steady sea level, water from the Colorado River would need to flow into and mix with the Salton Sea. In 2004, the Salton Sea Authority released a restoration plan for the Salton Sea that called for the construction of a causeway across the center of the Sea. This was eventually incorporated into the 2006 Salton Sea Authority Plan for Multi-Purpose Project . The plan proposed to split the Salton Sea into two pools. However, when the QSA was first upheld by court in 2007, some suggested that the acquisition of water from the Colorado River necessary for salinity control technologies would be physically and politically infeasible. In its study analyzing options for restoring the Salton Sea, the Secretary of the Interior was not authorized to consider any option that relies on importing new or additional water from the Colorado River.",
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"Restoration activities and studies regarding the Salton Sea have been mainly funded and managed by the State of California. The state has increasingly endorsed the use of Saline Habitat Complexes (SHCs) to maintain viable ecosystems for current wildlife. These complexes would be constructed with berms or other barriers to create shallow saline pools. The salinity in these pools could vary and would be maintained by 'blended water', or possibly geothermal-powered desalinated Salton seawater. State efforts to restore the Salton Sea are, in part, due to provisions in the QSA which require the California Secretary for Resources, in consultation with the SSA, to present the state legislature with a preferred alternative for restoration. This state-identified preferred alternative was published as the Salton Sea Ecosystem Restoration Final Programmatic Environmental Impact Report (PEIR) and presented to the legislature in May of 2007.\nThe state-identified preferred alternative included SHCs in the northern and southern end of the Sea, a marine sea formed by barriers, air quality management facilities, a brine sink for discharge of salts, conveyance facilities, and sedimentation distribution facilities. In addition, the preferred alternative included Early Start Habitat, areas for geothermal development, and connectivity waterways for desert pupfish (See Figure 5 for the plan). The final cost for the state preferred alternative is estimated at $8.9 billion (in 2006 dollars). After construction is completed, the expected annual operations and maintenance costs are $142 million (in 2006 dollars). No state action has been taken to authorize funding for this plan. However, the state is proceeding to implement pilot studies that measure the effectiveness of SHCs, with federal assistance. For example, the state has a Salton Sea Species Conservation Habitat Project plan that is nearing completion. The aim of this project is to create up to 3,770 acres of SHCs for conserving and protecting fish and wildlife species that depend upon the Salton Sea. Pools would be created at the southern end of the Salton Sea on land owned by Imperial Irrigation District or the federal government. The project is not intended to be a comprehensive restoration project for the Salton Sea, but rather a \"proof of concept\" project to see if SHCs along the edge of the Sea can sustain fish and wildlife. The project would affect jurisdictional waters, and thus, requires the U.S. Army Corps of Engineers (Corps) to assess the project and provide necessary permits for construction. The Corps, in conjunction with the state, released a Final Environmental Impact Statement/Environmental Impact Recommendation in July 2013. The Corps is expected to use the EIS/EIR in determining whether to issue a Department of the Army permit for this project under section 404 of the Clean Water Act.\nIn addition to the state-identified plan, the SSA continues to seek funding and support at both the state and federal level for its 2006 plan involving the separation of the Sea into two lakes (see \" Restoration Efforts in the Salton Sea \" for more details on the SSA Plan). In recent negotiations between IID and County of Imperial, both parties have endorsed the SSA 2006 Plan.\nThe state legislature is addressing Salton Sea issues through legislation. For example, state bill AB71 would require the California Natural Resources Agency, in consultation and coordination with the Salton Sea Authority, to lead Salton Sea restoration efforts. Efforts would include several investigations into restoration projects. Further, the bill would authorize the Salton Sea Authority to lead a restoration and funding study to address restoring the Salton Sea and provide input to the Secretary of the California Natural Resources Agency on various aspects of restoration and air quality in the region.",
"Federal actions directed towards restoring the Salton Sea are not following any comprehensive plan. Restoration efforts by federal agencies are largely in the form of pilot projects, monitoring, and individual agency plans or proposals. For example, BOR created and disseminated a study assessing restoration possibilities in 2007. The development of the study was authorized and required under P.L. 108-361 . Section 201 states that the Secretary of the Interior, in coordination with the State of California and the Salton Sea Authority (SSA), shall complete a feasibility study on a preferred alternative for restoration. The BOR study provided five alternative restoration plans and a no action alternative, with costs for implementing the alternatives ranging from $3.5 billion to $14 billion. BOR did not state a preferred alternative, claiming that the uncertainty and risks, combined with the high costs of all five restoration alternatives prevented it from recommending an alternative. However, given that the no-action alternative had $1.4 billion estimated mitigation costs, BOR emphasized that consideration should be given to the SHCs component described in alternative 5.\nBOR and USGS created a pilot study consisting of a small series of SHCs from 2006 to 2010 to determine whether these complexes could be a feasible restoration approach. The pilot study concluded that SHCs, and similar saline complexes, could minimize the risks and costs of restoration, while restoring wildlife habitat and partially mitigating air quality impacts. However, selenium concentrations in these pools were reported at potentially toxic levels, which would warrant observation and study to see how it might adversely affect fish and wildlife. Overall, the study was reported to demonstrate that the SHP model is a viable alternative for restoring wetlands at the Salton Sea, but that the potential risks of selenium need to be considered.\nAs noted above, the Corps is also involved in pilot studies concerning SHCs. The Water Resources Development Act of 2007 ( P.L. 110-114 ) authorized the Secretary of the Army to review the state-approved plan, the \"Salton Sea Ecosystem Restoration Program Preferred Alternative Report and Funding Plan\", and implement feasible pilot projects described in the plan. Under WRDA 2007, if the secretary determines the projects are feasible, then he is authorized to enter into an agreement with the state to help implement the pilot projects. One of these pilot projects is the previously mentioned Salton Sea Species Conservation Habitat Project plan. The Administration has requested $200,000 of federal funding for a reconnaissance study of the plan. The request is in the Corps FY2014 budget request.",
"In addition to proposed comprehensive plans to restore the Salton Sea, several have endorsed site-specific plans or activities for restoration. For example, local and state efforts have been made to fund and explore the development of renewable and biofuel energy sources in the Salton Sea. The Sea has multiple potential renewable energy sources that include geothermal energy, solar power, and bio-algae. It has been estimated that the Salton Sea Basin could support up to 2,000 megawatts (MW) of economically feasible renewable energy capacity. A large portion of this capacity- around 1,400 MW- would be geothermal. The rest would be solar, which some proposed could be constructed along acres of the exposed lake beds around the Sea.\nCurrently, IID generates approximately 600 MW of geothermal energy in the Basin. IID has been developing a pilot study to use geothermal energy to desalinate water to create saline habitat pools. The Torres-Martinez Tribe has also requested funding from the State of California to construct a solar photovoltaic field to power reliable and sustainable water delivery to the saline habitat ponds on its land. If these pilot studies indicate that the use of renewable energy for desalination is feasible, it could allow for previously discussed salinity control methods to be used. The desalinated water could be a substitute for the fresh Colorado River water that would otherwise be necessary for salt evaporation and salinity control in the Basin.\nIn addition, SSA has been discussing a partnership with the Salton Sea Action Committee (SSAC), which represents some of the private business in the area interested in energy development. The SSAC is interested in promoting the development of renewable energy (e.g., solar fields and geothermal) in the Basin to generate funds for restoration. Further, there is discussion about creating an Infrastructure Finance District in the area, which would use a portion of proceeds from development to fund restoration. The SSAC contends that this arrangement would allow local governments to take on infrastructure and other projects (e.g., geothermal and other energy plants) and generate funds necessary for maintaining the Sea for fish and migratory birds.\nSome others have proposed the production bio-algae as a mechanism to both provide funds for restoration and improve the environmental health of the Salton Sea. Researchers at Clemson University have developed a Controlled Eutrophication Process (CEP) to grow algae in the Sea. Preliminary studies have shown that CEP would improve water quality, increase fish production, and have a potential sizable revenue stream.",
"Progress towards restoring the Salton Sea has been slow in recent years, largely due to the lack of a comprehensive plan to guide efforts and lack of funding. Indeed, some contend that there is not full consensus behind restoring the Sea. Those against restoration contend that it will naturally shrink and disappear, making attempts at restoration futile and expensive in the long term. Others counter these claims by stating the Sea is in an artificial state of decline because of its reliance on agricultural runoff artificially conveyed from the Colorado River. Further, they add that the increasing salinity of the Sea along with its shrinkage will cause irreparable damage to the ecosystem and negatively affect fish and wildlife populations, as well as create health risks for humans due to contaminated dusts.\nSome contend that the federal government has not taken an active role in physically restoring the Sea. Most federal actions have centered on creating proposals for restoration and conducting pilot studies. Restoration efforts have largely centered on state actions. Congress might consider shifting the federal position to a more active role by authorizing federal restoration actions and providing appropriations to implement them. In contrast, Congress might consider leaving restoration responsibilities to the State of California and allowing the federal government to continue its supporting role.\nThe importance of the decision of how to proceed might amplify as the QSA goes into effect and temporary local mitigation efforts end. The presence of endangered species in the Salton Sea and documented health hazards from the evaporation of the Sea are issues some cite to justify federal action. The following section provides an overview of the issues concerning the federal role in restoring the Salton Sea, and then discusses specific aspects of the federal role and how Congress might address them.",
"Some contend that the federal government should have a greater role in restoring the Salton Sea. They note that the federal government owns 47% of the land underneath the Sea, and federal agencies, such as the Bureau of Land Management, have leased a portion of the land to private entities for oil and natural gas development. They also note that the Salton Sea ecosystem is important for several listed species under the federal ESA and that the Department of the Interior is currently conducting studies to evaluate proposals for restoring the Salton Sea. Others counter this sentiment by noting that there are no laws that authorize direct federal involvement in physically restoring the Sea. (Note that some federal laws authorizing broad restoration actions could be applied to restoring parts of the Salton Sea ecosystem.) Further, they note that the State of California is directly authorized to restore the Sea under state law and that restoration should be a state responsibility. State efforts to restore the Salton Sea ecosystem have largely gone unfunded due to state fiscal concerns, according to some. Some note that if federal funds were available, the construction and development of larger restoration projects could proceed.\nDue to the expense and estimated costs of currently proposed restoration plans, advocates argue that a combined state and federal effort to restore the Salton Sea would be an appropriately balanced approach to restoration. However, some may contend that an open-ended federal commitment to restore an area with questionable prospects for restoration success may not be the best use of federal resources in a time of fiscal constraint. They contend that other wetland restoration efforts, such as in the San Francisco Bay and Sacramento and San Joaquin Rivers Delta (Bay-Delta) and Lake Tahoe in California would be more cost-effective and efficient ways to address species concerns and restore existing ecosystems.\nIf Congress considers expanding the federal role in restoring the Salton Sea, there are a few factors to consider, including (1) creating authorizing legislation to create a comprehensive plan (or implement an existing plan) and governance structure for restoration; (2) funding existing authorized activities or a new effort at restoration; (3) addressing restoration under ESA; and (4) maintaining the status quo of providing assistance to the State of California. Lastly, Congress might decide not to address restoration in the Salton Sea ecosystem. If Congress chooses not to authorize or fund Salton Sea restoration activities, efforts by the State of California would be the primary avenue for restoration. California is directed under the QSA and the state law to mitigate the effects of the QSA in the Salton Sea. However, even with mitigating the effects of the QSA, habitat loss and salinity is expected to continue. The next sections discuss options for Congress listed above.",
"The Salton Sea does not have a comprehensive plan that is being implemented for restoration. Several entities have released different restoration plans. Many state, tribal, and federal agencies have a stake in the Basin and each has proposed different plans. The current proposed state plan is estimated to cost $8.9 billion. The federal restoration alternatives identified by BOR in 2007 had estimated costs ranging from $3.5 billion to $14 billion. So far, state and federal appropriations have not been provided to support the implementation of any large-scale project. Some private stakeholders have presented smaller-scale versions of the state and federal plans that cut costs by eliminating certain aspects of the plans. These partial restoration plans are estimated to reduce costs by up to 75%.\nMost of the funding for restoring the Salton Sea, according to some, has been spent on creating plans and monitoring, rather than directly implementing projects. These studies have provided data and highlighted issues and strategies for future restoration projects. However, the short lifespan (most projects are decommissioned within five years) of these efforts may result in limited long-term environmental impacts.\nCongress might consider increasing the federal role in restoring the Salton Sea by authorizing the creation of a comprehensive restoration plan that would involve federal and state resources and incorporate shared governance, or authorizing an existing proposed restoration plan. For example, restoration in the Greater Florida Everglades is guided by the Comprehensive Everglades Restoration Plan (CERP), which includes 68 projects and has a 1:1 cost share between the federal government and the State of Florida. DOI and the Corps are the primary federal entities involved and the South Florida Water Management District is the non-federal sponsor. Other ecosystem restoration initiatives in areas such as the Chesapeake Bay and Platte River also involve the federal government and one or more states. An alternative to creating and authorizing a comprehensive plan for restoration could be to expand and fund existing federal authorities that contribute toward restoring the Salton Sea.",
"Congress may choose to expand the federal role in the restoration of the Salton Sea by funding existing restoration projects and authorizations aimed at restoration. For example, the Water Resources Development Act of 2007 authorized the Secretary of the Army to review the state plan and determine whether pilot projects in the plan are feasible. If the Secretary decides that the projects are feasible, then he is authorized to enter into an agreement with the state, in consultation with the Salton Sea Authority and the Salton Sea Science Office, to carry out the pilot projects. The non-federal sponsor (e.g., State of California) would pay 35% of the total cost of the project, and the federal government would pay 65%. The law authorizes $30 million for these projects, with no more than $5 million per project. To date, no funding has been authorized for the Corps to carry out these projects; however, the Administration has requested $200,000 for a reconnaissance study on these pilot projects for FY2014.\nOther federal authorities for addressing restoration in the Salton Sea are primarily for conducting studies to determine if certain restoration methods are feasible. For example, funds authorized by the Salton Sea Reclamation Act of 1998 ( P.L. 105-372 ) are for implementing pilot projects to measure saline habitat pools. BOR received appropriations (and then contracted with USGS) to carry out these pilot studies and have reported generally positive results. Funding has also been used to implement scientific research on the Salton Sea as well as monitoring and collecting data about the state of the Sea.\nSome programs under ESA could be applied to restoration of habitat and species recovery and used to help fund efforts in the Salton Basin. The Salton Sea is a key stop along the Pacific Flyway, which serves as the migratory route for many endangered and threatened species. The Salton Sea is not currently designated as critical habitat for these species, which has been questioned by some scientists who believe it should be listed as critical habitat along the Flyway. Nearby areas, however, do contain critical habitat and can play a role in restoration. For example, parts of the Imperial Valley, including the Salton Sea, were designated a critical habitat for the desert pupfish. The recovery plan for the desert pupfish states that the few natural habitats and populations remaining should be protected. The incidental take permits granted by the Fish and Wildlife Service for the water transfer authorized under the QSA require that the participating parties maintain desert pupfish habitat connectivity. Further, QSA mitigation requires that desert pupfish habitats be maintained as long as the transfers are occurring and that a detailed management plan be developed when salinity reaches 90 ppt (the point at which desert pupfish can no longer reproduce in the Sea). These requirements might stimulate restoration and maintenance of the Salton Sea or the maintenance of small habitat pools to maintain these endangered species.\nPossible funding sources through the ESA include appropriations for recovery actions of listed species and the Cooperative Endangered Species Conservation Fund (CESCF). CESCF could benefit species that are listed or proposed for listing under ESA, through grants to states and territories. Funds from CESCF could also be used to help states prepare Habitat Conservation Plans (HCPs). If there are several actors participating in the creation of an HCP, states can use their funds to coordinate the effort and develop a single plan that might cover the region.\nSome alternative funding mechanisms have been proposed by state, local, and private entities that could involve the federal government. For example, some have proposed the use of renewable energy development in the Basin to help fund restoration. One way to utilize renewable energy would be through public-private partnerships (PPPs). PPPs involve contract arrangements in which a nonfederal or private entity partners with the government to contribute funds, knowledge, or labor toward a project. In return, the private or nonfederal entity is guaranteed a portion of the project's revenue as repayment. The other portion of the revenue could be used to fund public goods such as restoration. Multiple federal agencies have instituted public-private programs to fund and manage restoration. These include the National Oceanic and Atmospheric Administration (NOAA), the U.S. Army Corps of Engineers (Corps), the Bureau of Land Management (BLM), the U.S. Forest Service (USFS), and the Fish and Wildlife Service (FWS), among others. Many of these agencies have programs that provide funding for a project while a private company develops and constructs the project. In several cases, this model also involves cost-sharing between the federal agency and nonfederal entity.\nAccording to independent studies commissioned by stakeholders in the area, the Salton Sea Basin has large renewable energy potential. This includes geothermal, solar, and bio-algae energy production. Integrating energy production and PPPs to generate funds for restoration has been suggested by some as a potential alternative to raise revenue and improve the local economy in the Basin. Potential federal entities that could be involved with PPPs in the area include BLM and FWS. However, for PPPs to be viable, they would need to generate revenues with minimal risk to the private entity. Some contend that the barriers to renewable energy development in Salton Sea Basin, such as lack of access to transmission lines, lack of access to water necessary to run generators, and environmental concerns including endangered species and seismic inductions due to the activities, might be prohibitive for energy development in the area.",
"Congress might consider the potential effects of not restoring the Salton Sea in weighing options for action. Most studies and statements by scientists and other stakeholders note that the Sea will shrink in size and increase in salinity without restoration. This is expected to amplify after 2018, which is the expected date for mitigation deliveries to the Salton Sea to stop under the QSA. Some have modeled the future physical characteristics of the Salton Sea without restoration. Without restoration, the present ecosystem would be unable to continue with high salinity concentrations. The migratory birds that visit the Salton Sea would largely disappear from the area. The Salton Basin, however, could still be ecologically productive. For example, the high salinity concentrations would be conducive for brine shrimp, flies, algae, and bacteria. Over time, however, the salinity and oxygen depletion could reach levels that would affect the survival of remaining organisms in the area. While modeling has predicted that the sea size would stabilize around 2040, the salinity would continue to increase. Models estimate that salinity would be 330 ppt by 2075. To put this in perspective, the saltiest portions of the Great Salt Lake in Utah are 270 ppt and the Dead Sea is around 337 ppt.\nBy 2040, an additional 134 square miles of the seabed would be exposed compared to the present size of the Sea. Contaminated dust from these exposed areas could impact the livelihood of the farmers in the surrounding counties and have adverse health effects on those in neighboring communities. Studies have not been able to quantify the economic impacts of increasing dust on the agricultural economy in the area. However, possible impacts include damaged crops and additional water needed to leech salts and toxins from the soil. Many of the business owners in the area have stated that lack of restoration would lead businesses in the area to close. Locals have expressed fears that unemployment would increase if businesses closed. Also, the state and federal governments may bear additional health care costs due to increased health problems.\nWhile acknowledging that the Salton Sea ecosystem is undergoing a transition to a smaller and saltier water body, some contend that the natural transition of the Sea should not be interfered with. These opponents of restoration contend that the future Salton Sea will have a new, but equally productive, ecosystem that better fits with the physical and chemical properties of the Sea. They believe that restoring the Sea should not be a priority. Others counter this sentiment by noting the severity of the projected effects of a shrinking sea on the environment and economy of the region.\nUnderstanding the science behind the ecosystem dynamics in the Salton Sea Basin is viewed as a priority by some who contend that long-term monitoring of the Salton Sea ecosystem is essential for deciding whether to restore the Sea or let it transition into a new ecosystem. The USGS and BOR collaborated with the California Department of Water Resources and Fish and Wildlife to create a Monitoring and Assessment Plan (MAP). This plan would implement a monitoring program that would establish a baseline understanding of the key factors in the Salton Sea ecosystem (e.g, salinity and area of exposed seabed, among others); fill in data gaps; and provide capacity for storing, managing, and analyzing data. The program is not intended to be a prescriptive plan for restoration, but rather aims to implement monitoring activities directed at species and habitats that could be affected by future restoration activities.",
"The Salton Sea ecosystem has been steadily changing primarily due to less water entering the Sea. The notable changes are the decreasing area of the Salton Sea and increasing salinity of its waters. These changes have already caused stress on fish and wildlife species that reside in the ecosystem, and some avian species that use the ecosystem while migrating along the Pacific Flyway. The condition of the Salton Sea ecosystem is expected to change dramatically when water transfers authorized under QSA are implemented, thus reducing water inflows into the Sea. This is expected to increase the level of salinity in the Sea over a short period, thus making the Sea inhabitable for most existing fish and wildlife species. Severe effects on the ecosystem are expected as soon as 2018, according to some models.\nSeveral groups support restoring the Salton Sea ecosystem so that it can support fish and wildlife and stimulate economic development in the region. Specifically, proponents of restoring the Sea base their arguments on the value of the Salton Sea as one of the few remaining habitats in the region for migratory birds and other fish and wildlife. They note that with nearly 90% of California's original wetlands gone, the Sea is of regional or national importance to pelicans and cormorants, wading birds, waterfowl, shorebirds, gulls, and terns. Further, some note that a restored Sea could supports aquatic wildlife that include some threatened and endangered species and other species that might be able to support recreational or sport fishing practices. The value of a restored Sea, according to some, can also be measured in terms of its potential for recreation and economic development (e.g., tourism) as well as its function for agricultural drainage.\nSome opposed to restoring the Salton Sea base their arguments on the premise that the Salton Sea is destined to evaporate and eventually convert back to a desert ecosystem. Throughout geologic history, water bodies in the Salton Basin have eventually dried up, leading some scientists to hypothesize that evaporation and conversion to a salt brine would be the progression of the Salton Sea if no restoration activities are undertaken. Some critics also argue that salinity levels will increase in the Sea despite restoration attempts, especially if water inflows to the Sea are reduced by water transfers or other water diversions away from the sea. Further, without the ability to use fresh water from the Colorado River, many of the restoration plans and projects developed in the early 2000s may be infeasible. As noted earlier, some argue that the high cost of restoration and the scientific uncertainty of existing proposals might not warrant limited state and federal funds. They note that limited funds should be funneled to other restoration efforts in naturally occurring wetlands in the California San Francisco Bay Sacramento/San Joaquin Rivers Delta.\nCongress has addressed the restoration of the Salton Sea ecosystem through various laws that authorize, in part, the creation of restoration plans for the ecosystem and the testing of restoration methodologies through pilot projects. However, due to the pace of change in the Salton Sea and the anticipation of severe effects on the ecosystem due to water transfers, Congress may decide to address restoration by increasing the federal role in restoration efforts. This could be done by funding existing federal authorities that address, or could address, restoring the ecosystem; authorizing federal participation and appropriations for implementing existing restoration plans; and authorizing a new comprehensive plan to be created that might involve participation from federal and non-federal stakeholders, similar to other restoration initiatives around the country. Congress might also decide not to address restoration of the Salton Sea ecosystem, or, rather, maintain the status quo of federal participation.",
"Federal Appropriations"
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"question": [
"How was the Salton Sea created?",
"How is the Salton Sea sustained?",
"How does the Salton Sea serve its inhabitants?",
"How has the Salton Sea been altered over time?",
"How are efforts being created for restoration plans for the Salton Sea?",
"How are the State of California, the Salton Sea Authority and the federal government communicating about restoration efforts?",
"How are the Federal authorities addressing the Salton Sea?",
"How is California addressing restoration options?",
"Why are the efforts to restore the Salton Sea or not to restore the sea controversial?",
"Why are their concerns about losing the Salton Sea?",
"Why do some contend that the Sea should not be restored?",
"What do the contenders against restoring the Sea believe should be done with restoration funds?",
"Why is the decline of the Salton Sea ecosystem accelerating?",
"How have water transfers impacted the Sea?",
"How could Congress decide to increase the federal role in restoration efforts?",
"How else might Congress handle the restoration of the Salton Sea ecosystem?"
],
"summary": [
"The Salton Sea was created when a canal gate broke in 1905 allowing fresh Colorado River water into the Basin.",
"The Salton Sea is now sustained by agricultural runoff from farmlands in the Imperial and Coachella valleys.",
"It provides permanent and temporary habitat for many species of plants and animals, including several endangered species. It also serves as an important recreational area for the region.",
"The Salton Sea has been altered by increasing salinity and decreasing size caused by steadily decreasing water flows into the Sea. High salinity levels and shrinking area have been linked to habitat changes and stressed populations of plants and animals, economic losses in the region, and impaired air quality.",
"Efforts to restore the Salton Sea ecosystem have been discussed and initiated through state and federal actions. Several studies by state and federal agencies have provided baseline data about the Sea, and some restoration plans have been proposed.",
"The State of California, the Salton Sea Authority, and the federal government through the Bureau of Reclamation have devised plans for restoring the Sea.",
"Federal authorities that address restoration of the Salton Sea are generally based on creating and evaluating proposals for restoration, rather than implementing restoration activities in a comprehensive manner similar to other initiatives in the Everglades and Great Lakes.",
"California is pursuing restoration options, but funding for implementing them is lacking.",
"Proponents of restoration contend that the Salton Sea ecosystem is valuable from an ecological standpoint because it is one of the few remaining large-scale wetland habitats in California for migratory birds and fish. Further, some argue that keeping the Salton Sea intact will stimulate economic development, recreation, and tourism in the region.",
"They note that losing the Sea could cause economic and environmental decline, and could lead to air quality problems from exposed seabeds.",
"They argue that the Salton Sea is naturally declining, as it has throughout its geological history. Further, they note that countering this process will be costly and ultimately not worth the expense.",
"They state that limited restoration funds should be used to restore other natural wetlands in California, such as the Sacramento-San Joaquin Bay Delta.",
"The decline of the Salton Sea ecosystem is accelerating due to water transfers from agricultural lands to municipal water districts in San Diego under the terms of the Quantification Settlement Agreement, an agreement on how to share California's apportionment of Colorado River water.",
"The water transfers have resulted in less water flowing into the Salton Sea and accelerated increases in salinity and shoreline recession. According to some scientists, salinity levels may reach lethal levels for most fish and wildlife as soon as 2018.",
"This could be done by funding existing federal authorities that address, or could address, restoring the ecosystem; authorizing federal participation and appropriations for implementing existing restoration plans; or authorizing a new comprehensive plan to be created that might involve participation from federal and non-federal stakeholders, similar to other restoration initiatives around the country.",
"Congress might also decide not to address restoration of the Salton Sea ecosystem, or simply maintain the status quo of federal participation."
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"title": [
"",
"Introduction",
"Methodological Differences Between the Standard CPI and the C-CPI-U",
"The CPI-U and CPI-W",
"The C-CPI-U",
"Statistical Differences Between the CPI and C-CPI-U",
"Policy Considerations"
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"",
"This report provides technical and logistical information on how the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) is constructed and reported by the U.S. Bureau of Labor Statistics (BLS). It explains methodological and statistical differences between the standard Consumer Price Index (CPI) and the C-CPI-U. It then addresses a key impediment to moving to the C-CPI-U. The report closes with a discussion of the potential impact of such a switch on the federal budget deficit. For information on programs indexed to the CPI, see CRS Report R42000, Inflation-Indexing Elements in Federal Entitlement Programs , coordinated by [author name scrubbed]. For information on how Social Security benefits could be affected by using the C-CPI-U to compute annual cost-of-living adjustments (COLAs), see CRS Report R42086, Using a Different Cost-of-Living Measure for Social Security Beneficiaries: Some Policy Considerations , by [author name scrubbed].\nThe CPI is probably the most important measure of inflation developed by the federal government because it is used to make automatic adjustments that affect both outlays and revenues. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the basis for adjusting Social Security retirement benefits and the Consumer Price Index for All Urban Consumers (CPI-U) is the basis for adjusting personal income tax brackets to keep up with inflation, for example. Changing the government's basis for indexing these among other federal programs and tax provisions from the CPI-W and CPI-U could have substantial effects on the budget deficit. (Hereinafter in this report, the CPI-W and CPI-U will be referred to collectively as the standard CPI.)\nThen-Chairman of the Federal Reserve Board Alan Greenspan suggested in testimony before the House Budget Committee in 2004 that Congress consider replacing the standard CPI with the C-CPI-U to make automatic COLAs to federal programs. He pointed out that, at that time, if the C-CPI-U had been used instead of the CPI-U and CPI-W over the previous 10 years, the federal debt would have been about $200 billion less.\nThe National Commission on Fiscal Responsibility and Reform (\"Simpson-Bowles\") report and the \"Gang of Six\" plan among others included replacing the standard CPI with the C-CPI-U for all government provisions subject to indexation. This proposal was considered, as well, by some members of the \"super committee\" created by the Budget Control Act of 2011 ( P.L. 112-25 ). Many others have released similar proposals in recent years.\nAn amendment offered by Representatives Cooper and LaTourette as a substitute to the House's FY2013 budget resolution would have relied on the recommendations in the Simpson-Bowles report to establish the following year's budget. Although the bipartisan amendment failed on March 28, 2012, its being offered suggests that interest in changing to the C-CPI-U to curb the growth of the budget deficit remains among some Members of Congress.\nIn April 2013, a modified version of the Chained CPI-U proposal was included in President Obama's Fiscal Year 2014 Budget.\nOne reason besides slowing the growth in the budget deficit for changing to the C-CPI-U is that the standard CPI has not been without criticism as a measure of change in the cost of living. A true cost-of-living index would measure the change in income required for consumers to maintain a constant level of \"utility\" (satisfaction). But there are a number of practical complications that make constructing such an index difficult.\nWith a given level of income that constrains their choices, consumers decide how to spend their money based on the satisfaction the various available goods and services yield. Consumers are assumed to spend their income in such a way as to get the most satisfaction possible within the limitations of their budget. Any indicator of the cost of living must be based on what consumers actually spend because utility cannot be directly measured.\nOne of the difficulties in estimating changes in the cost of living is that consumer spending patterns change continuously and for different reasons. Spending patterns change because of changing tastes and preferences (e.g., for meals in restaurants rather than meals prepared at home). Spending patterns also change due to changes in relative prices. As prices change over time, consumers will tend to buy more of those goods and services whose prices are rising slower than average and fewer of those goods and services whose prices are rising faster than average. So-called substitution bias causes the standard CPI to overstate the effect of inflation on consumer well-being.\nThe BLS, which produces the standard CPI, has strived to construct a better measure of changes in the cost of living. Toward that end, it asked the Committee on National Statistics of the National Research Council (NRC) to convene a panel of experts to look into the conceptual, measurement, and other statistical issues that arise when constructing cost-of-living indexes. In its 2002 report, the panel endorsed continuing to use the CPI for tax indexation, which began in 1985 as required by the Economic Recovery Tax Act of 1981. It suggested that poverty thresholds (which determine eligibility for government transfer programs such as Medicaid and food stamps) might be adjusted by a fixed percentage of median income or consumption of workers, and referenced a 1995 NRC report on measuring poverty that had suggested thresholds be adjusted by a fixed ratio of the median consumption of necessities (e.g., food and shelter). The panel expressed support for BLS's then in-development Chained Consumer Price Index for all Urban Consumers as a means of more accurately adjusting Social Security retirement benefits among other federal payments (e.g., military and civil service pensions; veterans' benefits) for real changes in the cost of living. But, there are difficulties with switching to the C-CPI-U despite it more fully accounting for substitution bias and thereby more accurately reflecting changes in the cost of living.",
"Because the standard CPI is a fixed-weight index, it does not entirely reflect ongoing changes in buying habits. As the overall level of prices changes, relative prices change as well. Consumers can to some degree change their spending patterns in response to these prices changes by buying relatively more of those goods whose prices are rising more slowly.\nIf these changes in consumer spending patterns have no effect on overall consumer satisfaction, then a price index based on a fixed market basket of goods and services will overstate the increase in the cost of a given standard of living. Because the standard CPI does not fully account for consumers' ability to insulate themselves from inflation by changing their spending patterns, it overestimates how much they would need to raise total spending to maintain a constant standard of living. The C-CPI-U, in contrast, is constructed in such a way as to better account for substitution bias.",
"The standard CPI is a fixed-weight (Laspeyres) price index, which measures the change in retail prices of an unchanging mix of goods and services purchased by consumers. To see how a fixed-weight index is calculated, consider the simple case of two time periods and two goods. In the first period, the value of the index is one. The index value in the second period is a function of the quantities in the first period and the prices in the two periods. It is a weighted sum. The first step is to calculate, for each good, the ratio of the price in the second period to the price in the first period. The ratios are then summed using expenditure shares in only the first period as weights. To see how a fixed-weight price index is calculated, see Box 1 .\nThe standard CPI is, strictly speaking, a modified fixed-weight price index. That is, the market basket of goods and services is periodically changed to keep it up to date. Until a decade ago, however, those updates occurred only about once every 10 years. With the release of CPI data for January 2002, the market basket was updated to reflect spending patterns reported in the Consumer Expenditure (CE) Survey for the 1999-2000 period. Since then, BLS has updated the expenditure weights every two years. For example, with the release of the January 2010 CPI, the weights were updated to reflect spending patterns in the 2007-2008 period. Despite this more frequent updating of the market basket, the standard CPI continues to be subject to the substitution bias that is inherent in a fixed-weight index.\nThe standard CPI is issued in its final form and is not revised. This makes it attractive for calculating COLAs. But, even a small discrepancy between estimated and actual changes in the cost of living each year will be cumulative over time.",
"In an effort to better estimate the effect of consumer substitution on the CPI, BLS introduced a supplemental measure known as the Chained Consumer Price Index for all Urban Consumers (C-CPI-U). It does not replace either the CPI-W or CPI-U, and has not to date affected any indexing provisions of federal programs.\nThe aim of the C-CPI-U is to produce a measure of change in consumer prices that is free of upper-level substitution bias. Upper-level substitution refers to consumers changing their spending between broad categories in the market basket (e.g., buying more chicken and less fish due an increase in the price of fish compared with chicken from one month to the next).\nThe final release of the C-CPI-U is calculated using a Törnqvist index formula that relies on consumer expenditure data for the current and prior months as a means of accounting for any substitution across categories made by consumers in response to changes in relative prices. In other words, \"the final version of the C-CPI-U is based on actual consumer behavior, rather than assumptions about consumer substitution.\" BLS estimated that the decrease in cost-of-living growth due to accounting for upper-level substitution may be 0.3 percentage points. To see how a Törnqvist price index is calculated, see Box 2 .\nThe Törnqvist index requires expenditure data that become available after a long lag time. As a result, the final C-CPI-U cannot be published concurrently with the standard CPI. But, BLS is able to publish an initial estimate of the C-CPI-U that coincides with the release of the standard CPI each month by using a geometric mean formula (discussed immediately below). Every February, the initial C-CPI-U estimates for all of the months in the previous calendar year are revised again using a geometric mean formula. The revision is referred to as the \"interim\" release. The following February, the final C-CPI-U estimates based on the Törnqvist formula are released for all of those same months.\nThe initial and interim releases of the C-CPI-U are based on the same expenditure weights used for the CPI-U but a geometric mean formula is used in aggregating the basic indexes to create the upper-level indexes in the initial and interim releases. In contrast with the Laspeyres index, in which the \"fixed-weight\" methodology keeps the quantity of good purchased in the first period and applies that amount in subsequent periods, the geometric mean index formula assumes a particular consumer response to the change in relative prices. That means while in a Laspeyres index, if the price of a good rises, the quantity consumed will remain constant, but in a geometric mean index the quantity consumed implicitly falls. Some research has suggested that the geometric mean based price index may overstate substitution bias if consumers are assumed to respond to changes in relative prices more than they actually do. To see how a geometric mean index is calculated, see Box 3 .\nThe initial and interim releases of the C-CPI-U are further adjusted based on historical differences between geometric mean and Törnqvist indexes. This is done so that the initial and interim releases are closer to the final index number. BLS is continuing to study methods to further narrow the gap between preliminary and final index numbers. It also is trying to shorten the lengthy lag between release of preliminary and final index numbers.\nAlthough the C-CPI-U may be superior to the standard CPI in some respects, final data are far from timely. For example, in the case of the release of C-CPI-U data for the month of January 2009, the initial release occurred in February 2009, the interim release occurred in February 2010, and final release in February 2011. Final data for all of the months in calendar 2009 also were not released until February 2011. Thus, the wait for the final release of any January C-CPI-U is 25 months. But, because all of the months in a given calendar year are revised at the same time, the wait for the final release of any December C-CPI-U is 14 months. (See Table 1 for how many months after the reference month, the month for which the data are reported, the various releases are published.)",
"Data for the C-CPI-U are available beginning with December 1999. As shown in Table 2 , which uses final data through the end of 2011 and interim data through the end of 2012, most of the time the increase in the final C-CPI-U has been smaller than the increase in the standard CPI.\nThe short history of the C-CPI-U makes it difficult to say with confidence how large differences between the final and preliminary indexes are likely to be. In two different years, the change between interim and final releases was 0.3 percentage point, a significant revision. The initial estimate for 2006 indicated a larger increase in the cost of living than either the CPI-U or CPI-W, but the final estimate was revised downward by 0.4 percentage point, which produced an increase in the C-CPI-U that was smaller than the increase in the standard CPI. The interim release for 2009 indicated a larger increase in the cost of living than either the CPI-U or CPI-W, but the final estimate was revised downward by 1.3 percentage points, which produced an increase in the C-CPI-U that was smaller than the increase in the standard CPI. As shown in Figure 1 , most other revisions to the C-CPI-U have been small.",
"The CPI is important, not only as an economic indicator, but also because it has significant implications for the budget through the indexing of some tax provisions and federal programs. If the CPI overstates the effect of inflation on consumers, then Social Security benefits are rising more rapidly than necessary to preserve the living standards of beneficiaries, more people are eligible for some federal programs, and income tax brackets are rising more than necessary to avoid \"bracket creep.\"\nIf the C-CPI-U is a better measure of changes in the cost of living, and the goal of indexing is strictly to reflect changes in the cost of living, then the C-CPI-U might be considered as a measure on which to base those adjustments. As previously discussed, however, a major complication of switching to the C-CPI-U is that final data are not available for up to two years after the reference period.\nBecause the average CPI-W for the third quarter of 2012 exceeded the average CPI-W for the third quarter of 2011 by 1.7%, the Social Security cost of living adjustment (COLA) for 2013 was 1.7%. The final C-CPI-U data for the third quarter of 2012 will not be available until February 2014, however. Such a lag might make the final C-CPI-U number a poor candidate as an index for automatic adjustments.\nPreliminary C-CPI-U estimates might be an attractive alternative to using the final C-CPI-U. If there is a tendency for the final index to rise more than the initial or interim indexes, it might make the preliminary indexes unpopular with those who would be affected. More specifically, basing future COLAs on any version of the C-CPI-U could generate opposition from some Social Security beneficiaries, taxpayers, and those whose eligibility for federal programs is based on poverty thresholds because the index has tended to rise less than either the CPI-U or the CPI-W as they are now calculated.\nThe elderly and their advocates were among those who expressed opposition to changing the current basis for indexation when this was reportedly considered by some members of the super committee. If the prices Social Security beneficiaries and federal and military pensioners face increase at an above-average rate, switching to the C-CPI-U might not enable this population to maintain its standard of living. The elderly spend more than the population at large on health care, and prices for these services have generally increased at an above-average rate. An experimental fixed-weight index for those aged 62 and older (CPI-E) computed by BLS has increased 0.27 percentage points faster than the CPI-W from the CPI-E's inception in December 1982 to December 2010. However, it is difficult to gauge whether the cost of living among the elderly actually increases more quickly than among younger persons due to rising health care prices because BLS may underestimate the rate of improvement in the quality of these services. If this is the case then all versions of the CPI—but especially the CPI-E—overstate increases in the cost of living.\nThe U.S. Congressional Budget Office (CBO) estimated the effects on the budget if policymakers substitute the C-CPI-U for the standard CPI as outlined in the President's Budget for FY2014. The estimates assume that, in the future, the C-CPI-U will increase 0.25% more slowly each year between 2014 and 2023 than the CPI that is now used for indexation. Using projections of the C-CPI-U, CBO projected that a switch from the CPI-U to the C-CPI-U may yield a cumulative increase in revenues between FY2014 and FY2023 of $99.5 billion in the case of indexation of various provisions of the tax code (excluding refundable tax credits as they are considered direct spending and which would decrease the debt by an additional $15.3 billion). In the case of Social Security COLAs, CBO projected that a switch from the CPI-W to the C-CPI-U may result in a cumulative decline in outlays of $89.2 billion between FY2014 and FY2023, including the benefit enhancement for certain beneficiaries.\nIn the case of COLAs for federal and military pensions, switching the index would result in a cumulative decline in outlays of $13.9 billion between FY2014 and FY2024. Switching the indexation of Veteran's Compensation would result in a $7.9 billion decrease in outlays over the same period. Switching the indexation of the remaining COLA programs, would result in a $1.2 billion decrease in outlays. In total, CBO projected that the proposal would decrease the federal deficit by $232.7 billion (where $142.9 billion would be considered \"on-budget\")."
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"question": [
"What measure of inflation did the U.S. Bureau of Labor Statistics publish?",
"What groups are included in the collective CPI?",
"Why is the CPI more powerful than just being an economic indicator?",
"Why is the CPI an important policy lever?",
"How is the supplemental measure published by the BLS known as?",
"What is the aim of the C-CPI-U?",
"What is one of the difficulties for the C-CPI-U?",
"What is believed to insulate consumers from the rising prices of maintaining their standard of living?",
"What happened to the C-CPI-U as a result of better reflecting consumer substitution?",
"What has the relationship between the indexes caused?",
"What did the 2010 \"Simpson-Bowles\" report recommend?",
"What was included in the modified version of the Chained CPI-U proposal in April 2013?",
"What is the purpose of issuing the CPI-W and the CPi-U?",
"What happens to the C-CPI-U after its first release?",
"What would happen if the two indexes were replaced by the C-CPI-U?"
],
"summary": [
"The U.S. Bureau of Labor Statistics (BLS) publishes two important measures of inflation: the Consumer Price Index for all Urban Consumers (CPI-U) and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).",
"(Hereinafter in this report, the CPI-W and CPI-U will be referred to collectively as the standard CPI.)",
"The standard CPI might seem like just another economic indicator, but it is a powerful policy lever.",
"Because the CPI-W is used to calculate annual cost-of-living adjustments (COLAs) to Social Security retirement benefits and the CPI-U is used to calculate annual inflation adjustments to personal income tax brackets, for example, changing the basis of the adjustments could substantially affect outlays and revenues.",
"Since August 2002, BLS has published a supplemental measure known as the Chained Consumer Price Index for all Urban Consumers (C-CPI-U).",
"The aim of the C-CPI-U is to produce a measure of change in consumer prices that is free of substitution bias.",
"One of the difficulties in estimating cost-of-living changes is that consumers often alter their buying patterns in response to changing relative prices. In other words, consumers tend to buy more of the goods and services whose prices are rising slower than average and fewer of the goods and services whose prices are rising faster than average.",
"Substitution is believed to insulate consumers from the full effect of rising prices on maintaining their standard of living. Because the CPI-W and CPI-U do not entirely account for substitution, they overstate the impact of inflation on consumer well-being.",
"As a result of better reflecting consumer substitution, the C-CPI-U has typically increased to a lesser extent than either the CPI-U or CPI-W.",
"This relationship has prompted calls for switching to the C-CPI-U when calculating automatic adjustments to inflation-indexed federal programs and individual tax provisions to slow growth in the budget deficit.",
"The 2010 \"Simpson-Bowles\" report recommended government-wide replacement of the CPI-W and CPI-U with the chained CPI, for example.",
"In April 2013, a modified version of the Chained CPI-U proposal was included in President Obama's Fiscal Year 2014 Budget.",
"The CPI-W and CPI-U are final upon being issued, making them attractive for use in calculating cost-of-living adjustments.",
"In comparison, the C-CPI-U is subject to two revisions after its first release.",
"If the two indexes were replaced by the C-CPI-U, cost-of-living adjustments would either have to wait until the final number was available or rely on preliminary estimates that could change up to two years after the fact."
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GAO_GAO-18-679
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{
"title": [
"Background",
"Most Programs Use Income to Determine Student Eligibility and Consider Various Factors When Setting Scholarship Award Amounts",
"Eligibility Requirements",
"Scholarship Uses and Amounts",
"Effect of TCS Donations on Taxes Owed Depends on Factors Such as Tax Credit Percentages and Individual Circumstances",
"Tax Credit Percentages",
"Limits on Tax Credit Amounts",
"TCS Donations and Federal Taxes for Individual Donors",
"Combined Reduction in State and Federal Tax Liability",
"Agency Comments and Our Evaluation",
"Appendix I: Comments from the Department of Education",
"Appendix II: State Tax Credit Scholarship Program Eligibility and Scholarship Award Characteristics",
"Appendix III: Information About Tax Credit Scholarship Program Tax Provisions",
"Percent of donation that may be claimed as a credit",
"Program name Programs available for both individual and business donors Alabama Educational Scholarship Program",
"Appendix IV: GAO Contact and Staff Acknowledgments",
"GAO Contact:",
"Staff Acknowledgments:"
],
"paragraphs": [
"As of January 2018, there were 22 TCS programs authorized across 18 states (see fig. 1). All TCS programs are state programs; there are no federal TCS programs. Decisions about whether to develop and operate a TCS program (and how to structure the program) are completely at the discretion of each state; there is no federal role in establishing these programs. Most TCS programs began within the last 10 years; the first TCS program awarded scholarships in Arizona in 1998 and Florida created the newest program in 2018, according to state program documents and officials.\nScholarships are funded through donations from private individuals and businesses, and the financial impact to states from TCS programs primarily occurs through forgone revenue resulting from the associated tax credits. In all 22 programs, state agencies and nonprofit organizations both play a role in administering the programs, with the specific responsibilities varying by program:\nState departments or agencies responsible for tax administration, education, or both, generally administer these programs. For example, they may approve schools or nonprofit scholarship granting organizations or disseminate program information or guidance to potential donors, scholarship students, or the public.\nNonprofit scholarship granting organizations (SGO) are generally responsible for managing some aspects of the donation process— such as collecting donations—as well as awarding scholarships to students.",
"States’ TCS programs often determine student eligibility for scholarships based on household income and use a range of factors to determine scholarship award amounts.",
"Income requirements: Seventeen of the 22 TCS programs have income limits (i.e., the maximum amount of household income a student can have and still be eligible for a scholarship). As shown in figure 2, income limits varied widely among programs, ranging from just under $32,000 to about $136,500 per year for students from a four-person household in SY 2017-2018. For context, we compared these income limits to the 2012- 2016 5-year ACS estimates of state median household income for four- person households. Six of the 17 programs had household income limits in SY 2017-2018 above their state’s median income. This included two programs each in Arizona and Pennsylvania which collectively accounted for about one-third of all TCS scholarships awarded to students in SY 2016-2017, according to state-reported data. Of the 17 programs that have household income limits, 6 also require SGOs to further consider income when selecting scholarship recipients among eligible students.\nSuch requirements include giving preference to scholarship applicants from lower-income households or ensuring that a certain percentage of scholarship recipients come from lower-income households.\nOf the remaining five TCS programs that do not use income to determine eligibility, three use one or more other types of eligibility criteria, such as whether the student has a disability, and two—Montana’s TCS program and Arizona’s Original Individual Income Tax Credit program—are open to all school-aged residents.\nTCS programs collected limited information on the household incomes of scholarship recipients. The 11 programs that had income information on recipient families collected and reported it in different ways. For example, the Alabama program requires SGOs to report the total number and amount of scholarships awarded to students qualifying for the federal free and reduced-price lunch program and makes the information publicly available. Arizona makes an annual report publicly available on the state’s four TCS programs, including breakdowns of the number of students receiving scholarships from various income levels.\nOther eligibility requirements: Some TCS programs’ eligibility criteria for student scholarship recipients include other factors, such as students’ disability status or previous schooling. Specifically, 7 of 22 programs are limited to students with disabilities or allow students with disabilities to qualify for a scholarship even if they do not meet some requirements for students without disabilities. For example, to be eligible for Virginia’s program, all students must have a household income below a certain amount, but that amount is higher for students with disabilities. South Carolina’s program is limited to students with disabilities. In addition, some programs may require students to have previously attended a public school (9 of 22) or live in the attendance area of a public school with performance challenges (5 of 22). See appendix II for more information on the eligibility criteria of TCS programs.",
"TCS programs have different requirements for how students can use their scholarships and different methods for calculating scholarship amounts. More than half of the programs (13 of 22) allow students to use their scholarship money for costs like transportation and books in addition to tuition, whereas the remaining programs (9 of 22) require scholarships funds to be used for tuition only. Four programs allow donors to recommend that their donations fund scholarships for specific students. Average scholarship awards in SY 2016-2017 ranged from $500 to $5,468 per student among the 16 programs that published such information or provided it to us. (See appendix II for more information).\nMost programs require SGOs to consider one or more factors related to student or school characteristics when determining scholarship award amounts. As shown in table 1, these factors may include the cost of private school tuition or the state funding amounts for public school students, among other factors.\nSee appendix II for more information on program requirements related to scholarship amounts.",
"The extent to which TCS program donations affect the amount that donors owe in state and federal taxes depends on program characteristics—such as the percentage of the donation that the rules of the program allow donors to claim as a state tax credit (referred to in this report as “tax credit percentages”) and limits on donation amounts—along with donors’ financial circumstances. Almost all of the TCS programs (20 of 22) offer tax credits to businesses for income or other types of taxes, while more than half offer tax credits to individuals for their income taxes (13 of 22). More than half of programs (13 of 22) offer tax credits for cash donations only, while the remaining 9 programs also allow for at least one type of “in kind” donation, such as a property donation.",
"Eleven of the 22 programs allow eligible donors (either individuals, businesses, or both) to claim 100 percent of their donations as state tax credits, meaning that, for each dollar donated, the amount of state taxes owed (i.e., the donor’s tax liability) is reduced by a dollar, up to any maximum donation limits set by the program. The other 11 programs offer tax credits of 50 percent to 85 percent of donations (see table 2). For example, Indiana and Oklahoma offer tax credits of 50 percent of the donation value, meaning that donors can reduce their state tax liability by 50 cents for every dollar donated. All but one of the programs prohibit donors from receiving a tax credit greater than their tax liability in a given year, although two thirds of the programs allow donors to carry forward portions of the credits to use in future years.",
"Sixteen of the 22 programs limit the amount of tax credits each donor may claim per year and programs vary in how they structure these limits. The programs that set annual limits for donors generally do so in one or both of the following ways:\nDollar amount limits: Thirteen programs limit the dollar amount of TCS program tax credits that donors can claim in a given year. These limits ranged from a maximum tax credit of $150 for either individuals or businesses in Montana’s program, to a maximum tax credit of $1 million for either individuals or businesses in Illinois’ program in CY 2018.\nLimits based on percentage of tax liability: Four programs limit the amount of the TCS program tax credits a donor can claim to a percentage of the donor’s total income tax liability. These limits ranged from 50 to 90 percent of a donor’s income tax liability in CY 2018. For example, in South Carolina donors could receive a tax credit up to 60 percent of their total income tax liability for the year of the donation.\nAll but three programs specify a maximum total amount, or cap, of TCS program tax credits that may be claimed each year for the program as a whole (see table 3). Programs’ procedures vary if the cap is reached in a given year. For example, in Rhode Island, potential donors may apply for credits on a “first come, first served” basis once the application period starts until all credits are taken. In 2018, all of the credits were claimed on the first day of the application period and a drawing was held to determine who would receive credits among those who applied on that first day.\nGeorgia’s TCS program offers a maximum tax credit percentage of 100 percent when total donations do not exceed the donation cap. However, if total donations exceed the program cap, the allowable tax credit percentage is prorated among donors who apply on the day the program- wide cap on tax credits is reached.\nTwenty programs published or provided us with information on donation amounts, such as total donations and average donations. Among these programs, total program-wide donation amounts in CY 2016 ranged from $43,865 to $553 million. (See appendix III for more information about donation amounts.)",
"In addition to reducing their state tax liabilities, some individuals who make TCS program donations may also be able to reduce their federal income tax liabilities through the federal tax deduction for charitable contributions. In August 2018, IRS and Treasury published proposed regulations that, if finalized without modification, would change the extent to which individuals who make TCS program donations can reduce their federal tax liability. However, the proposed regulations were not final at the time this report was published and are therefore subject to change. As a result, the information we present below does not address the proposed regulations.\nCurrently, the extent to which individuals may reduce their federal income tax liabilities as a result of their TCS donation depends on their specific circumstances, such as whether they itemize their deductions (versus taking the standard deduction), the federal rates at which their income is taxed, and the amount of federal deductions they take for state and local taxes. More specifically, the effect of a TCS donation on an individual donor’s federal tax liability depends on the following: Itemizing federal deductions and taking the deduction for charitable contributions: Taxpayers benefit from itemizing deductions—such as those for state and local taxes, mortgage interest, and charitable contributions—if they exceed the standard deduction. Taxpayers, including TCS donors, may only claim a federal deduction for charitable contributions if they itemize.\nFederal tax rate: The reduction in federal taxes owed as a result of the federal deduction for charitable contributions depends on the donor’s applicable federal tax rate. Given the same deduction amount, taxpayers subject to higher tax rates will generally reduce their tax liabilities by larger amounts than taxpayers subject to lower tax rates.\nDeduction for state and local taxes: When filing federal taxes, taxpayers who itemize may take a deduction for state and local taxes they have paid during the tax year. Beginning in tax year 2018, individual taxpayers may deduct no more than $10,000 in state and local taxes on their federal tax returns. Taxpayers who claim state tax credits for TCS program donations reduce their state tax liability, which may in turn reduce the amount they may deduct on their federal tax return for state and local taxes paid.\nInteraction between the federal deduction for charitable contributions and the federal deduction for state and local taxes: Generally, if a donor pays $10,000 or less in state and local taxes, the amount of the deduction for charitable contributions may be fully or partially offset (i.e., canceled out) by a decrease in the deduction for state and local taxes paid as a result of the TCS program tax credit. Conversely, taxpayers who pay more than $10,000 in state and local taxes cannot deduct the full amount of state and local taxes they paid. Therefore, the reduced state and local taxes paid as a result of the tax credit generally may not offset the amount of the deduction for charitable contributions for these taxpayers.\nSee figure 3 for a description of how individuals’ TCS program donations could affect their federal tax liabilities.",
"TCS program donations can lead to a range of possible changes to an individual’s state and federal income tax liabilities, including some scenarios where donors could reduce their combined state and federal tax liability by an amount that is greater than the amount of their donation (see for example, Donor A in figure 4). Figure 4 shows four examples of how state and federal income taxes may be reduced for hypothetical individual donors in states with 100 percent and 50 percent tax credit scholarship programs.",
"We provided a draft of this report to Education and IRS for review and comment. While the draft was under review at these agencies, IRS and Treasury issued proposed regulations related to state tax credits and the federal deduction for charitable contributions. We updated the report to include information about these proposed regulations but did not alter our analysis to reflect the proposed regulations because they were not final at the time this report was published and are therefore subject to change. We provided a revised draft to IRS as the revisions directly relate to IRS’s areas of responsibility, and informed Education about our approach to addressing the proposed regulations.\nIRS did not provide formal comments on the draft report.\nEducation’s comments are reproduced in appendix I. Education also provided technical comments, which we incorporated as appropriate. In its comments, Education noted that it has no role in developing, operating, or overseeing TCS programs, and provided a variety of comments and observations on the draft report. For example, Education suggested that we add additional details about certain TCS program requirements, such as more information about state tax rules and permissible uses of scholarship funds. We incorporated these comments as appropriate.\nEducation also suggested that we delay publication of this report until the IRS regulations are finalized, as Education thought that the report could be more helpful at that time. GAO policy is to communicate audit and evaluation results in a timely manner to decision makers and others who either requested the work or may need the information to bring about needed changes. Therefore, we are issuing the report as planned.\nWe are sending copies of this report to the appropriate congressional committees, the Secretary of Education, and the Commissioner of Internal Revenue. 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 (617) 788-0580 or nowickij@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 IV.",
"",
"",
"Program name Programs available for both individual and business donors Alabama Educational Scholarship Program $50,000 or 50% of tax liability, whichever is lower (individual) 50% of business tax liability $1,000 (individual) 75% of business tax liability $1 million (individual and business) $350,000 (Individual and business) $150 (Individual and business) $1,000 (individual) $100,000 (business) 60% of tax liability (Individual and business)\nVirginia Education Improvement Scholarships Tax Credits Program Programs available for individual donors only Arizona Original Individual Income Tax Credit Program $81,250 (individual) No limit for business donors $555 (individual) $552 (individual)",
"Maximum donation amounts vary from 50% to 100% of tax liability $510,000 or no more than 10% of program credits 2 percent of wages paid no In Oklahoma, Pennsylvania, and Rhode Island, the percentage of donations that can be claimed as a tax credit increases if donors commit to donating for 2 years. In Oklahoma, that percentage increases from 50 percent to 75 percent. In the two Pennsylvania programs and the Rhode Island program, the percentage increases from 75 percent to 90 percent.",
"Total donations in CY 2016 (rounded)",
"",
"",
"In addition to the individual named above, Nagla’a El-Hodiri (Assistant Director), Barbara Steel-Lowney (Analyst-in-Charge), Jeff Arkin, and Jessica L. Yutzy made key contributions to this report. Also contributing to this report were Deborah Bland, Lilia Chaidez, Sarah Cornetto, Caitlin Cusati, Paulissa Earl, Alison Grantham, Kirsten Lauber, Sheila R. McCoy, Mimi Nguyen, Jessica Orr, Michelle Philpott, Paul Schearf, and Andrew J. Stephens."
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{
"question": [
"How do most TCS programs determine the eligibility of students for scholarships?",
"How do the income limits range amoung programs?",
"What are the different requirements and methods for how students use their scholarships and for calculating scholarship amounts?",
"What did the average scholarship awards in 2016-2017 range from?",
"What determines the effect of TCS donations on donors' tax liability?",
"What does it mean for the donors when a donor is able to claim 100 percent of their donations as state tax credits?",
"For the other programs that don't allow donors to claim 100 percent of their donation as state tax credits, how much are they able to claim as state tax credits?",
"How is the minimum and maximum state tax credits determined?",
"Who do TCS programs offer state tax credits to?",
"What can donors do with these credits?",
"What decisions need to be made when designing a TCS program?",
"How are the characteristics of TCS programs reviewed?"
],
"summary": [
"To determine the eligibility of students for these scholarships, most TCS programs use household income and have various approaches to determine scholarship award amounts.",
"Income limits vary widely among programs, ranging from approximately $32,000 to $136,500 per year for students from a four-person household in school year 2017-2018.",
"More than half of the programs (13 of 22) allow students to use their scholarship money for costs like transportation and books in addition to tuition, whereas the remaining programs (9 of 22) require scholarships funds to be used for tuition only.",
"Average scholarship awards in school year 2016-2017 ranged from $500 to $5,468 per student among the 16 programs that published or provided GAO with such information.",
"The effect of TCS donations on donors' tax liability depends on program characteristics and donors' financial circumstances.",
"Specifically, half of the 22 programs allow eligible donors to claim 100 percent of their donations as state tax credits, meaning that for each dollar donated, state taxes owed are reduced by a dollar, up to any maximum set by the state.",
"The remaining 11 programs allow donors to claim from 50 to 85 percent of their donations as state tax credits.",
"Programs often specify a maximum tax credit that may be claimed each year by a donor, by all donors combined, or both. Individual donors may also reduce their federal tax liabilities through the federal deduction for charitable contributions, depending on their financial circumstances and applicable tax provisions.",
"TCS programs offer state tax credits to individuals or businesses that donate to scholarship funds for students to attend private elementary and secondary schools.",
"Through these credits, donors may reduce the amount they owe in state taxes by the full or a partial amount of their donation, depending on each program's rules.",
"Designing a TCS program requires that many decisions be made, such as which students will be eligible to receive scholarships and the effect donations will have on donors' state taxes.",
"GAO was asked to review key characteristics of TCS programs."
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CRS_R43152
|
{
"title": [
"",
"Introduction",
"The Safe Drinking Water Act and the Federal Role in Regulation of Underground Injection",
"Review of Relevant SDWA UIC Provisions5",
"The Debate over Regulation of Hydraulic Fracturing Under the SDWA",
"The LEAF Challenge to the Alabama UIC Program and EPA's Interpretation of the SDWA",
"Energy Policy Act of 2005: A Legislative Exemption for Hydraulic Fracturing",
"EPA Guidance for Permitting Hydraulic Fracturing Using Diesel Fuels",
"Clean Water Act",
"Clean Air Act",
"Resource Conservation and Recovery Act62",
"The Bentsen Amendment and EPA's 1988 Regulatory Determination",
"Natural Resources Defense Council Petition to Regulate E&P Wastes Under Subtitle C",
"Comprehensive Environmental Response, Compensation, and Liability Act89",
"Petroleum and Natural Gas Exclusion",
"Exemption for Federally Permitted Releases",
"Examples of Application of CERCLA Response Authority",
"National Environmental Policy Act111",
"Drilling in the Monterey Shale: Federal Oil and Gas Leases",
"Delaware River Basin Commission: Proposed Regulations on Natural Gas Development",
"The Debate over Public Disclosure of the Chemical Composition of Hydraulic Fracturing Fluids",
"Toxic Substances Control Act",
"Occupational Safety and Health Act",
"Emergency Planning and Community Right-to-Know Act",
"Emergency Release Notification and Hazardous Chemical Storage Reporting Requirements",
"Earthworks Petitioners' Request for the Oil and Gas Extraction Industry to Report Under the Toxics Release Inventory",
"State Preemption of Municipal Land Use and Zoning Powers",
"State Court Cases",
"Alternatives to Preemption",
"State Tort Law",
"Hydraulic Fracturing on Federal Lands",
"BLM Final Rule",
"Final Rule Set Aside in Wyoming v U.S. Dep't of the Interior",
"BLM Venting and Flaring Rule",
"Legislation in the 114th Congress",
"Conclusion"
],
"paragraphs": [
"",
"Hydraulic fracturing is a technique used to recover oil and natural gas from underground low permeability rock formations. Hydraulic fracturing involves pumping fluids (primarily water and a small portion of chemicals, along with sand or other proppant) under high pressure into rock formations to crack them and allow the resources inside to flow to a production well. The technique has been the subject of controversy because of the potential effects that hydraulic fracturing and related oil and gas production activities may have on the environment and health.\nThis report focuses on selected legal issues related to the use of hydraulic fracturing. It examines some of the requirements for hydraulic fracturing contained in major federal environmental laws. It also provides an overview of issues involving state preemption of local zoning authority, as well as state tort law.",
"",
"The Safe Drinking Water Act (SDWA), among other things, directs EPA to regulate the underground injection of fluids (including solids, liquids, and gases) to protect underground sources of drinking water. Part C of the SDWA establishes the national regulatory program for the protection of underground sources of drinking water, including the oversight and limitation of underground injections that could affect aquifers, through the establishment of underground injection control regulations. Section 1421 of the SDWA directs the EPA Administrator to promulgate regulations for state underground injection control (UIC) programs, and mandates that the EPA regulations \"contain minimum requirements for programs to prevent underground injection that endangers drinking water sources.\" Section 1421(b)(2) specifies that EPA\nmay not prescribe requirements for state UIC programs which interfere with or impede—(A) the underground injection of brine or other fluids which are brought to the surface in connection with oil or natural gas production or natural gas storage operations, or (B) any underground injection for the secondary or tertiary recovery of oil or natural gas, unless such requirements are essential to assure that underground sources of drinking water will not be endangered by such injection .\nAs noted, Section 1421 of the SDWA states that UIC regulations must \"contain minimum requirements for effective programs to prevent underground injection which endangers drinking water sources.\" Known as the \"endangerment standard,\" this statutory standard is a major driving force in EPA regulation of underground injection. This endangerment language focuses on protecting groundwater that is used or may be used to supply public water systems. This focus parallels the general scope of the statute, which addresses the quality of water provided by public water systems and does not address private, residential wells. The endangerment language has raised questions as to whether EPA regulations can reach underground injection activities to protect groundwater that is not used by public water systems.\nThe SDWA directs EPA to protect against endangerment of an \"underground source of drinking water\" (USDW). The regulations define a USDW to mean an aquifer or part of an aquifer that either:\nsupplies a public water system; or contains a sufficient quantity of groundwater to supply a public water system; and currently supplies drinking water for human consumption; or contains fewer than 10,000 milligrams per liter (mg/L) total dissolved solids; and is not an \"exempted aquifer.\"\nTo implement the UIC program as mandated by the provisions of the SDWA described above, EPA has established six classes of underground injection wells based on categories of materials that are injected into the ground by each class. In addition to the similarity of fluids injected in each class of wells, each class shares similar construction, injection depth, design, and operating techniques. The wells within a class are required to meet a set of appropriate performance criteria for protecting undergro und sources of drinking water. Class II wells feature the injection of brines and other fluids associated with oil and gas production, and hydrocarbons for storage. The wells inject fluids beneath the lowermost USDW. If hydraulic fracturing were to be regulated under the SDWA, it is likely that most hydraulic fracturing operations would be characterized as Class II wells.\nUnder the SDWA, states may take on primary responsibility for administration and enforcement. Section 1422 of the SDWA authorizes EPA to delegate primary enforcement authority for UIC programs to the states, provided that the state program meets EPA requirements promulgated under Section 1421 and prohibits any underground injection that is not authorized by a state permit or rule. If a state's UIC program plan is not approved, or the state has chosen not to assume program responsibility, then EPA must implement the UIC program in that state. Alternatively, Section 1425 authorizes EPA to approve the portion of a state's UIC program that relates to \"any underground injection for the secondary or tertiary recovery of oil or natural gas\" if the state program meets certain requirements of Section 1421 and represents an effective program to prevent underground injection which endangers drinking water sources. Under this provision, states may demonstrate to EPA that their existing programs for oil and gas injection wells are effective in preventing endangerment of underground sources of drinking water. This provides states with an alternative to meeting the specific requirements contained in EPA regulations promulgated under Section 1421.",
"From the date of the SDWA's enactment in 1974 until the late 1990s, hydraulic fracturing was not regulated under the act by either EPA or any of the states who had chosen to take on responsibility for administration of the SDWA. However, in the last 15 years a number of developments called into question the extent to which hydraulic fracturing would be considered an \"underground injection\" to be regulated under the SDWA. One trigger for this debate was a challenge to the Alabama UIC program brought by the Legal Environmental Assistance Foundation (LEAF).",
"In 1994, LEAF petitioned EPA to initiate proceedings to have the agency withdraw its approval of the Alabama UIC program because the program did not regulate hydraulic fracturing operations in the state associated with production of methane gas from coalbed formations. The State of Alabama had previously been authorized by EPA to administer a UIC program pursuant to the terms of the SDWA. EPA denied the LEAF petition in 1995 based on a finding that hydraulic fracturing did not fall within the definition of \"underground injection\" as the term was used in the SDWA and the EPA regulations promulgated under that act. According to EPA, that term applied only to wells whose \"principal function\" was the placement of fluids underground. LEAF challenged EPA's denial of its petition in the U.S. Court of Appeals for the Eleventh Circuit, arguing that EPA's interpretation of the terms in question was inconsistent with the language of the SDWA.\nThe court rejected EPA's claim that the language of the SDWA allowed it to regulate only those wells whose \"principal function\" was the injection of fluids into the ground. EPA based this claim on what it perceived as \"ambiguity\" in the SDWA regarding the definition of \"underground injection\" as well as a perceived congressional intent to exclude wells with primarily non-injection functions. The court held that there was no ambiguity in the SDWA's definition of \"underground injection\" as \"the subsurface emplacement of fluids by well injection,\" noting that the words have a clear meaning and that:\nThe process of hydraulic fracturing obviously falls within this definition, as it involves the subsurface emplacement of fluids by forcing them into cracks in the ground through a well. Nothing in the statutory definition suggests that EPA has the authority to exclude from the reach of the regulations an activity (i.e. hydraulic fracturing) which unquestionably falls within the plain meaning of the definition, on the basis that the well that is used to achieve that activity is also used—even primarily used—for another activity (i.e. methane gas production) that does not constitute underground injection.\nThe court therefore remanded the decision to EPA for reconsideration of LEAF's petition for withdrawal of Alabama's UIC program approval.\nFollowing the LEAF I decision, in 1999 Alabama submitted a revised UIC program to EPA. Alabama sought approval for the revised UIC program under Section 1425 of the SDWA rather than Section 1422(b). As mentioned above, Section 1425 differs from Section 1422(b) in that approval under Section 1425 is based on a showing by the state that the program meets the generic requirements found in Section 1421(b)(1)(A)-(D) of the SDWA and that the program \"represents an effective program (including adequate recordkeeping and reporting) to prevent underground injection which endangers drinking water sources.\" In contrast, approval of a state program under Section 1422(b) requires a showing that the state's program satisfies the requirements of the UIC regulations promulgated by EPA.\nEPA approved Alabama's revised UIC program in 2000, and LEAF appealed EPA's decision to approve to the U.S. Court of Appeals for the Eleventh Circuit. In its challenge, LEAF made three arguments. First, LEAF claimed that EPA should not have approved state regulation of hydraulic fracturing under Section 1425 of the SDWA because it does not \"relate to ... underground injection for the secondary or tertiary recovery of oil or natural gas,\" one of the requirements for approval under Section 1425. The court rejected this argument, finding that the phrase \"relates to\" was broad and ambiguous enough to include regulation of hydraulic fracturing as being related to secondary or tertiary recovery of oil or natural gas.\nSecond, LEAF challenged the Alabama program's regulation of hydraulic fracturing as \"Class II-like\" wells not subject to the same regulatory requirements as Class II wells. The court agreed with LEAF on this point, noting that in its decision in LEAF I , it had held that methane gas production wells used for hydraulic fracturing are \"wells\" within the meaning of the statute. As a result, the court found that wells used for hydraulic fracturing must fall under one of the five classes set forth in the EPA regulations at 40 C.F.R. Section 144.6. Specifically, the court found that the injection of hydraulic fracturing fluids for recovery of coalbed methane \"fit squarely within the definition of Class II wells,\" and as a result the court remanded the matter to EPA for a determination of whether Alabama's updated UIC program complied with the requirements for Class II wells.\nFinally, LEAF alleged that even if Alabama's revised UIC program was eligible for approval under Section 1425 of the SDWA, EPA's decision to approve it was \"arbitrary and capricious\" and therefore a violation of the Administrative Procedure Act. The court rejected this argument.",
"The decision by the U.S. Court of Appeals for the Eleventh Circuit in LEAF I highlighted a debate over whether the SDWA, as it read at the time, required EPA to regulate hydraulic fracturing. Although the Eleventh Circuit's decision applied only to hydraulic fracturing for coalbed methane production in Alabama, the court's reasoning—in particular, its finding that hydraulic fracturing \"unquestionably falls within the plain meaning of the definition [of underground injection]\" —raised the issue of whether EPA could be required to regulate hydraulic fracturing generally under the SDWA.\nBefore this question was resolved through agency action or litigation, Congress passed an amendment to the SDWA as a part of the Energy Policy Act of 2005 (EPAct 2005; P.L. 109-58 ) that addressed this issue. Section 322 of EPAct 2005 amended the definition of \"underground injection\" in the SDWA as follows:\nThe term \"underground injection\"—(A) means the subsurface emplacement of fluids by well injection; and (B) excludes—(i) the underground injection of natural gas for purposes of storage; and (ii) the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities.\nThis amendment clarified that the UIC requirements found in the SDWA do not apply to hydraulic fracturing, although the exclusion does not extend to the use of diesel fuel in hydraulic fracturing operations. This amended language is the definition of \"underground injection\" found in the SDWA as of the date of this report.",
"As noted above, the 2005 amendment to the definition of \"underground injection\" in the SDWA excluded injections as part of hydraulic fracturing operations, but such injections involving the use of diesel fuels were not made part of the exclusion, meaning that injections for purposes of hydraulic fracturing involving the use of diesel fuel might still be made subject to regulation under the SDWA. It was not clear to states or the regulated community how EPA would address the EPAct 2005 amendment, and for several years EPA took no official position regarding the regulation of hydraulic fracturing using diesel fuel under the SDWA.\nIn February 2014, EPA issued final diesel permitting guidance, which states that \"under the 2005 amendments to the SDWA, a UIC Class II permit must be obtained prior to conducting the underground injection of diesel fuels for hydraulic fracturing.\" As described earlier in this report, injections subject to UIC Class II requirements must comply with a number of regulatory requirements. These include permitting requirements, and testing and monitoring obligations with respect to the well. The guidance is intended for EPA permit writers and is relevant where EPA directly implements the UIC Class II program. EPA notes that \"[t]o the extent that states may choose to follow some aspects of EPA guidance in implementing their own programs, it may also be relevant in areas where EPA is not the permitting authority.\"\nThere had been considerable debate regarding how EPA would define \"diesel fuels\" in the final guidance. The draft guidance recommends using six Chemical Abstracts Service Registry Numbers (CASRNs) for determining whether diesel fuels are used in hydraulic fracturing operations. These six CASRNs collectively include various types of diesel fuels, home heating oils, kerosene, crude oil, and a range of other petroleum compounds. Also at issue was whether the final guidance would specify a de minimis amount of diesel fuel content for hydraulic fracturing fluids; the draft guidance did not do so. The final document covers five of the six proposed CASRNs (no longer including crude oil), and does not establish a de minimis concentration of \"diesel\" in fracturing fluid that would be exempt from permitting requirements.",
"Hydraulic fracturing is a water-intensive practice. After a well is hydraulically fractured, a substantial portion of the injected fluid returns to the surface as \"flowback.\" This flowback typically contains proppant (sand) and chemical residues from the frac fluid, as well as salts, metals, and potentially significant amounts of naturally occurring radioactive materials (NORM) that may be present in the water produced from the geologic formations. Additionally, oil and gas wells generally continue to produce formation water throughout their production lives. Flowback water and production brine that are not reused will require proper disposal, either through underground injection or treatment and surface discharge.\nOften this flowback is injected into wells for disposal. However, if underground injection is not feasible or not employed for other reasons, drilling companies may opt to transfer the wastewater to publicly owned treatment works (POTW) that discharge into navigable waters in compliance with the Clean Water Act (CWA). Section 301(a) of the CWA prohibits \"the discharge of any pollutant\" into \"navigable waters\" except as permitted pursuant to other sections of the CWA. Under Section 304(m), EPA sets national standards for discharges of industrial wastewater based on best available technologies that are economically achievable. States incorporate these limits into discharge permits. Current effluent limitation guidelines (ELGs) and standards for the Oil and Gas Extraction Point Source Category prohibit direct discharges of onshore oil and gas wastewater into surface waters. However, current ELGs do not include standards for \"indirect discharges\" of these wastewaters to POTWs.\nOn June 28, 2016, EPA promulgated final regulations establishing a \"zero discharge\" pretreatment standard to prohibit discharges to POTWs of wastewater resulting from unconventional oil and gas production. In the proposed regulations, EPA had noted that, while states are not approving requests for such discharges to POTWs, the proposed zero discharge standard would \"provide regulatory certainty and would eliminate the burden on POTWs to analyze such requests.\"",
"As this report has explained, the definition of \"underground injection\" found in the SDWA prevents regulation of hydraulic fracturing pursuant to that statute unless the fracking fluid contains diesel fuel. However, other federal environmental statutes do not contain similar reservations of jurisdiction, and EPA has sought to regulate certain environmental impacts of hydraulic fracturing pursuant to these statutes. One such avenue is regulation of emissions associated with the hydraulic fracturing process via the Clean Air Act (CAA). On August 16, 2012, EPA issued new regulations covering, among other things, emissions of volatile organic compounds (VOCs) from onshore natural gas hydraulic fracturing operations.\nThe impetus for the new regulations was a legal challenge filed by environmental organizations. In 2009, WildEarth Guardians and the San Juan Citizens Alliance filed a petition in the U.S. District Court for the District of Columbia alleging that EPA had failed to review and revise its New Source Performance Standards (NSPSs) for oil and gas operations every eight years as required by Section 111(b)(1)(B) of the CAA. Specifically, the environmental groups alleged that EPA had failed to update existing standards and adopt new standards for emissions from oil and natural gas production as well as natural gas transmission and storage.\nThe challenge and subsequent settlement triggered a new rulemaking by EPA in which it not only updated existing standards for certain natural gas processing plants, but also established new standards for emissions from certain types of natural gas operations not covered at all in the existing standards. Among the new standards were requirements applicable to new onshore natural gas hydraulic fracturing operations as well as refracturing operations.\nThe new regulations direct the industry to adopt a process known as \"green completions\" or \"reduced emissions completions\" for hydraulically fractured gas wells. (Hydraulically fractured oil wells are exempt from the 2012 NSPS requirements.) In a \"green completion,\" the natural gas that would otherwise be vented or flared during the completion process is captured and cleaned for reuse in another process that does not involve direct release into the atmosphere. In order to allow the industry time to make the needed changes, the rulemaking established two phases for compliance. During Phase 1, which lasted from the effective date of the rulemaking (October 15, 2012) until January 1, 2015, industry had to reduce VOC emissions at new hydraulic fracturing sites either by using a \"completion combustion device\" in a technique commonly referred to as \"flaring,\" or by employing the green completion process. As of January 1, 2015, all hydraulically fractured wells had to employ a green completion. These requirements apply both to new hydraulic fracturing operations and to refracturing of existing wells. The regulations also establish reporting requirements for owners and operators of hydraulically fractured and refractured wells prior to the start of well completion.\nThere are some exceptions in these regulations for certain types of wells. Exploratory or \"wildcat\" drilling operations and \"delineation wells\" used to determine the borders of a reservoir, and low-pressure wells do not need to employ green completions. The 2012 NSPS requires operators of these types of wells to use completion combustion devices unless hazardous or prohibited under state or local law or regulations.\nOn June 3, 2016, EPA promulgated several CAA rules affecting the oil and natural gas production industry, including amendments to the NSPS standards for the oil and natural gas source category to establish new emissions standards for methane (a short-lived greenhouse gas) and VOCs.\nBriefly, the rules do the following:\n1. Build on the 2012 NSPS \"to set first-ever controls for methane emissions and extend controls for VOC emissions beyond the existing requirements to include new or modified hydraulically fractured oil wells, pneumatic pumps, compressor stations, and leak detection and repair at well sites, gathering and boosting stations, and processing plants.\" The final rule also includes the issuance for public comment of an Information Collection Request (ICR) that would require companies to provide extensive information that is instrumental for developing comprehensive regulations to reduce methane emissions from existing oil and gas sources. EPA notes the new NSPS does not add requirements for operations covered by the 2012 rule but it expands coverage to include other sources. 2. Revise permitting requirements applicable to stationary sources in the oil and natural gas sector. The rule establishes in regulation a specific meaning of the term \"adjacent\" for this sector, which was previously defined in guidance documents. 3. Limit emissions from oil and gas production in Indian country.\nFurther, EPA has issued rules or guidelines to strengthen the Greenhouse Gas Reporting Program to require reporting in all segments of the industry (promulgated on October 22, 2015) and extend VOC reduction requirements to existing oil and gas sources in ozone nonattainment areas and states in the Ozone Transport Region (released on August 18, 2015).",
"Federal and state authorities to regulate wastes are established under the Solid Waste Disposal Act of 1965, as amended by the Resource Conservation and Recovery Act of 1976 (RCRA). Subtitle C of RCRA established a framework for EPA, or authorized states, to regulate waste identified as \"hazardous.\" Specifically, EPA was required to develop criteria necessary to identify hazardous wastes and to promulgate regulations applicable to hazardous waste generators and transporters and to facilities that treat, store, and dispose of such wastes. EPA has primary authority to implement the federal hazardous waste program, but was required to develop procedures for states to become authorized to implement that program. Most states have chosen to do so.\nUnder RCRA Subtitle D, state and local governments were established as the primary planning, regulating, and implementing entities responsible for managing non-hazardous solid waste, including waste explicitly exempt from regulation under Subtitle C. EPA's primary role under Subtitle D is to provide state and local agencies with information, guidance, and policy.",
"The Solid Waste Disposal Act Amendments of 1980 ( P.L. 96-482 ) included amendments to Subtitle C requirements regarding the identification of hazardous waste. Provisions commonly referred to as the \"Bentsen\" amendment temporarily excluded \"drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal energy\" (E&P wastes) from regulation as hazardous wastes under Subtitle C of RCRA. The exemption was motivated in part by a concern about the economic impact that comprehensive regulation of E&P wastes under Subtitle C would have on the oil and gas industry. The Bentsen amendment required EPA to conduct a study of E&P waste and submit its findings to Congress. If EPA determined that E&P wastes warranted regulation under Subtitle C, the agency was required to submit proposed regulations to both houses of Congress. Those regulations could \"take effect only when authorized by Act of Congress.\"\nIn its 1987 report to Congress, EPA found, in part, that existing state and federal regulations were generally adequate to regulate E&P wastes, although there were regulatory gaps in certain states. EPA further found that regulating E&P wastes under RCRA Subtitle C would have a substantial impact on the U.S. economy and would be unnecessary and impracticable. In its 1988 regulatory determination, EPA determined that the management of E&P wastes under Subtitle C was not warranted, but that the agency would pursue the following three-pronged approach to addressing adverse effects of the waste: improve existing federal regulatory programs under RCRA Subtitle D and augment the Safe Drinking Water Act and/or Clean Water Act requirements; work with states to improve their waste management programs; and work with Congress on any additional legislation that might be needed.\nIn the 25 years since EPA made its regulatory determination, the agency has chosen not to develop regulations under RCRA Subtitle D or pursue additional RCRA legislation. However, EPA has previously sought to clarify the Subtitle C exemption. In 2002, EPA issued guidance regarding the scope of the exemption, including examples of exempt and non-exempt E&P wastes. EPA listed produced water and drilling fluids as exempt wastes; and unused fracturing fluids or acids as non-exempt waste. That is, unused fracturing fluids may be subject to Subtitle C requirements if the fluid exhibits characteristics that make a waste \"hazardous\" (e.g., exceed regulatory levels for toxicity).\nDepending on the chemicals in the drilling fluid and the geologic formations in which it is injected, produced hydraulic fracturing fluids may contain hazardous constituents (e.g., heavy metals). Regardless of whether those fluids exhibit the regulatory characteristics of hazardous waste (e.g., exceed regulatory levels of toxicity), such fluids are exempt from federal Subtitle C regulation. E&P waste disposal is, however, subject to state waste management requirements, as well as requirements applicable to the disposal of liquid waste implemented under federal laws other than RCRA (e.g., UIC Program requirements applicable to the injection of oil and gas-related wastes into Class II wells).",
"In September 2010, the Natural Resources Defense Council (NRDC), an environmental advocacy group, petitioned EPA to initiate a rulemaking under RCRA to regulate E&P wastes as hazardous wastes under Subtitle C. In support of their petition, NRDC identified reports and data prepared since 1988 that they assert \"quantify the waste's toxicity, threats to human health and the environment, inadequate state regulatory programs, and readily available solutions.\" In addition, NRDC asserted that \"both the oil and gas industry and the risks associated with E&P wastes have expanded dramatically, making EPA's 1988 Regulatory Determination unjustified.\" The NRDC sought to have EPA promulgate regulations that subject E&P wastes to Subtitle C to \"ensure safe management of these wastes throughout their life cycle from cradle to grave, including generation, transportation, treatment, storage and disposal.\"\nEPA has not yet formally responded to the NRDC petition. However, in 2011, EPA indicated that in response to the petition, the Office of Solid Waste and Emergency Response was reviewing incidents alleged by the petitioner; regulations in states with natural gas activities; and best management practices for E&P wastes developed by industry, federal, and state associations. Based on its finding, EPA could possibly review and revise its 1988 regulatory determination. However, as discussed above, the Bentsen amendment specifies that, if EPA determined that Subtitle C regulation was warranted, proposed regulations could not take effect until authorized by act of Congress. Thus, if EPA were to review its 1988 regulatory determination and find that regulation under Subtitle C is necessary, the agency could arguably promulgate such regulations, but could not implement them unless explicitly authorized by Congress to do so.",
"The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), often referred to as Superfund, provides broad authority for the federal government to respond to releases or threatened releases of hazardous substances into the environment, in order to protect public health or welfare, or the environment. Federal resources to carry out response actions under CERCLA are subject to the availability of appropriations. To minimize the burden of the costs on the taxpayer, CERCLA established a liability scheme to hold persons responsible for a release or threatened release liable for response costs (i.e., cleanup costs), natural resource damages, and the costs of federal public health studies that may be carried out at a site to assess potential hazards. The categories of \"potentially responsible parties\" who may be held liable under CERCLA include past and current owners and operators of facilities from which there is a release or threatened release of a hazardous substance, persons who arranged for disposal or treatment of hazardous substances (often referred to as generators of wastes), and persons who transported hazardous substances and selected the site for disposal or treatment. The President's response and enforcement authorities under CERCLA are delegated by Executive Order to the EPA and certain other federal departments and agencies to fulfill various functions under the statute.\nAlthough the sites at which hydraulic fracturing is conducted may not fit the typical mold of Superfund sites, it is possible that hydraulic fracturing operations could result in the release of hazardous substances into the environment at or under the surface in a manner that may endanger public health or the environment. If a release were to occur as a result of hydraulic fracturing, the facility owner and operator and other potentially responsible parties could face liability under CERCLA. However, certain exclusions or exemptions from the statute potentially could limit liability in such instances, including the petroleum and natural gas exclusion and the exemption from liability for federally permitted releases, discussed below.",
"Although releases of petroleum and natural gas generally are excluded from the authorities of CERCLA, this exclusion does not constitute a broader facility or industry exclusion, but is a substance exclusion alone. Therefore, CERCLA may apply to hazardous substances released into the environment from a petroleum or natural gas facility. Similarly, CERCLA also potentially could apply to releases of hazardous substances resulting from oil or natural gas production, but not releases of petroleum or natural gas itself.\nThe petroleum and natural gas exclusion is found in the CERCLA definition of a \"hazardous substance,\" where the statute provides that the term \"does not include petroleum, including crude oil or any fraction thereof which is not specifically listed or designated as a hazardous substance ... and the term does not include natural gas, natural gas liquids, liquefied natural gas or synthetic gas usable for fuel.\" Therefore, while CERCLA would not apply to leaked petroleum products at a fracking site, contamination of a site by any substance that does satisfy the definition of a \"hazardous substance\" could result in liability under the statute. For example, if fracking fluid contained components (i.e., constituents) that are considered hazardous substances under CERCLA, and such fluids were released into the environment at a site in a way that could endanger public health or the environment, the release could warrant cleanup actions, the costs of which the potentially responsible parties would be liable for under CERCLA. Liability similarly could arise from releases of hazardous substances that may be present in produced wastewaters from hydraulic fracturing.",
"Whether a release of hazardous substances that may result from hydraulic fracturing operations would be in compliance with a federal permit (including permits issued by states under delegated federal authorities) or a state-authorized permit would be a critical factor in determining liability. CERCLA exempts persons from liability for response costs or damages under the statute resulting from a \"federally permitted release.\" This exemption provides relief from liability under CERCLA, but does not preclude liability under other federal or state law, including common law. CERCLA defines a federally permitted release to include any underground injection of fluids authorized under the Safe Drinking Water Act, any discharges of wastewater authorized under the Clean Water Act, and other discharges or emissions authorized under certain other federal statutes. This definition also includes any underground injection of fluids or other materials authorized under applicable state law for the production or enhanced recovery of crude oil or natural gas, or the reinjection of produced waters. The exemption from liability under CERCLA for a federally permitted release therefore may include a state permitted release in such instances.",
"EPA has used the response authorities of CERCLA to investigate potential contamination in groundwater in at least two instances that have received prominent attention at locations where natural gas extraction using hydraulic fracturing has been conducted. One such instance occurred in Dimock, PA, and another has occurred in Pavillion, WY. EPA initiated the Pavillion groundwater investigation in response to a public petition submitted under CERCLA in 2008 that cited concerns of residents about groundwater quality. EPA issued a draft investigation report for the Pavillion site on December 8, 2011. On June 20, 2013, EPA announced that it does not plan to finalize its groundwater investigation report for the Pavillion site. EPA indicated that it would defer to the state of Wyoming to assume the lead in investigating drinking water quality in the area, and that its continuing role would focus on providing technical support to the state. The state intended to conclude its investigation and release a final report by September 30, 2014. However, the EPA's website states that, as of March 2016, the agency continues to provide technical assistance to the State of Wyoming during the state's ongoing investigation of Pavillion groundwater issues. The EPA has submitted comments on the state's draft final report examining these issues.\nOn January 19, 2012, EPA issued an Action Memorandum for the Dimock site to \"request and document approval of an emergency removal action to prevent, limit, or mitigate the threats posed by the presence of hazardous substances at the Dimock Residential Groundwater Site ... pursuant to Section 104(a) of the Comprehensive Environmental Response, Compensation and Liability Act.\" The Action Memorandum noted that \"[h]istoric drilling activities in the Dimock area have used materials containing hazardous substances\" and that there was \"reason to believe that a release of hazardous substances has occurred\" that may have contaminated groundwater used by residents in the area. EPA announced on July 25, 2012, that it had completed its groundwater investigation at the Dimock site and determined that contaminant levels did not warrant further action by the agency.\nAlthough the Dimock and Pavillion sites differ in terms of their geophysical characteristics and other site-specific conditions, they offer examples of the use of the authorities of CERCLA to investigate potential contamination at locations where hydraulic fracturing has been conducted. In both cases, EPA has not confirmed a definitive link between a release of hazardous substances and hydraulic fracturing, and no potentially responsible parties have been identified at either site who would be liable under CERCLA.",
"The National Environmental Policy Act (NEPA) requires federal agencies to consider the potential environmental consequences of proposed federal actions and to involve the public in the federal decisionmaking process, but does not compel agencies to choose a particular course of action. If the action is anticipated to affect significantly the quality of the human environment, the agency must document its consideration of those effects in an environmental impact statement (EIS). If the degree of impacts is uncertain, an agency may prepare an environmental assessment (EA) to determine whether a finding of no significant impact (FONSI) could be made or whether an EIS is necessary. There are certain categories of action that do not individually or cumulatively have a significant effect on the human environment and, thus, do not require the preparation of an EIS or EA.\nIn contrast to the other environmental statutes discussed in this report, NEPA is a procedural statute. It requires that agencies assess the environmental consequences of an action. If the adverse environmental effects of the proposed action are adequately identified and evaluated, an agency is not constrained by NEPA from deciding that other benefits outweigh the environmental costs and moving forward with the action. Because the requirements of NEPA apply only to federal actions, NEPA applies to hydraulic fracturing activities only when such activities take place on federal lands or when there is otherwise a sufficient federal nexus to hydraulic fracturing. The following sections discuss two case studies involving a potential federal role in the production of oil or natural gas resources that may potentially require the preparation of a NEPA document.",
"Oil and gas companies have shown interest in drilling in the Monterey Shale in Central California. The shale formation was at one time estimated to contain billions of barrels of oil, most of which may be economically recovered only through the use of hydraulic fracturing and horizontal drilling. In 2011, the Bureau of Land Management (BLM) sold leases in four parcels, which accounted for about 2,700 acres of public land, to private parties. Environmental groups sued BLM, claiming that the agency had violated the Administrative Procedure Act (APA) and NEPA when it prepared an EA, resulting in a FONSI, instead of an EIS for the proposed lease sale.\nDuring the public comment period for the EA, several parties expressed concerns about the potential environmental effects of hydraulic fracturing. However, BLM declined to analyze these impacts because, in its view, they were \"not under the authority or within the jurisdiction of the BLM.\" After issuing a FONSI, BLM proceeded with the auction.\nThe Council on Environmental Quality (CEQ) promulgated regulations implementing NEPA that are broadly applicable to all federal agencies. Those regulations specify what agencies must do to determine whether a proposed action will significantly affect the environment and, therefore, require preparation of an EIS. To determine what constitutes \"significant\" effects, CEQ regulations require agencies to consider the context of the action and intensity or severity of its impacts. Environmental impacts that must be considered include those identified by CEQ as direct, indirect (reasonably foreseeable future impacts), or cumulative.\nThe district court examined the 10 factors CEQ regulations identify as requiring consideration when determining the severity of an action's impacts. Consistent with those factors, the court identified three factors that it believed required BLM to prepare an EIS. According to the court, these were: (1) hydraulic fracturing is highly controversial because of its potential effects on health and the environment; (2) the proposed lease sale would affect public health and safety because of the risk of water pollution; and (3) the environmental impacts of hydraulic fracturing are uncertain. The court also found that BLM did not properly investigate possible direct or indirect impacts of its decision.\nIn March 2013, the district court held that the BLM NEPA review was \"erroneous as a matter of law.\" The court held that BLM unreasonably relied on an environmental analysis that (1) assumed only one exploratory well would be drilled on the leased acres when it was reasonably foreseeable that more wells would be drilled; and (2) did not contain a detailed assessment of the environmental impacts of hydraulic fracturing and horizontal drilling.",
"The Delaware River Basin Compact is an agreement among the federal government, Delaware, New Jersey, New York, and Pennsylvania. The compact creates the Delaware River Basin Commission (DRBC) and grants it certain powers to manage the water resources of the basin. In December 2010, the commission published draft regulations \"to protect the water resources of the Delaware River Basin during the construction and operation of natural gas development projects.\" In May 2011, the New York Attorney General brought a federal lawsuit on behalf of the State of New York alleging that five federal agencies and their officers were in violation of NEPA. In November 2011, the complaint was amended to add the DRBC and its executive director as defendants. The plaintiffs asked the court to compel the defendants to prepare an EIS \"before proceeding to adopt federal regulations to be administered by DRBC that would authorize natural gas development within the Delaware River Basin.\" New York alleged that the approval of the DRBC regulations was a major federal action requiring at least one of the defendants to prepare an EIS. New York alleged that the refusal of the five federal agencies that are represented by the DRBC's federal member to prepare an EIS was not in accordance with law and was arbitrary, capricious, and an abuse of discretion under the APA. Because it appears that the Delaware River Basin Compact exempts the DRBC from compliance with the APA, New York argued that the DRBC's refusal to prepare an EIS was subject to judicial review under the compact itself.\nThe federal defendants moved to dismiss the lawsuit on the grounds that the court lacked subject matter jurisdiction over the plaintiff's claims. In addition to procedural arguments, the federal defendants maintained that NEPA did not apply because the DRBC's development of proposed regulations was not a \"major federal action.\" The federal defendants argued that no federal action existed because, in their view, the DRBC was not a federal agency. In addition, the federal defendants argued that they did not exercise enough decisionmaking power, authority, or control over the DRBC's development of the proposed regulations to render it a federal action.\nIn September 2012, the U.S. District Court for the Eastern District of New York granted the defendants' motions to dismiss New York's complaint for lack of subject matter jurisdiction. The court held that it lacked subject matter jurisdiction for two reasons. First, the court held that New York lacked standing because it could not show an immediate threat of injury to its interests from the proposed regulations. Alternatively, the court held that it lacked subject matter jurisdiction because New York's complaint was not ripe for review. Because the court dismissed the plaintiffs' complaint on procedural grounds, it did not reach the merits of the plaintiffs' claims. However, because the court dismissed the suit without prejudice, the plaintiffs may file it again in the future if final regulations are adopted.",
"The composition of the fluid used in hydraulic fracturing varies with the nature of the formation but typically contains mostly water; a proppant to keep the fractures open, such as sand; and a small percentage of chemicals. A primary function of these chemicals is to assist the movement of the proppant into the fractures made in the formation. Although some of these chemicals may be harmless, others may be hazardous to health and the environment. A report by the minority staff of the House Committee on Energy and Commerce found that between 2005 and 2009, the 14 leading oil and gas service companies used 780 million gallons of chemical products in fracturing fluids.\nCalls for public disclosure of information about chemicals used in hydraulic fracturing have increased as homeowners and others express concerns about the potential presence of unknown chemicals in tainted well water near oil and gas operations. Proponents of chemical disclosure laws maintain that public disclosure of the chemicals used in each well would allow for health professionals to better respond to medical emergencies involving human exposure to the chemicals; assist researchers in conducting health studies on shale gas production; and permit regulators and others to perform baseline testing of water sources to track potential groundwater contamination if it occurs. However, some manufacturers of the additives, as well as others in the industry, remain reluctant to disclose information about the chemicals they use. These parties have expressed concerns that disclosure would reveal proprietary chemical formulas to their competitors, destroying the parties' valuable trade secrets.\nIn 2011, President Barack Obama directed Secretary of Energy Steven Chu to convene a panel to study the effects of shale gas production on health and the environment. The Shale Gas Production Subcommittee of the Secretary of Energy Advisory Board made several recommendations intended to address these effects. One recommendation calls for the public disclosure, on a \"well-by-well basis,\" of all of the chemicals added to fracturing fluids, with some protection for trade secrets. No federal law currently requires parties to submit detailed information about the chemical composition of a hydraulic fracturing fluid. Under the Emergency Planning and Community Right-to-Know Act (EPCRA), owners or operators of facilities where certain hazardous hydraulic fracturing chemicals are present above certain thresholds may have to comply with emergency planning requirements; emergency release notification obligations; and hazardous chemical storage reporting requirements. In addition, environmental advocacy groups have petitioned EPA to collect and share health and environmental effect information for hydraulic fracturing chemicals under the Toxic Substances Control Act and to require the oil and gas extraction industry to report the toxic chemicals it releases under EPCRA Section 313, which established EPA's Toxics Release Inventory.\nSeveral states have adopted chemical disclosure requirements in the form of laws, regulations, or administrative interpretations. The Interstate Oil and Gas Compact Commission (IOGCC), an organization with members that include state regulators and industry representatives, has argued that current regulation of hydraulic fracturing by the states is sufficient.",
"A main goal of the Toxic Substances Control Act (TSCA) is to protect human health and the environment from unreasonable risks associated with toxic chemicals in U.S. commerce. Under the act, EPA may require manufacturers and processors of chemicals to develop, maintain, and report data on the chemicals' effects on health and the environment. EPA may also place certain restrictions on chemicals when the agency has determined that they warrant regulation based on unreasonable risk of injury to health or the environment or other criteria delineated in the statute. ,\nOn August 4, 2011, Earthjustice and more than 100 other environmental advocacy organizations petitioned EPA to promulgate rules under Section 4 and Section 8 of TSCA for chemical substances and mixtures used in oil and gas exploration or production (E&P Chemicals). Section 4 of TSCA authorizes EPA to issue rules requiring manufacturers or processors of chemicals to test the chemicals in order to obtain data on their health and environmental effects. Section 8 of TSCA generally authorizes EPA to require manufacturers, processors, and distributors of chemicals in U.S. commerce to maintain and report certain data on the health and environmental effects of the chemicals. The petition stated that EPA and the public \"lack adequate information about the health and environmental effects of E&P Chemicals, which are used in increasing amounts to facilitate the rapid expansion of oil and gas development throughout the United States.\"\nEarthjustice and the other petitioners further argued that E&P Chemicals may present an unreasonable risk of injury to health and the environment for several reasons. Petitioners maintained that, for example, leaks and spills of the chemicals may cause harm to people and animals, as well as the quality of air, water, and soil. The petitioners also argued that the large volume of chemicals used in hydraulic fracturing of wells in the United States could result in substantial human exposure to the chemicals, as well as a substantial release of the chemicals into the environment. In the petitioners' view, testing was needed to obtain sufficient data on the chemicals' effects because existing federal and state disclosure requirements were inadequate.\nEPA's response to the petitioners was mixed. In a November 2, 2011, letter, EPA denied the petitioners' request for promulgation of a TSCA Section 4 test rule. In a short paragraph, the agency wrote that the petitioners had failed to present sufficient facts for EPA to find that such a rule was necessary. However, in a November 23, 2011, letter, EPA partially granted petitioners' Section 8(a) and Section 8(d) requests. The agency wrote that it would initiate a rulemaking to gather available data on the chemicals used in hydraulic fracturing. However, the agency declined to issue rules for other chemicals in the oil and gas exploration and production sector. EPA intends to discuss potential Section 8 reporting requirements with the states, industry, and public interest groups to \"minimize reporting burdens and costs, take advantage of existing information, and avoid duplication of efforts.\" On July 11, 2013, EPA published an explanation of the reasons for the agency's response to the petition.\nIn May 2014, EPA issued an advance notice of proposed rulemaking \"to develop an approach to obtain information on chemical substances and mixtures used in hydraulic fracturing.\" EPA indicated that it had not yet determined whether to mandate disclosure of the chemical information under TSCA, provide incentives for voluntary reporting, or use an approach combining aspects of both mandatory and voluntary disclosure.",
"The Occupational Safety and Health Administration has promulgated a set of regulations under the Occupational Safety and Health Act (OSHAct) referred to as the Hazard Communication Standard (HCS). A primary purpose of the HCS is to ensure that employees who may be exposed to hazardous chemicals in the workplace are aware of the chemicals' potential dangers. Manufacturers and importers must obtain or develop Material Safety Data Sheets (MSDS) for hydraulic fracturing chemicals that are hazardous according to OSHA standards. MSDS must list basic information about the identity of the chemicals; the chemicals' potential hazards; and safety precautions for their handling and use, among other things. The HCS requires operators to maintain MSDS for hazardous chemicals at the job site.\nMSDS may provide limited information about hydraulic fracturing chemicals. Currently, the most specific details about chemical identities that must be listed on the data sheets are the common or chemical names of substances that are considered to be hazardous under OSHA regulations. Chemical Abstract Service Registry Numbers (CASRNs) for substances or mixtures do not have to be listed. In addition, parties that prepare MSDS may withhold chemical identity information from the data sheets at their discretion in some circumstances. However, the regulations do not prevent parties from voluntarily submitting data sheets with more detailed information.",
"The Emergency Planning and Community Right-to-Know Act (EPCRA) establishes programs to provide members of the public with information about hazardous chemicals located in their communities. It also requires that representatives from different levels of government coordinate their efforts with communities and industry to prepare response plans for emergencies involving the accidental release of hazardous chemicals.\nThe act seeks to induce each state to establish a State Emergency Response Commission (SERC). Each SERC appoints and coordinates the activities of a Local Emergency Planning Committee (LEPC) for each emergency planning district created within a state or across multiple states. A LEPC is responsible for developing an emergency response plan for an accidental chemical release with input from stakeholders and submitting it to the SERC. Generally, a facility is subject to EPCRA's emergency planning requirements if there is a substance on EPA's list of extremely hazardous substances (EHS) present at the facility in excess of its EPA-determined threshold planning quantity. Whether a well site where hydraulic fracturing occurs would be subject to EPCRA's planning requirements would depend on the identities and quantities of the chemicals present, among other things.",
"Under Section 304 of EPCRA, an owner or operator of a facility must immediately notify the SERC and the community emergency coordinator for the LEPC in the affected area if an accidental release of a chemical that is an EHS occurs in an amount in excess of its reportable quantity from a facility where an EHS is produced, used, or stored. This information must be made available to the public.\nSection 311 of EPCRA generally requires that facility owners or operators submit an MSDS for each hazardous chemical present that exceeds an EPA-determined threshold level, or a list of such chemicals, to the LEPC, SERC, and the local fire department. For non-proprietary information, the act generally requires a LEPC to provide an MSDS to a member of the public on request. Again, whether a well site where hydraulic fracturing occurs would be subject to EPCRA's requirements would depend on the identities and quantities of the chemicals present, among other things.\nUnder Section 312 of EPCRA, facility owners or operators must submit annual chemical inventory information for hazardous chemicals present at the facility in excess of an EPA-determined threshold level to the LEPC, SERC, and the local fire department. There are two types of information that may have to be submitted. If the facility owner or operator is required to report \"Tier I information,\" then the inventory form must contain information about the maximum and average daily aggregate amounts of chemicals in each hazard category present at the facility during the prior year, as well as the general location of chemicals in each category.\nHowever, most states require the submission of \"Tier II information.\" This information includes \"Tier I information,\" as well as the chemical or common name of each hazardous chemical as listed on its MSDS and the location and manner of storage of the chemical at the facility. Tier II information for the prior calendar year for a particular facility must be made available to members of the public upon written request. A SERC or LEPC must disclose to the requester any non-proprietary information it possesses. If the SERC or LEPC lacks the information for a hazardous chemical, then it must request the information from the facility owner or operator and disclose the non-proprietary portions of it to the requester.",
"Section 313 of EPCRA requires owners or operators of certain facilities to report information about the release into the environment of certain \"toxic\" chemicals from the facilities. This information must be disclosed to federal and state officials, who in turn disclose the non-proprietary details to the public via the Toxics Release Inventory (TRI) website. Generally, the reporting requirements apply to owners or operators of facilities with 10 or more full-time employees when the facilities fall under certain Standard Industrial Classification or North American Industry Classification System codes and manufactured, processed, or otherwise used a listed toxic chemical in excess of its threshold reporting amount during the applicable calendar year. Facilities used by the oil and gas extraction industry are generally not included in the industry codes required to report under the TRI.\nSection 313(b) allows EPA to add or delete industry codes as needed. In October 2012, Earthworks and several other environmental advocacy organizations asked EPA to require the oil and gas extraction industry to report the toxic chemicals it releases under the TRI program.\nWhen determining whether to add new industry groups, EPA has previously considered three factors:\n(1) Whether one or more listed toxic chemicals are reasonably anticipated to be present at facilities in that industry (chemical factor); (2) whether facilities within the candidate industry group 'manufacture,' 'process,' or 'otherwise use' EPCRA section 313 listed toxic chemicals (activity factor); and (3) whether addition of facilities within the candidate industry group reasonably can be anticipated to increase the information made available pursuant to EPCRA section 313 or to otherwise further the purposes of EPCRA section 313 (information factor).\nThe Earthworks petitioners argued that the oil and gas extraction industry met the chemical factor because drilling, well development, and hydraulic fracturing at well sites use many chemicals listed on the TRI. With respect to the activity factor, the petitioners maintained that the industry manufactured, processed, and otherwise used TRI chemicals via well completions, well development, and hydraulic fracturing, among other processes. Finally, petitioners argued that the information factor was satisfied because existing federal and state disclosure laws were \"inadequate.\" The petition is still under review.",
"As the use of hydraulic fracturing and horizontal drilling to initiate production from oil and gas wells has increased, owners of property located near oil and gas operations have expressed concerns about the potential effects of these activities on the environment. Additionally, some worry that the proximity of oil and gas operations to their homes will cause a decline in the values of their properties. In response to these concerns, many local governments have increased their regulation of hydraulic fracturing and related oil and gas production activities. Some requirements imposed by local governments appear to be intended to regulate the land use aspects of oil and gas operations. However, other requirements have tended toward regulation of the technical aspects of oil and gas operations.\nIn addition to raising questions about the relationship between federal and state authority, the increase in local regulation of hydraulic fracturing has led to questions about the relationship between state and local authority. Regulation of oil and gas operations is an area of mixed state and local concern. It implicates the state's interest in the safe and efficient development of its natural resources and the local government's interest in regulating land uses to protect the public from harm to property values, health, and the environment. In matters of mixed state and local concern, states retain authority over local governments, even when municipalities enjoy some degree of independence from the state as a result of \"home rule\" provisions. However, the Pennsylvania Supreme Court held that the state could not preempt municipal zoning restrictions when it would violate guarantees contained in the state's constitution.\nThe question of state preemption of municipal land use and zoning powers arises when both state and local governments seek to regulate oil and gas production. Although the doctrine of preemption may differ among the states, most jurisdictions recognize three types of preemption: (1) express preemption, in which the express language of the state statute or regulation shows that the state intended to preempt all local control over regulation of a particular subject matter; (2) occupation of the field, in which the state's regulatory scheme is so comprehensive that it leaves the locality no room in which to regulate; and (3) conflict preemption, in which a local law is preempted to the extent that it conflicts with the application of the state law.",
"When a state law expressly preempts requirements imposed on oil and gas operations by localities, state courts have engaged in statutory interpretation to determine the scope of the preemption. For example, in 2014 the New York Court of Appeals issued a decision finding that zoning restrictions enacted by two municipalities did not conflict with the state's mineral resource laws. The municipalities claimed that the zoning restrictions were valid exercises of the state's Home Rule law, which empowers local governments to pass laws for the \"protection and enhancement of [their] physical and visual environment\" and for the \"government, protection, order, conduct, safety, health and well-being of persons or property therein,\" and that their exercise of this authority to restrict certain drilling practices was not preempted by the state's oil and gas law. The court agreed, finding that the preemption language in the state oil and gas law limited \"only local laws that purport to regulate the actual operations of oil and gas activities, not zoning ordinances that restrict or prohibit certain land uses within town boundaries.\" In the court's opinion, the new zoning restrictions \"are directed at regulating land use generally and do not attempt to govern the details, procedures or operations of the oil and gas industries.\" As a result the court found that the local zoning restriction did not preempt the state's oil and gas laws.\nIn the case of Robinson Township v. Commonwealth , a Pennsylvania appeals court considered a state law (Act 13) that expressly preempted local zoning laws. The court held that towns' substantive due process rights were violated by the state when Pennsylvania passed a law that required local governments to allow certain oil and gas facilities in all of their zoning districts, subject only to minor limitations such as setback requirements. Pennsylvania had argued that the law would advance the commonwealth's legitimate interest in the safe and efficient development of its oil and gas resources by eliminating differences in local zoning ordinances that had burdened the industry and its investors with expense and uncertainty. However, the court held that this mandate was irrational and an improper exercise of the state's police power because it allowed incompatible uses in zoning districts, and thus denied the town's substantive due process under the state constitution. The Pennsylvania Supreme Court subsequently affirmed the appeals court's holding that provisions of Act 13 preempting certain municipal zoning restrictions on oil and gas facilities were invalid under the Pennsylvania constitution.\nA West Virginia case illustrates the doctrine of field preemption in the oil and gas context. In Northeast Natural Energy, LLC v. City of Morgantown , a state court held that state law left no room for local regulation of oil and gas development and production.\nWith regard to conflict preemption, state courts have considered whether the local requirement interferes with the state's regulatory scheme governing oil and gas development so as to result in an \"operational conflict\" with the state's objectives. Courts considering whether a particular local regulation is preempted under this test generally evaluate each requirement imposed by the regulation on a case-by-case basis to determine whether there is a conflict. In some instances, courts must examine not only what the local regulation requires on its face but also how the regulation is applied in practice by the local government. Under the operational conflicts test, the Colorado Supreme Court held that state law preempted a home rule city's total ban on oil and gas drilling . In July 2014, a Colorado district court held that state law preempted the city of Longmont's ban on hydraulic fracturing, stating that, \"The operational conflict in this case is obvious. The [Colorado Oil and Gas Conservation] Commission permits hydraulic fracturing and Longmont prohibits it.\"",
"Some states have tried to use alternative methods of accommodating joint state and local regulatory authority over oil and gas operations. Colorado offers one example. In a February 2012 executive order, Colorado Governor John Hickenlooper wrote that \"proving operational conflict is an adversarial, cumbersome, time consuming, and expensive process.\" The governor created a task force to consider how local governments could coordinate their regulatory efforts with the state to avoid litigation. In April 2012, the task force issued a letter in which it wrote that its members had \"determined that drawing bright lines between state and local jurisdictional authority was neither realistic nor productive.\" Members of the task force recommended that local governments enter into memoranda of understanding with operators and intergovernmental agreements with the Colorado Oil and Gas Conservation Commission (COGCC) to address local concerns. The task force also suggested that the local governments designate a representative to provide input to operators and the COGCC during the permitting process.",
"Owners of property located near oil and gas operations have brought common law tort claims against companies that operate oil and gas wells and related infrastructure. Plaintiffs have claimed that damages have occurred as a result of hydraulic fracturing and related oil and gas operations, including contamination of land from drilling waste placed into pits on the plaintiffs' properties; noise and air pollution from natural gas compressor stations; contamination of water supplies; damage to a house allegedly caused by vibrations from nearby drilling activity; and personal injury. Common law causes of action brought under state tort law have included claims for nuisance, trespass, negligence, and strict liability, among others. Plaintiffs have sought monetary and, in some cases, injunctive relief, including remediation of contaminated property and medical monitoring.\nOften in these cases, some of the damages are alleged to have occurred underground or in the air above a plaintiff's property. As a result, plaintiffs may have difficulty demonstrating that the activities of the defendants caused them harm. In some cases, defendants have requested that courts enter modified case management orders (MCMOs) requiring plaintiffs to specifically make a prima facie showing of exposure, injury, and causation prior to the full discovery process by submitting expert opinions regarding the nature of the substances to which the plaintiffs were allegedly exposed; allowing access to the plaintiffs' medical records; and providing other supporting data. In Colorado, defendants initially succeeded in having one case dismissed after entry of such an order because the plaintiffs failed to \"produce sufficient information and expert opinions upon which to establish the prima facie elements of their claims.\" However, a Colorado appeals court later reversed the trial court's entry of the order. In some cases courts have declined to enter MCMOs when there are a limited number of parties to the litigation and the claims are relatively simple.\nOne question that arises when a court considers whether defendants are subject to strict liability for their operations is whether hydraulic fracturing and related oil and gas production activities are abnormally dangerous as a matter of law. Section 519 of the Restatement (Second) of Torts states that \"[o]ne who carries on an abnormally dangerous activity is subject to liability for harm ... of another resulting from the activity, although he has exercised the utmost care to prevent the harm.\" In determining whether an activity is abnormally dangerous, courts generally consider six factors:\n(a) existence of a high degree of risk of some harm to the person, land or chattels of others;\n(b) likelihood that the harm that results from it will be great;\n(c) inability to eliminate the risk by the exercise of reasonable care;\n(d) extent to which the activity is not a matter of common usage;\n(e) inappropriateness of the activity to the place where it is carried on; and\n(f) extent to which its value to the community is outweighed by its dangerous attributes.\nIt appears that few courts have considered the issue. In an April 2014 summary judgment order, a federal district court judge wrote that \"based on an analysis of the six factors set forth in the Restatement (Second) of Torts ... hydraulic fracturing does not legally qualify as an ultra-hazardous activity giving rise to strict tort liability.\" In another case, a court speculated that it may be difficult for plaintiffs to meet factors (d), (e), and (f) in the Restatement definition at the summary judgment stage.\nWith respect to trespass claims, the Texas Supreme Court considered whether the subsurface hydraulic fracturing of a natural gas well that extended into an adjacent property was a trespass \"for which the value of gas drained as a result may be recovered as damages.\" The court held that such damages could not be recovered because of the rule of capture, which \"gives a mineral rights owner title to the oil and gas produced from a lawful well bottomed on the property, even if the oil and gas flowed to the well from beneath another owner's tract.\" In another case, plaintiffs argued that the defendant committed a trespass when it engaged in acts that were not necessary to the extraction of minerals on the plaintiff's surface property. Plaintiffs have also argued that emissions of air pollution over their land constitute a trespass.",
"As discussed previously, regulation of practices associated with oil and gas exploration and production is primarily left to the states and municipalities that have overseen the practice for decades. Federal regulation of these practices is usually limited to the realm of environmental impacts. This, however, is not the case when it comes to oil and gas exploration and production on federal lands. The Bureau of Land Management (BLM), an agency within the Department of the Interior, oversees leasing and permitting for oil and gas on federal lands.",
"On March 26, 2015, BLM promulgated a hydraulic fracturing rule applicable to oil and gas operations on federal and Indian lands. However, the final rule was set aside by the U.S. District Court for the District of Wyoming, and this decision is currently under appeal (see below). The rule revised BLM's oil and gas rules related to hydraulic fracturing, which were promulgated in 1982 and last revised in 1988, before the widespread use of hydraulic fracturing and horizontal drilling. BLM estimated that the rule would affect roughly 2,800 hydraulic fracturing operations each year; however, based on previous levels of activity on federal lands, the rule could affect as many as 3,800 operations annually, and total compliance costs could reach $45 million annually.\nThe rule would require operators that plan to employ fracking as part of an oil or natural gas drilling operation on federal or Indian land to document to BLM compliance with the following requirements:\nSubmit a plan with detailed information about the proposed operation, including wellbore geology, the location of faults and fractures, the depths of all usable water, estimated volume of fluid to be used, and estimated direction and length of fractures; Design and implement a casing and cementing program that follows best practices and meets performance standards to protect and isolate usable water, monitor the cementing operations during well construction, and take remedial action if there are indications that the cementing is inadequate; Perform a successful Mechanical Integrity Test prior to the fracking operation; Monitor well pressure during the fracking operation and cease operations if it exceeds 500 pounds per square inch; Manage the recovered \"flowback\" fluids in above-ground storage tanks that meet certain specifications; and Disclose the chemicals used in the fracking operation to the BLM and to the public (with limited exceptions for trade secrets as demonstrated through an affidavit).\nThe Final Rule also would authorize st ates and tribes to work with BLM to craft variances from specific regulatory provisions that would allow compliance with state or tribal requirements to be accepted as compliance with the BLM rule if the state or tribal provision is at least as protective as the pertinent BLM provision .",
"After publication of the Final Rule, a number of states and organizations brought an action in the U.S. District Court for the District of Wyoming seeking to enjoin its enforcement. These petitioners argued that BLM lacked statutory authority to regulate hydraulic fracturing, citing the 2005 amendments to the SDWA discussed above as evidence of congressional intent to exclude hydraulic fracturing from federal oversight unless diesel fuels are involved. The court found that the petitioners had demonstrated the likelihood of success on the merits, and thus enjoined enforcement of the BLM Final Rule. Nine months later the court ruled on the merits and set aside the BLM Final Rule.\nThe federal government appealed the decision to the U.S. Court of Appeals for the Tenth Circuit. The government will likely argue that its broad authority to regulate activities on federal lands under the Federal Land Policy and Management Act, including the power to \"take any action necessary to prevent unnecessary or undue degradation of the lands,\" provides sufficient basis for the promulgation of the BLM Final Rule. The government also will likely cite its authority under Section 226(g) of the Mineral Leasing Act to \"regulate all surface-disturbing activities conducted pursuant to any lease issued under this chapter.\" The Tenth Circuit's decision on this matter will set an important precedent with respect to the federal government's ability to regulate hydraulic fracturing and potentially other environmental concerns related to oil and natural gas exploration and production on federal lands.",
"On February 8, 2016, the BLM proposed a rule to update standards to reduce venting and flaring from oil and gas production activities on onshore federal and Indian leases. The proposal would clarify when produced gas lost through venting, flaring, or leaks is subject to royalties and would replace provisions governing venting, flaring, and royalty-free use of gas issued in 1980. The proposed rule would limit natural gas venting to specified circumstances and also limit the rate of routine flaring of natural gas associated with oil well development. BLM expects to issue a final venting and flaring rule in late 2016.",
"In the 114 th Congress, several bills propose to expand federal regulation of hydraulic fracturing activities, while others would limit federal involvement. This section discusses some of this legislation.\nThe Fracturing Responsibility and Awareness of Chemicals Act of 2015 (FRAC Act) has been introduced in the House ( H.R. 1482 ) and the Senate ( S. 785 ). The bills would amend the SDWA to (1) require disclosure of the chemicals used in the fracturing process, and (2) repeal the hydraulic fracturing exemption established in EPAct 2005, and amend the term \"underground injection\" to include the injection of fluids used in hydraulic fracturing operations, thus authorizing EPA to regulate this process under the SDWA. Additionally, S. 785 would authorize states to seek primary enforcement authority for hydraulic fracturing operations, regardless of whether the state had obtained primacy for other types of UIC wells, including Class II wells.\nThe Safe Hydration is An American Right in Energy Development Act of 2015 ( H.R. 1515 ) also would amend the SDWA to create a new prohibition on fracking unless the party conducting the fracking operations agrees to comply with new testing and data reporting requirements.\nLegislation also has been introduced to require baseline and follow-up testing of potable groundwater in the vicinity of hydraulic fracturing operations. H.R. 1515 , the Safe Hydration is an American Right in Energy Development Act of 2015, would amend the SDWA to prohibit hydraulic fracturing unless the person proposing to conduct the fracturing operations agreed to testing and reporting requirements regarding underground sources of drinking water. H.R. 1515 would require testing prior to, during, and after hydraulic fracturing operations. Testing would be required for any substance EPA determines would indicate damage associated with hydraulic fracturing operations. The bill also would require EPA to post on its website all test results, searchable by zip code.\nH.R. 1647 and S. 15 , the Protecting States' Rights to Promote American Energy Security Act, would amend the Mineral Leasing Act to prohibit the Department of the Interior from enforcing any federal regulation, guidance, or permit requirement regarding hydraulic fracturing relating to oil, gas, or geothermal production activities on or under any land in any state that has regulations, guidance, or permit requirements for hydraulic fracturing. Although this language is broadly applicable to any federal regulation, guidance, and permit requirements \"regarding hydraulic fracturing,\" the prohibition on enforcement applies only to the Department of the Interior, and therefore would presumably impact only hydraulic fracturing operations on lands managed by the depart ment. The bill also would require the Department of the Interior to defer to state regulations, permitting, and guidance for all activities related to hydraulic fracturing relating to oil, gas, or geothermal production activities on federal land regardless of whether those rules were duplicative, more or less restrictive, or did not meet federal guidelines. The House version of the bill also would direct the Comptroller General to conduct a study \"examining the economic benefits of domestic shale oil and gas production resulting from the process of hydraulic fracturing.\" Other legislation has also been introduced in the 114 th Congress to limit the authority of the Department of the Interior to regulate hydraulic fracturing on federal and Indian lands.",
"Environmental statutes enforced by EPA contain several key exemptions for hydraulic fracturing and related oil and gas production activities. For example, an amendment to the SDWA passed as a part of the Energy Policy Act of 2005 clarified that the underground injection control requirements found in the SDWA do not apply to hydraulic fracturing, although the exclusion does not extend to the use of diesel fuel in hydraulic fracturing operations. In addition, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal energy are exempt from regulation as hazardous wastes under Subtitle C of RCRA. Under EPCRA, facilities used by the oil and gas extraction industry are generally not included in the industry codes required to report under the Toxics Release Inventory (TRI).\nEnvironmental groups have filed petitions seeking regulation of hydraulic fracturing and related activities under various environmental laws enforced by EPA. In September 2010, an environmental advocacy group filed a petition seeking to have EPA regulate drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal energy as hazardous waste under Subtitle C of RCRA. In August 2011, environmental advocacy organizations petitioned EPA to promulgate rules under Section 4 and Section 8 of TSCA for chemical substances and mixtures used in oil and gas exploration or production. In October 2012, several environmental advocacy organizations asked EPA to require the oil and gas extraction industry to report the toxic chemicals it releases under the TRI program.\nRegulation of hydraulic fracturing by local governments has raised questions about state preemption of municipal land use and zoning powers. Courts in a few states have ruled that local governments may regulate where drilling occurs but not how it occurs. In addition, owners of property located near oil and gas operations have brought common law state tort claims against operators, including claims for negligence, strict liability, nuisance, and trespass to land. Although this litigation is still in its early stages, it appears that courts have already faced questions about causation; whether hydraulic fracturing is an abnormally dangerous activity; and whether hydraulic fracturing may constitute a subsurface trespass to land. A recent federal district court decision invalidated BLM's adoption of safety and disclosure requirements for hydraulic fracturing on federal lands, although an appeal of that decision is pending."
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"question": [
"How is hydraulic fracturing used?",
"How has horizontal drilling affected U.S. oil and natural gas reserves?",
"Why have hydraulic fracturing and related oil and gas activities been controversial?",
"How do environmental statutes affect regulations for hydraulic fracturing?",
"What did an amendment to the Safe Drinking Water Act clarify?",
"What activities require a UIC permit under the SDWA?",
"How do parties get a permit to perform underwater injections?",
"How is the Clean Air Act impacting hydraulic fracturing operations?",
"What is included in the Provisions of the Resource Conservation and Recovery Act?",
"How are other federal laws involved with these wastes?",
"What could facility owners and operators and other potentially responsible parties face liability for under the Comprehensive Environmental Response, Compensation, and Liability Act?",
"How does the federal government have authority over regulating oil and natural gas exploration and production on federal lands?",
"How far does the federal government's authority extend?",
"How has the Bureau of Land Management impacted Indian lands?",
"How is the current state of the Indian lands?"
],
"summary": [
"Hydraulic fracturing is a technique used to recover oil and natural gas from underground low permeability rock formations, such as shales and other unconventional formations.",
"Its use along with horizontal drilling has been responsible for an increase in estimated U.S. oil and natural gas reserves.",
"Hydraulic fracturing and related oil and gas production activities have been controversial because of their potential effects on public health and the environment.",
"Several environmental statutes have implications for the regulation of hydraulic fracturing by the federal government and states.",
"An amendment to the Safe Drinking Water Act (SDWA) passed as a part of the Energy Policy Act of 2005 (EPAct 2005) clarified that the Underground Injection Control (UIC) requirements found in the SDWA do not apply to hydraulic fracturing, although the exclusion does not extend to the use of diesel fuel in hydraulic fracturing operations.",
"The underground injection of wastewater generated during oil and gas production (including hydraulic fracturing) does require a UIC permit under the SDWA, as do injections for enhanced oil and gas recovery operations.",
"Under the Clean Water Act (CWA), parties seeking to discharge produced water may have to apply for a permit under the National Pollutant Discharge Elimination System.",
"Under the Clean Air Act (CAA), the Environmental Protection Agency (EPA) has issued new rules covering emissions of volatile organic compounds from hydraulic fracturing operations.",
"Provisions of the Resource Conservation and Recovery Act (RCRA) exempt drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal energy from regulation as hazardous wastes under Subtitle C of RCRA.",
"However, these wastes are subject to other federal laws (such as the SDWA and the CWA), as well as to state requirements.",
"Facility owners and operators and other potentially responsible parties could potentially face liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for cleanup costs, natural resource damages, and the costs of federal public health studies, if hydraulic fracturing results in the release of hazardous substances at or under the surface in a manner that may endanger public health or the environment.",
"While the federal government's oversight of hydraulic fracturing generally is limited to protection of the environment and public health pursuant to the aforementioned statutes, it does have some authority to regulate oil and natural gas exploration and production on federal lands.",
"Whether this authority extends to particular regulations governing hydraulic fracturing is currently in dispute.",
"The Bureau of Land Management published a rule on hydraulic fracturing on federal and Indian lands in March 2015; however, the rule was struck down by a U.S. District Court in June 2016.",
"The matter is currently on appeal."
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{
"title": [
"",
"Introduction",
"Background",
"AU Goals and Objectives",
"Structure",
"Current Leadership and Issues",
"Peace and Security",
"Justice Issues",
"African Court on Human and People's Rights: Developments, Prospective Changes, and Implications for the ICC in Africa",
"Regional Development Initiatives",
"Regional Integration",
"Financial and Technical Challenges",
"U.S. Relations, Policy, and Assistance",
"U.S. Assistance",
"Planned U.S. Assistance to the AU",
"Outlook",
"Appendix. Organization of the African Union"
],
"paragraphs": [
"",
"The United States has long cooperated with the African Union (AU), and its predecessor, the Organization of African Unity (OAU). U.S.-AU ties have strengthened and assumed increasing prominence since the establishment in 2006 of a U.S. diplomatic mission to the African Union (USAU) in Addis Ababa, Ethiopia, where the AU is headquartered.\nIn mid-2015, President Obama addressed the AU in a speech focused on democracy and a range of other issues centering on governance and security. He had previously met with the AU Commission Chair, Dr. Nkosazana Dlamini-Zuma, in 2013 and in 2014. Key Obama Administration goals with respect to the AU have been to\nsupport AU efforts to promote democratic and electoral reform across the continent; promote inclusive regional economic development and growth through improved trade and investment; support various AU developmental objectives, including projects in such areas as agriculture and education; strengthen the capacity of the AU and sub-regional organizations to effectively address peace and security challenges, and aid individual stabilization missions; improve AU staff and organizational/technical capacities; and increase public diplomacy and multilateral engagement with the AU and its member states to further U.S. interests.\nWhile U.S.-AU cooperation is multifaceted, direct annual U.S. assistance to the AU in support of the organization and its nonmilitary program activities—referred to as \"core\" assistance—is limited. In recent years it has ranged between a low of $521,000 (FY2015) and a high of $1 million (FY2012), with an increase to $2.4 million requested for FY2017. Such aid has been supplemented by periodic one-off U.S. efforts to support special AU activities, such as the AU response to the Ebola viral disease outbreak in West Africa and, separately, the AU's establishment of an African Centre for Disease Control and Prevention. Some additional U.S. aid funding that is allocated to Africa at the regional level, bilaterally, or under presidential initiatives—such as the U.S. Feed the Future food security and agricultural development program—also indirectly supports various AU objectives.\nTraditionally, the bulk of U.S. aid for the AU has supported the deployment and sustainment of AU military peacekeeping or stabilization missions, as well as the participation of individual African countries in them. U.S. support for the U.N. Security Council-authorized AU Mission to Somalia (AMISOM) and its troop contributors since 2007, for instance, stands at nearly $2 billion. U.S. support to the AU Mission in Sudan (AMIS), a 2004-2007 AU peacekeeping operation in Sudan's western Darfur region, totaled roughly $472 million.\nWhile in recent years the AU has funded nearly all of its operational (organizational) budget, it remains highly dependent on external funding for its program and security operations budgets. It is taking steps, however, to increase the proportion of funding its member states contribute, including through a new initiative to impose a small levy on imports into these states. If successful, such efforts may shape the future relationship between the AU and donors such as the United States.\nCongressional engagement with AU institutions has historically been relatively limited, although it has gradually increased as U.S.-AU relations have gained a higher profile, and as U.S. funding of AU peacekeeping and military intervention missions has also increased. Congressional appropriation and oversight activity has regularly focused on such aid. In recent years, some Members of Congress have met with AU leaders or traveled to AU headquarters to discuss with AU leaders common concerns and interests regarding the region. Still, little substantive recent legislation or congressional oversight activity has focused specifically on the AU.\nThere is arguably considerable potential for expanded U.S.-AU ties and cooperation—and for expanded congressional engagement with the organization—given the AU's diverse program and policy activity, the limited extent of U.S.-AU development cooperation compared to some other AU development partners (e.g., the European Union), and a dovetailing of some U.S.-AU policy goals and interests. Current and prospective areas of cooperation include such issues as peace and security; trade and investment; and socioeconomic and infrastructure development; and science and technology cooperation.\nSome U.S. policymakers may also seek to leverage engagement with the AU to counter what they may see as objectionable efforts by individual AU member states' leaders to use the AU to advance or preserve these leaders' parochial interests or political power. Actions that interested U.S. policymakers might seek to counter through engagement with AU institutions include efforts by some African governments to\nwithdraw from the International Criminal Court or limit the scope of its efforts to achieve judicial accountability for human rights abuses in Africa; ensure U.S. financial support for AU military operations while limiting U.S. input into such missions' operational goals and conduct; subvert democratic processes and related constitutional measures at the national level; and limit the rights of lesbian, gay, bisexual and transgender persons.\nOther Members may wish to more closely tie any U.S. aid to the AU to its pursuit of programs that comport with U.S. objectives, given that many in Congress may be leery of providing aid to multilateral institutions absent the ability of the United States to strongly influence decisionmaking by such institutions. In addition, given that the AU is an arguably bureaucratically cumbersome and technically weak entity, and presents a potentially politically challenging venue through which to pursue U.S. interests, some in Congress may prefer to approach relations with Africa primarily through a bilateral lens, and generally minimize U.S.-AU engagement. Such a strategy, however, risks reducing the ability of the United States to bargain with the region as a whole on such issues as climate change, trade, and action on other global issues in multilateral forums.",
"The African Union is an intergovernmental grouping that includes as members all countries in Africa except Morocco. The AU, based in Addis Ababa, Ethiopia, was established in 2002 as the successor to the now-defunct Organization of African Unity (OAU). OAU members formed it to achieve the goals of the 1991 African Economic Community (AEC) Treaty more quickly. That treaty, which remains in effect, and the AU Constitutive Act, the founding charter of the AU, are intended to promote African regional economic integration and socioeconomic development through the phased creation of a common African market and shared political and economic institutions.\nOther key objectives identified in the act include greater political and economic unity, peace and security, and stability within Africa; advocacy of common African positions in international forums; strengthening of democratic governance and the rule of law; respect for human rights; and greater regional self-reliance, gender equality, and social justice. The act identifies \"noninterference\" by member states in their peers' internal affairs as a key AU principle, but unlike the OAU charter, it recognizes exceptions and grants the AU the right to intervene in member states' affairs in \"grave\" situations (e.g., to prevent crimes against humanity, war crimes, and genocide). It also allows states to request AU intervention to restore peace and security, and calls for the AU to reject unconstitutional changes of government, as well as \"impunity and political assassination, [... and] terrorism.\nThe creation of the AU was, in part, spurred by criticisms that the OAU's long-standing doctrine of noninterference in member states' internal affairs had often caused it to prioritize member state sovereignty over other principles in its charter, such as respect for human rights. The AU has proven more willing than the OAU to condemn unconstitutional changes in government, to suspend member states whose governments come to power through such means, and—in some cases—to investigate human rights abuses by member states. In many such cases, however, the AU has remained inactive, which has sparked some criticism. The AU's policy of providing immunity from arrest during AU forums to heads of state facing International Criminal Court (ICC) criminal prosecution has also drawn criticism from advocacy groups, as has its opposition to ICC actions against two sitting African heads of state and other high officials.",
"In 2013, the AU celebrated the 50 th anniversary of the formation of the OAU and its later transformation into the AU. During the celebration it released a 50-year AU development plan, Agenda 2063: The Africa We Want , which is complemented by a number of shorter-term general and sector-specific plans. Key Agenda 2063 goals include the following:\nenhancements in standards of living and citizen well-being, especially in the areas of education and skills, health, habitats (e.g., urban services), gender equality, and youth empowerment; economic transformation and job growth, notably through agricultural investment and development and underpinned by infrastructure improvements, environmental sustainability, and climate resilience; increased political and economic regional integration based on the ideals of Pan Africanism (regional political and economic self-determination and solidarity) and greater African agency in global affairs; improved governance, deepening of democratic values, and \"entrenched\" respect for human rights, justice, and the rule of law; institutional and leadership capacity development; and regional peace and security.\nAgenda 2063 also discusses the trends and opportunities that underpin these goals, drivers and enablers of progress toward meeting them, and strategies for mitigating challenges. Planned programs for achieving these goals are diverse, but center on enhancing performance monitoring and evaluation, marshaling funding for the AU, and improving communications at all levels. Various donors have funded initiatives to strengthen the AU's organizational development and program implementation, the most notable of which is a 2014-2018 World Bank program.",
"The AU is a policymaking, representational, and diplomatic body that also undertakes peace- and security-related efforts and programmatic development work. The Assembly, a grouping of heads of state and government, is the AU's supreme decisionmaking organ and is supported by a network of subsidiary institutions. An executive council, made up of AU members' foreign affairs ministers, coordinates the AU Assembly's work and elects the AU Commission (AUC) from among the AU's five sub-regions. While the AU directly undertakes many functional programs, attainment of many of its goals (e.g., in the areas of regional economic growth, development, and integration) is delegated to Africa's various regional economic communities (RECs), which each have specialized functional units.\nThe AUC, the AU's secretariat, implements diverse AU initiatives for the Assembly and Council, administers AU legal instruments, manages relations with the RECs, and undertakes a range of programmatic activities, as do other subsidiary AU functional organs. Notable among these are\nthe Peace and Security Council (PSC), the AU's primary decisionmaking organ for the prevention, management and resolution of conflicts; the Department of Political Affairs, which coordinates AU election observation missions and other governance-related activities; and the New Partnership for Africa's Development (NEPAD) Planning and Coordinating Agency, which carries out a number of the AU's flagship development projects.\nIn addition to these key organizations, the AU has several representative bodies and numerous specialized technical agencies and working groups, which address such issues as veterinary medicine, space exploration, science and math education, and climate change, among others. In general, AU institutions work to establish and help implement regional goals and policies in various sectoral or thematic areas, and to design best practices for countries and RECs to follow.",
"The current AUC Chairperson, Dr. Dlamini-Zuma, a former South African Foreign Minister, was elected in 2012. Dlamini-Zuma's term was originally scheduled to end in 2016, but was extended until January 2017 at a July 2016 summit of the AU Assembly after none of the three candidates running for the post received the required two-thirds vote. Chadian President Idriss Déby was elected chair of the African Union in early 2016 and is to serve in the post until January 2017. His predecessor was Zimbabwe's president, Robert Mugabe. While the post is largely ceremonial and rotates annually, it offers a high-profile policy advocacy platform.\nOne key challenge for Dlamini-Zuma and the broader AUC leadership has been to oversee AU efforts to resolve Africa's multiple conflicts, in concert with international agencies and donors. Simultaneously, the AUC must maintain high-level African and global attention on efforts to bolster diversified economic growth and broad-based socioeconomic development. While growth had been strong in much of the region over the last decade, generally weak commodity prices and demand in recent years have slowed growth in the many African countries that depend on exports of one or two raw commodities. Another AU goal is to secure adequate external and AU member funding for AU activities. Dlamini-Zuma has cited dependence on donor funds as a major AU concern. Donor funding is the source of almost all AU programmatic financing, with the balance coming from AU member assessments, which are often in arrears. Dlamini-Zuma has also prioritized efforts to streamline the AU Commission and make it more effective.\nOther stated Dlamini-Zuma priorities have included crisis resolution in multiple countries, reconstruction and transitional aid in post-conflict countries, and continued AU monitoring of African elections. She and AUC Commission Deputy Chairperson Erastus Mwencha—former Secretary General of the Common Market for Eastern and Southern Africa (COMESA) trading bloc—have also sought to promote sustainable regional economic growth and integration, focusing on infrastructure construction, intra-African trade, and agricultural development. Dlamini-Zuma has also pushed, with limited success, to ensure that the sale of Africa's rich natural resources, especially minerals, produces broad-based economic benefits. She has also sought to increase gender equity, access to social services, and jobs; enhance AU institutional, technical and other capacities; promote ties with key external partners; and advance and defend shared African political and economic positions and interests in global contexts.",
"Peace and security are major goals of the AU, given that so many African countries have been or are affected by armed conflict or violent extremism, or are undergoing lengthy post-conflict transitions and remain politically and economically fragile. From an AU perspective, insecurity can impede investment, damage perceptions of the region, hamper socioeconomic development, and harm human welfare. Armed conflict is also a source of large refugee flows in parts of Africa.\nThe AU takes several approaches toward strengthening peace and security. Some are broadly preventive: fostering support for inclusive development, accountable and transparent governance, democracy, and human rights. Others are more focused on conflict prevention or mitigation in particular cases through the various entities and processes that make up the African Peace and Security Architecture (APSA), a broad framework that encompasses diverse policies and institutional development efforts relating to peace, security, and stability in Africa.\nThe PSC is the main AU security policy decisionmaking organ and houses or facilitates much of the APSA. It has a broad mandate to prevent, manage, and resolve conflicts in Africa. Its main functions are indicated by the names of the divisions or entities that make up the AUC Department of Peace and Security: Conflict Prevention and Early Warning; Conflict Management and Post-Conflict Reconstruction; Peace Support Operations; Defense and Security; and the PSC Secretariat. The PSC coordinates its actions with Africa's RECs, the United Nations (U.N.) Security Council, other U.N. and international entities, and donor governments.\nThe AU routinely mediates in internal and inter-state armed conflicts and political crises. It is, for example, currently seeking to resolve differences between Sudan and South Sudan, among parties to Sudan's internal conflicts, and between the parties to South Sudan's civil war, in concert with other regional organizations and actors. It is also supporting an EAC-led mediation effort to resolve Burundi's political crisis and an IGAD-led mediation for South Sudan. The AU has also repeatedly intervened militarily to address crises in Africa, usually on a first-response basis and often prior to deployments of larger U.N. missions.\nThe most notable and long-standing AU intervention has been the U.N. Security Council-authorized AU Mission to Somalia (AMISOM, deployed in 2007), which undertakes robust, often offensive operations to counter threats from Al Shabaab and other armed groups and expand Somali government-controlled areas. It also protects the government, trains government forces, and supports humanitarian aid deliveries. AMISOM receives logistical and other support through the U.N. Support Office in Somalia (UNSOS).\nThe most recent major AU military decision took place in early 2015, when the AU PSC authorized four member states of the Lake Chad Basin Commission (LCBC)—Cameroon, Chad, Niger, and Nigeria—to establish a Multinational Joint Task Force (MNJTF). Benin, a non-LCBC country, is also contributing to the force. The MNJTF's mandate is to combat Boko Haram, a regional terrorist group of Nigerian origin that is active in the four LCBC countries. The United States provides substantial support to MNJTF member state militaries, and helped fund the creation of an MNJTF headquarters in N'Djamena, Chad. The AU also helps coordinate joint regional, U.S.-aided military responses in central Africa to counter the Lord's Resistance Army, a rebel group of Ugandan origins, through the Ugandan-led AU Regional Task Force (AU-RTF). The United States has provided or pledged financial support for all AU military interventions, except for its 2008 mission in Comoros.\nA key long-term AU goal has been to create an African Standby Force (ASF) made up of five REC-based brigades, to be tasked with peacekeeping or peace enforcement operations, conflict monitoring, and post-conflict mandates. Development of the ASF brigades has been slow, but all of the five ASF forces have made progress. The State Department's Global Peace Operations Initiative (GPOI) provides capacity building aid to individual ASF contributing countries, and the United States has provided some ASF-related support to the AU. DOD has also established liaison officers to some of the regional brigade headquarters. In the interim, pending full ASF operational capacity, and in response to challenges faced by ECOWAS in marshaling troops for the African-led International Support Mission in Mali (AFISMA) in 2013, the AU Assembly established the African Capacity for Immediate Response to Crises (ACIRC; see text box).",
"The AU Constitutive Act prioritizes the promotion and protection of \"human and peoples' rights,\" in accordance with the African Charter on Human and Peoples' Rights. The Charter—which entered into force under the OAU and remains a binding AU document—lays out a wide variety of human rights, duties, freedoms, and related protections. It also requires member states to recognize and take \"measures to give effect\" to these provisions. The Charter is a potentially important vehicle for the administration of justice in a continent, where the rule of law is often weak, human rights abuses occur regularly in some countries, and a number of alleged cases of large-scale war crimes, crimes against humanity, and violations of international humanitarian law have occurred in recent years. Attempted enforcement of these provisions has nonetheless been the exception rather than the rule, and human rights conditions have not often been a diplomatic focus of AU institutions.\nTo help enforce the Charter and build a human rights protection system in Africa, the AU established the African Court on Human and Peoples' Rights (AfCHPR) headquartered in Tanzania, the African Commission on Human and Peoples' Rights (ACHPR) in The Gambia, and an AU Commission on International Law (AUCIL) in Ethiopia. The AfCHPR is charged with defending human rights throughout Africa, and has jurisdiction to hear cases and disputes regarding the interpretation and application of the Charter and related AU human rights instruments, as well as to issue advisory opinions relating to their application. The AUCIL helps codify and institutionalize international law in Africa, interpret the application of human rights instruments, and draft international treaties, and carries out legal research and legal capacity-building advocacy in the region. Activists, however, have questioned the effectiveness of these institutions, and several AU member states have either resisted the institutions' jurisdiction or declined to implement their decisions.\nIn addition to continent-wide justice mechanisms, the AU has periodically established special purpose commissions of inquiry, such as one formed in 2014 to probe human rights abuses in the South Sudanese civil conflict. One successful ad-hoc institution was an AU-Senegalese hybrid court that was inaugurated in Senegal to try former Chadian dictator Hissène Habré after the AU opposed Belgian efforts to extradite him; in 2016, the court convicted Habré of crimes against humanity and sentenced him to life in prison. Under a 2015 peace deal for South Sudan, the AU is also charged with establishing an independent hybrid court to try war crimes and other serious offenses committed during the conflict, although its prospects are unclear. The AU has taken no concrete steps to do establish the court, and key South Sudanese leaders—including some who could face indictment by the court and, as a result, lose their positions—reportedly oppose it.",
"The AfCHPR, which is based in Arusha, Tanzania, is a relatively new institution with a limited juridical record; it delivered its first judgment in 2009. Some of its cases have dealt with matters involving AU entities, such as employment cases involving AU bodies and member states and an unsuccessful AfCHPR suit against the Libyan state alleging massive human rights violations. Most of its cases, however, have involved appeals by individuals alleging various violations of the Charter or other instruments by AU member state courts or other authorities, often in labor cases. The Court's deliberations and decisions have often focused on procedural issues, including decisions on admissibility. The court has made relatively few, if any, major international legal precedent-setting rulings that could change the legal landscape at the continental level. Its willingness to consider issues regarding the adequacy of national legal and institutional processes, however, makes the court a potential check on national judicial systems and as well as a mechanism for addressing alleged human rights violations by governments. This is significant, given that national systems are reportedly institutionally weak, politicized, or blemished by corruption in a number of African countries. Still, while the protocol establishing the court requires signatories to comply with its judgments, the manner and extent to which states may do so—or to which the court may seek to enforce its decisions—is largely yet to be determined.\nProspects for the court may also be influenced by prospective changes in its makeup. In 2008, the AU Assembly decided to merge the AfCHPR with the Court of Justice, a body authorized by the AU Constitutive Act but not established. The resulting African Court of Justice and Human Rights (ACJHR) is to take over the mandates of the AfCHPR and would have jurisdiction over essentially all juridical matters and dispute resolution relating to AU decisions and to legal relations between member states. In addition, as a result of a 2014 AU Assembly decision amending the court's statute, the new court would also have jurisdiction in Africa over crimes of genocide, crimes against humanity, war crimes, and certain other crimes. The new court may not be established for some time, however. For the 2008 and 2014 protocols to enter into force, 15 AU member states must ratify and deposit them; as of early 2016, when the most recent ratification update was issued, this threshold had not been met.\nThe amended 2014 statute defining the court's role is controversial because it does not define the relationship between the planned court and the ICC, and arguably represents a rejection of the ICC and its mandate to try genocide and other serious international crimes, for which the planned AU court is given jurisdiction. Moreover, the protocol—unlike the Rome Statute creating the ICC, which many African states ratified—would protect AU heads of state and certain other senior state officials from prosecution before the court during their tenure in office. This provision appears to relate to concerns by some African leaders over the ICC's attempted prosecution of sitting national leaders and seeming prioritization of cases in Africa (see text box). Criticism of the ICC has not been universal, however. Botswana, for instance, has strongly supported the ICC's work and approach in Africa.\nIn 2013, mirroring a number of prior statements, the AU Assembly issued a decision on Africa's relationship with the ICC. Alleging \"politicization and misuse of indictments against African leaders\" by the ICC, the Assembly—in a statement that is of debatable legal standing —declared that no charges could be brought \"before any International Court or Tribunal\" against any sitting AU head of state or government and other high officials. It also requested the suspension of ICC cases against Kenya's president and vice president pending their exit from office, as well as a deferral of the Kenyan and Bashir cases, pending a dialogue with the U.N. Security Council on the AU's ICC concerns. The Assembly also decided to push for reforms of the ICC's Rome Statute to address these concerns and to fast-track the expansion of the AfCHPR mandate to include genocide and related high crimes, among other actions. The Assembly has reiterated its demands and criticized the ICC several times since 2013, but has gained little traction on its proposed reforms.\nThese actions have drawn sharp criticism from human rights groups and some analysts who see them as prioritizing leaders' political positions and power at the expense of accountability for serious violations of human rights. Often missing from deliberations over the AU's relationship with the ICC and the debate over African agency and/or AU institutional efforts to address genocide, crimes against humanity, and war crimes has been the role of other, ad-hoc international courts. Examples include the International Criminal Tribunal for Rwanda (ICTR); hybrid courts of mixed jurisdiction, such as the Special Court for Sierra Leone (SCSL); and possibly national courts, such as the planned Special Criminal Court (SCC) for CAR, which is to be established with international support to complement the ICC in addressing major human rights crimes in that country. The United States financially supported the ICTR and the SCSL, and has voiced support for the SCC.",
"A major vehicle for achieving Agenda 2063 is the New Partnership for Africa's Development (NEPAD), the AU's main strategic policy framework and plan for continent-wide socioeconomic development. The NEPAD Agency manages programs and projects to aid AU member states and RECs in formulating and implementing policies and programs in six thematic areas: agriculture and food security, climate change and national resource management, regional integration and infrastructure, human development, economic and corporate governance, and cross-cutting issues (e.g., gender equality, institutional development, and information technology). Implementation of NEPAD programs is supported by a range of bilateral, multilateral, and private donors.\nA key NEPAD program is the Comprehensive Africa Agriculture Development Program (CAADP), aimed at boosting investment in food and agriculture production via scientific and technical innovation, finance and distribution for farm inputs, and market and trade development. Some CAADP activities are supported under the U.S. Feed the Future initiative. Another is the NEPAD-linked African Peer Review Mechanism (APRM), a voluntary process under which participating states assess one another's adherence to AU standards and goals relating to democracy and political governance, economic and corporate governance and management, and socioeconomic development. The APRM is meant to stimulate examination and diagnosis of state performance with the implicit goal of improving state capacities. Countries are expected to implement NEPAD goals at the national level, but a lack of domestic institutional and financial capacities often hinder these efforts.\nOther key NEPAD-facilitated initiatives include the Program for Infrastructure Development in Africa (PIDA) and the linked Africa-EU Infrastructure Trust Fund. The EU uses the latter to provide technical assistance, loan interest rate subsidies, investment grants, and loan guarantees in support of the AU-NEPAD Infrastructure Action Plan, the African Science Technology and Innovation Program, and the NEPAD e-Schools Initiative.\nOther large AU technical and development initiatives are often joint efforts between the AU, international development agencies, and donor governments. Examples include the following:\nthe African Resilient Landscapes Initiative (ARLI), an initiative announced in late 2015 focusing on forest and ecosystem restoration, biodiversity conservation, \"climate smart\" agriculture, and rangeland management, aided by the World Bank and World Resources Institute; the Climate to Development in Africa (CLIMDEV Africa), a joint AUC, AfDB, and U.N. Economic Commission for Africa (UNECA) climate change adaptation project; the EU-funded African Monitoring of Environment for Sustainable Development project; \"Better Training for Safer Food in Africa,\" an AUC food safety and phyto-sanitary program supporting regional health and export standards compliance; the EU-funded AU Inter-African Bureau for Animal Resources (AU-IBAR) Vaccines for the Control of Neglected Animal Diseases in Africa (VACNADA) project; and various programs to support the African Peace and Security Architecture (APSA).",
"Progress toward regional integration, a key REC and NEPAD goal, has often been slow, but is improving. Challenges have included governments' sovereignty concerns, uneven economic capacities among states, protectionism, and institutional and legal/regulatory incompatibilities. Despite the existence of two multi-country central banks (for West and Central Africa), country participants do not fully overlap with REC boundaries. Additional REC macroeconomic and monetary convergence initiatives have often experienced difficulties, in many cases due to uneven member state performance. While interstate travel and trade within REC regions are often slow and costly, due both to poor infrastructure and burdensome border controls, some RECs now have regional passports that are complemented by AU passports. They are also pursuing various trade facilitation efforts, increasing cross-border movement of citizens and trade in goods and services. Regional communications links are rapidly improving, and there has been some success in developing regional electricity pools and natural gas trade. Similarly, while trade growth and economic integration within RECs (e.g., harmonization of trade rules) has also often been limited—and remains so in some regions, due to such factors as poor infrastructure, high tariffs, and conflict and instability—there are a growing number of successes in this area.\nIn June 2015, for instance, the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC) united to form a Tripartite Free Trade Area (TFTA) comprising 26 countries accounting for over half of Africa's aggregate GDP. Also in June 2015, the AU launched negotiations for the establishment of a Continental Free Trade Area (CFTA), which would integrate the eight RECs into a single continental customs union, a goal of the AEC Treaty. The decision calls for negotiations on the CFTA to be concluded by 2017, although they appear likely to continue past that date.\nRegional economic integration and trade growth within the EAC is a major Obama Administration goal under the U.S. Trade Africa presidential initiative. Regional integration could have significant implications for potential increases in U.S. trade with and investment in Africa, since major disincentives for U.S. investors are the small size of many national markets; highly variable business rules and investment climates among countries; disparate treatment of investment and profit repatriation among countries; and large variances in tariffs and relative ease of undertaking cross-border trade among countries.",
"While criticisms of the AU's effectiveness are common, some observers have noted that the AU's institutional development and pursuit of regional political unification have been relatively rapid, despite a lack of financial wherewithal and the presence of obstacles comparable to those facing similar efforts in richer regions of the world. Nonetheless, the challenges facing the AU are profound. Securing the financial resources to strengthen the AU's institutional, technical, and staff capacities is one key obstacle. In recent years, while member states have funded all or nearly all of the AUC's organizational operational budget (e.g., headquarters staff costs), with a handful of member states funding the bulk of such costs, roughly 95% of the AU program budget has been funded by external donors. The demise of the Qadhafi regime in Libya, which had provided large amounts of funding for the AU, exacerbated such trends. The AU has had to reduce its budget several times in recent years after receiving insufficient donor commitments to fund its initial plans.\nA number of efforts, often backed by foreign donors, seek to enhance AU technical, oversight, monitoring and evaluation, and fiscal management capacities, and the AU is taking steps to fund its activities from the resources of member states and gradually reduce its reliance on external funding. In June 2015, the AU Assembly adopted a new scale of assessment targeted, in part, at having AU member states fund 100% of the AU operational budget, 75% of the program budget, and 25% of the peace support operations budget. Under the decision, these targets are to be phased in over five years starting in January 2016. In a meeting in July 2016, the AU Assembly took an additional step toward attaining these goals when it instituted a 0.2% levy on imports into the continent, to be imposed over several years at the REC level. Whether these goals will be reached remains to be seen; past efforts to achieve greater self-reliance have had limited impact.",
"While the United States has long aided and cooperated with the AU and the OAU before it, U.S.-AU ties have strengthened over the past decade, and have assumed a higher profile in U.S.-African relations. In July 2015, during his third presidential trip to sub-Saharan Africa, President Obama addressed the AU in a speech addressed \"to the People of Africa.\" The speech was wide-ranging, focusing on various issues of shared concern. A key topic that drew particular attention among observers was the President's call for strong adherence to democratic norms in the region and for African leaders to \"abide by term limits and their constitutions.\" He also stressed the need for respect for \"human dignity,\" a concept that he used as a vehicle to address issues of peace and security, including efforts to counter terrorism and political extremism, and of respect for human rights, social equality, and the rule of law, among other ends.\nPresident Obama had previously engaged with the African Union in meetings with AUC Commissioner Dlamini-Zuma in mid-2013 during a trip to Africa, and in 2014 during the U.S.-Africa Leaders Summit in Washington, DC. Key topics addressed at both forums included U.S.-AU partnership, peace and security efforts, development, women and youth, and trade and investment.\nThe U.S. move toward closer ties began in 2005, when then-President George W. Bush granted the AU international organization status, allowing it to open an office in Washington, DC; the first AU ambassador to the AU was accredited in 2007. The U.S. AU mission (USAU) was initiated in 2006, making the United States the first non-African country to have an accredited AU mission.\nAccording to USAU, which includes representatives from the Departments of State, Defense, and Agriculture, as well as the U.S. Agency for International Development (USAID), the mission's key goals under the Obama Administration have been to\nsupport the AU in playing a lead role in democratic and electoral reform; develop inclusive economic development through improved trade and investment; strengthen Africa's capacity to address peace and security challenges; accelerate implementation of the AU's human capacity and educational development projects; and increase public diplomacy and multilateral engagement to further U.S. interests.\nConflict prevention, mitigation, and peace operations have been key traditional focuses of U.S.-AU relations. The United States has also played a key role as an observer during multiple AU, OAU or REC peace negotiations, often through various international contact groups that the AU has formed to address unfolding crises. Some U.S. aid has centered on helping the AU develop its peace and security capacities, but such aid is modest compared to that of certain other donors, notably the European Union. The United States is, however, a major source of often large amounts of logistical support to member states participating in individual AU peace operations. U.S. support for AMISOM troop contributors since the mission's inception in 2007, for instance, stands at about $1.8 billion. U.S. support to the AU Mission in Sudan (AMIS), a now-concluded AU peacekeeping operation in Sudan's western Darfur region, totaled about $472 million. The United States also provided sizable military logistical support to troop-contributing countries participating in recent AU peace operations in Mali and CAR.",
"While the United States provides aid in support of various other AUC and AU agency nonsecurity development activities and programs, the level of such capacity-building aid is far smaller than that for peace and security, particularly compared to funding provided by European donors. U.S. direct funding for AU institutions, sometimes dubbed \"core\" funding, is limited (e.g., $774,000 in FY2014, $521,000 in FY2015, and $935,000 in FY2016, with $2.4 million requested in FY2017) and focuses on technical assistance at the headquarters level and selected other initiatives. Total U.S. aid for the AU is challenging to track, but totaled an estimated $7.6 million in 2015; in 2014, the total was $4.7 million, along with a one-time $10 million grant to support the deployment of the AU Response to the Ebola Epidemic in West Africa (ASEOWA). Most U.S. aid related to the attainment of AU goals is provided on a bilateral basis or to regional RECs, rather than to the AU itself, and is thus not always accounted for in analyses of U.S. support for the AU.\nThe United States has nonetheless increased cooperation with the AU in recent years. In 2013, two key U.S.-AU cooperation agreements were signed: a June follow-up to a 2010 agreement that had pledged $5.8 million in U.S. non-peacekeeping mission aid to the AU through 2013, and a January \"partnership\" Memorandum of Understanding (MOU). The June 2013 agreement centered on areas of possible U.S. support for the AUC's Strategic Plan 2014-2017, which addresses a wide range of peace and security, governance, and sectoral and human development goals and programs. The 2013 MOU prioritized cooperation centering on the Obama Administration's 2012 U.S. Strategy Toward Sub-Saharan Africa : peace and security, democracy and governance, economic growth, trade, and investment, and promotion of opportunity and development. The MOU also formalized an annual U.S. Secretary of State-AU Chairperson dialogue; AU Peace and Security Department-U.S. Defense Department staff talks, and information exchanges on various technical issues and best practices.\nU.S. support for AU democracy strengthening initiatives is another key area of engagement. Broadly, U.S. efforts are designed to support AU implementation of the AU African Charter on Democracy, Elections and Governance , which sets out the AU's democratic principles and objectives in this area, and capacity-building of the African Governance Architecture—a broad set of democracy, governance, and human rights charters, frameworks, and implementing institutions. The United States has in the past deployed contracted advisors to support the work of the AU's Democracy and Elections Assistance Unit (DEAU), which is part of the AUC's Department of Political Affairs. DEAU sends observation teams to monitor most African elections and assists member states efforts to improve electoral systems. In mid-2015, the AUC and the National Democratic Institute (NDI), a U.S. democracy capacity-building organization that receives U.S. government funding, signed an MOU aimed at increasing African youth involvement in democratic processes. In late 2015, during a global summit of the Open Government Partnership (OGP)—of which the United States is a founding member—NDI also signed an MOU with the Pan African Parliament focusing on cooperation \"on a broad range of issues, including women's and youth participation, good governance, rule of law and other areas of common interest.\" Both programs are supported by the U.S. National Endowment for Democracy (NED), which receives a direct annual congressional appropriation . The Pan African Parliament also participates in the OGP's Open Data Group.\nOther areas of cooperation, administered mostly by USAID, center on development goals, such as AU efforts to reduce maternal mortality; to support the Comprehensive Africa Agriculture Development Program (CAADP); to increase intra-African trade and regional integration efforts; and to advance AU climate change adaptation efforts. In 2013 USAID and the AU also agreed to jointly pursue geothermal energy development in East Africa. Much of this kind of U.S. sectoral aid is funded through various bilateral, sectoral, or regional programs, and is often undertaken jointly with other donors. Other aid helps the RECs implement their programs, which are often linked to overarching AU policies or programs. U.S. and AU officials also periodically engage in dialogue over various issues, such as peace and security capacity building, criminal justice, and political crises. The United States, along with other donors, also supported the AU's recently-established African Centre for Disease Control and Prevention (African CDC).",
"According to the Obama Administration's FY2017 State Department foreign aid Congressional Budget Justification (CBJ), current aid to the AU \"focuses on strengthening diplomatic and nonmilitary approaches to advocacy for implementation, policy harmonization and coordination, strategic communication for political engagement, and resource mobilization and partnership.\" A key goal is to develop AU public diplomacy tools and strategic communication capacities to \"drive reform across African countries and help prevent, manage, and resolve conflict and accelerate investment and improved social outcomes.\"\nThe outgoing Administration's planned FY2017 U.S. assistance would build on current programs. A core target in FY2017 would be support for the AU 2014-2017 Strategic Plan \"in areas of mutual interest with the United States\" and with respect to strengthening future prospective AU leadership. Specific targets of this proposed aid include staffing and technical assistance for\nAUC departments implementing or advocating for activities that foster human rights, youth empowerment, economic governance, and the reduction of illicit activities. AU efforts that focus on political consensus building and AU-donor cooperation. AUC-private sector and -civil society collaboration focusing on advancing the rights of youth, women, and the private sector in AU member states, and AU efforts to boost youth employment.\nThe request also seeks to maintain the deployment of a USAU-based rule of law adviser to support the AU Department of Political Affairs (DPA) and Office of the Legal Counsel.\nWhether Congress and the incoming Trump Administration may pursue a similar or different approach to providing aid to the AU in FY2017—or potentially cut it in whole or in part—remains to be seen. At present, the current continuing resolution ( P.L. 114-254 ) generally extends into FY2017 foreign aid funding at existing FY2016 levels, albeit at a lower rescission rate.",
"The AU is a multifaceted organization engaged in ambitious development and capacity-building efforts across a wide range of policy areas. Its capacity to realize its stated goals, however, has historically been limited by political tensions among African leaders, insufficient member state funding, and, often, technical or institutional weaknesses. While the AU has taken a number of steps to address these challenges, whether it will become a more effective institution remains to be seen. Future AU Commission leadership changes, including one expected in early 2017, could reshape the organization's goals and priorities. The AU's overall policy objectives, however, are collectively set by the AU member states' leaders, and are unlikely to fundamentally shift in the short to medium term.\nFor the United States, there is arguably much potential scope for expanded cooperation with the AU, both with respect to security challenges—historically the most resource-intensive area of cooperation—and broader political and development goals. The AU may, in many cases, offer the United States an effective partner—and one that can uniquely work at the regional level—in mutually beneficial efforts to spur greater trade, investment, and economic integration and pursue socioeconomic development goals, among others. Some policymakers may also view U.S.-AU engagement as a forum for pressing African countries to take on a greater role in shouldering the burden for security and stability in the region and, more broadly, for promoting \"African solutions to African problems.\" Some may also see the AU as a key interlocutor through which the United States can advance its own national interests and policy objectives—and counter trends to which U.S. decisionmakers may object.\nAt the same time, AU bureaucracy and the influence of heavyweight member states, whose policy priorities have often been at odds with U.S. preferences, are likely to continue to hinder the AU's effectiveness as a U.S. partner. The United States is therefore likely to continue to direct the majority of its aid and diplomacy through bilateral and sub-regional channels. Whether the Trump Administration and the 115 th Congress may make such assumptions, and whether and how they may pursue expanded U.S.-AU engagement—or not, in light of countervailing U.S. interests and resource constraints—has yet to be determined.",
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"question": [
"How have U.S. relations with the African Union been over the past decade?",
"What is the focus of the U.S. - AU cooperation?",
"What are the other areas of U.S. - AU cooperation?",
"What level is the U.S. aid in the AU Commission?",
"Why did President George W. Bush recognize the AU as an international organization in 2005?",
"How did the establishment of the relationship between the US and the AU happen?",
"What happened when Obama met with the AUC Chairperson?",
"How has the recent state of the African Union been addressed?",
"Why was the AU established?",
"How does the AU promote continental economic integration and socioeconomic development?",
"What are the goals of the AU?",
"What are the goals of Dr. Nkosazana Dlamini-Zuma?",
"Why was Dlamini-Zuma's tenure extended?",
"What is the purpose of imposing a 0.2% levy on imports into Africa?",
"What other crises are they addressing?",
"How else as AQ effectiveness been inhibited?",
"Who is in control of the AU decisionmaking?",
"How are the decisions overseen?",
"How are other institutions included in the AU?",
"How is the AU addressing violations of international human rights?"
],
"summary": [
"U.S. relations with the African Union (AU), an intergovernmental organization to which all African countries except Morocco belong, have strengthened over the past decade.",
"U.S.-AU cooperation has traditionally focused on peace operations and conflict prevention and mitigation. U.S. aid for AU democracy-strengthening initiatives is another key focus of engagement.",
"Other areas of cooperation include economic development, health, governance, peace and security capacity building, and criminal justice.",
"Direct U.S. aid to the AU Commission (AUC, the organization's secretariat), which oversees AU program activity, is moderate; most U.S. aid in support of AU goals is provided on a bilateral basis or sub-regional basis. Consequently, such aid may not always be accounted for in analyses of U.S. support for the AU.",
"President George W. Bush formally recognized the AU as an international organization in 2005, and a U.S. mission to the AU was established in 2006, making the United States the first non-African country to have an accredited diplomatic mission to the AU.",
"In 2007, the first AU ambassador to the United States was accredited. In 2010, an agreement on U.S. aid for the AU was signed and in 2013, the AU and the United States established annual partnership dialogues and extended the 2010 aid agreement.",
"Later in 2013, President Obama met with the AUC Chairperson, marking the first exchange between an AUC chair and a U.S. president.",
"In 2015, President Obama addressed the African Union at its headquarters in Addis Ababa, Ethiopia, becoming the first U.S. president to do so. How the Trump Administration and the 115th Congress may view and potentially engage with the AU has yet to be determined.",
"The AU was established in 2002 as the successor to the now-defunct Organization of African Unity (OAU).",
"The aim of the AU is to promote continental economic integration and socioeconomic development through shared political and economic institutions and the planned creation of a common African market.",
"Other key AU goals include greater political and economic unity, peace and security, and stability within Africa; advocacy of common African positions in international forums; strengthened democratic governance and rule of law; respect for human rights; and gender equality and social justice, among others.",
"Her priorities have centered on conflict resolution, support for transitional aid in post-conflict countries, AU monitoring of African elections, and efforts to boost economic growth and increase AU finance resources, among other goals.",
"In July 2016, Dlamini-Zuma's tenure was extended until January 2017 after the AU Assembly (comprising heads of state and government) failed to agree on a successor.",
"The Assembly also decided in July 2016 to impose a 0.2% levy on imports into Africa to fund AU programs and AU-led peacekeeping missions, to facilitate the intra-regional movement of persons through the expanded use of AU passports, and to speed the creation of a Continental Free Trade Area.",
"It also addressed several country-level crises. Key AU challenges include organizational, technical, and skilled personnel capacity gaps and limited financial resources.",
"Political tensions among member states, uneven commitment to AU goals and mandates across the region, and sovereignty concerns have also inhibited AU effectiveness.",
"The AU's top decisionmaking organ is an Assembly of heads of state and government.",
"Its decisions are overseen by an Executive Council, made up of AU members' foreign affairs ministers.",
"Other notable AU institutions include the Peace and Security Council (PSC), which manages the AU's efforts to prevent and resolve conflicts, and the New Partnership for Africa's Development (NEPAD) Planning and Coordinating Agency, which manages economic programs and projects.",
"The AU is also endeavoring to address violations of international human rights law through an expansion of the African Court on Human and Peoples' Rights, a nascent continental court with a mandate to protect human rights and freedoms."
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GAO_GAO-13-381
|
{
"title": [
"Background",
"SFA Advisor Team Mission and Goals Are Broadly Defined; Advisor Teams Varied in the Extent to Which Their Approaches Identified Specific Objectives and Activities Linked to Goals",
"DOD and ISAF Have Defined the Mission and Broad Goals for Advisor Teams for Various Types of ANSF Units",
"Advisor Teams Varied in the Extent to Which Their Approaches Identified Activities Based on Specific Objectives Linked to ANSF Development Goals",
"The Army and Marine Corps Have Provided the Required Number of SFA Advisor Teams While Managing Ongoing Challenges",
"The Army and Marine Corps Have Provided the Required Number of SFA Advisor Teams Based on Theater Commanders’ Requests",
"The Army and Marine Corps Used Substitution Allowances and Individual Augmentees to Address Challenges in Meeting Rank and Skill Requirements",
"The Army Is Taking Steps to Manage Large Rear Detachments That Result from SFA Advisor Team Sourcing Approaches",
"The Army and Marine Corps Have Developed Programs to Train Advisor Teams, but Teams Differed in the Extent to Which They Had Mission-Specific Information Prior to Deployment",
"The Army and Marine Corps Have Developed Predeployment Training Programs for SFA Advisor Teams",
"Advisor Teams Varied in the Extent to Which They Had Access to Information to Help Prepare for Their Specific Advising Missions Prior to Deployment",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Scope and Methodology",
"Appendix II: Comments from the Department of Defense",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"Since 2001, the United States and its NATO partners have been responsible for securing Afghanistan and leading the effort to secure, stabilize, and rebuild Afghanistan. In 2010, the United States, NATO, and other coalition partners agreed to transition lead security responsibility for Afghanistan from NATO to the Afghan government by the end of 2014. Specifically, the Afghan government and ISAF—including the United States—agreed to a transition process that emphasizes a shift in ISAF’s role from leading combat missions to advising and assisting the ANSF, resulting in ISAF shifting to a security force assistance mission. Lead security responsibility in Afghanistan is defined as responsibility and accountability for planning and conducting operations within a designated area, with ISAF support as required. At the same time, overall U.S. force levels are planned to draw down over the next year to about 34,000 with additional decisions on drawdown of remaining U.S. forces yet to be determined.\nISAF is a NATO-led mission in Afghanistan established by the United Nations Security Council in December 2001. The ISAF coalition currently consists of 28 NATO nations, including the United States, and 22 partnering nations with forces deployed across Afghanistan. ISAF is divided into six regional commands across Afghanistan, each with a specific geographic area of responsibility—North, East, South, Southwest, West, and the Kabul area (known as Regional Command–Capital). The United States leads three of these commands—East, South, and Southwest.\nIn addition to conducting security operations, ISAF forces have long been training and advising the ANSF both in training centers and at unit locations after they have been formed and fielded. For the U.S. contribution, DOD has used a variety of approaches to provide U.S. forces to carry out the advise-and-assist mission. For example, prior to 2010, the advising mission in Afghanistan was primarily conducted with transition teams. These teams did not exist as units in any of the services’ force structures and were instead comprised of company- and field-grade officers and senior non-commissioned officers who were centrally identified and individually selected based on rank and specialty. As we have previously reported, the demand for these leaders created challenges for the services because, among other things, the leaders were generally pulled from other units or commands, which then were left to perform their missions while understaffed. In part as a means of alleviating these challenges, the Army developed the concept of augmenting brigade combat teams with specialized personnel to execute the advising mission, and began deploying these augmented brigades in 2010. In early 2012, based on requests from ISAF as part of its shift to a security force assistance mission, the U.S. Army and Marine Corps began to deploy small teams of advisors with specialized capabilities, referred to as SFA advisor teams, which are located throughout Afghanistan, to work with Afghan army and police units from the headquarters to the battalion level, and advise them in areas such as command and control, intelligence, and logistics. More recently, the Army began tailoring the composition and mission of its brigade combat teams to further focus on advising efforts.\nU.S. advisor teams are under the command and control of U.S. commanders within ISAF’s regional commands.have overall responsibility for operations in their geographic area, including setting goals for the advising mission. ISAF establishes the requirements for advisor teams, including force needs, and training requirements. To meet the U.S. share of these requirements, the Army and Marine Corps are responsible for providing advisor personnel, establishing service-specific training requirements, and conducting training prior to deployment.",
"DOD and ISAF have defined the mission and broad goals for advisor teams based on the type of ANSF (e.g., army, police) and the type of unit, from the headquarters to the battalion level. Advisor teams varied in the extent to which their approaches for developing their ANSF counterparts identified activities based on specific end states, objectives, and milestones that are in support of the regional command’s broad goals.",
"The mission for advisor teams for various types of ANSF units are defined in multiple ISAF and DOD plans, directives, and orders. According to DOD documentation, SFA advisor teams provide training, advising, assisting, and development functions to prepare ANSF units to assume full security responsibility by December 31, 2014. Missions also have been defined for SFA advisor teams based on the type of ANSF unit they advise, specifically:\nAfghan National Army advisor teams are expected to advise and assist those units, act as liaisons to ISAF units, and support the operational planning and employment of the Afghan unit as part of helping to develop a self-sufficient, competent, and professional unit capable of autonomous operations.\nAfghan National Police advisor teams are expected to advise those units, act as liaisons to ISAF units, and support the operational planning and employment of the Afghan unit as part of helping to develop a self-sufficient, competent and professional unit capable of maintaining public order, security, and rule of law.\nOperational Coordination Center advisor teams are expected to advise those units, act as liaisons to ISAF units and support the development of a coherent security coordination structure.\nThe regional commands have amplified this guidance for advisor teams by providing key advising goals based on the developmental needs of the ANSF in their region. For example, Regional Command-South identified their top-five advising goals, aimed at strengthening ANSF capabilities such as logistics, countering improvised explosive devices, and medical evacuation. Regional Command-East had a similar set of top-five advising goals.",
"While ISAF and the regional commands have defined the mission and broad goals for the advisor teams, it is largely left to the teams, in coordination with the regional command and brigade commander for their area of operations, to develop their approach for working with their ANSF counterpart units. According to multi-service guidance on advising, in order to successfully exert influence, advisors have an end or goal in mind. Similarly, the Army’s Field Manual for Security Force Assistance states that, in order to be successful, advisors have an end or goal in mind and should establish objectives and milestones that support higher- command plans and can be achieved during their deployment.addition, advisor teams must balance the priorities of their commands with those of their counterpart units. Specifically, DOD officials emphasized that advisor teams need some flexibility to tailor their approaches to the respective needs of their ANSF counterpart units while still working towards regional command goals. Advisor teams we spoke with were generally familiar with the broad goals established by ISAF and regional commands, but used various approaches to develop their ANSF counterpart units, which varied in the extent to which they resulted in the identification of activities based on specific objectives or end states that were clearly linked with established goals.\nSome teams we spoke with had taken the initiative to develop structured approaches that identified objectives or end states and milestones, drawing from the regional command’s broader goals to guide their advising efforts. For example, one team stated they worked directly from the regional commander’s top-five goals, developing a planning process to identify monthly objectives and milestones for each advising area (e.g., personnel, intelligence, logistics) that support these goals, and then regularly assessing where they are in terms of progress towards the commander’s goals and in what areas they should continue to focus. Using this process, the advisor team identified a training need for an ANSF brigade related to the regional commander’s broad goal of developing the ANSF’s counter improvised explosive device capabilities and arranged for a U.S. Explosive Ordinance Disposal unit to provide this training. In another instance, a logistics advisor team identified a need for its ANSF counterpart to be capable of repairing items such as cranes and fuel distribution equipment to help achieve the regional command’s broad goal of developing general level maintenance capability. To achieve this objective, the team created a training program to develop this capability. Another team leader we spoke with stated he developed advising plans based on the regional command’s high level goals and informed by an assessment of their ANSF counterpart unit, to identify tasks and timelines to train their counterparts on basic skills such as map reading in order to improve their ability to plan and conduct operations.\nOther advisor teams we met with were familiar with the broad goals for ANSF development and had identified activities to develop their ANSF counterpart units, but used less structured approaches to guide their advising efforts. For example, advisor teams in multiple regional commands stated their approach was to rely on interactions with their ANSF counterparts to identify priorities, using this input to develop activities on an ad hoc basis. Similarly, according to a brigade commander serving as an advisor team leader, his team and other advisor teams from his brigade generally identified development activities in reaction to situations as they arose rather than as part of a longer-term, more structured approach to achieve broad goals. According to several advisor teams, while they received input from various higher headquarters, that input lacked specificity regarding end states they should be trying to achieve for their ANSF units, leading them to use less structured approaches to guide their efforts. For example, the deputy team leader of an advisor team for a high-level Afghan National Army unit with visibility over the efforts of several advisor teams for subordinate ANSF units stated that while his team was able to develop activities intended to enable his counterpart unit to operate independently, he believed that guidance from the regional command did not clearly define the overall desired end state for the ANSF, which made it difficult to determine where to focus their particular advising efforts. Similarly, officials responsible for collecting best practices and lessons learned from SFA advisor teams in one regional command said that, in talking with teams, they found a lack of direction for advisor teams from higher headquarters resulted in what they characterized as a collection of good activities conducted by individual teams over time without a synchronized approach driving towards a tangible end state. Without a more structured approach with clear linkages between objectives or end states linked to development goals for ANSF units, regional commanders cannot be assured that the activities of individual advisor teams are in fact making progress toward established goals. Moreover, having such an approach would help with continuity of effort from one advisor team to the next, since advisor teams typically deploy for 9 months.",
"The Army and Marine Corps have provided the required number of SFA advisor teams to Afghanistan based on theater commanders’ requests. Recognizing that high ranks and skill specialties were required for advisor teams, theater commander guidance allowed for some substitutions when specific ranks or skills were unavailable, which enabled the Army and Marine Corps to provide the appropriate personnel. The Army’s use of brigades to form advisor teams has enabled them to meet requirements but has resulted in leaving large numbers of brigade personnel at their home station locations. To manage these large rear detachments, brigade leadership undertook significant planning to ensure enough stay- behind leadership existed to maintain a sufficient command structure and provide certain training and exercises.",
"In late 2011, ISAF and U.S. Forces–Afghanistan established requirements for coalition and U.S. SFA advisor teams, including specifying the number of teams required, team composition and capabilities, and assignment to ANSF units. Although the numbers of teams have changed over time, according to ISAF, the Army and Marine Corps have provided the required number of SFA advisor teams based on these requests and, as of December 2012, approximately 250 U.S. advisor teams were operating in Afghanistan. SFA advisor teams are generally comprised of 9 to 18 advisor personnel—made up of a mix of company- and field-grade officers, and senior non-commissioned officers—with specific specialties such as military intelligence, military police, and signal officers. The composition of advisor teams is tailored to match the needs of their ANSF counterpart. For example, teams at higher echelons of the ANSF (e.g., corps or provincial headquarters) have a higher rank requirement for the advisor team leader and police advisor teams include requirements for military police personnel. According to ISAF, Army, and Marine Corps officials, advisor teams are generally expected to remain with the same ANSF unit for the duration of their approximately 9-month deployments. According to DOD and ISAF officials, the requirement for advisor teams has fluctuated as additional ANSF units have been fielded, and the overall requirement for advisor teams is expected to change as the development of ANSF units progresses. For example, according to ISAF officials, SFA advisor teams currently advise down to the battalion level, but as U.S. forces draw down in Afghanistan and the capability of the ANSF increases, the U.S. advising effort could shift to a brigade-and-higher focus, which could affect the overall number and size of the teams.\nU.S. SFA advisor teams began deploying to Afghanistan in early 2012, and the Army and Marine Corps have used a variety of approaches to provide these teams.\nTo meet its requirements for the first set of advisor team deployments, the Army tasked three non-deployed brigades to form the bulk of the advisor teams using personnel from their units, with additional non- deployed units tasked to form the remaining teams. These advisor teams then deployed to Afghanistan and were attached to combat brigades already in theater. More recently, the Army shifted its sourcing approach by tailoring the composition and mission of brigades deploying to Afghanistan to further focus on the SFA mission, and began deploying these SFA brigades (SFABs) in November 2012. According to ISAF officials, SFABs include advisor teams that are primarily created using personnel from within the brigade. According to Army officials, as of January 2013, three SFABs have deployed in place of combat brigades, and at least four more U.S. brigades in Afghanistan have been identified to be replaced by SFABs. According to Army officials, the Army will continue to provide some advisor teams using personnel from non-deployed active and reserve units that will join the remaining combat brigades in Afghanistan. Additionally, planning for the remaining brigades and overall force levels in Afghanistan is ongoing and by late 2013 all deploying U.S. brigades may be SFABs.\nTo meet the initial deployment of SFA advisor teams beginning in early 2012, the Marine Corps created some teams out of personnel already deployed in Afghanistan and created additional teams using non-deployed personnel generally from the I and II Marine Expeditionary Forces, according to Marine Corps officials. For subsequent deployments of teams, the Marine Corps has created teams using non-deployed personnel from across the Marine Expeditionary Forces that then deploy to Afghanistan as formed teams.",
"The Army and Marine Corps have been able to fill SFA advisor teams, but they continue to face challenges meeting specific rank and skill requirements. In 2011, we reported on challenges the Army was experiencing providing high-ranking personnel with specialized skills for the advising mission in Afghanistan. According to Army and Marine Corps officials, meeting the rank and skills required for SFA advisor teams, including those as part of SFABs, continues to present a challenge given the limited availability of such personnel across the services. To help address these challenges, theater commanders, in coordination with the Army and Marine Corps, have outlined a set of substitution guidelines, to allow flexibility in the rank and skill requirements. For instance, specific rank requirements can generally be substituted with an individual one rank above or below the requirement. Similarly, there are guidelines for different skills and specialties that may be substituted for one another. For example, a team may have a requirement for a specific type of intelligence officer, but the substitution guidance identified other types of intelligence personnel that could be used to meet this requirement such as a counterintelligence or signals intelligence analyst. Army Forces Command officials told us that because the required number of ranks and specialties for SFA advisor teams exceeds the total number of such personnel that exist in a typical brigade, the ability to substitute certain ranks and skills with other available personnel was critical to meeting the requirement for most advisor teams and for all three of the first deploying SFABs. Army officials recognized that substitutions would need to occur both within and among brigades. According to sourcing officials and officials from one of the brigades tasked to provide the first set of advisor teams, The following are examples:\nWhile 40 majors were required to fill the specified number of teams, the brigade had only 25 majors on hand. Recognizing this, the Army’s plan called for substituting captains for majors in order to meet the requirement.\nThe requirement for certain intelligence officers exceeded that which existed in the brigade. Therefore, brigade leadership used lower ranking military intelligence officers or other officers with sufficient related experience.\nAccording to Army officials, the rank and skill requirements, as well as the reliance on substitutions, are expected to continue with the use of SFABs. As the Army and Marine Corps began to form the teams, they also worked with their force providers in order to utilize individual augmentees from active and reserve non-deployed units to help meet the rank and skill requirements for SFA advisor teams. For example, an official from a Marine Expeditionary Force responsible for providing many of the first advisor teams stated that the unit used reservists to fill over 130 advisor slots, and the Marine Corps expects to continue to use them to fill subsequent teams.",
"The Army’s sourcing approaches enabled it to meet theater requirements for SFA advisor teams, but resulted in brigades leaving large numbers of personnel at home station locations. For the first set of Army deployments, the three brigades identified to source the bulk of the teams left the majority of their personnel at home station. For example, according to brigade officials, one brigade deployed approximately 370 people to create advisor teams, leaving approximately 3,100 personnel (approximately 90 percent) behind at home station. According to Army officials, SFABs reduce the size of the rear detachments because a larger percentage of the brigade’s personnel are to be deployed, although they recognized SFABs would continue to result in large rear detachments. For example, two of the first SFABs to deploy each left roughly 2,000 personnel at home station. Because the advisor team requirement calls for high numbers of company- and field-grade officers and senior non- commissioned officers, as well as specific skill specialties, staffing the teams required the brigades to deploy a significant portion of their leadership and expertise, including the brigade commanders and many battalion, company, and platoon commanders, for the advisor mission. As a result, according to Army Forces Command officials and officials from two brigades, brigade leadership had to undertake significant planning to ensure that enough stay-behind leadership existed to maintain a sufficient command structure and the unit leadership needed to conduct certain training, such as artillery and other live-fire exercises. In order to help brigades in this planning, Army Forces Command has issued guidance for the training and employment of rear detachments during advisor team deployments, including missions the force may be assigned to, training expectations, and equipment maintenance responsibilities. For example, one brigade that deployed many of the first set of advisor teams consolidated its rear detachment into smaller numbers of more fully manned platoons to ensure appropriate leadership existed for each platoon. In addition, the brigade leadership developed a training plan for the rear detachment to maintain proficiency in critical tasks while awaiting reintegration of deployed personnel.",
"The Army and Marine Corps have developed standardized predeployment training programs for SFA advisor teams in Afghanistan, but teams varied in the extent to which they had access to mission- specific information prior to deploying that they believed would help them prepare for their specific advising missions.",
"SFA advisor teams take part in a broad set of training activities both at home station and at training centers in the months leading up to their deployment. ISAF has established minimum training requirements for SFA advisor teams from all coalition countries, including the United States. These training requirements include both individual advisor knowledge and skills, such as understanding how to work through an interpreter, and collective team knowledge and skills, such as how the advisor team will assess ANSF unit capabilities and provide force protection and sustainment. ISAF envisions that this training will be conducted using a combination of individual and team-based training. In accordance with these requirements, the Army and Marine Corps have each developed a program of instruction for predeployment training, which generally occurs in three stages.\nHome-Station Training. Home-station training includes individual and team-level combat skills training provided to all deploying forces to Afghanistan. Typically, SFA advisor teams are formed prior to the beginning of this training. Topics include combat lifesaver training, various weapons and driving qualifications, and countering improvised explosive devices. During this period, teams also begin to gather information regarding their specific advising assignment in order to conduct mission analysis, shape the next two stages of their training, and establish their initial plan for their advising missions. For example, officials at the Joint Readiness Training Center Operations Group, which conducts culminating training exercises for Army advisor teams and SFABs, told us that it is during this time that they begin to work with commanders to design their culminating training exercise.\nAdvisor-Specific Training. Advisor-specific training is focused on language, culture, counterinsurgency, and advisor skills. Army advisor teams generally receive advisor-specific training during an 8-day course provided by the 162nd Infantry Training Brigade. Marine Corps teams receive training at the Advisor Training Cells at their respective Marine Expeditionary Force home stations, as well as the Advisor Training Group at the Marine Corps Air Ground Combat Center. such as overviews of Afghan security force institutions, how to use an interpreter, and techniques for building rapport. The training also utilizes role players in practical exercises to simulate engagements with key Afghan civilian and military leaders in different situations.\nCulminating Training Exercise. This training includes situational Both the Army and Marine Corps training includes courses training exercises and a culminating training exercise that integrates ANSF role players into a simulated deployed environment in order to exercise the advisor teams’ ability to advise their ANSF counterpart units. For Army advisor teams, this exercise is incorporated into the culminating training exercise of the brigade under which they will operate in Afghanistan, when possible, and is conducted at the Joint Readiness Training Center at Fort Polk, Louisiana, or other combat training centers. These exercises include training based on the level (e.g., brigade, battalion) and type (e.g., army, police) of the ANSF unit that teams will be advising and their specific areas of responsibility in Afghanistan, individual and team proficiency assessments, and live- fire drills, such as combat patrols. Marine Corps advisor teams receive similar training at the Advisor Training Group, though this training does not include the combat unit with which they will be operating in Afghanistan.\nThe Army, Marine Corps, and ISAF have established mechanisms to gather feedback on predeployment training from advisor teams in Afghanistan in order to update and refine training for the advisor mission. Both the Army and Marine Corps centers for lessons learned have ongoing efforts in Afghanistan to collect observations and best practices for SFA advisor teams. Additionally, the 162nd Infantry Training Brigade employs liaison officers at ISAF and the regional commands, among other places, to collect lessons learned and after-action reports from advisor teams in Afghanistan, which are then incorporated into advisor training. Officials from the 162nd Infantry Training Brigade said that, based in part on this feedback, the advisor training has changed significantly since the first SFA advisor teams began going through the training in January 2012, and that the program of instruction will continue to evolve. For example, officials from two of the first SFA advisor teams told us that the advisor training was too focused on classroom instruction. Officials from the 162nd Infantry Training Brigade said that they had heard similar concerns, and later iterations of SFA advisor team training was updated to provide greater balance between classroom training and practical exercises that use cultural role players. Further, between August 2012 and October 2012, ISAF conducted a survey of U.S. and coalition nation SFA advisor team personnel on predeployment training in order to provide advisor insights to U.S. and NATO training centers and made several recommendations to improve predeployment training. For example, ISAF recommended that advisor teams contact the unit they will be replacing to fine tune their training in order to meet the challenges they will face upon deployment.",
"ISAF’s minimum training requirements direct advisor teams to conduct mission analysis prior to deployment in order to develop plans for advising their ANSF counterpart unit. Further, the Army’s Field Manual for Security Force Assistance, states that an in-depth understanding of the operational environment—including a clear understanding of the theater, population, and the foreign security forces and capabilities with which they are working—is critical to planning and conducting effective SFA. According to some advisor team officials and ISAF officials tasked with gathering lessons learned from advisor teams and identifying potential challenges, the personalities and capabilities of each ANSF unit and district are unique, and advisor teams need specific information on their ANSF counterpart unit as well as the efforts of the advisor teams currently working with the unit prior to deployment in order to be successful. In addition, some advisors stated that having specific information about the operational environment where teams will be deployed would be beneficial in determining where to place emphasis during training. For example, some advisor teams we spoke with are able to walk to their counterpart unit’s headquarters, while other teams had to travel longer distances to accompany their counterpart units. Having this type of specific information about their operating environment could be helpful for advisor teams in tailoring some of their more general combat training at home station.\nAdvisor teams varied in the extent to which they had access to information to help prepare for their specific advising missions prior to deployment. Advisor teams may gain access to this information through a variety of ways. For example, officials from the 162nd Infantry Training Brigade said that they coordinate video teleconferences between advisor teams going through advisor training and deployed advisor teams with the goal that advisor teams are able to talk to the SFA advisor team that they will replace to help the deploying team better understand its specific mission and the unit that it will be advising. Advisor teams can also utilize secure networks to gather mission-specific information. For example, much of the information on advising and general operations in Afghanistan (e.g., daily and weekly update briefs, details of the advisor teams’ interactions with ANSF units, and regional command campaign plans) is stored and shared on the Combined Enterprise Regional Information Exchange System-ISAF (CENTRIXS-I) network—a network that is widely used by U.S. and coalition forces in Afghanistan, but with limited access in the United States. Additionally, advisor teams may take part in predeployment site surveys in which commanders take staff members to theater and meet with the units they will be replacing to learn more about the mission they will support. According to the Army Field Manual for Security Force Assistance, the predeployment site survey should, among other things, provide information on the organization, leadership, and capabilities of the foreign unit that will be advised, as well as an overview of the operational area. ISAF minimum training requirements also require that advisor teams conduct predeployment site surveys as part of their SFA mission analysis and planning.\nWe found differences in the extent to which advisor teams were actually able to gain access to mission-specific information throughout their predeployment training. For example,\nWhile some SFA advisor teams told us that mission-specific information shared on CENTRIXS-I is beneficial in shaping their predeployment training and mission analysis, we found that advisor teams varied in the extent to which they were able access this system and thus the information contained therein throughout their predeployment training. Some advisor teams had access to CENTRIXS-I at home station. For example, officials from one brigade that provided SFA advisor teams said that they recognized the value of CENTRIXS-I in gathering specific information from units on the ground in order for teams to conduct their mission analysis and early planning, and proactively took steps to gain access to the network at home station early on in predeployment training, and were able to obtain access for its SFA advisor teams 5 months prior to deploying. However, other advisor teams said that they had limited or no access to this network at their home stations, thus limiting the information available to the teams to shape training, conduct mission research, and develop situational awareness before arriving in Afghanistan. Advisor teams are able to access CENTRIXS-I once they arrive at the 162nd Infantry Training Brigade and the Advisor Training Group training sites. However, teams are at these locations for a short time (i.e., less than 30 days) in the mid-to-late stages of training. Advisor teams with limited or no access to CENTRIXS-I at home station may be unable to fully leverage mission-specific information to (1) either shape their training prior to going to these locations or (2) continue to fully maximize the up-to-date information contained therein to prepare for their missions after they leave the training sites.\nAdvisor teams varied in their ability to send representatives on predeployment site surveys to Afghanistan. Unit commanders and theater commands determine the numbers of personnel that take part in the survey, taking into consideration limitations on the ability of certain locations to provide transportation, housing, and other support. According to an ISAF official, units tasked with the advising mission are encouraged to take some representatives from their advisor teams on these surveys. According to a U.S. Forces–Afghanistan official, there has been at least one recent case where a predeployment site survey team sent to Afghanistan was augmented with additional personnel in order to accommodate the need to visit multiple locations. In contrast, some advisor teams we spoke with said that they did not send representatives from their individual teams on these site surveys, which limited their ability to shape their training and their understanding of the environment in which they would be operating. For example, one advisor team said that it did not know the specifics of the operating environment when conducting home station training, such as details about security and movement, and that the opportunity to conduct a predeployment site survey would have been helpful for the team’s mission preparation. Another unit that was organized into three advisor teams reported that they did not take part in a predeployment site survey and thus faced significant challenges during their first 45 days of deployment because they were unaware that logistic support arrangements for the teams in Afghanistan had not been established.\nDOD officials acknowledged that increased information prior to deployment would benefit advisor teams, but added that resource constraints are a consideration in determining how to expand access to certain information sources. Nonetheless, without a more complete understanding of the capabilities of the ANSF counterpart units to be advised and the operating environment in which they will be advising prior to deploying, it may take advisor teams more time after deploying to maximize their impact as advisors.",
"The use of SFA advisor teams to develop and support the ANSF are a key element of the U.S. and ISAF strategy to transition lead security responsibility to Afghanistan while drawing down combat forces. By ensuring that SFA advisor teams have structured approaches with clear linkages between end states, objectives, and milestones that are in support of broad goals for ANSF units, theater commanders can enhance the ability of advisor teams to develop their ANSF counterparts. In addition, this will enable theater commanders to better gauge an ANSF unit’s progress towards their broader development goals and facilitate continuity of effort from one advisor team to the next. Lastly, by improving the availability of mission-specific information prior to deployment, the Army and the Marine Corps will ensure that SFA advisor team have the information necessary on their specific ANSF counterpart and the operational environment to better inform training. Moreover, such information would enhance the ability of advisor teams to prepare for and undertake their efforts immediately upon deployment.",
"To ensure that the activities of individual advisor teams are more clearly linked to ISAF and regional command goals for overall ANSF development, we recommend that the Secretary of Defense, in consultation with the commander of U.S. Central Command, direct theater commanders in Afghanistan to work with brigade commanders and advisor teams to identify specific end states, objectives and milestones for developing their ANSF counterparts that are in support of the broad theater goals to guide their advising efforts during their deployment.\nTo enhance the ability of SFA advisor teams to prepare for and execute their mission, we recommend that the Secretary of the Army and the Commandant of the Marine Corps take steps to improve the availability of mission-specific information during predeployment training. Such steps could include:\nExpanded access to the data and information contained in CENTRIXS-I; and, Increased opportunities, in coordination with U.S. Central Command, for advisor team leaders to participate in predeployment site surveys with the teams they are expected to replace.",
"In written comments on a draft of this report, DOD partially concurred with our recommendations. The full text of DOD’s written comments is reprinted in appendix II. DOD also provided technical comments, which we incorporated where appropriate.\nIn its comments, DOD partially concurred with our first recommendation that the Secretary of Defense, in consultation with the commander of U.S. Central Command, direct theater commanders in Afghanistan to work with brigade commanders and advisor teams to identify specific end states, objectives, and milestones for developing their ANSF counterparts that are in support of the broad theater goals to guide their advising efforts during their deployment. Also, DOD provided comments regarding the command relationships and guidance affecting the advisor teams. Specifically, DOD stated that the issue of linking advisor teams with regional commanders and the theater commander to identify specific end states, objectives, and milestones resides within the operational level and not at the strategic level with the Secretary of Defense and U.S. Central Command. The department further stated that the Commander, International Security Assistance Force (COMISAF), is the theater commander and produces the operation plans for Afghanistan, which provide the end states, objectives, and milestones for the campaign, including efforts to develop the ANSF and ministerial-level agencies. COMISAF also issues guidance for developing the ANSF and ministerial agencies to include end states, objectives, and milestones. Further, DOD noted that regional commanders receive their guidance and direction in part through the OPLANs and other guidance issued by COMISAF. The department also stated that brigade commanders, SFABs, and SFA advisor teams are operationally and/or tactically controlled by the regional commanders. DOD stated that guidance from the regional commanders for these subordinate elements should include the guidance provided by COMISAF regarding development of the ANSF. Lastly, DOD stated that individual ANSF elements advised by SFA advisor teams and SFABs have different levels of capabilities and unique circumstances involved in developing those capabilities. Therefore, DOD stated that commanders at the operational and tactical level should have sole responsibility for directing the development of the individual ANSF elements.\nWe agree that it is the responsibility of commanders, particularly regional commanders, at the operational and tactical level, to direct SFA advisor teams to develop individual ANSF elements. As we noted in our report, regional commands have overall responsibility for operations in their geographic area, including setting goals for the advising mission. We further noted that the missions for advisor teams are defined in multiple ISAF and DOD plans, directives, and orders and that the regional commands amplify this guidance by providing key advising goals based on the developmental needs of the ANSF in each region. However, we found that it is largely left to advisor teams to develop their approach for working with their ANSF counterpart units and that advisor teams varied in the extent to which their approaches identified activities based upon specific objectives linked to ANSF development goals. Therefore, we recommended that theater commanders in Afghanistan should work with brigade commanders and advisor teams to identify specific end states, objectives and milestones for developing their ANSF counterparts that are in support of the broad theater goals to guide their advising efforts during their deployment. We agree with the department’s view that directing the development of the individual ANSF elements should be the sole responsibility of commanders at the operational and tactical level. We believe that our recommendation does not conflict with this principle but rather calls for the Secretary of Defense, in consultation with the Commander of U.S. Central Command, to direct the operational commander to ensure that these actions are taken.\nRegarding our second recommendation, we recommended that the Secretary of the Army and the Commandant of the Marine Corps take steps to improve the availability of mission-specific information during predeployment training, and provided two examples of such steps for illustrative purposes. DOD commented separately on these examples. Specifically, with respect to the step calling for expanded access to the data and information contained in CENTRIXS-I, DOD concurred and noted that actions had been taken to install CENTRIXS-I kiosks at U.S bases and overseas locations and plans were underway to install additional kiosks. Also, DOD noted that while CENTRIXS-I is a specific capability, it appears that the intent of our recommendation is to expand information flow by any means available, and DOD suggested that we rephrase the first step to read: “Expand access to secure networks in order to gather data and information.” We agree that the intent of our recommendation is to expand information flow and to recognize, as noted in our report, that other information sources exist beyond CENTRIXS-I. Based on our discussions with command and advisor team personnel, CENTRIXS-I was cited as an important information source and therefore we cited it as an example in our report. We believe that, as currently worded, our recommendation provides flexibility for the department to determine a range of options for improving the availability of information to advisor teams.\nWith respect to the step calling for increased opportunities for advisor team leaders to participate in predeployment site surveys, DOD partially concurred. The department stated that advisor teams and the leadership of brigades must collaborate and use the site survey as well as the brigade’s intelligence infrastructure to support the teams in getting situational awareness. Further, DOD further noted that space and logistical constraints may limit participation in a brigade’s site survey. Given the critical nature of the SFA advisor team mission, DOD noted that team leaders should be given priority to participate in a predeployment site survey, but that a balance must be met regarding the comprehensive nature of the mission in Afghanistan. Additionally, the department stated that while the Secretary of the Army and the Commandant of the Marine Corps can explore timing opportunities for advisor team leaders to participate in predeployment site surveys, the Afghanistan theater of operations has responsibility for ultimate approval for a site-survey visit request. As a result, the department recommended that we rephrase the second step to include the wording \"in coordination with U.S. Central Command.” We agree that various factors can affect the composition of the personnel participating in the site surveys and that the theater of operations has responsibility to approve visit requests. Our report specifically notes that unit commanders and theater commands determine the numbers of personnel that take part in the predeployment site survey, and take into consideration limitations on the ability of certain locations to provide transportation, housing, and other support. Based on DOD’s comments, we modified the text of our second step as DOD suggested.\nWe are sending copies of this report to the appropriate congressional committees. We are also sending copies to the Secretary of Defense; the Chairman of the Joint Chiefs of Staff; the Secretary of the Army; the Commandant of the Marine Corps; and the Commander of U.S. Central Command. In addition, the report will also be available on our website at http://www.gao.gov.\nIf you or your staff have questions about this report, please contact me at (202) 512-9619 or pickups@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.",
"To determine the extent to which the Department of Defense (DOD), in conjunction with the International Security Assistance Force (ISAF), has defined Security Force Assistance (SFA) advisor team missions, goals, and objectives, we reviewed doctrine and guidance from the Army, Marine Corps, and theater commanders, including the Army Field Manual 3-07.1 Security Force Assistance and the ISAF SFA Concept and Implementation Guidance. We also examined key planning documents, such as operational plans and orders, theater commanders’ requests for forces, and select advisor team mission briefs and after-action reports. Additionally, we interviewed officials in the United States from the Office of the Secretary of Defense, Department of the Army, Headquarters Marine Corps, as well as officials in Afghanistan from ISAF, ISAF Joint Command, regional commands, and U.S. Army and Marine Corps advisor teams.\nTo determine the extent to which the Army and Marine Corps have been able to provide SFA advisor teams, we reviewed documents such as theater and combatant commanders’ requests for forces that establish personnel requirements for SFA advisor teams and Army and Marine Corps sourcing documents, including execution orders and other manning guidance. We also examined ISAF, ISAF Joint Command, and Army and Marine documents detailing the structure and composition of the SFA advisor teams, including the ISAF SFA Concept and Implementation Guidance, theater commander operational and fragmentary orders, and unit and advisor team briefings. Additionally, in addition to the officials mentioned above, we also interviewed officials in the United States from Army Forces Command, Marine Corps Central Command, 1st Marine Expeditionary Force, U.S. Central Command, officials from Army brigades that provided SFA advisor teams, and U.S. Army and Marine Corps advisor team personnel in the United States and Afghanistan.\nTo determine the extent to which the Army and Marine Corps have developed programs to train SFA advisor teams for their specific missions in Afghanistan, we reviewed theater commanders’ and service training requirements for SFA advisor teams, such as U.S. Central Command theater training requirements, ISAF minimum training requirements for SFA advisor teams, and Army and Marine Corps training requirements for SFA advisor teams. We also examined documents detailing Army and Marine Corps advisor training programs, such as concept briefs and curriculum documents from the 162nd Infantry Training Brigade, the Joint Readiness Training Center, the Marine Corps Advisor Training Group, and Marine Corps Advisor Training Cell. We also reviewed after-action reports and lessons-learned documents from SFA advisor teams.\nAdditionally, we interviewed officials from the Army 162nd Infantry Training Brigade, Joint Readiness Training Center, 1st Marine Expeditionary Force Advisor Training Cell, Marine Corps Advisor Training Group, and U.S. Army and Marine Corps advisor personnel conducting training in the United States and deployed in Afghanistan, as well as from those organizations mentioned earlier.\nWe visited or contacted officials from the following organizations in the United States and Afghanistan during our review: DOD Organizations in the United States\nOffice of the Secretary of Defense, Arlington, Virginia\nU.S. Central Command, Tampa, Florida\nU.S. Army\nDepartment of the Army Headquarters, Arlington, Virginia\nU.S. Army Forces Command, Fort Bragg, North Carolina\n162nd Infantry Training Brigade, Fort Polk, Louisiana\nJoint Readiness Training Center, Fort Polk, Louisiana\n101st Airborne Division, Fort Campbell, Kentucky\nHeadquarters, Marine Corps, Arlington, Virginia\nMarine Corps Central Command, Tampa, Florida\n1st Marine Expeditionary Force, including its Advisor Training Cell,\nAdvisor Training Group, Marine Corps Air Ground Combat Center, DOD and International Entities in Afghanistan\nNorth Atlantic Treaty Organization (NATO) entities, including the ISAF, ISAF Commander’s Advisory and Assistance Team, and ISAF Joint Command, Kabul, Afghanistan\nNATO Training Mission-Afghanistan, Kabul, Afghanistan\nRegional Command headquarters and staff:\nRegional Command–East (Commanded by 1st Infantry Division, U.S. Army), Bagram Air Field, Afghanistan\nRegional Command–South (Commanded by 3rd Infantry Division, U.S. Army), Kandahar Air Field, Afghanistan\nRegional Command–Southwest (Commanded by 1st Marine Expeditionary Force (Fwd), U.S. Marine Corps), Camp Leatherneck, Afghanistan\nU.S. Forces–Afghanistan, Kabul, Afghanistan\nU.S. Army and Marine Corps Units, Personnel, and Advisor Teams deployed in Afghanistan:\n4th Brigade, 4th Infantry Division, U.S. Army\n2nd Stryker Brigade, 2nd Infantry Division, U.S. Army\n162nd Infantry Training Brigade training liaison officers\n23 SFA advisor teams in Afghanistan, including the following:\n7 Army advisor teams in Regional Command–East\n10 Army advisor teams in Regional Command–South\n5 Marine Corps advisor teams in Regional Command–\n1 Army advisor team in Regional Command–West As part of this review, we selected an illustrative, non-generalizable sample of deployed U.S. Army and Marine Corps SFA advisor teams in Afghanistan. We worked with theater commands in Afghanistan to identify and meet with a selection of advisor teams that included both Army and Marine Corps advisor teams, advisor teams operating in different regional commands, and advisor teams assigned to various types (e.g., army, police, operational coordination center, etc.) and levels (e.g., corps, brigade, battalion, etc.) of the ANSF. Ultimately, we met with 23 deployed U.S. advisor teams in Afghanistan operating in four different regional commands’ areas of operations—18 Army teams and 5 Marine Corps teams.\nWe conducted this performance audit from June 2012 to April 2013 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.",
"",
"",
"",
"In addition to the contact named above, James A. Reynolds, Assistant Director; Virginia Chanley; Carole Coffey; Grace Coleman; Mark Dowling; Kasea Hamar; Marcus Oliver; Luis Rodriguez; and Sally Williamson made key contributions to this report.",
"Building Partner Capacity: Key Practices to Effectively Manage Department of Defense Efforts to Promote Security Cooperation. GAO-13-335T. Washington, D.C.: February 14, 2013.\nAfghanistan: Key Oversight Issues.GAO-13-218SP. Washington, D.C.: February 11, 2013.\nAfghanistan Security: Security Transition. GAO-12-598C. Washington, D.C.: September 11, 2012.\nObservations on U.S. Military Capabilities to Support Transition of Lead Security Responsibility to Afghan National Security Forces. GAO-12-734C. Washington, D.C.: August 3, 2012.\nAfghanistan Security: Long-standing Challenges May Affect Progress and Sustainment of Afghan National Security Forces. GAO-12-951T. Washington, D.C.: July 24, 2012.\nInterim Results on U.S.-NATO Efforts to Transition Lead Security Responsibility to Afghan Forces. GAO-12-607C. Washington, D.C.: May 18, 2012.\nSecurity Force Assistance: Additional Actions Needed to Guide Geographic Combatant Command and Service Efforts. GAO-12-556. Washington, D.C.: May 10, 2012.\nIraq and Afghanistan: Actions Needed to Enhance the Ability of Army Brigades to Support the Advising Mission. GAO-11-760. Washington, D.C.: August 2, 2011."
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{
"question": [
"How are the teams in the DOD and the Internation Security Assistance Force varied?",
"What are the qualities of the SFA and the theater commanders for success and strength?",
"Why did the structure not work for some of the teams?",
"How did the ANSF respond to the guidance?",
"How as the Army and Marine Corps fil requests for SFA advisor teams?",
"What has helped the Army and Marine Corps officials meet rank and skill requirements?",
"What is the purpose of the Army's reliance on brigades?",
"How are the large rear detachments managed?",
"How did teams vary for the Army and Marine Corps training programs?",
"Why is in-depth understanding of the operational environment and of foreign security force capabilities critical?",
"How did teams interact with the resources to access information?",
"How did the different levels of access affect the teams?",
"How was the ISAF'S mission in Afghanistan shifted?",
"What key elements did the U.S. Army and Marine Corps provide?",
"What directed GAO to review DOD's establishment and use of SFA advisor teams?",
"What did the GAO outline?"
],
"summary": [
"DOD and the International Security Assistance Force (ISAF) have defined the mission and broad goals for Security Force Assistance (SFA) advisor teams; however, teams varied in the extent to which their approaches for developing their Afghan National Security Force (ANSF) units identified activities based on specific objectives or end states that were clearly linked with established goals.",
"SFA guidance states that to be successful, advisors must have an end or goal in mind, and establish objectives that support higher-command plans. Theater commanders have outlined goals aimed at strengthening specific capabilities such as logistics, and it is largely left to the teams to then develop their approach for working with their counterparts.",
"GAO found some advisor teams had developed structured advising approaches drawing from these goals, such as identifying monthly objectives and milestones for their team. Other teams GAO met with used less structured approaches, such as relying on interactions with ANSF counterparts to identify priorities and using this input to develop activities on an ad hoc basis, rather than as part of a longer-term, more structured approach to achieve broad goals.",
"Officials from several teams stated that the guidance they received lacked specificity regarding desired end states for the development of their ANSF counterpart units. Without a more structured approach with clear linkages between end states, objectives, and milestones that are in support of broad goals for ANSF units, theater commanders cannot be assured that the advisor team activities are making progress toward these goals.",
"The Army and Marine Corps have been able to fill requests for SFA advisor teams, using various approaches such as tasking non-deployed brigades to form advisor teams or creating teams using personnel already deployed in Afghanistan.",
"According to Army and Marine Corps officials, the ability to substitute an individual at one rank above or below the request has helped the services meet rank and skill requirements.",
"The Army's reliance on brigades to provide a portion of their personnel to form advisor teams has enabled them to meet requirements but resulted in leaving large numbers of personnel at the brigades' home stations.",
"To manage these large rear detachments, brigades undertook significant planning to ensure that enough stay-behind leadership existed to maintain a sufficient command structure and provide certain training.",
"The Army and Marine Corps have developed training programs for SFA advisor teams, but teams varied in the extent to which they had specific information to help prepare them for their mission prior to deployment.",
"SFA guidance states that an in-depth understanding of the operational environment and of foreign security force capabilities is critical to planning and conducting effective SFA.",
"Advisor teams may access such information from a variety of sources such as conducting video teleconferences with the teams they will replace, using secure networks to gather information, or sending personnel on predeployment site surveys, although teams varied in the extent to which they were actually able to gain access to these sources.",
"For example, GAO found that while teams had access to a certain secure network at training sites, only some had access at home station, enabling them to shape their training and mission analysis earlier in predeployment training or after training but prior to deploying. Having limited access to this information prior to arriving in Afghanistan may result in advisor teams needing more time after deploying to maximize their impact as advisors.",
"ISAF's mission in Afghanistan has shifted from a combat role to focus more on preparing ANSF units to assume lead security responsibility by the end of 2014.",
"A key element in advising and assisting the ANSF is SFA advisor teams, provided by the U.S. Army and Marine Corps.",
"A House Armed Services Committee report accompanying its version of the Fiscal Year 2013 National Defense Authorization Act directed GAO to review DOD's establishment and use of SFA advisor teams.",
"Specifically, GAO evaluated the extent to which (1) DOD, in conjunction with ISAF, has defined SFA advisor team missions, goals, and objectives; (2) the Army and Marine Corps have been able to provide teams; and (3) the Army and Marine Corps have developed programs to train teams for their specific missions. GAO reviewed doctrine and guidance, analyzed advisor requirements, reviewed training curricula, and interviewed Army, Marine Corps, theater command, and SFA advisor team officials in the U.S. and Afghanistan."
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CRS_R40476
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{
"title": [
"",
"Introduction",
"Transfer, Disposal, and Leasing Authorities",
"Local Redevelopment Authorities (LRAs)",
"Transfers for Federal Utilization",
"DOD Components or Other Agencies",
"Public Domain Lands39",
"Transfers for Non-Federal Utilization",
"Homeless Assistance",
"Public Benefit Transfers",
"Conservation Conveyances",
"Public Auction and Negotiated Sale",
"Economic Development Conveyances (EDCs)",
"Leases",
"Leaseback",
"Non-Federal Lessee",
"Conclusion"
],
"paragraphs": [
"",
"The nation's military installations have gone through several rounds of base realignments and closures (BRAC), the process by which excess military facilities are identified and, as necessary, transferred to other federal agencies or disposed of, placing ownership in non-federal entities. Since the enactment of the Defense Base Closure and Realignment Act of 1990, as amended (Base Closure Act), transfer or disposal of former military installations has been governed by relatively consistent legal requirements.\nOn December 28, 2001, a round of base closures was authorized by Congress. The BRAC process requires the Secretary of Defense to prepare and submit a list of military installations recommended for closure or realignment to the congressional defense committees and an independent commission. The independent BRAC Commission, created by the Base Closure Act, is required to review and analyze the Department of Defense's (DOD) recommendations and submit a report to the President with findings and conclusions that accept, reject, and/or modify the recommendations. The President reviews the BRAC Commission report, and upon acceptance of the recommendations, submits it to Congress. If the President fails to submit the recommendations to Congress within the timeframe required under the Base Closure Act, the BRAC process is terminated. Upon receipt of the report from the President, Congress has the opportunity to disapprove of the recommendations through the enactment of a joint resolution. The 2005 BRAC Commission considered 190 separate DOD recommendations, a number exceeding the number of recommendations considered by all previous BRAC Commissions combined. Ultimately, the BRAC Commission recommended a total of 182 closures or realignments with an estimated savings to the taxpayer of $15 billion over 20 years. The recommendations were accepted by the President and forwarded to Congress. Congress did not disapprove of the report and, therefore, the recommendations became law on November 9, 2005.\nThe current BRAC law is similar to the original statute and retains many of the transfer authorities that were available in previous rounds. Significant amendments in 1999 and 2001 altered portions of the law's disposal authorities, including requirements related to economic development conveyances. Consequently, DOD promulgated new regulations to implement the property disposal authorities available for the 2005 round. However, in 2009, Congress amended the law as it relates to economic development conveyances requiring DOD to issue revised regulations. This report provides an overview of the transfer and disposal authorities available under the law for military installations closed during the 2005 round, and indicate how amendments to the Base Closure Act have altered the property transfer and disposal process. It also describes DOD's regulations implementing the amended Base Closure Act.",
"The transfer or disposal of federal property is primarily performed by the General Services Administration (GSA) pursuant to the Federal Property and Administrative Services Act of 1949 (FPASA). The Base Closure Act directs the Administrator of the GSA to delegate specified transfer and disposal authorities to DOD for use at BRAC installations, and DOD has, in turn, delegated this authority to the various military departments. Thus, BRAC property transfer and disposal is performed, generally, in accordance with the FPASA and the GSA regulations implementing it. In addition, the Base Closure Act authorizes DOD, with GSA approval, to supersede GSA regulations with BRAC-specific regulations.\nApart from the transfer and disposal authorities typically available for federal property, the Base Closure Act and other provisions of law authorize a variety of other conveyance mechanisms. The available authorities include: public benefit transfers, economic development conveyances (at cost and no cost), negotiated sales to state or local governments, conservation conveyances, and public sales. In some cases, the analysis and use of particular authorities must precede analysis and use of others. On the other hand, there are many transfer and disposal mechanisms that are given roughly equivalent priority; thus analysis and use of them may occur simultaneously.\nIn addition to DOD's role in making disposal and transfer determinations, the Base Closure Act also provides a substantial role for states and communities in the property redevelopment planning process. Thus, local communities can significantly affect the BRAC property transfer and disposal decisions made at the federal level. The specific roles for states and communities as well as the various transfer and disposal authorities are discussed below.",
"Pursuant to the act, an LRA is \"any entity (including an entity established by a State or local government) recognized by the Secretary of Defense as the entity responsible for developing the redevelopment plan with respect to the installation or for directing the implementation of such plan.\" DOD must prepare an environmental impact analysis under the National Environmental Policy Act (NEPA), in which it must examine all reasonable disposal alternatives and make its own disposal decisions. However, LRAs are responsible for designing a comprehensive plan for reuse of BRAC property, culminating in a redevelopment plan, which is submitted to DOD and included as part of the proposed federal action. While the redevelopment plan is not binding on DOD, it may have significant influence on its disposal decisions, and, in some instances, DOD is statutorily directed to give the plan considerable weight. Local zoning authorities and state land use regulations may also impact the disposal decisions made by DOD.\nThe Base Closure Act does not establish statutory requirements for the formation of LRAs. DOD regulations provide that the LRA should have \"broad-based membership, including, but not limited to, representatives from those jurisdictions with zoning authority over the property.\" The regulations further state that \"[g]enerally, there will be one recognized LRA per installation.\" In the event that a LRA is not recognized by DOD, or if the LRA fails to timely submit a redevelopment plan, the Secretary concerned is required to consult with the state's Governor and heads of local governments before proceeding with the disposal of the property according to applicable laws.",
"It is DOD policy to act expeditiously under the BRAC process, whether it is the closing or realigning of an installation, in order to facilitate the transfer of real property for community reuse. Prior to consideration of transfer to a non-federal entity, the property must be screened for continued federal use.",
"The first step in the property transfer process begins when the military service in possession of a BRAC property notifies other DOD components and federal agencies that property is in \"excess\" to its needs and has become available. If a DOD component or other federal agency wishes to acquire BRAC property, it must \"provide a written, firm expression of interest ... [and] explain the intended use and the corresponding requirement for the buildings and property\" within thirty days of the notice of availability, followed by an application for transfer of the property. The application must support a variety of transfer requirements, including that the property requested be better suited to the requestor's needs than its existing property or other properties and that the transfer would not create a new government program. During the federal screening, the Secretary concerned is required to keep the LRA informed of the progress and to provide contact information for federal agencies so that the LRA may be involved. DOD components and other agencies are encouraged to include the LRA, if it exists, in discussions related to the proposed use of the property. Ultimately, it is the responsibility of the transferring DOD component to review the applications and make a determination as to whether the transfer is appropriate based on several factors:\nthe requirement for additional property must be valid and appropriate; the proposed use is consistent with the highest and best use of the property; the proposed transfer will not have an adverse impact on the transfer of any remaining portion of the installation; the proposed transfer will not establish a new program or substantially increase the level of a component's or agency's existing programs; the application offers fair market value for the property, unless waived; the proposed transfer addresses applicable environmental responsibilities to the satisfaction of the Secretary concerned; and the proposed transfer is in the best interest of the Government.\nIn the event multiple acceptable applications for the same piece of BRAC property are submitted, the Secretary must consider, in order:\nthe need to perform the national defense missions of the Department of Defense and the Coast Guard; the need to support the homeland defense mission; and the LRA's comments as well as other factors in the determination of highest and best use.\nIf, after consideration of the applications, a determination is made that a federal-to-federal transfer is appropriate, the transfer may occur with or without compensation. However, DOD regulations require that if the property is being transferred out of DOD, \"fair market value reimbursement to the Military Department\" be made unless the obligation is \"waived by the Office of Management and Budget and the Secretary concerned, or a public law specifically provides for a non-reimbursable transfer.\" If the federal agency receiving the property fails to provide fair market value reimbursement, the property is to be declared \"surplus\" and disposed of in accordance with applicable laws. If no DOD components or other federal agencies pursue acquisition, or if DOD denies an application for transfer, the property is determined to be surplus and the disposal process begins.",
"Simultaneous to the DOD component or other agency review process, and prior to a final determination that the BRAC property is surplus, DOD must determine whether the installation includes \"public domain lands.\" If the lands comprising the closed or realigned installation were originally withdrawn from the public domain for use as a military facility, then, in accordance with FPASA, the Department of the Interior (DOI), acting through the Bureau of Land Management (BLM), may review the property and decide whether the land is suitable for return to the public domain. If DOD decides it will not retain the property for one of its components, it issues a Notice of Intent to Relinquish. It is then the responsibility of the BLM to determine if the land is suitable to be returned to the DOI or if it should be disposed of under the Base Closure Act. Because BRAC property withdrawn from the public domain would not be listed in the notice of availability sent to DOD components and other federal agencies, is not clear whether a period for federal-to-federal transfers, as described above, would be available if BLM rejects the property.",
"",
"The Stewart B. McKinney Homeless Assistance Act which allows \"excess,\" \"surplus,\" \"unutilized,\" and \"underutilized\" federal property to be used as homeless shelters, previously applied to BRAC closures. However, the Base Closure Community Development and Homeless Assistance Act of 1994 changed the process for BRAC properties closed after October 25, 1994. The Secretary of Defense is required to publish notice of available property and to submit information on the property to the U.S. Department of Housing and Urban Development (HUD), as well as to the LRA for that particular installation. All interested parties, including representatives of the homeless, are then to submit to the LRA a notice of interest in the property. The LRA is to consider \"the interests in the use to assist the homeless of the buildings and property at the installation that are expressed in the notices submitted to the redevelopment authority ...\" in preparing its redevelopment plan. Upon completion of its plan, the LRA submits it to the Secretary of HUD and the Secretary of Defense for review.\nThe Secretary of HUD is authorized to review the plan, negotiate with the LRA for changes, and based on statutorily prescribed factors determine whether the plan is acceptable. Upon HUD approval, the base redevelopment plan, including any homeless assistance component and agreement to implement no cost homeless assistance property conveyances, is submitted to DOD. DOD is required to give the redevelopment plan's homeless assistance recommendations \"substantial deference.\" The Base Closure Community Development and Homeless Assistance Act of 1994, as originally enacted, required the Secretary of Defense to dispose of the property according to the LRA plan, including any homeless assistance designations. The substantial deference requirement, added by the Base Closure Act, appears to clarify DOD's authority to dispose of property in a manner inconsistent with the LRA redevelopment plan, as long as the required level of deference was afforded.",
"Public benefit transfers are authorized under FPASA and allow for conveyance of property at a discount or for no cost for specified public purposes. Only certain entities may acquire property through a public benefit transfer, and the categories of acceptable recipients vary according to the type of public benefit use contemplated. For instance, transfers for use in the protection of public health may be to a state, a public subdivision or instrumentality of a state, a tax-supported medical institution, or a 501(c)(3) nonprofit hospital or similar institution.\nDOD is required to inform the various agencies exercising authority over public benefit transfer programs of potentially available property and to inform the relevant LRA of any interest expressed by agencies. The LRAs are encouraged to coordinate with interested parties and make a reasonable effort to incorporate their interests within the redevelopment plan. However, there is no requirement that their interests be included in the redevelopment plan, they must only be considered by the LRA. DOD is also required, through the military departments, to conduct an official public benefit transfer screening in accordance with the Federal Property Management Regulations based on potential uses indentified in the redevelopment plan. If a public transfer is made, the transferring instrument will generally contain various binding \"terms, conditions, reservations, and restrictions\" to ensure the use of the property for the purposes for which it was transferred. The LRA is responsible for the implementation of and compliance with the legally binding terms In the event the agreement is violated and the property reverts to the LRA, the LRA is responsible for ensuring the future utilization of the property.",
"If BRAC property remains available after it has been considered for both a federal-to-federal transfer and a public benefit conveyance, DOD is authorized to transfer BRAC property via a conservation conveyance. To be eligible for a conservation conveyance the property must be suitable and desirable for conservation purposes, must have been made available for a public benefit transfer \"for a sufficient period of time,\" and must not be subject to a pending request for a public benefit transfer or for transfer to another federal agency. In general, a conservation conveyance is to be for reduced cost. The conveyance may be made to a state or qualified nonprofit entity for conservation purposes and must be subject to a reversionary clause authorizing the United States to reclaim the property should the use for conservation purposes cease. With the concurrence of the Secretary of the Interior, DOD may grant the release from a covenant restricting future conveyances, but only if fair market value for the property is paid.",
"In accordance with FPASA, DOD may dispose of BRAC property via public auction or through a negotiated sale with a single purchaser. The public auction process requires public advertising for bids under terms and conditions that permit \"full and free competition consistent with the value and nature of the property involved.\" If adequate bids are received and disposal is in the public interest, the bid most advantageous to the federal government is to be accepted. A negotiated sale is permissible when: (1) it is necessary in the public interest; (2) the public health, safety, or national security will be promoted by particular disposal of personal property; (3) a public exigency makes an auction unacceptable; (4) a public auction would adversely impact the national economy; (5) fair market value does not exceed $15,000; (6) a public auction has failed to produce acceptable bids; (7) the character of the property makes public auction impractical; (8) disposal is to a state, territory, or U.S. possession; or (9) negotiated sale is authorized by other law.",
"In addition to FPASA authorities, the Base Closure Act has since its enactment provided for EDCs in one form or another. Under its EDC authority, DOD may convey BRAC property to a LRA for less than fair market value. From 1994 until the 1999 and 2001 amendments to the Base Closure Act, the Secretary of Defense was authorized to \"transfer real property and personal property located at a military installation to be closed ... to the redevelopment authority ... for consideration at or below the fair market value of the property transferred or without consideration.\" The reduced or no cost conveyance was authorized when it was determined to be necessary to support economic development and when DOD could show that other transfer authorities were insufficient.\nAmendments to the Base Closure Act in 1999 and 2001 significantly altered the requirements applicable to the use of an EDC. Under Section 2905(b), the broad discretion of the Secretary of Defense to authorize reduced or no consideration economic development conveyances was replaced by arguably a more restrictive scheme. Among the changes, for installations closed after January 1, 2005, the Secretary was required to \"seek to obtain consideration in connection with any transfer ... in an amount equal to the fair market value of the property, as determined by the Secretary.\" However, transfers of property without consideration, in limited circumstances, were authorized. The law provided that: \"the transfer of property of a military installation ... may be without consideration\" only when the transferee agrees to specified terms. These terms include a requirement that the recipient LRA use the proceeds from certain future sales or leases of the acquired property to support economic redevelopment at the former installation and accept control of the property \"within a reasonable time after the date of the property disposal record of decision.\"\nHowever, in 2009, noting that many \"negotiations between the Department of Defense and local redevelopment authorities ... over the value of property to be disposed under an economic development conveyance (EDC) have stalled over the past 2 years due to difficulties in the nation's financial markets, the deterioration of local economic conditions, and the potential of legislative changes,\" Congress further amended the Base Closure Act with respect to utilization of a no cost EDC. The requirement that the Secretary seek consideration in an amount equal to the fair market value of the property has been removed. The law now allows that the transfer of property \"may be for consideration at or below the estimated fair market value or without consideration.\" The determination of what consideration is to be received, if any, \"may account for the economic conditions of the affected community and the estimated costs to redevelop the property.\" The Secretary is authorized to accept as consideration: a share of the revenues the LRA receives from the property; goods and services; real property and improvements; or other consideration the Secretary considers appropriate. The amendment does not change the requirement that the LRA use proceeds from the acquired property to support economic redevelopment.\nThe LRA may apply for an EDC after completion of its redevelopment plan. An application must be submitted consistent with a schedule devised by the Secretary of the transferring DOD component. The Secretary concerned, when practicable, provides a preliminary determination within 30 days of receipt as to whether the Military Department can accept the application for negotiation of terms and conditions. The LRA application shall include a \"description of how the EDC will contribute to short- and long-term job generation on the installation\" and provide a \"description of the economic impact of closure or realignment on the local community.\" Further, the application shall contain a statement \"describing why an EDC will more effectively enable achievement of the job generation objectives of the redevelopment plan regarding the parcel requested for conveyance than other federal real property disposal authorities.\" The transferring Secretary is required to evaluate the application and its proposed terms and conditions in accordance with a series of prescribed factors, including the economic effects on the community of the proposed EDC, the interests and concerns of other federal agencies, and the economic benefit to the United States. The regulations addressing an EDC without consideration if the LRA agrees that \"proceeds from any sale or lease of the property ... during at least the first seven years ... [following transfer] shall be used to support economic redevelopment.... \" do not appear to be in conflict with the amended law. The authorized uses to support economic redevelopment, unchanged by the 2009 amendment, are:\nroad construction; transportation management facilities; storm and sanitary sewer construction; police and fire protection facilities and other public facilities; utility construction; building rehabilitation; historic property preservation; pollution prevention equipment or facilities; demolition; disposal of hazardous materials generated by demolition; landscaping, grading, and other site or public improvements; and planning for or the marketing of the development and reuse of the installation.\nIf the LRA does not utilize the funds in support of economic redevelopment, DOD is authorized under the Base Closure Act to recoup the portion of the proceeds received by the LRA in an amount it deems appropriate.",
"In addition to the final conveyance of property contemplated by the Base Closure Act, federal law authorizes the leasing of BRAC property to both federal and non-federal lessees.",
"The law and regulations authorize what has been referred to as a \"leaseback,\" an arrangement wherein the transferring Secretary conveys property to a LRA and the LRA agrees to lease the property to a federal agency. Under the regulations, this arrangement will only be used if the agency that would lease the property agrees to the arrangement, the LRA and the agency can agree to lease terms, and the transferring Secretary determines the arrangement is in the interest of the DOD component or agency. The leases are to be for terms of no more than fifty years, subject to renewal, and cannot require rental payments.",
"While the Base Closure Act does not specifically provide for the authority to lease property to non-federal lessees, it does indicate that proceeds from leases are to be deposited into a BRAC-specific account. The authority for non-federal leases is contained in 10 U.S.C. §2667, the same statute governing the leasing of non-BRAC military property. DOD's regulations identify that the leasing of BRAC properties prior to final disposition \"may facilitate state and local economic adjustment efforts and encourage economic development, but the Secretary concerned will always concentrate on the final disposition of real and personal property.\" Lessees must generally pay fair market value; however, less than fair market value consideration is authorized if the Secretary finds that:\na public interest will be served as a result of the lease; and the fair market value of the lease is unobtainable or not compatible with such public benefit.\nPrior to a BRAC property being leased, the law requires DOD to consult with the Administrator of the Environmental Protection Agency (EPA) to determine whether the property is in suitable condition for leasing. In general, NEPA requires federal agencies to analyze the environmental impacts of a proposed federal action and alternatives to that action. The statute governing BRAC property leases indicates that the scope of environmental analysis required is \"limited to the environmental consequences of activities authorized under the proposed lease and the cumulative impacts of other past, present, and reasonably foreseeable future actions during the period of the proposed lease.\" However, this relief from full application of NEPA does not apply if activities authorized under the lease would:\nsignificantly affect the quality of the human environment; or irreversibly alter the environment in a way that would preclude any reasonable disposal alternative of the property concerned.\nAdditional regulatory and statutory provisions indicate that leases of BRAC property are intended to be short-term, interim measures to spur economic development pending final disposition, and therefore these leases \"make no commitment for future use of ultimate disposal.\" More specifically, the regulations indicate that lease terms may extend up to five years, including renewal options, if the lease is entered into prior to completion of the final disposal decision. After completion of the final disposal decisions, the lease term may be longer than five years. When a lease is to a LRA and is provided at below fair market value and the property is later subleased, the LRA is required to apply the proceeds to the \"protection, maintenance, repair, improvement, and costs related to the [leased] property.... \"",
"The Base Closure Act and the FPASA primarily governed the transfer and disposal process for 2005 round BRAC properties. The process first requires screening to determine if other DOD components or federal agencies have a need for the property. In the event that property is not transferred in this manner, it is deemed surplus and may be disposed of pursuant to BRAC and FPASA authorities. Compliance with these authorities generally requires an analysis of suitability for homeless assistance or a public benefit transfer. DOD is directed to take into consideration multiple factors in determining which authority to use, including consultation with LRAs and their redevelopment plans, but DOD appears to be ultimately responsible for making final determinations. Public auctions and negotiated sales are generally available, although it would appear that fair market value must generally be obtained under these authorities. EDCs are authorized as well, which may be made for no consideration, contingent upon certain conditions of transfer."
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{
"question": [
"Why do properties have to be screened?",
"What is included in \"public benefit transfers\"?",
"What situation would make it possible to dispose BRAC property?",
"What processes are authorized by the law?",
"How was the BRAC property transfer process been altered?",
"Why did the National Defense Authorization Act for Fiscal Year 2010 recently get involved with amending laws?",
"What has the report provided an overview for?",
"How has the report provided overview?"
],
"summary": [
"As a part of this process, screening of the property must be performed to determine if a homeless assistance use would be appropriate.",
"There are also a variety of \"public benefit transfers,\" under which the property may be conveyed for various specified public purposes at reduced cost.",
"It is also possible to dispose of BRAC property through the use of a public auction or negotiated sale, for which fair market value or a proxy for fair market value must generally be obtained.",
"Finally the law governing the BRAC process authorizes economic development conveyances, through which a local redevelopment authority may obtain the property for specified purposes, sometimes for no consideration.",
"The BRAC property transfer process has been altered, both legislatively and administratively, throughout the numerous authorized closure rounds.",
"Most recently, the National Defense Authorization Act for Fiscal Year 2010 (P.L. 111-84) amended the law with respect to economic development conveyances at no cost to local redevelopment authorities.",
"This report provides an overview of the various authorities available under the current law and describes the planning process for the redevelopment of BRAC properties.",
"This report provides an overview of the various authorities available under the current law and describes the planning process for the redevelopment of BRAC properties."
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GAO_GAO-15-775
|
{
"title": [
"Background",
"V2I Deployment Efforts Are in the Early Stages and Extensive U.S. Deployment May Occur over the Next Few Decades",
"DOT and Various Stakeholders Are Developing and Testing V2I Technologies through Small Test Deployments",
"DOT and Stakeholders Are Collaborating and Developing V2I Guidance for State and Local Agencies",
"Extensive Deployment of V2I Technologies May Occur over the Next Few Decades",
"A Variety of Challenges, Including Potential Spectrum Sharing, May Affect the Deployment of V2I",
"Potential Spectrum Sharing",
"Lack of State and Local Resources to Develop and Maintain V2I Systems",
"Developing Technical Standards to Ensure Interoperability of V2I Systems",
"Data Security System and Privacy Concerns",
"Human Factors",
"Liabilities",
"Extent of Benefits and Costs Are Likely to Remain Unclear until Further Deployment of V2I Technology",
"Experts Identified Potential Safety, Mobility, Operational, and Environmental Benefits to V2I Technologies, but Extent of Benefits Is Not Yet Clear",
"The Costs for V2I Are Unclear due to Limited Deployment",
"Agency Comments",
"Appendix I: Scope and Methodology",
"Appendix II: Expert Ratings of Potential Challenges Facing Deployment of Vehicle- to-Infrastructure Technologies",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact:",
"Staff Acknowledgments:"
],
"paragraphs": [
"DOT is working with the automobile industry, state and local transportation agencies, researchers, private sector stakeholders, and others to lead and fund research on connected vehicle technologies to enable safe wireless communications among vehicles, infrastructure, and travelers’ personal communications devices. Connected vehicle technologies include vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) technologies:\nV2V technologies transmit data between vehicles to enable applications that can warn drivers about potential collisions.\nSpecifically, V2V-equipped cars would emit data on their speed, position, heading, acceleration, size, brake status, and other data (referred to as the “basic safety message”) 10 times per second to the on-board equipment of surrounding vehicles, which would interpret the data and provide warnings to the driver as needed. For example, drivers may receive a forward collision warning when their vehicle is close to colliding with the vehicle in front of them. V2V technologies have a greater range of detection than existing sensor-based crash avoidance technologies available in some new vehicles. NHTSA is pursuing actions to require that vehicle manufacturers install the underlying V2V technologies that would enable V2V applications in new passenger cars and light truck vehicles, and requested comment on this issue in an August 2014 Advanced Notice of Proposed Rulemaking. We reported on V2V technologies in November 2013. Thus, we are not focusing on these technologies in this report.\nVehicle-to-infrastructure (V2I) technologies transmit data between vehicles and the road infrastructure to enable a variety of safety, mobility, and environmental applications. V2I applications are designed to avoid or mitigate vehicle crashes, particularly those crash scenarios not addressed by V2V alone, as well as provide mobility and environmental benefits. Unlike V2V, DOT is not considering mandating the deployment of V2I technologies.\nV2I applications rely on data sent between vehicles and infrastructure to provide alerts and advice to drivers. For example, the Spot Weather Impact Warning application is designed to detect unsafe weather conditions, such as ice or fog, and notify the driver if reduced speed or an alternative route is recommended (see left side of figure 1). DOT is also investigating the development of V2I mobility and environmental applications. For example, the Eco-Approach and Departure at Signalized Intersections application alerts drivers of the most eco-friendly speed for approaching and departing signalized intersections to minimize stop-and- go traffic and idling (see right side of fig. 1), and eco-lanes, combined with eco-speed harmonization, (demonstrated in the following video) would provide speed limit advice to minimize congestion and maintain consistent speeds among vehicles in dedicated lanes.\nDOT is also pursuing the development of V2I mobility applications that are designed to provide traffic signal priority to certain types of vehicles, such as emergency responders or transit vehicles. In addition, other types of V2I mobility applications could capture data from vehicles and infrastructure (for example, data on current traffic volumes and speed) and relay real-time traffic data to transportation system managers and drivers. For example, after receiving data indicating vehicles on a particular roadway were not moving, transportation system managers could adjust traffic signals in response to the conditions, or alert drivers of alternative routes via dynamic message signs located along the roadway. In addition to receiving alerts via message signs, these applications could also allow drivers to receive warnings through on-board systems or personal devices. Japan has pursued this approach through its ITS Spot V2I initiative, which uses roadside devices located along expressways to simultaneously collect data from vehicles to allow traffic managers to identify congestion, while also providing information to drivers regarding upcoming congestion and alternative routes.\nTo communicate in a connected vehicle environment, vehicles and infrastructure must be equipped with dedicated short-range communications (DSRC), a wireless technology that enables vehicles and infrastructure to transmit and receive messages over a range of about 300 meters (nearly 1,000 feet). As previously noted, V2V- equipped cars emit data on their speed, position, heading, acceleration, size, brake status, and other data (referred to as the “basic safety message”) 10 times per second to the surrounding vehicles and infrastructure. V2I-equipped infrastructure can also transmit data to vehicles, which can be used by on-board applications to issue appropriate warnings to the driver when needed. According to DOT, DSRC is considered critical for safety applications due to its low latency, high reliability, and consistent availability. In addition, DSRC also transmits in a broadcast mode, providing data to all potential users at the same time. Stakeholders and federal agencies have noted that DSRC’s ability to reliably transfer messages between infrastructure and rapidly moving vehicles is an essential component to detecting and preventing potential collisions. DSRC technology uses radiofrequency spectrum to wirelessly send and receive data. The Federal Communications Commission (FCC), which manages spectrum for nonfederal users, including commercial, private, and state and local government users, allocated 75 megahertz (MHz) of spectrum—the 5.850 to 5.925 gigahertz (GHz) band (5.9 GHz band)—for the primary purpose of improving transportation safety and adopted basic technical rules for DSRC operations. However, in response to increased demands for spectrum, FCC has requested comment on allowing other devices to “share” the 5.9 GHz band with DSRC technologies.\nV2I equipment may vary depending on the location and the type of application being used, although in general, V2I components in the connected vehicle environment include an array of roadside equipment (RSE) that transmits and receives messages with vehicles for the purpose of supporting V2I applications (see figure 2). For example, a V2I- equipped intersection would include:\nRoadside units (RSU)—a device that operates from a fixed position and transmits data to vehicles. This typically refers to a DSRC radio, which is used for safety-critical applications that cannot tolerate interruption, although DOT has noted that other technologies may be used for non-safety-critical applications.\nA traffic signal controller that generates the Signal Phase and Timing (SPaT) message, which includes the signal phase (green, yellow, and red) and the minimum and maximum allowable time remaining for the phase for each approach lane to an intersection. The controller transfers that information to the RSU, which broadcasts the message to vehicles.\nA local or state back office, private operator, or traffic management center that collects and processes aggregated data from the roads and vehicles. As previously noted, these traffic management centers may use aggregated data that is collected from vehicles (speed, location, and trajectory) and stripped of identifying information to gain insights into congestion and road conditions as well.\nCommunications links (such as fiber optic cables or wireless technologies) between roadside equipment and the local or state back office, private operator, or traffic management center. This is typically referred to as the “backhaul network.”\nSupport functions, such as underlying technologies and processes to ensure that the data being transmitted are secure.",
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"DOT, state and local transportation agencies, academic researchers, and private sector stakeholders are engaged in a number of efforts to develop and test V2I technologies and applications, as well as to develop the technology and systems that enable V2I applications. DOT’s V2I work is funded through its connected vehicle research program. DOT’s initial connected vehicle research focused on V2I technologies; however, it shifted its focus to V2V technologies because they are projected to produce the majority of connected vehicle safety benefits and they do not require the same level of infrastructure investment as V2I technologies. After conducting much of the research needed to inform its advanced notice of proposed rulemaking to require that vehicle manufacturers install V2V technologies in new passenger cars and light truck vehicles, DOT is now shifting its focus back to V2I technologies, and some of the technical work needed to develop V2V applications has also informed the development of V2I. A number of DOT agencies are involved with the development and deployment of V2I technologies. In addition, private companies have received contracts from DOT to develop the underlying concept of operations and technologies to support V2I applications, and auto manufacturers are collaborating with DOT in its efforts to develop and pilot certain V2I applications and the underlying technologies to support them. State and local transportation agencies, which will ultimately be deploying V2I technologies on their roads, have also pursued efforts to test V2I technologies in real-world settings. However, to date, only small research deployments (such as those described below) have occurred to test V2I technologies:\nThe Safety Pilot Model Deployment: DOT partnered with the University of Michigan Transportation Research Institute to collect data to help estimate the effectiveness of connected vehicle technologies and their benefits in real-world situations. The pilot was conducted in Ann Arbor, Michigan, from August 2012 to February 2014, and included roughly 2,800 V2V-equipped cars, trucks, and buses, as well as roadside V2I equipment placed at 21 intersections, three curve-warning areas, and five freeway sites. While the primary focus was on V2V technologies, the pilot also evaluated V2I technology, such as Signal Phase and Timing (SPaT) technologies. DOT officials stated that it would be releasing six reports with findings from the Safety Pilot in mid to late 2015, although these reports will primarily focus on V2V applications. As of July 2015, DOT has released one report that included an evaluation of how transit bus drivers responded to V2V and V2I warnings, and of how well the test applications performed in providing accurate warnings. The two V2I applications included were a curve speed warning and a warning that alerts the bus driver if pedestrians are in the intended path of the bus when it is turning at an intersection.\nConnected Vehicle Pooled Fund Study: A group of state transportation agencies, with support from the FHWA, established the Connected Vehicle Pooled Fund Study. The study aims to aid transportation agencies in justifying and promoting the large scale deployment of a connected vehicle environment and applications through modeling, development, engineering, and planning activities. To achieve this goal, the study funds projects that facilitate the field demonstration, deployment, and evaluation of connected vehicle infrastructure and applications. For example, the University of Arizona and the University of California at Berkeley are collaborating on a project to develop and test an intelligent traffic-signal system that could, among other things, provide traffic signal priority for emergency and transit vehicles, and allow pedestrians to request for more time to cross the street.\nCrash Avoidance Metrics Partners, LLC (CAMP): CAMP—a partnership of auto manufacturers that works to accelerate the development and implementation of crash avoidance countermeasures—established a V2I Consortium that focuses on addressing the technical issues related to V2I. In 2013, DOT awarded a cooperative agreement to CAMP, with a total potential federal share of $45 million, to develop and test V2I safety, mobility, and environmental applications, as well as the underlying technology needed to support the applications, such as security and GPS- positioning technologies. According to an FHWA official, CAMP’s current efforts include developing, testing, and validating up to five V2I safety applications, as well as a prototype for Cooperative Adaptive Cruise Control, an application that uses V2V and V2I technology to automatically maintain the speed of and space between vehicles. In addition to CAMP, automakers have established the Vehicle Infrastructure Integration Consortium, which coordinates with DOT on connected vehicle policy issues, such as interoperability of V2I technologies.\nTest Beds: DOT, state and local agencies, and universities have established connected vehicle test beds. Test beds provide environments (with equipped vehicles and V2I roadside equipment) that allow stakeholders to create, test, and refine connected vehicle technologies and applications. This includes DOT’s Southeast Michigan Test Bed, which has been in operation since 2007 to provide a real-world setting for developers to test V2I and V2V concepts, applications, technology, and security systems. In addition, state agencies and universities have established their own test beds. For example, the University Transportation Center in Virginia, in collaboration with the Virginia Department of Transportation, established the Northern Virginia Test Bed to develop and test V2I applications, some of which target specific problems—like congestion—along the I-66 corridor. DOT offers guidance on how research efforts can become DOT-affiliated test beds, with the goal of enabling test beds to share design information and lessons learned, as well as to create a common technical platform. According to DOT, there are over 70 affiliated test bed members. The deployment of connected vehicle infrastructure to date has been conducted in test beds in locations such as Arizona, California, Florida, Michigan, New York, and Virginia. Additionally, officials from some of these test beds told us they may apply to the Connected Vehicle Pilot Deployment Program later this year (see below).\nThe Connected Vehicle Pilot Deployment Program: Over the next 5 years, DOT plans to provide up to $100 million in funding for a number of pilot projects that are to design and deploy connected vehicle environments (comprised of various V2I and V2V technologies and applications) to address specific local needs related to safety, mobility, and the environment. As envisioned, there are to be multiple pilot sites with each site having different needs, purposes, and applications. The program solicitation notes that successful elements of the pilot deployments are expected to become permanent operational fixtures in the real-world setting (rather than limited to particular testing facilities), with the goal of creating a foundation for expanded and enhanced connected vehicle deployments. FHWA solicited applications for the pilot program from January through March 2015. According to DOT, the initial set of pilot deployments (Wave 1 award) is expected to begin in Fall 2015, with a second set (Wave 2 award) scheduled to begin in 2017. Pilot deployments are expected to conclude in September 2020.",
"DOT and other stakeholders have worked to provide guidance to help state and local agencies pursue V2I deployments, since it will be up to state and local transportation agencies to voluntarily deploy V2I technologies. In September 2014, FHWA issued and requested comment on draft V2I deployment guidance intended to help transportation agencies make appropriate V2I investment and implementation decisions. For example, the guidance includes information on planning deployments, federal funding that can be used for V2I equipment and operations, technical requirements for equipment and systems, and applicable regulations, among other things. FHWA is updating the guidance and creating complementary guides, best practices, and toolkits, and officials told us they expect the revised guidance to be released by September 2015. In addition, the American Association of State Highway and Transportation Officials (AASHTO), in collaboration with a number of other groups, developed the National Connected Vehicle Field Infrastructure Footprint Analysis. This report provides a variety of information and guidance for state and local agencies interested in V2I implementation, including a description of benefits; various state/local based scenarios for V2I deployments; underlying infrastructure and communications needs; timelines and activities for deployment; estimated costs and workforce requirements; and an identification of challenges that need to be addressed. AASHTO, with support the Institute of Transportation Engineers and the Intelligent Transportation Society of America, is also leading a V2I Deployment Coalition. The Coalition has several proposed objectives: support implementation of FHWA V2I deployment guidance; establish connected vehicle deployment strategies, and support standards development. According to information from the coalition and DOT, the V2I Deployment Coalition will be supported by technical teams drawn from DOT, trade associations, transportation system owners/operators, and auto manufacturers.",
"While early pilot-project deployment of V2I technologies is occurring, V2I technologies are not likely to be extensively deployed in the United States for the next few decades. According to DOT, V2I technologies will likely be slowly deployed in the United States over a 20-year period as existing infrastructure systems are replaced or upgraded. DOT has developed a connected vehicle path to deployment that includes steps such as releasing the final version of FHWA’s V2I deployment guidance for state and local transportation agencies (September 2015), and awarding and evaluating the Connected Vehicle Pilot Deployment Program projects in two phases, with the first phase of awards occurring in September 2015 and evaluation occurring in 2019, and the second phase of awards occurring in September 2017 and evaluation occurring in 2021. In addition, DOT officials noted that V2I will capitalize on V2V, and its deployment will lag behind the V2V rulemaking. NHTSA will issue a final rule specifying whether and when manufacturers will be required to install V2V technologies in new passenger cars and light trucks. In addition, FCC has not made a decision about whether spectrum used by DSRC can be shared with unlicensed devices, which could affect the time frames for V2I deployment. Even after V2I technologies and applications have been developed and evaluated through activities such as the pilot program, it will take time for state and local transportation agencies to deploy the infrastructure needed to provide V2I messages, and for drivers to purchase vehicles or equipment that can receive V2I messages. AASHTO estimated that 20 percent of signalized intersections will be V2I- capable by 2025, and 80 percent of signalized intersections would be V2I- capable by 2040. Similarly, AASHTO estimated that 90 percent of light vehicles would be V2V-equipped by 2040. However, DOT officials noted that environmental and mobility benefits can occur even without widespread market penetration and that other research has indicated certain intersections may be targeted for deployment. Similarly, in its National Connected Vehicle Field Infrastructure Footprint Analysis, AASHTO noted that early deployment of V2I technologies will likely occur at the highest-volume signalized intersections, which could potentially address 50 percent of intersection crashes. See figure 3 for a list of planned events and milestones related to DOT’s path to deployment of connected vehicle technologies.",
"According to experts and industry stakeholders we interviewed, there are a variety of challenges that may affect the deployment of V2I technologies including: (1) ensuring that possible sharing with other wireless users of the radiofrequency spectrum used by V2I communications will not adversely affect V2I technologies’ performance; (2) addressing states’ lack of resources to deploy and maintain V2I technologies; (3) developing technical standards to ensure interoperability between devices and infrastructure; (4) developing and managing a data security system and addressing public perceptions related to privacy; (5) ensuring that drivers respond appropriately to V2I warnings; and (6) addressing the uncertainties related to potential liability issues posed by V2I. DOT is collaborating with the automotive industry and state transportation officials, among others, to identify potential solutions to these challenges.",
"As previously noted, V2I technologies depend on radiofrequency spectrum, which is a limited resource in high demand due in part to the increase in mobile broadband use. To address this issue, the current and past administrations, Congress, FCC, and others have proposed a variety of policy, economic, and technological solutions to support the growing needs of businesses and consumers for fixed and mobile broadband communications by providing access to additional spectrum. One proposed solution, introduced in response to requirements in the Middle Class Tax Relief and Job Creation Act of 2012, would allow unlicensed devices to share the 5.9 GHz band radiofrequency spectrum that had been previously set aside for the use of DSRC-based ITS applications such as V2I and V2V technologies. FCC issued a Notice of Proposed Rulemaking in February 2013 that requested comments on this proposed solution.\nDOT officials and 17 out of 21 experts we interviewed considered the proposed spectrum sharing a significant challenge to deploying V2I technologies. DSRC systems support safety applications that require the immediate transfer of data between entities (vehicle, infrastructure, or other platforms). According to DOT officials, delays in the transfer of such data due to harmful interference from unlicensed devices may jeopardize crash avoidance capabilities. Experts cited similar concerns, with one state official saying that if they deploy applications and they do not work due to harmful interference, potential users may not accept V2I. Seven experts we interviewed agreed that further testing was needed to determine if sharing would result in harmful interference to DSRC. In addition, DOT officials noted that changing to a shared 5.9 GHz band could impact current V2I research, which is based on the assumption that DSRC systems will have reliable access to the 5.9 GHz wireless spectrum.\nAccording to Japanese government officials we interviewed, Japan also considered whether to share its dedicated spectrum with unlicensed devices and decided not to allow sharing of the spectrum used for V2I in the 700 MHz band. According to officials we interviewed, Japan’s Ministry of Internal Affairs and Communications conducted a study to test interference with V2I technologies and mobile phones to determine the impact on reliability and latency in delivering safety messages. Based on these tests, the Japanese government decided not to allow sharing of the spectrum band used for V2I, because sharing could lead to delays or harmful interference with V2I messages. Japanese auto manufacturers we interviewed in Japan supported the decision of the Japanese government to keep the 700 MHz band dedicated to transportation safety uses. According to officials, if latency problems affect the receipt of safety messages, this could degrade the public’s trust, consequently slowing down acceptance of the V2I system in Japan.\nSince the Notice of Proposed Rulemaking was announced, various organizations have begun efforts to evaluate potential spectrum sharing in the 5.9 GHz band and some have expressed concerns. For example, harmful interference from unlicensed devices sharing the same band could affect the speed at which a V2I message is delivered to a driver. NTIA, which has conducted a study on the subject, identified risks associated with allowing unlicensed devices to operate in the 5.9 GHz band, and concluded that further work was needed to determine whether and how the risks identified can be mitigated. DOT also plans to evaluate the potential for unlicensed device interference with DSRC as discussed below.\nGiven the pending FCC rulemaking decision, DOT, technology firms, and car manufacturers have taken an active role pursuing solutions to spectrum sharing. Specifically, DOT’s fiscal year 2016 budget request included funds for technical analysis to determine whether DSRC can co- exist with the operation of unlicensed wireless services in the same radiofrequency band without undermining safety applications. According to DOT officials, since industry has not yet developed an unlicensed device capable of sharing the spectrum, the agency does not have a specific date for completion of this testing at this time. DOT officials noted, however, that they would work with NTIA in any spectrum-related matter to inform FCC of its testing results. According to FCC officials we spoke with, FCC is currently collecting comments and data from government agencies, industry, and other interested parties and will use this information to inform their decision. For example, since 2013, representatives from Toyota, Denso, CSR Technology, and other firms worked together as part of the Institute of Electrical and Electronics Engineers (IEEE) DSRC Tiger Team to evaluate potential options and technologies that would allow unlicensed devices to use the 5.9 GHz band without causing harmful interference to licensed devices. However, the representatives did not reach an agreement on a unified spectrum- sharing approach. Another ongoing effort from Cisco Systems, the Alliance of Automobile Manufacturers, and the Association of Global Automakers is preparing to test whether unlicensed devices using the “listen, detect and avoid” protocol would be able to share spectrum without causing harmful interference to incumbent DSRC operations. As of September 2015, FCC has not announced a date by which it will make a decision.",
"Because the deployment of V2I technologies will not be mandatory, the decision to invest in these technologies will be up to the states and localities that choose to use them as part of their broader traffic- management efforts. However, many states and localities may lack resources for funding both V2I equipment and the personnel to install, operate, and maintain the technologies. In its report on the costs, benefits, and challenges of V2I deployment by local transportation agencies, the National Cooperative Highway Research Program (NCHRP) noted that many states they interviewed said that their current state budgets are the leanest they have been in years. Furthermore, states are affected because traditional funding sources, such as the Highway Trust Fund, are eroding, and funding is further complicated by the federal government’s current financial condition and fiscal outlook. Consequently, there can be less money for state highway programs that support construction, reconstruction, and improvement of highways and bridges on eligible federal-aid highway routes, as well as for other authorized purposes. According to one stakeholder we interviewed, there have been widespread funding cuts for state DOTs, and many state DOTs must first focus on maintaining the infrastructure and equipment they already have before investing in advanced technologies. Ten experts we interviewed, including six experts from state and local transportation agencies, agreed that the lack of state and local resources will be a significant challenge to deploying V2I technologies. According to one report, without additional federal funding, deploying V2I systems would be difficult.\nEven if states decide to invest in V2I deployment, states and localities may face difficulties finding the resources necessary to operate and maintain V2I technologies. We have previously found that effectively using intelligent transportation systems, like V2I, depends on agencies’ having the staff and funding resources needed to maintain and operate the technologies. However, a recently released DOT report noted that staffing and information technology resources for maintaining V2I technologies were lacking in most agencies due to low and uncompetitive wage rates and funding constraints at the state and local government levels. Similarly, 12 experts we interviewed stated that states and localities generally lack the resources to hire and train personnel with the technical skills needed to operate and maintain V2I systems.\nAccording to FHWA’s draft guidance on V2I deployment, funds are available for the purchase and installation of V2I technologies under various Federal-aid highway programs. In addition, costs that support V2I systems, including maintenance of roadside equipment and related hardware, are eligible in the same way that other Intelligent Transportation System (ITS) equipment and programs are eligible. According to DOT, states have the authority and responsibility to determine the priority for funding V2I systems along with other competing transportation programs.\nJapan’s V2I systems, which were also voluntarily deployed, were funded in large part by the national government. According to Japan’s National Police Agency, half of the costs for traffic signals were provided by the national government. In addition, according to the National Policy Agency, the Japanese government has invested an estimated $97 million (2014 dollars) in research and development for these systems. Two of the Japanese automakers we interviewed attributed the success of the Japanese V2I system in part to the significant government involvement and financial investment. Furthermore, according to a study on international connected vehicle technologies, Japan’s nationally deployed and funded infrastructure devices allowed for industry partners to test and release connected vehicle technologies.",
"Nineteen of the 21 experts we spoke with reported that establishing technical standards is essential for all connected vehicle programs, including V2I, and will be challenging for a number of reasons. According to DOT, such standards define how systems, products, and components perform, how they can connect, and how they can exchange data to interoperate. DOT further noted that these standards are necessary for connected vehicle technologies to work on different types of vehicles and devices to ensure the integrity and security of their data transmission. As well, current standardization efforts have focused on standardizing the data elements and message sets that are transmitted between vehicles and the infrastructure. Currently, according to DOT officials, DOT and various organizations have worked with the Society for Automotive Engineers (SAE) International to standardize the message sets and associated performance requirements for DSRC (SAE J2735 and J2945), which support a wide variety of V2V and V2I applications. DOT, SAE International, and engineers from auto manufacturers, V2I suppliers, technology firms, and other firms meet to develop high-quality, safe, and cost-effective standards for connected vehicle devices and technologies, according to an expert from a leading industry organization specializing in setting connected vehicle technical standards. This expert also noted that developing consensus around what standards should be instituted could be difficult given the different interests (political, economic, or industry-related) of the many stakeholders involved in developing and deploying V2I technologies. For example, the expert said that developing effective security standards required for these technologies that are also cost-effective for auto manufacturers and government organizations to implement may be difficult.\nWithout common standards, V2I technologies may not be interoperable. DOT has noted that consistent, widely applicable standards and protocols are needed to ensure V2I interoperability across devices and applications. However, ensuring interoperability with a standard set of V2I applications in each state may be particularly challenging because unlike V2V, deployment of V2I technologies will remain voluntary. Consequently, states and localities may choose to deploy a variety of different V2I technologies—or no technologies at all—based on what they deem appropriate for their transportation needs. DOT officials we interviewed recognized that a complete national deployment of V2I technologies may never occur, resulting in a patchwork deployment of different applications in localities and states, although these applications will be required to be interoperable with one another. As a result, V2I deployment may be challenged by the following limitations:\nBenefits may not be optimized: Four experts we interviewed said that having a standard set of V2I applications in each state would be beneficial for drivers because a consistent deployment of applications could potentially increase benefits.\nDevelopment of applications may be more limited: AASHTO’s National Connected Vehicle Footprint Analysis argues that the more connected vehicle infrastructure is deployed nationwide using common standards, the more likely applications will be developed to take advantage of new safety, mobility, and environmental opportunities.\nDrivers may not find the system valuable: One expert from a state agency said without a standard set of V2I applications that allows drivers to use V2I applications seamlessly as they travel from state to state, travelers may lose confidence in the usefulness of the system and choose not to use it.\nDOT and standardization organizations, such as the Society of Automotive Engineers (SAE) International, are working to develop standards to support DSRC and other V2I communications technologies. The data elements and message sets specified in the SAE standards are suitable not only for use with DSRC but also with other communications technologies such as cellular. According to DOT officials, the department is providing funding support, expert participation, and leadership in multiple standards development organizations to promote consensus on the key standards required to support nationally interoperable V2I and V2V technology deployments. Furthermore, the V2I Deployment Coalition—which includes AASHTO, the Institute of Electrical and Electronic Engineers, and the Institute of Transportation Engineers— intends to lead the effort to develop and support publishing of V2I standards, guidelines, and test specifications to support interoperability. To facilitate standardization among potential state users of V2I technologies, FHWA is currently developing deployment guidance as discussed previously. According to DOT, that guidance will include specifications to ensure interoperability and to assist state and local agencies in making appropriate investment and implementation decisions for those agencies that will deploy, operate, and maintain V2I systems.\nIn addition to developing V2I standards across the United States, five experts we interviewed mentioned the importance of international harmonization for V2I technologies. Auto manufacturer experts recognized the importance of developing standards at both a domestic and international level as cars are manufactured globally. However, this is a challenge because international standardization organizations, including those in Europe and Japan, have different verification and validation processes than the United States, according to an auto manufacturer expert. Furthermore, another expert noted that harmonization of standards is dependent on the country’s or regional government’s regulations, and since there are different views on the role of these regulations in Europe, Japan, and the United States, achieving global standards will be complex. According to DOT, the joint standardization of connected vehicle systems (V2V and V2I) is a core objective of European Union-U.S. cooperation on ITS, and U.S.-Japan staff exchanges have been invaluable in building relationships and facilitating technical exchange, thus creating a strong foundation for ongoing collaboration and research. According to DOT officials, even when identical standards are not viable across multiple countries or regions due to technical or legal differences, maximizing similarities can increase the likelihood that common hardware and software can be used in multiple markets, reducing costs and accelerating deployment. According to officials from one Japanese auto manufacturer we interviewed, developing a standard message set for V2I communications in Japan was a long and challenging process that took over 5 years of discussion among auto manufacturers.",
"According to DOT, for connected vehicle technologies to function safely, security and communications infrastructure need to enable and ensure the trustworthiness of messages between vehicles and infrastructure. The source of each message needs to be trusted and message content needs to be protected from outside interference or attacks on the system’s integrity. A DOT study we reviewed and the majority of the experts we interviewed noted that data security challenges exist and cited challenges that range from securing messages delivered to and from vehicle devices and infrastructure to managing security credentials and associated policies for accessing data and the system. Fourteen of 21 experts we interviewed cited securing data as a significant challenge to the deployment of V2I technologies. For example, experts from 5 states and one local agency that operated V2I test beds told us they were uncertain how vehicle and infrastructure data would be stored and secured for a larger deployment of V2I technologies because they have only tested V2I applications in limited, small-scale deployments. Most of these experts were also unsure whether current data security efforts could be scalable to a larger deployment. According to DOT officials, they are currently researching this area.\nDOT and industry have taken steps to develop a security framework for all connected vehicle technologies, including V2I. DOT, along with automakers from CAMP, are testing and developing the Security Credential Management System (SCMS) to ensure the basic safety messages are secure and coming from an authorized device. More than half of the experts we interviewed expressed a variety of concerns about (1) the SCMS system, including whether SCMS can ensure a trusted and secure data exchange and (2) who will ultimately manage the system. To solicit input on these issues DOT launched a Request for Information in October 2014 to obtain feedback in developing the organizational and operating structure for SCMS. In our previous work on V2V, we found that as a part of its research on the security system, DOT had identified three potential models—federal, public-private, and private. We previously found that if a federal model were pursued, according to DOT, the federal government would likely pursue a service contract that would include specific provisions to ensure adequate market access, privacy and security controls, and reporting and continuity of services. We also reported that under a public-private partnership, the security system would be jointly owned and managed by the federal government and private entities. At the time of our prior report, DOT officials stated that its legal authority and resources have led NHTSA to focus primarily on working with stakeholders to develop a viable private model, involving a privately owned and operated security-management provider.\nAccording to DOT officials, the agency is expanding the scope of its planned policy research to enable the Department to play a more active leadership role in working with V2V and V2I stakeholders to develop and prototype a private, multi-stakeholder organizational model for a V2V SCMS. Officials said that such a model would ensure organizational transparency, fair representation of stakeholders, and permit the federal government to play an ongoing advisory role. A central component of the Department’s planned policy research is the development of policies and procedures that could govern an operational SCMS, including minimum standards to ensure security and appropriately protect consumer privacy. Currently, NHTSA is reviewing comments on the management and organization for SCMS to inform its V2V Notice of Proposed Rulemaking, expected to be submitted for Office of Management and Budget review by the end of 2015. In addition, according to DOT’s Connected Vehicle Pilot Deployment Program request for proposals, participating state and local agencies will utilize SCMS as a tool to support deployment security, which will allow states, local agencies, and private sector firms an opportunity to test capabilities in a real-world setting. Ultimately, when asked about the sufficiency of SCMS, almost half of the experts we interviewed (10 of 21) indicated they were confident that a secure system for V2I could be developed.\nAccording to FHWA, a secure system is essential to appropriately protect the privacy of V2I users. Nine of the experts identified privacy as a significant challenge for the deployment of V2I technologies. For example, the public may perceive that their personal information could be exposed or their vehicle could be tracked using connected vehicle technologies. In a connected vehicle environment, various organizations—federal, state, and local agencies; academic organizations; and private sector firms—potentially may have access to data generated by V2I technologies in order to, for example, manage traffic and conduct research. DOT has taken some steps to mitigate security and privacy concerns related to V2V and V2I technologies.\nAccording to DOT officials, the safety message will be broadcast in a very limited range (approximately 300 meters) and will not contain any information that identifies a specific driver, owner or vehicle (through vehicle identification numbers or license plate or registration information). The messages transmitted by DSRC devices (such as roadside units) in support of V2V and V2I technologies also will be signed by security credentials that change on a periodic basis (currently expected to be every 5 minutes) to minimize the risk that a third party could use the messages as a basis for tracking the location or path of a specific individual or vehicle.\nAdditionally, with respect to V2I technologies, DOT officials, car manufacturers and V2I suppliers plan to incorporate privacy by design into V2I technologies. Under this approach, according to DOT, V2I data will be aggregated, and anonymized. Also NHTSA is currently in the process of conducting a V2V privacy risk assessment and intends to publish a Privacy Impact Assessment in connection with its V2V Notice of Proposed Rulemaking, which is expected to include an analysis of data collected, transmitted, stored, and disclosed by the V2V system components and other entities in relation to privacy concerns. The Department expects the V2V privacy risk research and the Privacy Impact Assessment to influence the development of policies, including security and privacy policies with regard to V2I. Furthermore, according to DOT, its V2I Deployment Coalition also plans to identify privacy and data issues at the state and county level.\nAccording to Japanese officials we interviewed from the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT), Japan took a number of steps to address the security and privacy of its V2I system. First, Japan’s Intelligent Transportation Systems Technology Enhancement Association is responsible for managing the security of their V2I systems, and developed a system that used encryption to maintain security and ensure privacy. More specifically, each vehicle participating in V2I is assigned a changing, random identification number each time the vehicle started, thus making it difficult to track the vehicle over time. MLIT officials also noted that data generated from each vehicle is not stored permanently, but rather saved for distinct time frames depending on its use. Further, MLIT officials stated that security is ensured because V2I information is protected, anonymous, non-identifiable, and not shared with outside organizations; rather, it is used solely for public safety purposes. According to the National Police Agency officials, no significant security issue has occurred with V2I technologies as of July 2015.",
"Because V2I data will initially provide alerts and warning messages to drivers, the ultimate effectiveness of these technologies, especially as it relates to safety, depends on how well drivers respond to the warning messages. In a November 2013 report on V2V technologies, we found that addressing human factors that affect how drivers will respond included (1) minimizing the risk that drivers could become too familiar with or overly reliant upon warnings over time and fail to exercise due diligence in responding to them, (2) assessing the risk that warnings could distract drivers and present new safety issues, and (3) determining what types of warnings will maximize driver response. Seven of the 21 experts we interviewed identified human factors issues as significant to V2I deployment.\nTo address these concerns, DOT is participating in a number of research efforts to determine the effects of new technologies on driver distraction. To further examine the effects on drivers using V2I applications, NHTSA has a research program in place to develop human factors principles that may be used by automobile manufacturers and suppliers as they design and deploy V2I technology and other driver-vehicle interfaces that provide warnings to drivers. In addition, DOT’s ITS-JPO is funding NHTSA and FHWA research to investigate human factors implications for V2I technologies. Furthermore, according to DOT, the Connected Vehicle Pilot Program will allow additional opportunities to review drivers’ reactions to V2I messages using cameras and driver vehicle data on speed, braking, and other metrics.",
"Eleven of the 21 experts we interviewed identified uncertainty related to potential liability in the event of a collision involving vehicles equipped with V2I technologies as a challenge. In our November 2013 report on V2V, an auto manufacturer expert said that it could be harder to determine whether fault for a collision between vehicles equipped with connected vehicle technologies lies with one of the drivers, an automobile manufacturer, the manufacturer of a device, or another party.\nAccording to DOT officials, it is unlikely that either V2I or V2V technologies will create significant liability exposure for the automotive industry, as DOT expects auto manufacturers will contractually limit their potential liability for integrated V2I and V2V applications and third-party services. However, according to DOT, V2I applications using data received from public infrastructure may create potential new liability risks to various infrastructure owners and operators—state and local governments, railroads, bridge owners, and roadway owners—because such cases often are brought against public or quasi-public entities and not against vehicle manufacturers. According to DOT, this liability will likely be the same as existing liability for traffic signals and variable message signs.",
"",
"DOT officials, stakeholders representing state officials and private sector entities, and experts we interviewed stated that the deployment of V2I technologies and applications is expected to result in a variety of benefits to users. Experts identified safety, mobility, operational, and environmental benefits as the potential benefits of V2I.\nSafety: Eleven of 21 experts identified safety as one of the primary benefits of V2I technologies. This included 6 of the 8 state and local agencies we interviewed. According to Japanese officials we interviewed, Japan has realized safety benefits from its deployment of V2I infrastructure. For example, in an effort to prevent rear-end collisions, Japan installed V2I infrastructure that detected and warned motorists of upcoming congestion on an accident-prone curve on an expressway in Tokyo. According to Japanese officials, this combined with other measures such as road marking, led to a 60-percent reduction in rear-end collisions on this curve.\nMobility: In interviews, 8 of 21 experts identified mobility as one of the primary benefits of V2I, including 6 of the 8 state and local agencies we interviewed. Officials in three states we interviewed noted that they are focusing on V2I applications that have the potential to increase mobility. These applications could allow for transportation system managers to identify and address congestion in real-time, as well as provide traffic signal priority to certain types of vehicles, such as emergency responders or transit. For example, Japanese officials estimated that as the use of electronic tolling rose to nearly 90 percent of vehicles on expressways, tollgate congestion was nearly eliminated on certain expressways.\nOperations: In interviews, 7 of 21 experts, including 4 of 8 state and local agencies, identified the potential for V2I applications to provide operational benefits or cost savings. For example, one state agency noted that using data collected from vehicles could allow the transportation managers to more easily monitor pavement conditions and identify potholes (typically a costly and resource-intensive activity). DOT and the National Cooperative Highway Research Program have also noted that the visibility and enhanced data on current traffic and road conditions provided by V2I applications would provide operational benefits to state and local transportation managers. This result, in turn, could provide safety or other benefits to drivers. For example, officials in Japan told us that by using data collected from vehicles through the ITS infrastructure, they were able to identify 160 locations in which drivers were braking suddenly. After investigating the cause, officials took steps to address safety issues at these sites (such as trimming trees that created visual obstructions) and incidents of sudden braking decreased by 70 percent and accidents involving injuries or fatalities decreased 20 percent. In addition, the Japanese government partnered with private industry to collect and analyze vehicle probe data to help the public determine which roads were passable following an earthquake.\nEnvironment: Of the experts we interviewed, 4 of 21 identified environmental benefits as a primary benefit of V2I technologies, with some noting interconnections among safety, mobility, and environmental benefits. For example, officials from two state agencies we interviewed stated that improving safety and mobility will lead to environmental benefits because there will be less stop-and-go traffic. Indeed, Japanese officials estimated that decreased tollgate congestion reduced CO2 emissions by approximately 210,000 tons each year.\nAlthough V2I applications are being developed for the purpose of providing safety, mobility, operational, and environmental benefits, the extent to which V2I benefits will be realized is currently unclear because of the limited data available and the limited deployment of V2I technologies. To date, only small research deployments have occurred to test connected vehicle technologies. However, DOT has commissioned or conducted some studies to estimate potential V2I benefits, particularly with respect to safety and the environment.\nNHTSA used existing crash data and estimated that in combination, V2V and V2I could address up to 81 percent of crashes involving unimpaired drivers. Similarly, in 2012, a study commissioned by FHWA used existing crash data and estimated the number, type, and costs of crashes that could be prevented by 12 different V2I applications. This study estimated that the 12 V2I applications would prevent 2.3-million crashes annually (representing 59 percent of single vehicle crashes and 29 percent of multi-vehicle crashes and comprising $202 billion in annual costs).\nWith respect to the environment, DOT contracted with Booz Allen Hamilton to develop an initial benefit-cost analysis for its environmental applications, with the goal of informing DOT’s future work and prioritization of certain applications. As part of the next phase of this work, Booz Allen Hamilton used models to estimate potential benefits of individual applications, as well as their benefits when used in combination with other applications.\nNCHRP estimated operational and financial benefits that V2I applications may provide to state and local governments, such as reduced costs for crash response and cleanup costs; reduced need for traveler information infrastructure; reduction of infrastructure required to monitor traffic; and lower cost of pavement condition detection. However, one of the study’s major conclusions was that the data required to quantify benefits are generally not available.\nDOT is taking some steps to evaluate the benefits of V2I applications.\nFor example, as part of its upcoming Connected Vehicle Pilot Deployment Program, pilot projects are expected to develop a performance-monitoring system, establish performance measures, and collect relevant data. Projects will also receive an independent evaluation of their projects’ costs and benefits; user acceptance and satisfaction; and lessons learned.\nIn addition, organizations researching the benefits of V2I have noted that the benefits of V2I deployments may depend on a variety of factors, including the size and location of the deployment, the number of roadside units deployed, the number of vehicles equipped, and the types of applications that are deployed. A study sponsored by the University of Michigan Transportation Research Institute noted that some V2I safety applications require a majority of vehicles to be equipped before reaching optimum effectiveness, in contrast to mobility, road weather, and operations applications, which only require a small percentage of equipped vehicles before realizing benefits. Japanese government officials, as well as representatives from a private company we interviewed in Japan, noted that in some cases, they have found it difficult to quantify benefits. However, DOT and the Ministry of Land, Infrastructure, Transport and Tourism of Japan established an Intelligent Transportation Systems (ITS) Task Force to exchange information and identify the areas for collaborative research to foster the development and deployment of ITS in both the United States and Japan. According to DOT, evaluation tools and methods are high-priority areas for the task force, and DOT has stated that a report detailing the task force’s collaborative research on evaluation tools and methods will be published in 2015. In addition, 8 of the 21 experts we interviewed noted that it can be difficult to identify benefits that are solely attributable to V2I, due to the interconnected nature of V2V and V2I technologies. However, some experts we spoke with provided some examples of how connected vehicle benefits could be measured, including: crash avoidance, reduction in fatalities, reduced congestion, and reduced travel times.",
"The costs for the deployment of a national V2I system are unclear because current cost data for V2I technology are limited due to the small number of test deployments thus far. According to DOT officials, experts, and other industry stakeholders we spoke to, there are two primary resources for estimating V2I deployment costs: AASHTO’s National Connected Vehicle Footprint Analysis (2014) and National Cooperative Highway Research Program’s (NCHRP) 03-101 Costs and Benefits of Public-Sector Deployment of Vehicle-to-Infrastructure Technologies (2013). However, the cost estimates in both reports are based on limited available data from small, research test beds. As a result, neither report contains an estimate for the total cost if V2I were to be deployed at a national level. Despite these limitations, the cost estimates in these two studies are cited by several experts and industry stakeholders, including DOT. According to DOT, these cost figures may be useful to agencies considering early deployments.\nAccording to AASHTO and NCHRP, costs of V2I deployment will likely be comprised of two types of costs. First, V2I will require non-recurring costs—the upfront, initial costs required to deploy the infrastructure. According to AASHTO, there are two primary, non-recurring cost categories associated with V2I deployments: Infrastructure deployment costs include the costs for planning, acquiring, and installing the V2I roadside equipment. State and local agencies will need to evaluate the costs for planning and design that may include mapping intersections and deciding where to deploy the DSRC radios based on traffic and safety analyses, according to AASHTO. Deployment costs will include the cost of acquiring the equipment, including the roadside unit. AASHTO estimates that the total equipment costs would be $7,450 per site, with $3,000 attributed to each roadside unit, on average. However, 4 of the experts we interviewed stated that the cost estimates for the hardware are likely to decrease over time, as the technology matures and the market becomes more competitive. The total average cost for installation of the equipment per site includes the costs of labor and inspection. In addition, deployment costs may include the cost of upgrading traffic signal controllers. AASHTO estimates that approximately two thirds of all controllers in the United States will need to be upgraded to support connected vehicle activities.\nBackhaul costs refer to the costs for establishing connectivity for communication between roadside units and back offices or traffic management centers (TMCs). As discussed, backhaul includes the fiber optic cables connecting traffic signals to the back office, as well as any sensors or relays that link to or serve these components. According to NCHRP, backhaul will be one of the biggest components of costs. In fact, three state agencies and one supplier we spoke with referred to backhaul as a factor that will affect costs for V2I deployment. Backhaul costs are also uncertain because states vary in the extent to which they have existing backhaul. According to AASHTO, some sites may only require an upgrade to their current backhaul system to support expected bandwidth requirements for connected vehicle communications. However, 40 percent of all traffic signals have either no backhaul or will require new systems, according to AASHTO. The difference in cost between tying into an existing fiber-optic backhaul and installing a new fiber-optic backhaul for the sites is significant, according to DOT. The average national cost to upgrade backhaul to a DSRC roadside site is estimated to vary from $3,000, if a site has sufficient backhaul and will only need an upgrade, to $40,000, if the V2I site requires a completely new backhaul system, according to AASHTO estimates.\nThe total potential average, non-recurring costs of deploying connected vehicle infrastructure per site, according to DOT and AASHTO, are $51,650 (see table 1).\nSecond, V2I will also require recurring costs—the costs required to operate and maintain the infrastructure. According to AASHTO, there are several types of recurring costs associated with V2I deployments, including equipment maintenance and replacement, security, and personnel costs. The amount of maintenance needed to keep roadside units running is unclear, according to 3 of the experts we interviewed, because the test bed deployments have generally not operated long enough to warrant maintenance of the equipment. However, NCHRP estimates that routine maintenance costs for roadside units would likely vary from 2 to 5 percent of the original hardware and labor costs. This includes such maintenance as realigning antennas and rebooting hardware. AASHTO also estimates that the device would need replacing every 5 to 10 years. In addition, states and localities may also need to hire new personnel or train existing staff to operate these systems. According to AASHTO, personnel costs will also depend on the size of the deployment as smaller deployments may not need dedicated personnel to complete maintenance, while large deployments may require staff dedicated to system monitoring on site or on call. Furthermore, security costs will be a recurring cost and include the costs of keeping the security credentials of the SCMS up to date and the costs to manage the security system, according to AASHTO. Given that SCMS is still being developed, cost estimates are unknown. One car manufacturer we interviewed explained that because the management of the security system is unknown, it is extremely challenging to estimate future costs. In addition, one county agency official said security costs could greatly affect the total costs for V2I deployment because the requirements and funding responsibility are not clearly defined. As part of its ANPRM, NHTSA conducted an assessment of preliminary V2V costs, including costs for the SCMS. NHTSA estimated that the SCMS costs per vehicle range from $1 to $6, with an average of $3.14. SCMS costs will increase over time due to the need to support an increasing number of vehicles with the V2V technologies, according to NHTSA.\nWhile AASHTO and NCHRP have estimated the above potential average costs for various components associated with a V2I deployment, 10 of 21 experts stated that it is difficult to determine the actual costs for a V2I deployment in a particular state or locality due to a number of factors.\nFirst, the scope of the deployment will affect the total costs of a region’s V2I deployment, according to NCHRP, because it will determine the amount of equipment needed for the system to function, including the number of roadside units. Previous test bed deployments have varied in size ranging from 1 to 2,680 DSRC roadside units. Further, the number of devices needed will be dependent on how many devices are required to enable the applications. For example, while a curve-speed-warning application may require installing equipment at a specific location, applications that aim to mitigate congestion by advising drivers of the best speed to approach an intersection may need to be installed at several intersections throughout an urban corridor. One state agency said that one factor that could affect costs is how often roadside equipment needs to be replaced in order to enable certain V2I applications. In addition, as previously mentioned, the size of the deployment will contribute to personnel costs.\nSecond, the state or locality’s deployment environment will affect its deployment costs. One state agency pointed out that everyone’s costs will be different because they will be deploying in environments with differing levels of existing infrastructure. For example, as previously noted, the region’s existing backhaul infrastructure will determine the extent of the cost for installing or upgrading the region’s system, including whether a city or state has fiber optics already installed or signal controllers need upgrading.\nLastly, the maturity of the technology will also affect cost estimates for equipment such as a DSRC radio. Estimating equipment costs is difficult at this time because the technology is still developing, according to NCHRP. Ten of the 21 experts we interviewed, including all of the state agencies, also mentioned that estimating costs is challenging because the technology is still immature. Furthermore, the reports and 4 experts we interviewed agree that the cost estimates for the hardware are likely to decrease over time, as the technology matures and the market becomes more competitive.\nAs part of the upcoming Connected Vehicle Pilot Deployment Program, DOT developed the Cost Overview for Planning Ideas and Logical Organization Tool (CO-PILOT). This tool generates high-level cost estimates for 56 V2I applications based on AASHTO’s estimations. In addition, according to DOT, the agency will work with AASHTO to develop a life-cycle cost tool that agencies can use to support V2I deployment beyond the Connected Vehicle Pilot Deployment Program. DOT officials also indicated that they plan to update the tool over time as more data are collected from the Connected Vehicle Pilot Deployment Program, and they expect the tool to be available for use by 2016. Also, as previously mentioned, FHWA is developing deployment guidance that will outline potential sources of funding for states and localities, among other things.",
"We provided a draft of this product to the Secretary of Transportation, Secretary of Commerce, and the Chairman of the FCC, for review and comment. DOT and Commerce’s NTIA both provided comments via email that were technical in nature. We incorporated these comments as appropriate. FCC did not provide comments.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. We will send copies of this report to the Secretary of Transportation, the Chairman of the Federal Communications Commission, and the Administrator of the National Telecommunications and Information Administration and appropriate congressional committees. In addition, the report will be 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) 512-2834 or wised@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.",
"To address all of our objectives, we reviewed documentation relevant to vehicle-to-infrastructure (V2I) technology research efforts of the Department of Transportation (DOT), state and local government, and automobile industry, such as DOT’s 2015 Federal Highway Administration V2I Draft Deployment Guidance and Products and AASHTO’s National Connected Vehicle Field Infrastructure Footprint Analysis, as well as documentation on completed and ongoing research. We interviewed officials from DOT’s Office of the Assistant Secretary for Research and Technology, Intelligent Transportation Systems-Joint Program Office (ITS-JPO), Federal Highway Administration (FHWA), National Highway Traffic Safety Administration (NHTSA), and the Volpe National Transportation Systems Center, about these efforts.\nFor all objectives, we developed a structured set of questions for our interviews with 21 experts who represented domestic automobile manufacturers, V2I device suppliers, state and local government, privacy experts, standardization organizations, and academic researchers with relevant expertise. The identified experts have varying degrees of expertise in the following areas related to V2I technology: the production of passenger vehicles; technology development; technology deployment; data privacy; security; state agency deployment; and legal and policy issues. Our starting point for our expert selection was a list of experts originally created in January 2013 by the National Academy of Sciences for GAO’s vehicle-to-vehicle (V2V) report. We used this list for our initial selection because V2V and V2I technologies are both connected vehicle technologies with many similarities, and many V2V stakeholders are also working on V2I. In addition to nine experts we selected from the National Academy of Sciences list, we selected an additional 12 experts based on the following factors: 1. their personal involvement in the deployment of V2I technologies; 2. recommendations from federal agencies (DOT, and the Federal Communications Commission (FCC) and associations (such as the American Association of State and Highway Transportation Officials (AASHTO); and 3. experts’ involvement in professional affiliations such as a V2I consortium or groups dedicated to these technologies or to a specific challenge affecting V2I (e.g., privacy).\nTable 2 lists the experts we selected.\nIn conducting our structured interviews, we used a standardized interview to ensure that we asked all of the experts the same questions. During these interviews we asked, among other things, for expert views on the state of development and deployment of V2I technologies (including DOT’s role in this process), the potential benefits of V2I technologies, and their potential costs. We also asked for each expert’s views on a number of defined potential challenges facing the deployment of V2I technologies, and asked the experts to rate the significance of each challenge using a three-point scale (significant challenge, moderate challenge, or slight challenge). We determined this list of potential challenges after initial interviews with DOT, industry associations, and other interest groups knowledgeable about V2I technologies. Prior to conducting the interviews, we tested the structured interview with one association to ensure our questions were worded appropriately. After conducting these structured interviews, we summarized expert responses relevant to each objective. The viewpoints gathered through our expert interviews represent the viewpoints of individuals interviewed and cannot be generalized to a broader population.\nFor the purpose of this review, state and local agency officials were considered experts because of their experience in deploying and testing V2I technologies, and experience working with the required technologies (DSRC equipment and software), decision process (funding and scheduling); personnel requirements and skill sets needed for deployment; operations and maintenance. We specifically included six officials who deployed V2I test beds in their respective states in our pool of expert interviews.\nWe also included two officials who studied V2I for several years, had taken part in the AASHTO’s Connected Vehicle group, and had applied to DOT’s prior Connected Vehicles Pilot Program (V2I test bed). We also interviewed additional officials who have contributed to the U.S. efforts to develop and deploy connected vehicle technologies—officials who we refer to as “stakeholders.” Specifically, we used these stakeholders to help us understand issues that informed our structured set of questions, but did not administer the structured question set during these stakeholder interviews. We primarily selected stakeholders based on recommendations from DOT and industry associations. However, we also included DOT as a stakeholder in the deployment of V2I technologies because it is leading federal V2I efforts.\nWe interviewed officials from 17 V2I stakeholder organizations including: 1. DOT, NHTSA 2. DOT, Office of the Assistant Secretary for Research and Technology, 3. DOT, FHWA 4. DOT, Volpe National Transportation Systems Center 5. DOT, Chief Privacy Officer 6. National Telecommunications and Information Administration (NTIA) 9. Intelligent Transportation Society of America (ITS America) 10. Crash Avoidance Metrics Partners, LLC (CAMP) 11. Institute of Electrical and Electronics Engineers (IEEE) 12. National Cooperative Highway Research Program (NCHRP) 13. Leidos, previously known as Science Applications International Corporation (SAIC) 14. Virginia Tech Transportation Institute 15. Virginia Department of Transportation 16. Minnesota Department of Transportation 17. Road Commission for Oakland County, Michigan To determine the status of development and deployment of V2I technology, we interviewed officials from DOT, including the Office of the Assistant Secretary for Research and Technology, ITS-JPO, FHWA, Volpe National Transportation Systems Center, and the NHTSA. We also interviewed officials at all seven V2I test beds located in Virginia, Michigan, Florida, Arizona, California, and New York. We conducted site visits to three test beds—the Safety Pilot in Ann Arbor, Michigan, and the test beds in Southeast Michigan and Northern Virginia. We selected the three site visit locations based on which had the most advanced technology according to DOT and state officials. At these site visits, we conducted interviews with officials from state and local transportation agencies and academic researchers to collect information on developing and deploying V2I technology. We visited FHWA’s Turner Fairbank Highway Research Center in Virginia to understand the agency’s connected vehicle research efforts. We reviewed documentation of the efforts of DOT and automobile manufacturers related to vehicle-to- infrastructure (V2I) technologies, such as the 2015 FHWA’s V2I Draft Deployment Guidance and Products and documentation on completed and ongoing research. We identified materials published in the past 4 years that were related to the terms “vehicle-to-infrastructure” and “V2I” through searches of bibliographic databases, including Transportation Research International Documentation and WorldCat. While a variety of V2I technologies exist for transit and commercial vehicles, for the purpose of this report we limited our scope to passenger vehicles since much of DOT’s connected vehicle work is focused on passenger vehicles.\nTo determine the challenges affecting the deployment of V2I technology and DOT’s existing or planned actions to address potential challenges, we reviewed FHWA’s V2I draft guidance to assist in planning for future investments and deployment of V2I systems. In addition, we interviewed officials from FCC and NTIA about challenges related to the potential for spectrum sharing in the 5.9 GHz band. We interviewed DOT’s Privacy Officer, two privacy experts, and several stakeholders to understand privacy concerns regarding the deployment of V2I technologies.\nWe collected information on anticipated benefits of these technologies through interviews with officials from DOT, automobile manufacturers, industry associations, and experts identified by National Academy of Sciences and other stakeholders, and through reviews of studies they provided. To specifically address the potential costs associated with V2I technologies, we analyzed two reports, AASHTO’s National Connected Vehicle Field Infrastructure Footprint Analysis and NCHRP’s 03-101, Cost and Benefits of Public-Sector Deployment of Vehicle-to-Infrastructure Technologies report, both of which addressed acquisition, installation, backhaul, operations, and maintenance costs. According to DOT officials and other stakeholders we interviewed, those two reports were the primary sources of information for V2I potential deployment costs estimates and actual costs. We used V2I costs estimates from the AASHTO Footprint Analysis to give examples of potential costs for deployment. To further assess the reliability of the cost estimates, in addition to our own review of the two reports, our internal economic stakeholder also independently reviewed both reports, and we subsequently interviewed representatives from AASHTO and NCHRP to verify the scope and methodology of the cost analyses performed in both reports. In addition, we discussed estimated costs and factors that affected costs for V2I investments with experts and stakeholders from federal, local, state government, academia, car manufacturers, industry associations, and V2I suppliers. We determined that the actual cost figures were reliable and suitable for the purpose of our report.\nIn addition to the above work, we selected Japan for a site visit because of its nationwide deployment and years of experience with deployment and maintenance of V2I technologies. Japan has led efforts in V2I technology development and deployment for over two decades. The country serves as an illustrative example from which to draw information on potential benefits, costs, and challenges of deploying V2I technologies in the United States. During our site visit, we interviewed Japanese government officials and auto manufacturers on similar topics that we discussed with U.S. experts, including V2I deployment efforts, benefits, costs, and challenges.\nCabinet Secretariat (IT Strategy)\nCabinet Office (Council for Science and Technology Policy)\nMinistry of Land, Infrastructure, Transport and Tourism (MLIT) o Road Bureau o Road Transport Bureau\nMinistry of Internal Affairs and Communications (MIC)\nNational Police Agency (NPA)\nMinistry of Economy, Trade and Industry (METI)\nWe conducted this performance audit from July 2014 through September 2015 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.",
"As part of our review, we conducted 21 structured interviews with individuals identified by the National Academy of Sciences and based on other factors discussed in our scope and methodology to be experts on vehicle-to-infrastructure (V2I) technologies (see table 2 in app. I for list of experts interviewed). During these interviews we asked, among other things, for each expert’s views on a number of already defined potential challenges facing the deployment of V2I technologies. The ratings provided by the experts for each of the potential challenges discussed are shown in table 3 below. To inform our discussion of the challenges facing the deployment of V2I technologies, we considered these ratings as well as experts’ responses to open-ended questions.",
"",
"",
"In addition to the contact named above, Susan Zimmerman, Assistant Director; Nelsie Alcoser; David Hooper; Crystal Huggins; Amber Keyser; Nancy Santucci; Terence Lam; Josh Ormond; Amy Rosewarne; and Elizabeth Wood made key contributions to this report."
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"question": [
"What do V2I technologies do?",
"What research is being done with V2I technologies?",
"How will DOT support V2I technologies?",
"How will V2I technologies be deployed?",
"Why are the benefits and costs of V2I technologies unclear?",
"What benefits could V2I technologies provide?",
"What costs could V2I technologies have?",
"What factors will actual costs depend on?",
"Why have crash related fatality and injury rates declines?",
"Why is DOT promoting development of V2I technologies?",
"What would V2I technologies allow?",
"What was GAO asked to review?",
"What documents did GAO review?",
"What interviews did GAO conduct?",
"How were the interviewees for the interviews chosen?"
],
"summary": [
"Vehicle-to-infrastructure (V2I) technologies allow roadside devices to communicate with vehicles and warn drivers of safety issues; however, these technologies are still developing.",
"According to the Department of Transportation (DOT), extensive deployment may occur over the next few decades. DOT, state, and local-transportation agencies; researchers; and private-sector stakeholders are developing and testing V2I technologies through test beds and pilot deployments.",
"Over the next 5 years, DOT plans to provide up to $100 million through its Connected Vehicle pilot program for projects that will deploy V2I technologies in real-world settings.",
"DOT and other stakeholders have also provided guidance to help state and local agencies pursue V2I deployments, since it will be up to these agencies to voluntarily deploy V2I technologies.",
"The full extent of V2I technologies' benefits and costs is unclear because test deployments have been limited thus far; however, DOT has supported initial research into the potential benefits and costs.",
"Experts GAO spoke to and research GAO reviewed indicate that V2I technologies could provide safety, mobility, environmental, and operational benefits, for example by: (1) alerting drivers to potential dangers, (2) allowing agencies to monitor and address congestion, and (3) providing driving and route advice.",
"V2I costs will include the initial non-recurring costs to deploy the infrastructure and the recurring costs to operate and maintain the infrastructure.",
"While some organizations have estimated the potential average costs for V2I deployments, actual costs will depend on a variety of factors, including where the technology is installed, and how much additional infrastructure is needed to support the V2I equipment.",
"Over the past two decades, automobile crash-related fatality and injury rates have declined over 34 and 40 percent respectively, due in part to improvements in automobile safety.",
"To further improve traffic safety and provide other transportation benefits, DOT is promoting the development of V2I technologies.",
"Among other things, V2I technologies would allow roadside devices and vehicles to communicate and alert drivers of potential safety issues, such as if they are about to run a red light.",
"GAO was asked to review V2I deployment.",
"GAO reviewed documentation on V2I from DOT, automobile manufacturers, industry associations, and state and local agencies.",
"In addition, GAO interviewed DOT, Federal Communication Commission (FCC), and National Telecommunications Information Administration (NTIA) officials. GAO also conducted structured interviews with 21 experts from a variety of subject areas related to V2I.",
"The experts were chosen based on recommendations from the National Academy of Sciences and other factors."
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{
"title": [
"",
"Introduction",
"Manufacturing for Commercial Space",
"Launch Vehicles",
"Spacecraft",
"Satellites",
"Employment in the U.S. Space Industry",
"Policy Issues",
"Export Controls and Commercial Satellites39",
"Spectrum Allocation, Regulation, and Demand for Satellite Services",
"Increased DOD Use of Commercial Satellites",
"Conclusion"
],
"paragraphs": [
"",
"The space industry refers to economic activities related to the manufacture and delivery of components that go into Earth's orbit or beyond. The space industry is a subset of the U.S. aerospace industry and U.S. strength in aerospace has helped to provide U.S. strength in space. Bolstered by a large research and development establishment, the commercial space industry has a manufacturing component and a services component. The focus of this report is the global commercial space manufacturing sector (launch vehicles, spacecraft, satellites, and parts and equipment). The space industry also builds space ports, ground stations, and ground equipment. Together, the space and ground infrastructure enables a much larger space services sector that includes satellite telecommunications and broadcasting services and satellite remote sensing, among many other services. The space industry, broadly defined, is an important part of the U.S. industrial and technology base.\nBecause of its economic importance and its close link to government space programs, the U.S. space manufacturing industry has historically been of great interest to Congress. This report discusses the current structure of the industry, looks at trends that may promote or inhibit space manufacturing, and examines current space manufacturing activities. It then lays out a number of federal policy issues that may affect the industry's growth.\nThe U.S. commercial space manufacturing sector is small, but the companies that manufacture commercial satellites also manufacture satellites for the U.S. government. U.S. commercial satellite manufacturing generated estimated revenues of $3.4 billion (of $5.6 billion in total U.S. satellite manufacturing revenues ) and employed 26,611 private sector workers in 2010, while the U.S. commercial launch industry generated revenues of $307 million (of $1.2 billion in total U.S. launches) and employed 49,195 private-sector workers.\nIn 2010, global revenues from satellite-enabled activities (i.e., the commercial products and services that are created using satellites) totaled $101.3 billion. Major products include direct-to-home television ($79.1 billion), satellite communications ($17.3 billion), satellite radio ($2.8 billion), consumer broadband ($1.1 billion), and Earth observation ($1.0 billion). Satellite services also generated worldwide sales of ground equipment that totaled $51.6 billion, including all of the infrastructure and technology needed to communicate with and manage satellites ($7.5 billion), as well as all of the end-user consumer equipment (satellite radios, satellite phones, satellite TV receivers and dishes, and satellite navigation equipment) ($44.1 billion). (See Figure 1 .)\nThe U.S. government is by far the largest consumer of space products and services, accounting for 23% of global spending. The commercial space sector overlaps the government (civil and military) space sector in a number of different ways. Many manufacturers sell to both commercial and government customers, making use of common systems (for instance, satellites use standard buses ), common launch vehicles, and interdependent supply chains. Many of the largest commercial aerospace companies play a major role in the space industry, and some are almost entirely dependent on government space programs for their space-related work.\nMilitary and civil (i.e., non-military government) space programs provide economies of scale and scope to companies that are federal contractors. During the post-Cold War period, numerous mergers resulted in industry consolidation, with fewer firms spanning multiple sectors. Because of the size of government space programs, some of the largest U.S. space companies, especially those engaged in launch activities, withdrew from the commercial space sector to focus nearly exclusively on government contracts that are not open to foreign competitors. Nevertheless, the international commercial launch industry has continued to develop even as some of the largest U.S. space companies ceased to compete for those launches.\nDuring the last decade, the United States increasingly offered opportunities to smaller private companies to encourage entrepreneurial approaches to space activities as a means of spurring innovation, reducing costs, and promoting commercial engagement in space manufacturing and service provision. Orbital Sciences Corporation and Space Exploration Technologies Corporation (SpaceX) are two newer American companies that have successfully competed for commercial and government contracts.\nLaunch vehicle, spacecraft, and satellite manufacturing is highly competitive internationally, with European, Russian, Chinese, Indian, and Japanese companies vying with U.S. firms for contracts to provide launch vehicles, spacecraft, and satellites to commercial customers. Some manufacturers of launch vehicles specialize in the manufacture and launch of those vehicles, while others also make spacecraft, satellites, and civil and defense aviation products, in addition to building and launching rockets. The supply chain for launch vehicles is moderately globalized, while satellites vary according to customer: military (low level of globalization), civil (moderate level of globalization), commercial (moderate to high level of globalized components).\nThe major policy issues discussed in this report are limited to those that appear to have large effects on the competitiveness of the U.S. space manufacturing sector: classification of commercial satellites as munitions subject to stringent U.S. export controls laws and regulations; domestic and international spectrum regulations that may not have kept pace with the emergence of new technologies that appear to require much greater flexibility in terms of spectrum use; and the dramatically increased use of commercial satellites for Department of Defense communications needs.\nOne major caveat regarding the statistical data used in this report needs to be mentioned. Publicly available U.S. government data for the manufacture of launch vehicles, spacecraft, satellites, and electronic components (especially search, detection, and navigation systems and instruments) are deficient in many respects. In some cases, data are suppressed because they would make it possible to identify a specific company; in others, data are aggregated to a level that makes it virtually impossible to distinguish between manufacturing for space activities, aviation, and telecommunications. Missiles, space launch equipment, and spacecraft cannot be differentiated using government data sources: for example, satellites, which are grouped with terrestrial telecommunications and broadcasting, are invisible in the data. CRS has used government data when available, but draws on reports by Futron Corporation, the Space Foundation, and others that provide estimates of the size of the global market and, in some cases, the U.S. market. Futron Corporation's data, in particular, are used by government agencies, the Government Accountability Office (GAO), and others as a basis for analyzing the space industry.",
"The space equipment industry comprises three distinct segments. Launch vehicles are used to place satellites and other spacecraft into orbit. Spacecraft and space systems are manned or unmanned vehicles that transport passengers or cargo. Satellites, with functions such as telecommunications and weather sensing, are the most common payloads aboard spacecraft. Most of the major companies manufacturing commercial space equipment compete in more than one of these sectors (see Table 1 ).",
"Commercial launch vehicles carry various payloads into space, including manned or unmanned spacecraft and commercial satellites. The demand for commercial launch vehicles is small, and is tied directly to the demand for commercial launch services. In 2010, 23 commercial launches carried a worldwide total of 31 commercial payloads and 13 noncommercial payloads. Many commercial launch vehicles are also used for, or can readily be adapted for, government purposes, both civil and military. The main driver of commercial launch activity is commercial satellites, although many government-owned satellites also are launched with the same vehicles. Some, but not all, launch vehicle manufacturers also provide launch services. A commercial customer, such as a private company wishing to place a satellite in space, may contract separately for a launch vehicle and launch services or may obtain them from the same provider.\nThe Federal Aviation Administration (FAA) defines a \"commercial\" launch as \"a launch that is internationally competed or FAA-licensed, or privately-financed launch activity.\" Although many commercial launches carry commercial payloads, some carry mixed payloads (commercial and noncommercial) or purely military or civil government payloads. Boeing Launch Services, a Boeing subsidiary, and SpaceX were the only U.S. companies to conduct commercial launches in 2010, but, under the FAA's definition, Boeing's payloads were noncommercial. In 2011, there were 84 worldwide orbital launch attempts, of which 66 were non-commercial and 18 were commercial.\nWith 18 commercial launches in 2011, Russia, with 10 commercial launches, had a 56% share of the international market, followed by Europe (4 commercial launches, 22%), China (2 commercial launches, 11%), and 2 commercial launches (11% of the commercial market in 2011) by Sea Launch AG, a company that the FAA describes as multinational: \"a Swiss-based Russian majority-owned company.\" No U.S. commercial launches occurred in 2011. Worldwide commercial launch revenues amounted to $1.9 billion in 2011, a decrease of $526 million from 2010, with Russian commercial launch revenues at $707 million, European revenues at $808 million, Chinese revenues at $140 million, and Sea Launch revenues at approximately $200 million. U.S. commercial launch revenues were $0 in 2011. U.S. companies engaged in 18 non-commercial launches that carried 28 payloads into orbit, including 10 military payloads, and 9 civil and 9 non-profit payloads. Russia conducted 31 non-commercial launches with 53 payloads.\nU.S. companies engaged in commercial launch vehicle development, production, and launch activities include Boeing, Lockheed Martin, Orbital Sciences, and Space Exploration Technologies Corporation (SpaceX). Boeing, Lockheed Martin, and their 50/50 joint venture, United Launch Alliance (ULA), are focused primarily on the government launch market. In 2010, Boeing Launch Services placed two non-commercial payloads into orbit using ULA-built Delta launch vehicles: a National Oceanic and Atmospheric Administration weather satellite that was manufactured by Boeing and an Italian radar satellite built by Thales Alenia Space. One factor that may prevent Boeing and Lockheed Martin from more aggressively pursuing commercial launch opportunities has been a heavy U.S. government launch schedule that may crowd out commercial cargos.\nIn 2011, U.S. launches were conducted by\nULA, with 11 launches for the U.S. government; United Space Alliance (a Boeing/Lockheed Martin joint venture), with three successful Space Shuttle launches; and Orbital Sciences Corporation, with four launches. Three were successful.\nOrbital is an established commercial space company that manufactures launch vehicles, spacecraft, and satellites. In 2011, it had revenues of $1.3 billion, of which 71% came from the U.S. government. According to company reports, 38% of its revenues came from the Department of Defense and intelligence agencies; 33% from the National Aeronautics and Space Administration (NASA), other civilian government agencies, and universities; and 29% from commercial and international satellite operators. The company's newest launch vehicle, the Antares (formerly Taurus II) rocket, is expected to undergo its first test in summer 2012.\nSpaceX is a privately owned company founded 10 years ago by Elon Musk, a cofounder of PayPal and currently CEO of Tesla Motors. The company designs and builds launch vehicles and has launch contracts with NASA and numerous satellite companies that provide communication and broadcasting services to government and industry. The SpaceX order book includes future launches of communications satellites for Iridium (eight scheduled missions through 2017); ORBCOMM; Space Systems/Loral; and a number of foreign firms, such as SES (Europe), Thaicom (Thailand), AsiaSat, Spacecom (Israel), and EADS Astrium (Europe). SpaceX has made a strong push to develop a commercial order book for its Falcon 9 launch vehicle.\nSeeking lower costs and greater efficiencies, the U.S. Air Force, the National Reconnaissance Office (NRO), and NASA announced an agreement in October 2011 on a process that will allow a number of new U.S. companies to compete for contracts for space launch missions with the U.S. Air Force, the NRO, and NASA. In particular, the Air Force has announced that the Evolved Expendable Launch Vehicle (EELV) program, a Department of Defense program that dates back to 1995, will reserve two launches for SpaceX, Orbital, Virgin Galactic, or other commercial launch companies that are building EELV-class launch vehicles. This will allow smaller competitors to gain a foothold in a market currently served by one company, the United Launch Alliance. Both the SpaceX Falcon 9 and Orbital Antares launch vehicles are EELVs. SpaceX has been cleared by NASA for a mission to the International Space Station (ISS) under the Commercial Orbital Transportation Services (COTS) program, and Orbital is expected to be cleared in 2012.",
"Spacecraft manufacturing has entered a new phase of development that is based on the provision of space transportation in commercially developed and launched vehicles. NASA will rely on commercial transportation of cargo and crews to the ISS through 2020—a decision taken by NASA in 2005 with the establishment of the Commercial Crew and Cargo Program. According to the Government Accountability Office (GAO), \"NASA's decision to rely on the new commercial vehicles is inherently risky because the vehicles are still in development and not yet proven or fully operational.\"\nU.S. spacecraft currently under development are scheduled to begin ferrying cargo to the ISS in 2012 and are projected to begin using crew vehicles to transport astronauts to the ISS in 2017. In a recent editorial on the shift from a government-run manned space program managed entirely by NASA to a more entrepreneurial private sector-based approach, Joseph Anselmo, of Aviation Week and Space Technology , noted: \"To be sure, outsourcing the job of launching astronauts to private companies is fraught with risk. SpaceX may have proven it can return a spacecraft from orbit, but safely transporting humans to space takes things to a whole new level. Given budget constraints, there may be no other choice.\"\nThe United States government is funding commercial spacecraft development through NASA's Commercial Crew Development (CCDev) Program \"to stimulate efforts within the private sector to develop and demonstrate safe, reliable, and cost-effective space transportation capabilities.\" Companies involved in the program (with or without NASA funding) include SpaceX (Hawthorne, CA), Orbital (Dulles, VA), Blue Origin (Kent, WA), Boeing (Houston, TX), Paragon (Tucson, AZ), United Launch Alliance (Denver, CO), and Sierra Nevada (Sparks, NV). Each of these companies is involved in developing commercial spacecraft capable of carrying passengers and cargo into space.\nIn 2010, SpaceX conducted the first successful test flight of its Dragon spacecraft and, in 2012, is expected to rendezvous with the ISS on the first 2 of 12 flights scheduled through 2016. The SpaceX Dragon spacecraft will have the capability of returning significant amounts of cargo, including the results of scientific experiments, to Earth. Orbital Sciences' Cygnus spacecraft is currently scheduled to make one resupply flight to the ISS in 2012. Together, SpaceX and Orbital will fly 20 (71%) of the 28 scheduled resupply missions through 2016. In testimony before the House Science, Space, and Technology Committee on March 28, 2012, Christina Chaplain of GAO warned that \"if the commercial vehicle launches do not occur as planned in 2012, the ISS could lose some ability to function and sustain research efforts due to a lack of alternative launch vehicles to support the ISS and return scientific experiments back to earth.\" Another witness, Lieutenant General Thomas P. Stafford, USAF (ret.), chairman of the NASA International Space Station Advisory Committee, testified that the NASA Aerospace Advisory Committee and his committee conducted a joint assessment and\nconcluded that the commercial vehicle launch schedule was overly optimistic and we have not received sufficient data to conclude with confidence that the schedule could be met. This was the unanimous conclusion of both groups. Both commercial cargo contractors (Orbital Science Corporation and Space Exploration Corporation) continue to experience significant delays in their development, testing and launch dates.\nIn his testimony, NASA Associate Administrator William H. Gerstenmaier stated that NASA was \"pleased with the steady progress both companies [SpaceX and Orbital] continue to make in their cargo vehicle and launch systems development efforts.\" He also told the committee that the Commercial Crew Program \"is a partnership between the Agency and the private sector to incentivize companies to build and operate safe, reliable, and cost-effective commercial human space transportation systems.\" Gerstenmaier also stated that safety was the key issue for the agency and said that both SpaceX and Orbital had to successfully reach each milestone before they would be paid.",
"The major manufacturers of satellites include Boeing (U.S.), Lockheed Martin Space (U.S.), Space Systems/Loral (U.S.), Thales Alenia Space (Europe), and EADS Astrium (Europe). Other manufacturers include ATK (Virginia), Ball Aerospace (Colorado), Northrop Grumman Corporation (Virginia), and Sierra Nevada Corporation (Nevada). In the United States, as in Europe, commercial satellite manufacturers also build the government (military and civil) satellites that have been major drivers of space-enabled consumer products. Military satellites provide global positioning system (GPS) data, and the NOAA satellites furnish weather-related data for consumer electronics (cell phones, GPS devices, automobile navigation systems, etc.). The demand for mobile devices has also increased demand for commercial communications and broadcast satellites—a synergistic combination of government and commercial technologies that have created new markets and, in turn, new demand for space equipment.\nBecause satellites are complex, custom-built platforms designed to operate in the harsh environment of space, the time it takes to order, design, build, and launch a satellite can be measured in years. U.S. satellite orders and deliveries rise and fall from year to year (see Figure 2 ), as does the U.S. share of global satellite manufacturing revenues, which are recorded only when a satellite is delivered. In 2010, U.S. revenues fell 27%, to $5.6 billion (including $3.4 billion in commercial satellite revenues), from $7.7 billion the previous year.\nAlthough U.S. satellite manufacturers captured nearly 52% of global satellite revenues in 2010, the U.S. share of global satellite revenues has fallen from 75% in 1995. U.S. aerospace industry groups assert that the decline in U.S. satellite market share has been exacerbated by 1998 legislation classifying all satellites and satellite parts and equipment as weapons subject to licensing under more stringent arms export control rules (see discussion below). The aerospace and satellite manufacturing industry believes that other countries have looked to non-U.S. manufacturers for satellites that do not contain U.S. parts or components that are subject to U.S. arms export controls. The U.S. commercial space industry may have become more dependent on U.S. military sales as foreign suppliers actively sought to displace U.S. manufacturers from the commercial satellite market.\nBetween 2001 and 2010, the United States manufactured 386 satellites of a global total of 1,012, or 38.1%. European and Russian manufacturing shares remained relatively stable at 18.6% and 21.6%, respectively (see Figure 3 ). Other countries, including those with space programs (China, Japan, South Korea, and India), accounted for the remaining 21.7% of output. These data include satellites manufactured for commercial and government customers. The U.S. share of global satellite manufacturing revenues (at nearly 52%) in 2010 is well above the U.S. share of the total number of satellites built worldwide between 2001 and 2010 (38%). This difference reflects the higher value of U.S.-manufactured commercial satellites.\nIn 2011, 11 U.S.-built commercial communications satellites were manufactured by Orbital Sciences (4), Space Systems/Loral (4), Lockheed Martin (1), and Spacequest (2). Three U.S.-built satellites were launched by Arianespace (a European company), one by Land Launch (using a Ukrainian Zenit vehicle launched from the Baikonur Cosmodrome in Kazakhstan); five by International Launch Services (ILS) (using a Russian Khrunichev-built Proton rocket launched from Baikonur, Kazakhstan), and two by International Space Company Kosmotras (using a Dnepr rocket launched from Dombarovskiy, Russia).",
"U.S. government data on space-related employment provide only a broad indication of the number of workers employed in the space industry, and, because of industry definition issues and suppression of nondisclosable data, employment in specific manufacturing sectors cannot be accurately gauged. Data suppression makes it difficult to compare data from year to year. The Space Foundation provides estimates of employment in the space industry, broadly defined. The Space Foundation uses six broad categories that are defined in the North American Industry Classification system (NAICs) (see Table 2 ), some of which may contain non-space industry workers (e.g., search, detection, and navigation instruments) or include service sector (information technology) workers or NASA civilian employees engaged in launch or satellite operations.\nOther NAICS categories that contain space industry workers are omitted because they do not provide enough information to determine the number of space industry jobs. Another issue is that workers in three of the NAICS categories involving production of guided missiles and space vehicles are combined so that it is impossible to distinguish between workers who manufacture weapons from those who make launch equipment and/or spacecraft. Nevertheless, the Space Foundation's choice of data provides insight into the overall group of workers that comprise the space industry labor force, including engineers, scientists, and highly skilled production workers.\nAnnual average earnings in the aerospace sector for production workers and engineers tend to be higher than the average for all industries. According to the Bureau of Labor Statistics, \"Above-average earnings reflect, in part, the high levels of skill required by the industry due to the high quality standards of their products. The earnings may also reflect longer average hours worked each week in the industry. Nonproduction workers, such as engineering managers, engineers, and computer specialists, generally command higher pay because of their advanced education and training.\" BLS data (see Table 3 ) also indicate that employees in the space sector were, on average, somewhat better paid than workers in aircraft and aircraft parts manufacturing.\nIn 2010, aircraft manufacturing workers averaged $88,737 in annual earnings, while guided missile and space vehicle manufacturing employees had average annual earnings of $106,830. The approximately 20,000 workers who manufactured propulsion units and parts or parts for guided missiles and space vehicles had lower average annual earnings than those involved in assembling guided missiles and space vehicles. Employees in the search, detection, and navigation instruments category earned more than aircraft manufacturing workers and more than guided missile propulsion and parts workers and guided missile and space vehicle parts and auxiliary equipment employees. The higher average annual earnings reflect the skills involved in creating and assembling the sophisticated electronics products that are critical to guided missiles, spacecraft, satellites, and ground infrastructure. The search, detection, and navigation instruments industry also includes jobs associated with the creation and assembly of consumer navigation equipment for automobiles and cell phones.\nWith the exception of search, detection, and navigation instruments (NAICS 334511), data on space manufacturing employment are not available on a state-by-state basis. BLS data are available for California, but are suppressed for nearly all other states. California, with the largest number of workers in the aerospace industry (109,663 in 2010), had 59,580 employees in the space industry, of which nearly 41,000 (69%) worked in search, detection, and navigation instrument manufacturing. Missile and spacecraft manufacturing (NAICS 336414) had 106,830 employees in 2010, of which 15,585 (14.6%) worked in California. Eighteen states employed more than 1,000 workers in the manufacture of search, detection, and navigation instruments, with average annual earnings ranging from $130,414 in Colorado to $51,936 in Georgia.",
"Federal laws and regulations are of major importance to the space equipment manufacturing industry. Although many of these measures were developed principally with reference to military concerns, they may also affect the U.S. commercial space industry because of the interrelationship between commercial and government use of space described earlier.",
"In 1998, Congress passed the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999, which reclassified all satellites, including commercial satellites and their parts and components, as munitions. This transferred jurisdiction of export licensing approvals for satellites from the Department of Commerce, which licenses \"dual-use\" exports (i.e., exports that are primarily for civilian use, but which potentially have military uses) under the Export Administration Act, to the State Department, which administers the International Traffic in Arms Regulations (ITAR). ITAR designation means that satellites were placed on the U.S. Munitions List (USML) and thus became subject to a much higher degree of scrutiny because of a presumption that the export of munitions potentially threatens U.S. national security. In testimony before the House Foreign Affairs Committee in February 2012, Patricia Cooper, president of the Satellite Industry Association, noted that the reclassification of satellites \"arose from concerns in the late 1990s that U.S. technology was not protected after two failures of Chinese launches of U.S.-made satellites.\" Cooper testified that a blanket imposition rather than a country-specific one had harmed the U.S. satellite industry.\nThe reclassification of commercial satellites as munitions was highly controversial within the U.S. aerospace industry, due in part to the decision by the United States to impose unilateral export controls on commercial satellites without corresponding actions by European and Japanese governments. Foreign competitors immediately grasped the competitive disadvantage facing U.S. satellite exporters. In the early 2000s, Alcatel, a French company, announced that it would produce \"ITAR-free\" satellites for export and by 2004 had doubled its market share. Leading firms joined a European Space Agency (ESA) initiative in 2004 to develop technologies and systems hitherto available only from U.S. companies in an effort to boost European market share.\nThales Group, formerly known as Thomson-CFS, acquired Alcatel's space business in 2007, and the space subsidiary, now Thales Alenia Space, sells ITAR-free satellites. According to SpaceNews.com , for more than three years the State Department has been conducting a so-called \"Blue Lantern\" inquiry into whether sales of the Spacebus, a satellite produced by Thales Alenia Space, violate U.S. export control laws. The company and the State Department are reportedly at an impasse over a State Department request for the complete design of the Spacebus and a list of all components. In a January 5, 2012, interview with Space News International , Edgar Buckley, Thales Group senior vice-president for Europe and NATO, said that the company could not provide the satellite design: \"We will give an outline of the design. And we cannot give you a complete list of components. We cannot do that under French law.\"\nIn her testimony, Cooper said that the number of ITAR-free satellites launched rose from 6 by April 2009 to 13 by February 2012, with another 7 on order. She also cited a Department of Defense study that estimated the amount of lost export sales due to ITAR controls between 2003 and 2006 at $2.35 billion. According to the Satellite Industry Association (SIA), a U.S.-based trade association that represents many U.S. and foreign satellite operators, service providers, manufacturers, launch service providers, and ground equipment suppliers, U.S. satellite manufacturers saw their share of the global market fall from 75% in 1995 to 41% in 2005; it has hovered between 35% and 50% since.\nSatellite revenues for the United States and the rest of the world averaged $10.7 billion per year between 1996 and 2010 (see Figure 4 ). The average U.S. share of global satellite manufacturing revenues for the period 1996 to 2010 was 49%. For 1996 to 1999, the U.S. share of the satellite market averaged 63%. From 2000 through 2010, when ITAR controls on satellite exports were fully in effect, that share fell to an annual average of 40%. After hitting a low below 30% in 2008, satellite deliveries recovered in 2009 (to 57%) before declining to 52% in 2010. U.S. satellite manufacturers' share of global revenues declined from an average of $6.6 billion per year between 1996 and 1999 to $4.7 billion per year between 2000 and 2010. Sales in 2009 and 2010 were generally more favorable, but whether this represents a trend or a bunching up of deliveries is not clear.\nIn 2009, the Obama Administration initiated a comprehensive review of U.S. export controls, and in April 2010, then-Defense Secretary Robert Gates outlined measures for reform, including a single agency responsible for dual-use and munitions exports, a unified export control list, a single agency to coordinate enforcement activities, and an integrated information technology system to prevent exports to sanctioned and denied parties. The United States also participates in a number of multilateral export control regimes that are focused on chemical and biological weapons (the Australia Group); missile technologies (the Missile Technology Control Regime); nuclear materials, equipment, and technology (the Nuclear Suppliers Group); and the promotion of regional and international security and stability (the Wassenaar Arrangement). None of these international regimes control satellites as munitions.\nThe National Defense Authorization Act for Fiscal Year 2010 ( P.L. 111-84 , Section 1248) provides that the Secretary of Defense and the Secretary of State shall carry out an assessment of the national security risks of removing satellites and related components from the United States Munitions List (USML). On April 18, 2012, the Departments of Defense and State issued a report to Congress that found that \"if authorized by the Congress, the risks due to removing space-related dual-use items from the USML could be acceptably managed through controls and licensing policies under the CCL [Commodity Control List].\" The report identified two types of satellites and related items \"that are not purely defense-related\": communications satellites that do not contain classified components and remote sensing satellites with performance parameters below certain thresholds, as well as the systems, subsystems, parts, and components associated with those satellites and with performance parameters below certain thresholds.\nThe report calls for relaxed controls on allies and partners, continued controls as agreed upon in multilateral trade control arrangements, and \"strict controls on transfers of non-critical space-related items to end-users and for end-uses that are likely to be used against the U.S. national interests,\" including prohibitions of exports or re-exports to countries that are subject to U.S. arms embargoes or to which exports or sales are prohibited under the ITAR. The report also calls for a return to the President of the authority to determine the export control jurisdictional status of satellites and related items.\nLegislation has been introduced in the 112 th Congress to shift control of satellites from the U.S. Munitions List to the Commodity Control List. Representative Rohrabacher introduced an amendment to the National Defense Authorization Act of 2012 ( H.Amdt. 331 , H.R. 1540 ) on May 25, 2011, to allow the President to transfer satellites and related components from the USML. The amendment's sponsor subsequently withdrew the amendment pending the release of the final Section 1248 report. Legislation ( H.R. 3288 ) to allow the President to transfer satellites and components from the USML was introduced by Representative Berman on November 1, 2011. That bill would continue the prohibition on satellite sales to or launches by China, or to countries designated as state sponsors of terrorism (Cuba, Iran, Sudan, Syria) and North Korea.\nIn remarks to the Defense Trade Advisory Group on November 9, 2011, Assistant Secretary of State for Political-Military Affairs Andrew Shapiro said, \"Our work is focused now on the removal of the majority of parts and components from the USML to the Commerce Control List (CCL) in these categories.\" However, as Shapiro pointed out, unlike the other items on the U.S. Munitions List, which can be reclassified by the President, satellites were placed on the list by law and congressional action would be required to remove them. Although there have been numerous discussions in committees about the issue of commercial satellites, export control legislation has generally been difficult to pass.\nThe Aerospace Industries Association, representing the majority of U.S. aerospace firms, published a study in January 2012 that contends that the United States' space and defense industrial base is weakening as exporters large and small encounter difficulties exporting commercial communications satellites and parts and components that are incorporated in commercial satellites.",
"The allocation of spectrum and orbital location have posed, and will continue to pose, large problems for an international industry that could consume an almost unlimited amount of both, were physical supply not an issue. However, both spectrum and satellite orbital position are scarce resources and governments regulate and allocate the use of radio spectrum on earth and in space. Spectrum allocation is intended to prevent signal interference, but it also imposes a limit on the amount of capacity available to satellite and terrestrial service providers. Domestic and international regulatory regimes are limited in terms of their ability to respond to capacity problems that affect satellite operators and consumers. But satellite network operators and their customers have increasingly sought technological solutions to the challenge of limited spectrum. With the increasing use of high-power Ku- and Ka-bands, larger amounts of data can be transmitted without increasing the number of transponders.\nU.S. regulations provide for government approval of the allocation of bandwidth and the use and positioning of satellites for communications (under the jurisdiction of the Federal Communications Commission) and for remote sensing (for which NOAA regulates commercial operators). Other countries also have varied laws and regulations for communications, navigation, and remote-sensing satellites. The United Nations, through the International Telecommunications Union (ITU), manages an international treaty, known as the Radio Regulations, to \"ensure the rational, equitable, efficient and economical use of the radio-frequency spectrum by all radio communication services, including those using satellite orbits.\" One problem that is widely acknowledged is that some countries file an excessive number of applications for orbital locations and frequency assignments in order to reserve space, even though they are unlikely to deploy satellites that would use the frequencies or orbits. This practice deters other users from expanding their services or entering the market. Although there are rules that allow for periodic review of underutilization of spectrum and orbital placement, the process is time consuming. Conflicts over satellite spectrum and positioning also occur, and the ITU lacks enforcement mechanisms for resolving such disputes.\nThe rapid evolution and proliferation of new bandwidth-intensive consumer, civil, and military technologies (such as broadband Internet services; satellite television and high definition television [HDTV] channels; growth in corporate enterprise networks; and military purposes such as airborne intelligence, surveillance, and reconnaissance, satellite links to ground troops, and intensified use of unmanned aerial vehicles) threatens to destabilize existing regulatory regimes that have been characterized as \"command and control\" models that award a specific amount of bandwidth to specific users. Once placed in its specified orbit, a satellite is limited to the bandwidth allocated to it and the option to switch transmission to a different bandwidth is not feasible. From the perspective of bandwidth-hungry consumers, this leads to a less than optimal allocation of spectrum and underutilization of existing capacity. Greater use of fiber to transmit signals could mitigate this problem slightly by reducing demand to some degree. Fiber costs are not trivial, however.\nIn Europe, the demand for capacity has outpaced the available spectrum, and regulators are under pressure to adapt to more flexible systems that allow for greater and more efficient use of fixed satellite services, but there appear to be limits to finding a solution to the problem. European satellite operators are unwilling to cede their exclusive frequency bands, and they see the Radio Regulations as a bulwark against a move to a more liberal regime.\nIn its most recent forecast of satellite services demand, Futron concluded that \"ongoing debates regarding spectrum allocation could result in operators facing a constrained or reduced ability to maintain certain types of supply and to meet the needs of certain markets effectively in the future.\" But Futron also points to the adoption of operating efficiencies and fleet optimization strategies that have allowed satellite operators to better meet demand, and while the number of satellites or transponders may be limited by spectrum or orbital locations, technical solutions allow greater throughput for a given number of transponders per satellite. The shift to multiband payloads (using high-power frequency bands that are capable of carrying much higher capacities) and the use of higher power applications produce higher levels of throughput that overcome some of the limitations imposed by spectrum scarcity. Futron forecasts that the supply of fixed satellite capacity of major operator fleets will decline slightly through 2019 (with capacity measured in terms of transponder equivalents) even as demand continues to grow in terms of throughput capacity.",
"Unlike the previous section, which focused on the challenges posed by limited spectrum and orbital position, this section discusses the shift by the Department of Defense from a near total reliance on military-owned and -operated satellites to a reliance on leased commercial communications satellite capacity to meet its needs for additional satellite bandwidth.\nWith increased satellite efficiency and the ability to increase the amount of throughput per transponder, the Department of Defense, which has experienced dramatic increases in demand for satellite bandwidth, has turned to commercial satellites to handle a significant portion of military communications, thus preserving capacity on military satellites for high-level intelligence data. Military satellites are much more expensive than commercial satellites. Military satellites also take much more time to build and launch than commercial satellites.\nFutron has estimated that global demand consumed approximately 79% of fixed satellite service (FSS) capacity in 2011. In part, the spare capacity serves as a reserve in the event of a loss of one or more satellites. But even with some surplus capacity, the U.S. Department of Defense has run up against capacity constraints in the Middle East, in part because of a shortage of satellites that meet DOD requirements.\nThe increased use of commercial capacity by the military has provided a stimulus to private-sector investment in satellites. In part, short-term sales of satellite capacity or bandwidth, for contractual periods of up to a year, have allowed satellite operators to command premium prices. Demand has risen steadily for nearly a decade. However, the unplanned and unbudgeted demand for commercial satellite bandwidth does not provide a stable business model for satellite service providers if that demand is temporary and subject to termination years before a satellite's effective lifespan is up. Satellites are typically built to meet the specific requirements of long-term customers and few, if any, satellite operators will buy and launch a satellite unless long-term customers have contracted for most of the available capacity of the satellite. With the wars in Iraq and Afghanistan winding down, satellite operator Eutelsat has warned investors that its sales of short-term capacity to DOD will not continue to increase as rapidly as in the recent past, although the company has taken the position that DOD demand will likely remain strong as satellite capacity for troops in Iraq and Afghanistan is switched over to data-intensive streaming of videos from unmanned aerial vehicles.\nOne of the issues of concern to the military and to commercial satellite operators has been the shift from a need for surge capacity to increased reliance on commercial satellites for core communications capabilities that meet military requirements. This shift has been the focus of a debate within DOD and among commercial satellite service providers and satellite manufacturers about a more integrated approach to the acquisition of commercial satellite services. According to one observer, \"Current estimates are that more than 80 percent of DOD's satellite bandwidth is purchased from commercial [satellite communication] companies. With increased use of unmanned aerial vehicles (UAVs) and other intelligence, surveillance, and reconnaissance assets in theatre, as well as high-definition video, that bandwidth allocation is expected to very quickly grow to more than 90 percent.\" Under Secretary of Defense for Intelligence Michael G. Vickers noted at a November 2011 conference that the volume of intelligence, surveillance, and reconnaissance data collected in Afghanistan increased from a single terabyte (a terabyte of data equals 1,000 gigabytes) of data per day at the start of the war to 53 terabytes of data per day—an amount equivalent to 2.5 million full-length films.\nBecause of the high level of demand for commercial satellite communications by DOD and other government agencies, the General Services Administration (GSA) and the Defense Information Systems Agency (DISA) established the Future Comsatcom Services Acquisition (FCSA) program in 2009 and extended and expanded it in 2012. The FCSA program allows commercial satellite providers to bypass a small group of middlemen and resellers who previously were the only authorized agents for commercial satellite contracts. This will allow satellite operators to expand their military customer base and better utilize capacity by allocating satellite capabilities between military and commercial users, while providing government agencies with greater efficiencies and costs that are similar to those for commercial users.\nGAO and DOD conducted studies that found that the cost of acquiring commercial bandwidth increased from 2003 through 2010 (GAO) and 2005 through 2009 (DOD). With the new FCSA program, the number of satellite service vendors will not be limited (previously there were only three eligible vendors), and satellite operators will also be allowed to compete to provide bandwidth. GAO and the Department of Justice Antitrust Division expect that increased competition under FCSA will result in lower bandwidth prices. However, one major impediment to competition in the satellite sector is the cost of manufacturing, launching, and insuring a fixed service, or geosynchronous, communications satellite. According to GAO, the cost of manufacturing, launching, and insuring a fixed service satellite runs $200 million to $500 million. A basic network requires three or more satellites, so the high cost of satellites is a barrier to entry for new operators.\nThe Department of Defense is a large user of geosynchronous satellites, and it could potentially play a significant role in encouraging more competition in the commercial satellite sector—especially if it is successful in deploying hosted payloads on commercial satellites. A hosted payload provides the military with the ability to include transponders and specialized military equipment on a commercial satellite, including observation, communications, space situational awareness, and space weather forecasting payloads that can be operated by the specific DOD customer. In March 2011, seven satellite manufacturers and operators formed a coalition to promote the use of hosted payloads. Some concerns have been raised about allowing satellites with hosted payloads containing extremely sensitive U.S. military technologies to be launched anywhere but in the United States.",
"The outlook for the United States commercial satellite sector is generally positive, notwithstanding the regulatory challenges mentioned in the last section. In 2010, the United States commercial satellite industry launched a total of 34 satellites for commercial and government customers—more than Russia (26) or Europe (24). According to Futron, the United States also claims four of the five largest space manufacturers, in terms of revenue (see Table 4 ). Even with the rise of countries such as China, India, and Brazil, the United States continues to enjoy a significant, albeit slowly diminishing, advantage in space, at least in part because the United States has a dynamic private sector that produces most of its output.\nThe drawn-out transition from NASA's Space Shuttle program to a successor program may delay government procurement of the commercial equipment intended to replace the shuttle. Nonetheless, as military and NASA programs become more reliant on the private sector for transportation into space, U.S. commercial space equipment manufacturers will have access to a market that is largely closed to foreign competitors.\nThe prospects for the U.S. space equipment manufacturing industry in markets that are open to international competition are less certain. The rapid expansion of new consumer technologies and services that are space-enabled has led to the emergence of new competitors from many countries. U.S. manufacturers of launch vehicles, spacecraft, and satellites have a number of distinct advantages over many foreign competitors, including a very large aerospace industrial base capable of supporting commercial and government demand for space technologies and equipment. Additionally, the United States is pursuing policies that support and encourage competition, and numerous entrepreneurial firms are investing and developing launchers and spacecraft that may open new avenues for space exploration and travel. The United States also has a well-educated workforce and higher education system that is highly competitive internationally.\nIn its analysis of space competitiveness, Futron ranked the relative position of the United States, compared to other countries, and found that the U.S. decline in recent years is mainly attributable to advances achieved by Russia, China, Japan, and India. As the U.S. government's role in promoting human spaceflight has transitioned from the Space Shuttle to a strategy that relies on the private sector to develop products that are competitive and serve the broad U.S. goals and activities that were identified in the National Space Policy of June 2010, the U.S. launch industry has become dependent on government payloads and has continued to face stiff competition from Russia and Europe. U.S. industry still maintains a wide lead in manufacturing for space. Although there are some vulnerabilities in the space industrial base (primarily in areas where some critical products are available from only one supplier or from limited foreign sources), the sector as a whole generates significant revenues and value-added and tends to be more entrepreneurial than in most other countries engaged in space activities.\nA major weakness, however, that has been identified by some Members of Congress and a number of analysts is the general lack of public support for government funding of civil and military space programs. The authors of the Futron study, for instance, have observed that the U.S. space program may be perceived as not providing sufficient value to the nation. One consequence could be a further loss of competitiveness as other countries continue to strengthen their own space manufacturing capabilities and programs."
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{
"question": [
"What does the space industry refer to?",
"What is the space industry?",
"How was the space industry developed?",
"What is space oriented manufacturing?",
"What is the focus of this report?",
"Why has the US competitive position in the space industry eroded?",
"Why will the government depend increasingly on the US commercial space industry?",
"What will be factors for shaping the US commercial space industry?",
"Why are these factors for shaping the US commercial space industry?",
"What legislature did Congress pass in 1998?",
"What report was issued by DOD in 2012?",
"What was the purpose of some bills introduced in the 112th Congress?",
"What threatens to destabilize the current system?",
"How are commercial satellite operators attempting to fix this threat?"
],
"summary": [
"The space industry refers to economic activities related to the manufacture and delivery of components that go into Earth's orbit or beyond.",
"The space industry is a subset of the U.S. aerospace industry and U.S. strength in aerospace has helped to provide U.S. strength in space.",
"The space industry was originally developed by government entities, and government policies and spending continue to exercise a strong influence on commercial space activities in the United States and elsewhere.",
"Space-oriented manufacturing, which includes launch vehicles, spacecraft, satellites, and parts and equipment, has created a large space-industrial infrastructure that enables a much larger space services sector that includes satellite telecommunications and broadcasting services, and satellite remote sensing, among others.",
"The focus of this report is the global commercial space manufacturing sector (launch vehicles, spacecraft, and satellites).",
"The United States manufactures more launch vehicles, spacecraft, and satellites than any other country, but the relative U.S. competitive position has eroded as other countries have made large investments in commercial and government space activities.",
"With the end of the Space Shuttle era, the government will increasingly depend on the U.S. commercial space industry for transport of humans and cargo, and on commercial satellites for communications and data.",
"The extent and nature of government demand are likely to be significant factors shaping the U.S. commercial space industry.",
"U.S. policy has gradually shifted toward encouraging more competition among firms that manufacture launch equipment, spacecraft, and satellites, encouraging the participation of smaller, entrepreneurial firms in an industry segment traditionally dominated by large aerospace firms.",
"In 1998, Congress passed legislation that reclassified all satellites and satellite parts and equipment as weapons under the International Traffic in Arms Regulations, limiting the ability of U.S. manufacturers of commercial space equipment to sell abroad and encouraging foreign rivals to increase their global market share at the expense of U.S. manufacturers.",
"On April 18, 2012, the Department of Defense (DOD) and Department of State issued a congressionally mandated report that assessed risks associated with removing satellites and related components from the United States Munitions List (USML).",
"Bills have been introduced in the 112th Congress to reauthorize and amend U.S. export control laws (H.R. 2122, H.R. 2004, H.R. 1727, H.R. 3288).",
"The rapid growth in technologies that consume large amounts of bandwidth threatens to destabilize the current system that allocates spectrum and orbital position to specific users.",
"Spectrum is a scarce resource, but increasingly, commercial satellite operators are developing technological solutions to increase capacity."
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GAO_GAO-18-272
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{
"title": [
"Background",
"USDA Has Revised Some Existing Pathogen Standards but Has Not Revised Others in Decades and Has No Time Frames for Revision",
"USDA Is Taking Additional Steps to Address Pathogen Reduction Challenges That We Identified in 2014, but These Challenges Are Ongoing",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Salmonella Testing for Beef Purchased for the National School Lunch Program",
"Appendix II: Comments from the U.S. Department of Agriculture",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"Contact with infected animals or consumption of contaminated water and food—including produce, meat, poultry, and processed products—can cause foodborne illness. Many different pathogens can contaminate food, including harmful bacteria such as Salmonella and Campylobacter. CDC reported that in 2015 there were 902 foodborne disease outbreaks reported in the United States that resulted in 15,202 illnesses, 950 hospitalizations, 15 deaths, and 20 food product recalls. According to CDC, fish, chicken, and pork were the most common single food categories implicated in these outbreaks. More recently, in 2016, there were 233 foodborne illnesses from 10 outbreaks linked to beef, 426 foodborne illnesses from 17 outbreaks linked to pork, and 417 foodborne illnesses from 20 outbreaks linked to poultry, according to CDC’s National Outbreak Reporting System (see fig. 1). Common symptoms of foodborne diseases include nausea, vomiting, stomach cramps, and diarrhea. Symptoms can sometimes be severe, and some foodborne illnesses can be life-threatening. Although anyone can get a foodborne illness, some people are more likely to have one. Those groups include young children, older adults, pregnant women, and people with immune systems weakened from medical conditions, such as diabetes, liver, and kidney disease. Patients receiving chemotherapy or radiation treatment are also more susceptible.\nWe have previously reported that to improve its food safety approach, FSIS moved to an increasingly science-based, data-driven, risk-based approach by adopting the Pathogen Reduction; HACCP regulations in 1996. Under the HACCP approach, each plant is responsible for (1) identifying food safety hazards, such as fecal material, that are reasonably likely to occur and (2) establishing controls that prevent or reduce these hazards in its processes. As part of this approach, plants must develop plans that identify the point (known as the critical control point) where they will take steps to prevent, eliminate, or reduce each hazard identified. FSIS inspectors at slaughter and processing plants routinely check records to verify a plant’s compliance with those plans. FSIS inspectors also observe operations at plants as part of their inspection activities. Under the 1996 HACCP regulations, the agency also established Salmonella pathogen standards used to assess the effectiveness of plants’ controls in reducing levels of pathogens in meat and poultry products. According to the regulations, FSIS selected Salmonella for pathogen standards because, among other things, it was the most common bacterial cause of foodborne illness, and they believed that intervention strategies aimed at reducing fecal contamination and other sources of Salmonella on raw product should be effective against other pathogens. FSIS has a verification-testing program in which FSIS inspectors at plants collect samples of certain products and test them to determine whether plants meet the pathogen standards. Test results from this program help FSIS inspectors verify that plant HACCP plans are working and identify and assist plants whose process controls may be underperforming. FSIS also requires products to be labeled with instructions for safe handling.\nIn contrast to Salmonella and Campylobacter, which are subject to pathogen standards, FSIS considers certain serotypes of Escherichia coli (E. coli), another type of disease-causing pathogen, adulterants under the definition of “adulterated” in the Meat Inspection Act and the Poultry Inspection Act. The acts define an adulterant in meat and poultry products to include, among other things, “any poisonous or deleterious substance which may render it injurious to health.” Meat and poultry products contaminated with any level of adulterants are not permitted to enter commerce—a stricter standard than the pathogen standards, which allow certain levels of contamination. FSIS initially declared E. coli O157:H7 as an adulterant in ground beef following an outbreak from 1992 to 1993 that involved Jack-in-the-Box hamburgers and, in 2011, declared an additional six non-O157 Shiga-toxin-forming E. coli in certain raw beef products as adulterants.\nIn the early 1990s, a strain of Escherichia coli (E. coli) bacteria linked to hamburger resulted in a deadly foodborne outbreak and led to changes in food regulations. E. coli are bacteria found in the environment, food, and intestines of people and animals. E. coli are a large and diverse group of bacteria. Most strains of E. coli are generally harmless, but others can cause diarrhea, urinary tract infections, respiratory illness and pneumonia, other illnesses, and death. From November 1992 through February 1993, more than 500 laboratory-confirmed infections with E. coli O157:H7 and four associated deaths occurred in four states—Washington, Idaho, California, and Nevada. During the outbreak, contaminated hamburger patties were traced to a fast food restaurant chain and then ultimately to five slaughter plants in the United States and one in Canada as likely sources of carcasses used to produce the contaminated ground beef. No one slaughter plant or farm was identified as the source. In 1994, USDA’s Food Safety and Inspection Service declared that any raw ground beef found contaminated with E. coli O157:H7 would be adulterated under the Federal Meat Inspection Act—rendering the meat unlawful to sell in commerce.\nMeat and Poultry in the United States Beef: According to the U.S. Department of Agriculture (USDA), beef is a highly consumed meat in the United States, averaging 56 pounds per person per year. Beef comes from full-grown cattle that are about 2 years old and weigh about 1,000 pounds. There are at least 50 breeds of beef cattle, but fewer than 10 make up most cattle produced. Veal is meat from a calf (young cattle) that weighs about 150 pounds. Calves that are mainly milk-fed usually are less than 3 months old. Pork: According to the USDA, the United States is the world’s third-largest producer and consumer of pork and pork products. Pork is meat from hogs, or domestic swine, and is from young animals (6 to 7 months old) that weigh from 175 to 240 pounds.\nFSIS coordinates with numerous federal agencies, state agencies, and local entities to help ensure the safety of meat and poultry products from the farm to the consumer (known as the farm-to-table continuum). FSIS coordinates with USDA’s Animal and Plant Health Inspection Service (APHIS) to share information when investigating foodborne illnesses. FSIS also coordinates with the Department of Health and Human Services’ Food and Drug Administration (FDA) and with CDC on a number of activities. For example, FSIS works collaboratively with FDA and CDC through the Interagency Food Safety Analytics Collaboration to, among other things, estimate foodborne illness source attribution. Attribution entails identifying which foods are the most important sources of selected major foodborne illnesses. According to FSIS officials, determining the sources of illness is an important part of identifying opportunities to improve food safety. FSIS also coordinates with CDC and state health departments to respond to foodborne illness outbreaks, including identifying the pathogen, the product, and where the product became contaminated along the farm-to-table continuum (see fig. 2).\nPoultry: According to USDA, consumption of poultry (chicken and turkey) in the United States is higher than beef or pork. Chicken includes broiler-fryer chickens and roaster chickens. Broiler-fryer chickens are young, tender chickens about 7 weeks old that weigh from 2 ½ to 4 ½ pounds. Roaster chickens are young chickens from 8 to 12 weeks old with a ready-to-cook carcass weight of 5 pounds or more. Turkey is a large, widely domesticated North American bird. They grow to full maturity in about 4 to 5 months, depending on the desired market weight.\nUSDA’s FSIS has developed or revised pathogen standards for assessing the effectiveness of plants’ controls in reducing the level of pathogens in certain meat and poultry products. More specifically, the agency has developed pathogen standards for some beef, pork, chicken, and turkey products but not for other products that are widely available, and its basis for deciding which products to consider for new pathogen standards is unclear. In addition, as of 2011, the agency has revised pathogen standards for chicken and turkey products, but standards for other products are outdated, with no time frames for revision.\nFSIS has developed pathogen standards for beef, pork, chicken, and turkey carcasses; specific chicken parts (i.e., breasts, thighs, and legs); and ground beef, chicken, and turkey (see Figure 3). The initial pathogen standards FSIS developed in 1996 were all for Salmonella because, among other things, it was the most common bacterial cause of foodborne illness and intervention strategies aimed at reducing Salmonella in raw products might be effective against other pathogens, according to agency documents. Subsequently, in 2011, FSIS developed Campylobacter standards for chicken and turkey carcasses and in 2016 developed Salmonella and Campylobacter standards for chicken parts.\nFSIS has not developed pathogen standards for other widely available products, such as pork cuts (e.g., pork chops), turkey parts (e.g., turkey breasts), and ground pork. The agency is taking steps that may lead to the development of new pathogen standards for additional products. For example, according to FSIS documents, the agency is collecting information on the presence of Salmonella and other pathogens in pork cuts and ground pork, among other pork products. According to FSIS officials, this could lead to the development of new standards.\nHowever, the agency’s process for deciding which products to consider for new pathogen standards is unclear because it is not fully documented. In December 2016, the agency documented a part of its process: who will make the decisions about which products to consider. According to the December 2016 document, certain agency officials are to meet as needed to discuss emerging food safety risks and propose related data collection efforts to senior management, who will decide which products to consider for new standards. However, the document does not explain the basis for management’s decisions. FSIS has informed stakeholders that it will take into account factors including consumption and foodborne- illness data, as it did when setting standards for chicken parts, but the agency has not documented this process going forward. Several researchers and consumer advocacy representatives we interviewed questioned whether the agency’s process proactively addresses food safety risks.\nPreviously, FSIS developed new pathogen standards after the agency was directed to do so or after widespread outbreaks indicated the need. For example, in 2011, FSIS revised Salmonella standards for chicken and turkey carcasses and developed new standards for Campylobacter in these same products after being charged with doing so by the Presidential Food Safety Working Group. Additionally, in a 2016 Federal Register notice, FSIS, after reviewing outbreaks from these products in 2011, 2013, and 2015—outbreaks in which 794 people were sickened and 1 died—concluded that new pathogen standards were needed for comminuted (including ground and other mechanically separated) poultry and chicken parts.\nUnder federal standards for internal control, federal entities are to design control activities to achieve objectives and respond to risks, including appropriate documentation of transactions and internal control. With appropriate documentation of internal control, management clearly documents internal control and allows the documentation to be readily available for examination; the documentation may appear in management directives, administrative policies, or operating manuals. Until FSIS clearly documents its process for deciding which products to consider for new pathogen standards, including the basis on which such decisions should be made, FSIS will not have assurance that its decisions are risk- based and that agency personnel will know the process when making such decisions.",
"USDA’s FSIS has revised Salmonella standards for chicken and turkey carcasses and for comminuted chicken and turkey but has not revised other Salmonella standards since 1996, and the agency has not set time frames for determining whether revisions are needed. Specifically, as noted above, FSIS revised Salmonella standards for chicken and turkey carcasses in 2011 in response to a charge from the President’s Food Safety Working Group that the agency develop new or revised standards to reduce the prevalence of Salmonella in poultry products. The agency revised the pathogen standards for comminuted chicken and turkey in 2016 to help achieve public health goals for reducing human illness from Salmonella, among other things. The revisions have generally involved reductions in the maximum allowable percentage of products that test positive for this pathogen. For example, in 2016, when the agency revised the Salmonella standards for comminuted chicken, the allowable percentage changed from 44.6 to 25.0. (See table 1.)\nHowever, FSIS has not revised the Salmonella standards for beef and pork carcasses and ground beef since they were first developed in 1996. Although USDA announced in a 2014 Federal Register notice that it intended to propose new pathogen standards for ground beef, FSIS has not done so. Furthermore, FSIS set the pathogen standards for beef and pork carcasses and ground beef at industry-wide prevalence levels found at that time, not at levels intended to be protective of human health. In 2017, FSIS reviewed data on Salmonella in beef carcasses and ground beef and determined that the agency will not reach public health goals for reducing foodborne illness from Salmonella without further reduction in Salmonella contamination in beef. FSIS officials said that the agency is developing options for how it might move forward and could determine that revised or new standards are not needed and that other policies could suffice in addressing pathogens in beef. In the meantime, however, the agency in 2014 suspended monitoring against the existing Salmonella standards for ground beef until the agency develops a revised standard. The agency also suspended monitoring whether plants were meeting the pathogen standard for Salmonella on pork carcasses because, according to agency officials, the percentage of pork carcass samples that tested positive for Salmonella was consistently low. FSIS officials said that the agency is collecting data on pathogens in pork that could lead to new standards for pork products. In the absence of testing against the standards, the agency has other tools to ensure plants are controlling pathogens. For example, the agency continues to test beef for levels of E. coli, and FSIS inspectors at plants are to routinely check records to verify a plant’s compliance with its HACCP plans. FSIS officials told us that they would begin monitoring against the Salmonella standards for these products if the standards are revised or determined to be sufficient (in the case of beef and pork carcasses and ground beef) or if the agency develops new standards (in the case of pork cuts and ground pork). Generally, FSIS begins monitoring against a standard once the agency announces a standard and after a phase-in period has ended. For example, when FSIS developed new Campylobacter and Salmonella standards for chicken parts in 2016, the agency began monitoring whether plants met the standard 5 months after the standards were announced in the Federal Register.\nMonitoring for compliance with pathogen standards is a key tool as envisioned by the 1996 Pathogen Reduction; HACCP Systems final rule for verifying the effectiveness of a plant’s processing controls to prevent, eliminate, or reduce food safety hazards. It is unclear when FSIS plans to resume the use of this tool and complete the revisions of the Salmonella standards for beef carcasses or ground beef or develop new standards for additional pork products because the agency has not set time frames for doing so. According to FSIS officials, developing or revising pathogen standards takes time and resources, in part because the agency must first collect and analyze data to estimate the prevalence of pathogens in FSIS-regulated products, notify the public of proposed standards, and open a comment period, all of which can take years. However, according to FSIS officials, the agency has no time frames for determining what actions to take. Program schedule planning is recognized as a leading practice to ensure organizational activities are completed as planned, according to the Project Management Institute’s Standard for Program Management. Such planning includes setting time frames for completing a project. By setting time frames for determining what pathogen standards or additional policies are needed to address pathogen levels in beef carcasses, ground beef, and pork products, FSIS could better ensure it completes these activities in a timely manner to protect human health.",
"In addition to taking steps to develop or revise pathogen standards, USDA’s FSIS is addressing other challenges we identified in September 2014 with respect to poultry pathogens, but these challenges are ongoing and also apply to meat products. These challenges include FSIS’s limited control over factors that affect the level of pathogens outside of plants, pathogens not designated as hazards, the complex nature of Salmonella, limited Campylobacter research and testing, limited enforcement authority, absence of mandatory recall authority, and insufficient prevalence estimates.\nLimited Control Outside of Plants In September 2014, we found that the U.S. Department of Agriculture’s (USDA) Food Safety and Inspection Service (FSIS) faced a challenge in reducing levels of Salmonella and Campylobacter in poultry products in part because the agency did not have regulatory jurisdiction over farm practices to reduce contamination in poultry before they reach a plant for slaughter and processing. At the time, we noted that FSIS had worked to address the on-farm limitation by issuing guidelines that detailed, among other things, several on-farm practices to reduce Salmonella and Campylobacter in live poultry. We recommended that in future revisions of the guidelines, FSIS include information on the effectiveness of on-farm practices to explain the potential benefits of adopting such practices on poultry farms. USDA concurred with our recommendation. In addition, we found that once poultry products leave a plant, factors beyond FSIS’s control may affect contamination of poultry products, such as cross-contamination from poultry products (i.e., when bacteria spread from a food to a surface, from a surface to another food, or from one food to another) that can occur at retail establishments, in restaurants, and in consumers’ homes, according to a food safety researcher we interviewed.\nPathogen Contamination after Products Leave the Plant According to the Centers for Disease Control and Prevention (CDC), even if meat and poultry products leave the processing or slaughter plant with no detectable pathogen, it does not ensure that the products are safe, as opportunities exist for them to become contaminated at any point along the farm-to- table continuum. To illustrate, frozen hamburger patties might be trucked from a plant to a supplier, stored in the supplier’s warehouse for a few days, trucked again to a local distribution facility, and then delivered to a restaurant. According to CDC, if refrigerated food is left on a loading dock during transportation for an extended time in warm weather, the food could reach temperatures that allow pathogens to grow. among other things, on-farm practices to reduce levels of Salmonella contamination in hogs. The draft Salmonella guidelines are available on the agency’s website. Even though the guidelines are not yet finalized, FSIS encourages producers to use them, according to agency officials we interviewed. However, unlike the poultry and beef cattle guidelines, the draft Salmonella guidelines do not contain information on the effectiveness of on-farm practices, as recommended in 2011 by USDA’s National Advisory Committee on Meat and Poultry Inspection. According to the draft guidelines, when a plant makes changes at the appropriate processing location, process control should result in raw pork products that have less contamination with pathogens, including Salmonella. FSIS officials we interviewed told us that there is not as much research available for such practices for hogs as there is for beef cattle and poultry. However, the officials agreed that including available information would be beneficial. By including available information on the effectiveness of these practices to reduce the level of pathogens as it finalizes its guidelines for controlling Salmonella in hogs, FSIS would have better assurance that it is keeping industry informed of the potential benefits of adopting on-farm practices and encourage their implementation.\nContamination can also occur during preparation in consumers’ homes if food is not properly stored, prepared, heated, or served. For example, according to CDC, once contamination occurs, if meat and poultry are stored or cooked at unsafe temperatures, pathogens will grow quickly, which may lead to foodborne illness.\nWith respect to reducing pathogens after slaughter, FSIS continues to update its guidance to consumers and work with federal partners to ensure the safety of meat and poultry products after they leave the plant. For example: In 2015, the agency developed the FoodKeeper mobile application to educate consumers on how to use food while at peak quality and store food properly. It updated the application in 2017 so users could receive automatic notifications when FDA or FSIS announces food safety recalls.\nIn 2016, FSIS and FDA announced that they would work together to revise the FDA Food Code—a model that local, state, tribal, and federal regulators use to ensure food safety at retail stores, restaurants, and institutions such as nursing homes, among others— to ensure consistency with FSIS regulations and guidance.\nIn 2017, FSIS expanded the operating hours for its Meat and Poultry Hotline, through which consumers could speak with an agency representative or listen to recorded messages regarding food safety, such as the proper storage, handling, and preparation of meat and poultry products.\nPathogens Not Designated as Hazards In September 2014, we found that the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS) faced a challenge in reducing Salmonella and Campylobacter contamination in poultry products when plants do not designate these pathogens as hazards. Under the Hazard Analysis and Critical Control Point (HACCP) approach, plants have discretion about whether to include Salmonella or Campylobacter as a hazard “reasonably likely to occur” in their HACCP plans and develop mitigation strategies to reduce these pathogens. FSIS’s 2014 final rule for modernizing poultry slaughter inspection requires plants to develop, implement, and maintain written procedures to prevent contamination of carcasses and parts by enteric pathogens—bacteria that normally reside in the intestines of many animals, including humans, such as Salmonella and Campylobacter—as well as fecal material. Plants must incorporate these procedures into their HACCP plans, sanitation procedures, and other programs.\nSince our September 2014 report, FSIS has not required hog and beef plants to designate Salmonella or Campylobacter as hazards likely to occur, but it has taken other steps to reduce Salmonella and Campylobacter contamination when plants do not designate these pathogens as hazards. More specifically, in February 2018, FSIS proposed a rule to modernize hog slaughter inspections. The proposed rule would require plants to develop, implement, and maintain written procedures to prevent contamination by enteric pathogens in pork.\nStakeholders we interviewed representing industry and consumer advocacy groups disagreed on whether plants should be required to designate specific pathogens as a hazard reasonably likely to occur. However, in response to instances in which inadequate validation of HACCP plans led to the production of adulterated food, and in some cases illnesses, FSIS released compliance guidance outlining best practices for designing and implementing adequate HACCP plans for all plants in 2015. According to FSIS, plants can use the guidance to properly design and execute HACCP plans and reduce the likelihood of contamination of the products they produce. Specifically, the guidance outlines, among other things, best practices for gathering scientific and technical support, as part of the HACCP plan validation process, to demonstrate that the plants’ processes prevent, reduce, or eliminate the hazards identified.\nComplex Nature of Salmonella In September 2014, we found that the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS) faced a challenge in reducing Salmonella contamination in poultry products because of the complex nature of this pathogen. The majority of the representatives from industry and consumer groups we interviewed at the time, as well as FSIS officials, agreed that Salmonella is difficult to control in poultry products because it is widespread in the natural environment. According to Centers for Disease Control and Prevention officials we interviewed for our past work, there are more than 2,500 serotypes of Salmonella (with different strains), some of which pose greater risk to human health than others. Therefore, it is important to understand the genetic makeup of each to determine which ones are more or less likely to cause human illness.\nFSIS officials said that, in the future, there may be opportunities to improve how the agency protects human health by focusing inspections on plants and products that have tested positive for the more dangerous strains of Salmonella in meat and poultry products. To this end, FSIS collaborates with USDA’s Agricultural Research Service and APHIS, CDC, FDA, and local and state public health partners to develop new technologies that can more precisely determine if a strain of Salmonella detected is particularly dangerous to people. One such technology is whole genome sequencing, which allows the agency to determine the complete set of genes, or strain, within a Salmonella serotype.\nAccording to FSIS officials, it is more challenging to link the strain associated with an illness to a specific meat or poultry product that has sickened consumers; whole genome sequencing technology can more definitively identify the strain involved in an outbreak and help reduce incidents of illness or death due to foodborne pathogens. FSIS is currently planning how to integrate this technology into its food safety program. For example, current pathogen standards are based on the presence or absence of generic Salmonella, not on specific strains. FSIS held a public meeting in October 2017 to get input from state, federal, and international public health partners and other stakeholders on the use of this technology in a regulatory setting to improve food safety and public health.\nLimited Campylobacter Research and Testing In September 2014, we found that the U.S. Department of Agriculture’s Food Safety and Inspection Service faced a challenge in reducing levels of Campylobacter in poultry products in part because less was known about Campylobacter than about Salmonella. Specifically, technologies, such as clinical diagnostics, used to detect Campylobacter may have underdiagnosed cases of illness from this pathogen, and the methods used by many diagnostic laboratories to isolate Campylobacter from samples were not standardized, according to a 2012 World Health Organization report on illnesses from the pathogen. Additionally, the agency’s ability to measure a reduction in Campylobacter illnesses depended on its ability to attribute Campylobacter illnesses to poultry and other food types, according to agency officials, and attribution analyses needed improvement.\nSince our report in September 2014, FSIS has had efforts under way with other agencies to improve foodborne illness source attribution to meat and poultry products and has independent data collection efforts under way to determine the presence of Campylobacter on these products. More specifically, in collaboration with CDC and FDA through the Interagency Food Safety Analytics Collaboration, FSIS has taken steps to improve and standardize methods to estimate the source attribution for Campylobacter foodborne illness. In 2015, this interagency collaboration improved the method for estimating the number of Campylobacter illnesses from meat and poultry products by standardizing the approach used by all three food safety agencies. The interagency collaboration’s new estimates for the proportion of Campylobacter illnesses included all food products—including beef, pork, and poultry. The interagency collaboration also released updated foodborne illness source attribution estimates in December 2017. According to FSIS officials, the three agencies are collaborating on multiple analytic projects, in line with the interagency collaboration’s 2017–2021 strategic plan, to improve models to estimate foodborne illnesses from Campylobacter and other pathogens. These projects involve using new methods and whole genome sequencing and other data sources.\nIn addition to this interagency effort, in 2015, FSIS tested about 200 samples of pork products for Campylobacter as part of an exploratory sampling effort, according to agency documents summarizing the efforts. FSIS found that about 1 percent of products tested were positive for Campylobacter and, therefore, chose not to continue testing pork products for this pathogen. For poultry, in 2016, FSIS revised a laboratory guidebook describing standard protocols for isolating and analyzing Campylobacter in raw products. In 2017, the agency concluded a literature review of Campylobacter contamination in beef and, as of October 2017, is discussing the development of an exploratory sampling project to test for Campylobacter in beef products, according to agency officials.\nLimited Enforcement Authority In September 2014, we found that the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS) faced a potential challenge in reducing Salmonella contamination in poultry products, according to agency officials and representatives of some stakeholder groups we interviewed, because (1) a 2000 federal court ruling stated that FSIS could not withdraw inspectors, effectively shutting down the plant, solely because a plant did not meet Salmonella pathogen standards, and (2) FSIS has not classified Salmonella as an adulterant in raw poultry products, so products contaminated with this pathogen generally may be permitted to enter commerce.\nFSIS adopted the position that the court ruling did not affect its ability to use the Salmonella pathogen standards as part of verifying a plant’s sanitation and Hazard Analysis and Critical Control Point plans and that it had tools, such as food safety assessments (an evaluation of a plant’s food safety system), to prevent contaminated products from entering the market. Representatives from consumer groups we interviewed at the time said that even with these tools, the agency does not have sufficient authority to ensure plants comply with the standards because FSIS cannot shut down plants when they fail the Salmonella standards alone. Representatives from industry groups we interviewed at the time disagreed and stated that FSIS has sufficient authority to ensure plants comply with standards because the agency has broad statutory authority and oversight.\nRegarding FSIS not classifying Salmonella as an adulterant, representatives from consumer groups we interviewed for our previous work said that the agency should declare some serotypes of Salmonella as adulterants, such as those with specific antibiotic-resistant patterns. FSIS officials we interviewed for our previous work said they found no conclusive evidence that antibiotic-resistant strains of Salmonella or Campylobacter have a greater resistance to the interventions used in plants but that the agency would continue to review relevant scientific evidence to identify any potential challenges these serotypes may present to public health.\nSince our report in September 2014, FSIS continues to stand by the position that the 2000 court ruling does not affect its ability to use pathogen standards as a tool to prevent contaminated products from entering the market. FSIS reaffirmed its position in a 2016 Federal Register notice. Our review of FSIS data from 2016 through 2017 for poultry plants shows that some plants are still not meeting pathogen standards—in some cases repeatedly not meeting the standards—and are allowed to operate. We were unable to review similar data for beef or hog plants since, as noted above, FSIS suspended monitoring these plants against pathogen standards. FSIS stands by its assessment that its enforcement tools are sufficient. Moreover, in 2015, FSIS announced an additional tool to help FSIS identify and assess problems or trends that may be of concern. Specifically, FSIS investigators must now conduct a public health risk evaluation at every plant that does not meet a pathogen standard. This is a positive step for those products that have pathogen standards, such as chicken parts. However, as previously stated, FSIS does not test for whether plants producing beef carcasses, ground beef, and pork carcasses meet the pathogen standards for those products, and other products such as ground pork do not have pathogen standards. Representatives from consumer groups and industry we interviewed continue to disagree on whether FSIS’ existing enforcement tools are sufficient to ensure that meat and poultry plants meet pathogen standards.\nRegarding antibiotic-resistant strains of Salmonella, FSIS officials continue to state that the pathogen does not meet the criteria for classifying it as an adulterant and that the agency will continue to examine options for regulating the presence of antibiotic-resistant strains of Salmonella in raw meat and poultry products. Agency officials told us that to classify a pathogen as an adulterant in raw meat and poultry products, FSIS must determine that the pathogen meets certain criteria established both in its authorizing statutes and by case law. Specifically, in American Public Health Association v. Butz, a federal appeals court in 1974 held that Salmonella did not adulterate raw poultry because ordinary consumer methods of preparing and cooking the product would eliminate the pathogen. In contrast, FSIS declared certain types of E. coli as adulterants in beef, as discussed above, because ordinary consumer cooking does not eliminate the pathogen. According to FSIS officials, the available data do not appear to indicate that Salmonella presents the same issues as E. coli or meets the necessary criteria, regardless of whether it is resistant or susceptible to antibiotics. This issue continues to be contentious among the stakeholders we interviewed. Six of the seven industry stakeholders we interviewed stated that FSIS’s current enforcement authority is sufficient. Two of four food safety researchers we interviewed stated that the agency does not need additional authority to label Salmonella as an adulterant because FSIS has labeled other pathogens as adulterants when it made sense to do so, such as E. coli¸ and there is no need to label naturally occurring bacteria as adulterants on raw product. In contrast, all four of the consumer advocacy groups and two of the four food safety researchers we interviewed stated that FSIS needs more authority to label Salmonella as an adulterant.\nNo Mandatory Recall Authority In September 2014, we found that the U.S. Department of Agriculture’s Food Safety and Inspection Service (FSIS) faced a challenge in reducing Salmonella and Campylobacter contamination in poultry products because it did not have mandatory food recall authority similar to that of the Food and Drug Administration (FDA) for the food products FDA regulates, such as milk, seafood, fruits, and vegetables. In 2011, Congress passed the FDA Food Safety Modernization Act, giving FDA mandatory recall authority. We recommended in October 2004 that Congress consider legislation to increase FSIS’s authority to include mandatory recalls, but the agency continues to not have such authority. Instead, to protect human health from potentially contaminated meat and poultry products, FSIS can issue public health alerts, which notify the public on specific actions to take to avoid illness, or request voluntary recalls, which are voluntary actions taken by plants, among other actions. Before requesting a voluntary recall, FSIS must gather sufficient evidence through its investigation and determine that a product is adulterated and mislabeled, among other things. In September 2014, we reported that this can be challenging to do. FSIS officials told us at the time that rather than focusing on the lack of mandatory recall authority, it was more productive to work aggressively with the tools they had, such as withdrawing inspectors, thus preventing products from entering commerce. According to FSIS officials, this can be as effective for keeping unsafe food from the marketplace as FDA’s recall authority.\nTo encourage poultry slaughter and processing plants to control for Salmonella and Campylobacter—disease-causing pathogens that can sicken consumers—USDA publicly releases information on individual plant performance for reducing these pathogens. According to the agency’s 2017 annual plan, publishing plant-specific data allows consumers to make more informed choices, motivates individual plants to improve performance, and leads to industry-wide improvements in food safety. USDA’s Economic Research Service found that publicly releasing the identities of plants with poor or mediocre performance on tests for Salmonella is strongly correlated with about a 60 percent decline of chicken carcass samples testing positive for Salmonella from 2006 to 2010. In 2016, USDA temporarily replaced posting information on individual plants’ performance for chicken and turkey carcasses, chicken parts, and comminuted poultry (e.g., ground), with information on aggregate results to allow time for plants to update their food safety systems. In January 2018, FSIS began reposting individual plants’ category status for poultry carcasses on a monthly basis. According to the agency’s annual plan for fiscal year 2017, USDA intends to resume publicly releasing individual plant performance information for turkey carcasses and to add data for plants producing chicken parts and comminuted chicken and turkey. The agency also intends to release data for plants producing some beef products, according to its 2016 strategic plan on publicly releasing data.\nSince our September 2014 report, FSIS officials said that they continue to believe that mandatory recall authority is not necessary for the reasons previously mentioned. According to FSIS officials, the agency continues to refine and improve its procedures for requesting voluntary recalls of adulterated and misbranded meat and poultry products, confirming the effectiveness of these recalls, and alerting the public about adulterated and misbranded products that may remain in commerce. Therefore, FSIS officials stated that the agency does not see the lack of mandatory recall authority as an obstacle or hindrance to its efforts to protect public health and ensure that meat and poultry products are safe, wholesome, and properly labeled. In contrast, FDA officials told us that having mandatory recall authority protects human health from foodborne illness because the agency does not have to rely upon manufacturers’ voluntary recall efforts or obtain a court order to remove contaminated or misbranded food, other than infant formula, from the food supply. In our review of FDA’s annual reports to Congress on the use of mandatory recall authority from 2013 to 2016, the most recent available, the agency has used its mandatory recall authority twice. The majority (12 of 17) of the stakeholders we interviewed stated that the absence of mandatory recall authority is not a challenge for FSIS in reducing pathogen contamination of meat and poultry products. However, according to 3 of 4 stakeholders from consumer groups and 1 of 4 food safety researchers we interviewed, acquiring mandatory recall authority would enable FSIS to better protect human health because the agency would then have an additional tool to stop an outbreak of foodborne illness and address the level of pathogens in products once they leave the plant.\nInsufficient Prevalence Estimates In September 2014, we found that the U.S. Department of Agriculture’s (USDA) Food Safety and Inspection Service (FSIS) faced a challenge in reducing Salmonella and Campylobacter contamination in poultry products as a result of not having sufficient prevalence estimates. Prevalence is the proportion of a product that would test positive for a pathogen if the entire population of that product was sampled and analyzed during a specific period of time. FSIS collects and analyzes data to estimate the prevalence of pathogens when the agency develops or revises pathogen standards for products it regulates. However, we reported that there were numerous problems with the data FSIS used to estimate prevalence. For example, assessing levels of poultry pathogens across the entire industry was difficult using data from FSIS’s verification-testing program because the program was not designed to assess prevalence of pathogens industry-wide and the agency does not randomly select plants for inspection. According to USDA’s National Advisory Committee on Microbiological Criteria for Food, estimating the prevalence of pathogens in food is critical to understanding and addressing the public health risk of foodborne illness, and these estimates provide a mechanism for measuring performance against public health goals, among other things. FSIS officials told us at that time that the agency had plans to propose a new testing approach for all of its poultry products, which would allow for more frequent data collection and improve prevalence estimates, among other things.\nIn 2016, FSIS implemented this new testing approach for all poultry products for which there are pathogen standards and for some meat products, but according to officials, the agency did not do so for all products that it regulates because of resource constraints. Specifically, according to a 2016 Federal Register notice, FSIS now routinely samples chicken and turkey carcasses, chicken parts (legs, wings, and breasts), and comminuted chicken and turkey for Salmonella and Campylobacter pathogens over an entire year—rather than a set period of time—based on the volume of poultry products produced in plants. It also uses this approach to test for Salmonella in ground beef, beef manufacturing trimmings, and other ground beef components, according to a 2014 Federal Register notice. This new approach allows for better prevalence estimates and for monitoring changes in prevalence over time, according to agency officials. As discussed earlier, FSIS began exploratory sampling of pork products, including pork cuts and comminuted (including ground) pork, in 2015. According to a 2017 agency notice describing the sampling, FSIS collects and analyzes samples of pork products in a way that allows for prevalence estimates. FSIS does not use the same approach to sample other products, such as raw components used in ground beef (e.g., esophagus, head meat, cheek meat, and hearts), chicken half carcasses, and chicken necks, because of limited resources, according to agency officials. These officials stated that the agency first conducts exploratory sampling—such as its current program for pork products—to determine if FSIS should allocate resources for routine sampling of these products that would allow for prevalence estimates.",
"To help ensure the safety of meat and poultry products and protect against foodborne illness, USDA’s FSIS has transitioned to an increasingly science-based, data-driven, risk-based approach. As part of this approach, FSIS has taken several actions to reduce levels of Salmonella and Campylobacter in poultry products, including strengthening existing pathogen standards for Salmonella in poultry carcasses and developing new Salmonella and Campylobacter standards for certain chicken parts. However, the agency has not set pathogen standards for many widely available products, such as pork cuts and ground pork, and the agency’s process for deciding which products to consider for new pathogen standards is not fully documented. Previously, FSIS has developed new pathogen standards after the agency has been directed to do so or after widespread outbreaks indicated the need. Until FSIS clearly documents its process for deciding which products to consider for new pathogen standards, including the basis on which such decisions should be made, FSIS will not have assurance that its decisions will be risk-based and that agency personnel will know the process when making such decisions.\nAs part of its new approach, FSIS is collecting data that could enable it to set new pathogen standards for pork cuts and ground pork, and the agency is analyzing data that could lead to revising the Salmonella standards for beef carcasses and ground beef—which are decades old and not set at levels that are health protective. However, the agency has not set time frames for completing these efforts. In the absence of pathogen standards against which the agency tests, the agency is not using a valuable tool that could be used to help verify that plants’ processing controls to prevent, eliminate, or reduce food safety hazards are working. By setting time frames for determining what pathogen standards or additional policies are needed to address pathogens in these products, FSIS could better ensure it completes these activities in a timely manner to better protect human health.\nIn addition, FSIS continues to face several challenges that hinder its ability to reduce the level of pathogens in meat and poultry products. For example, practices outside the slaughter plant, such as conditions on cattle, hog, and poultry farms, can affect levels of pathogens on meat and poultry products. To help overcome this challenge, the agency has developed draft guidance on practices for controlling levels of Salmonella and Campylobacter on beef cattle, hog, and poultry farms, but the draft guidance for hogs does not include available information on the effectiveness for each practice, as an internal agency committee recommended. As FSIS finalizes this guidance, FSIS could better inform industry of the potential benefits of adopting on-farm practices and encourage implementation of these practices by including available information on their effectiveness.",
"We are making three recommendations to FSIS. Specifically: The Administrator of FSIS should document the agency’s process for deciding which products to consider for new pathogen standards, including the basis on which such decisions should be made. (Recommendation 1).\nThe Administrator of FSIS should set time frames for determining what pathogen standards or additional policies are needed to address pathogens in beef carcasses, ground beef, pork cuts, and ground pork. (Recommendation 2).\nThe Administrator of FSIS should include available information on the effectiveness of on-farm practices to reduce the level of pathogens as it finalizes its guidelines for controlling Salmonella in hogs. (Recommendation 3).",
"We provided a draft of this report to USDA and the Department of Health and Human Services. In written comments, reproduced in appendix II, USDA agreed with our three recommendations and described actions it will take to implement them.\nIn particular, with respect to our first recommendation, USDA stated that FSIS will complete an internal document that delineates the agency’s process for creating or updating pathogen standards. However, USDA stated that although it agrees it can take additional steps to document its process, it does not agree that FSIS does not have assurance its decisions are risk based. In particular, it cited a Federal Register notice indicating that it designed its pathogen standards for chicken parts and comminuted chicken and turkey to achieve certain reductions in illnesses from Salmonella and Campylobacter. USDA also stated that FSIS has consistently documented and published its process in the Federal Register, and it noted that agency personnel use these Federal Register notices as guidance and historical reference. While these notices can be a useful historical record and document the steps FSIS took to ensure that agency decisions were risk-based, we continue to believe that, until FSIS clearly documents its process for deciding which products to consider for new pathogen standards going forward—including the basis on which such decisions should be made—FSIS will not have assurance that its decisions will be risk-based and that agency personnel know the process when making such decisions in the future. Completing documentation of the agency’s process would address our recommendation.\nConcerning our second recommendation, USDA stated that in 2018 FSIS will continue to assess data from sampling projects, along with baseline data and outbreak/illness data, to determine whether new or revised standards or additional policies are needed to address Salmonella in beef products. USDA further stated that in 2019, it will use data collected during its raw pork exploratory study to determine whether standards or additional policies (e.g., training, guidance to industry, or instructions to field personnel) are needed to address Salmonella in pork products. Finalizing analysis of these data and determining if additional standards or policies are needed to address Salmonella in beef in 2018 or pork in 2019 would address our recommendation.\nIn response to our third recommendation, USDA stated that FSIS will include available scientific information on the effectiveness of each recommended farm practice in the guidelines for reducing Salmonella in market hogs. Doing so would address our recommendation.\nUSDA also provided technical comments. We incorporated these comments as appropriate. The Department of Health and Human Services did not have any comments.\nAs agreed with your offices, unless you publicly announce the contents earlier, we plan no further distribution of this report until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of Agriculture, the Administrator of the Food Safety and Inspection Service, and other interested parties. In addition, the report will be 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) 512-3841 or morriss@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.",
"In addition to regulating meat and poultry sold in commerce, the U.S. Department of Agriculture (USDA) also purchases food and, in some cases, has additional food safety requirements for food it purchases.\nUSDA’s Agricultural Marketing Service (AMS) purchases beef and other food for various federal nutrition assistance programs, including the National School Lunch Program. USDA provides this food to states in support of about 100,000 public and private nonprofit schools that provide lunches to about 30 million children. Ground beef is a staple of school menus. For example, according to AMS officials, during fiscal year 2016, the agency purchased more than 110 million pounds of raw beef, over 90 percent of which was delivered to the National School Lunch Program. Further, according to AMS officials, about 41 million pounds (37 percent) were delivered raw while the rest was delivered to a federally inspected processing facility for cooking prior to delivery to school lunch program agencies.\nBeef to be delivered raw to the National School Lunch program is tested for pathogens (Salmonella and Shiga-toxin-producing E. coli, two pathogens that can cause foodborne illness in humans) and certain microorganisms such as aerobic plate count bacteria, coliform bacteria, and generic E. coli that serve as indicators of the effectiveness of slaughter and processing plants’ process controls to limit pathogens.\nNational School Lunch Program According to USDA, the National School Lunch Program is a federally assisted meal program operating in public and nonprofit private schools and residential childcare institutions. It provides nutritionally balanced, low-cost or free lunches to children each school day. The program was established under the National School Lunch Act, signed by President Harry Truman in 1946. USDA’s Food and Nutrition Service administers the program at the federal level. At the state level, the program is administered by state agencies, operating through agreements with school food authorities. Participating school districts and independent schools receive cash subsidies and food. In exchange, participating institutions must serve lunches that meet federal nutrition requirements and offer the lunches at a free or reduced price to eligible children. USDA’s Agricultural Marketing Service purchases beef and other food for various federal nutrition assistance programs, including the National School Lunch Program.\nAccording to AMS officials, these indicator microorganisms indicate the quality of the food safety controls at the plant. For raw beef products that AMS considers for purchase for its programs, the agency rejects any beef that tests positive for Salmonella, a pathogen that can cause foodborne illness in humans. According to AMS officials, this requirement that beef purchased for these programs not test positive for Salmonella differs from the regulatory standard for beef inspected by USDA’s Food Safety and Inspection Service (FSIS). Further, according to AMS officials, AMS set this requirement because raw beef was considered the product with the most risk for recipients and enough plants were able to meet the requirement. AMS officials said that as a purchaser for various federal nutrition assistance programs, the agency has discretion to set requirements for qualified suppliers, and plants can choose whether to become qualified suppliers.",
"",
"",
"",
"In addition to the contact named above, Mary Denigan-Macauley (Assistant Director); Thomas Cook (Assistant Director); James R. Jones, Jr. (Assistant Director); David Bennett (Analyst in Charge); Kevin Bray; Cindy Gilbert; Cynthia Norris; Gloria Ross; and Kiki Theodoropoulos made key contributions to this report.",
"Foot-and-Mouth Disease: USDA’s Evaluations of Foreign Animal Health Systems Could Benefit from Better Guidance and Greater Transparency. GAO-17-373. Washington, D.C.: April 28, 2017.\nAntibiotic Resistance: More Information Needed to Oversee Use of Medically Important Drugs in Food Animals. GAO-17-192. Washington, D.C.: March 2, 2017.\nFood Safety: A National Strategy Is Needed to Address Fragmentation in Federal Oversight. GAO-17-74. Washington, D.C.: January 13, 2017.\nSeafood Safety: Status of Issues Related to Catfish Inspection. GAO-17-289T. Washington, D.C.: December 7, 2016.\nImported Food Safety: FDA’s Targeting Tool Has Enhanced Screening, but Further Improvements Are Possible. GAO-16-399. Washington, D.C.: May 26, 2016.\nFood Safety: FDA Coordinating with Stakeholders on New Rules but Challenges Remain and Greater Tribal Consultation Needed. GAO 16- 425. Washington, D.C.: May 19, 2016.\nFederal Food Safety Oversight: Additional Actions Needed to Improve Planning and Collaboration. GAO-15-180. Washington, D.C.: December 18, 2014.\nFood Safety: USDA Needs to Strengthen Its Approach to Protecting Human Health from Pathogens in Poultry Products. GAO-14-744. Washington, D.C.: September 30, 2014.\nFood Safety: More Disclosure and Data Needed to Clarify Impact of Changes to Poultry and Hog Inspections. GAO-13-775. Washington, D.C.: August 22, 2013."
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"question": [
"Why has the USDA developed standards?",
"What is the problem with the standards?",
"How are these standards problematic?",
"Why would it be beneficial for the USDA to document its process for deciding products to consider for new standards?",
"What steps is USDA taking?",
"What is one challenge GAO identified?",
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"summary": [
"To help ensure the safety of our nation's food supply, the U.S. Department of Agriculture (USDA) has developed standards limiting the amount of Salmonella and Campylobacter —pathogens that can cause foodborne illness in humans—permitted in certain meat (beef and pork) and poultry (chicken and turkey) products, such as ground beef, pork carcasses, and chicken breasts.",
"However, the agency has not developed standards for other products that are widely available, such as turkey breasts and pork chops. Further, its process for deciding which products to consider for new standards is unclear because it is not fully documented, which is not consistent with federal standards for internal control.",
"For example, USDA has informed stakeholders that it will take into account factors including consumption and illness data, but the agency has not documented this process going forward. Previously, USDA had developed new standards after widespread outbreaks indicated the need.",
"By documenting the agency's process for deciding which products to consider for new standards, USDA could better ensure that such decisions will be risk-based.",
"USDA is taking steps to address challenges GAO identified in 2014 for reducing pathogens in poultry products, but these challenges are ongoing and could affect USDA's ability to reduce pathogens in meat as well.",
"For example, one challenge GAO identified is that the level of pathogens in poultry products can be affected by practices on farms where poultry are raised.",
"GAO recommended in 2014 that to help overcome this challenge, USDA guidelines on practices for controlling Salmonella and Campylobacter on farms include information on the effectiveness of each of the practices, consistent with a recommendation from a USDA advisory committee.",
"Since GAO's 2014 report, USDA drafted revised guidelines to include information on the effectiveness of on-farm practices for controlling pathogens in poultry and beef cattle, in 2015 and 2017, respectively.",
"However, USDA's draft guidelines for controlling Salmonella in hogs do not contain such information.",
"GAO was asked to review USDA's approach to reducing pathogens in meat and poultry products.",
"This report examines (1) the extent to which USDA has developed standards for meat and poultry products and (2) any additional steps USDA has taken to address challenges GAO identified in 2014.",
"GAO reviewed relevant regulations, documents, and data and interviewed officials from USDA and CDC, as well as 17 stakeholders representing industry, consumer groups, and researchers selected based on their knowledge of USDA's meat and poultry slaughter inspections and food safety."
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GAO_GAO-12-833
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{
"title": [
"Background",
"Nearly All Program Managers Surveyed Reported Significant Challenges",
"Most Major Programs Reported Their Planned Capabilities Changed after Initiation",
"Most Major Programs Reported They Experienced Funding Instability",
"Most Major Programs Reported They Experienced Workforce Shortfalls",
"Programs Proceed without Meeting Sound DHS Acquisition Policy",
"DHS Acquisition Policy Generally Reflects Key Program Management Practices",
"DHS Has Approved Few Programs’ Key Acquisition Documents",
"DHS Recognizes the Need to Implement Its Acquisition Policy More Consistently, but Significant Work Remains",
"DHS Needs Policy and Process Enhancements to Effectively Manage Its Portfolio of Investments",
"DHS Acquisition Policy Shortfalls Hinder Portfolio Management Efforts",
"DHS Acquisition Management Initiatives Target Longstanding Challenges, but Key Implementation Issues Remain",
"DHS Initiatives Are Intended to Address Longstanding Acquisition Management Challenges",
"Some Initiatives Are Taking Longer to Implement Than Originally Envisioned, and Capacity Issues Could Create Further Challenges",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Key Acquisition Management Practices",
"Key Program Management Practices",
"Key Portfolio Management Practices",
"Previous Reports Establishing Key Acquisition Management Practices",
"Appendix III: Program Office Survey Results",
"Section I: Program Profile",
"Mean 5.6",
"Section II: DHS Acquisition Guidance, AD 102",
"4. How often, if at all, do you refer to each of the following resources to help you manage your acquisition program?",
"Section V: Requirements",
"Yes, approved",
"Section VI: Technology Maturity",
"All critical technologies demonstrated full functionality 25",
"Section VII: Resource Allocation",
"Yes 21",
"Section IX: Communication to DHS",
"42. How effective, if at all, are each of the following tools for communicating your program's performance to DHS leadership?",
"Section X: DHS Acquisition Management Initiatives",
"46. How familiar are you with each of the following DHS initiatives?",
"Appendix V: Comments from the Department of Homeland Security",
"Appendix VI: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"DHS invests in major acquisition programs to develop capabilities intended to improve its ability to execute its mission. DHS generally defines major programs as those expected to cost at least $300 million over their respective life cycles, and many are expected to cost more than $1 billion. DHS Acquisition Management Directive 102-01 (AD 102) and DHS Instruction Manual 102-01-001 (Guidebook), which includes 12 appendixes, establish the department’s policies and processes for managing these major acquisition programs. DHS issued the initial version of AD 102 in 2008 in an effort to establish an acquisition management system that effectively provides required capability to operators in support of the department’s missions. AD 102 establishes that DHS’s Chief Acquisition Officer—currently the Under Secretary for Management (USM)—is responsible for the management and oversight of the department’s acquisition policies and procedures. The USM, Deputy Secretary, and Component Acquisition Executives (CAE) are the Acquisition Decision Authorities for DHS’s major acquisition programs. Table 1 identifies how DHS categorizes the 77 major acquisition programs it identified in 2011.\nThe Acquisition Decision Authority is responsible for reviewing and approving the movement of DHS’s major acquisition programs through four phases of the acquisition life cycle at a series of five predetermined Acquisition Decision Events. These five Acquisition Decision Events provide the Acquisition Decision Authority an opportunity to assess whether a major program is ready to proceed through the life-cycle phases. The four phases of the acquisition life cycle, as established in AD 102, are: 1. Need phase: Department officials identify that there is a need, consistent with DHS’s strategic plan, justifying an investment in a new capability and the establishment of an acquisition program to produce that capability; 2. Analyze/Select phase: the Acquisition Decision Authority designates a qualified official to manage the program, and this program manager subsequently reviews alternative approaches to meeting the need, and recommends a best option to the Acquisition Decision Authority; 3. Obtain phase: The program manager develops, tests, and evaluates the selected option; during this phase, programs may proceed through ADE 2B, which focuses on the cost, schedule, and performance parameters for each of the program’s projects; and ADE 2C, which focuses on low rate initial production issues; and 4. Produce/Deploy/Support phase: DHS delivers the new capability to its operators, and maintains the capability until it is retired; this phase includes sustainment, which begins when a capability has been fielded for operational use; sustainment involves the supportability of fielded systems through disposal, including maintenance and the identification of cost reduction opportunities; this phase tends to account for up to 70 percent of life-cycle costs.\nFigure 1 depicts the acquisition life cycle.\nAn important aspect of the Acquisition Decision Events is the review and approval of key acquisition documents critical to establishing the need for a major program, its operational requirements, an acquisition baseline, and testing and support plans. AD 102—and the associated DHS Instruction Manual 102-01-001 and appendixes—provide more detailed guidance for preparing these documents than DHS’s predecessor policy. See table 2 for descriptions of the key acquisition documents requiring department-level approval before a program moves to the next acquisition phase.\nLevel 2 programs’ life cycle cost estimates do not require department-level approval.\nChief Financial Officer,\nChief Procurement Officer,\nChief Information Officer,\nChief Human Capital Officer,\nChief Administrative Services Officer,\nChief Security Officer,\nCAE responsible for the program being reviewed, and\nUser representatives from component(s) sponsoring the capability.\nThe Office of Program Accountability and Risk Management (PARM) is responsible for DHS’s overall acquisition governance process, supports the IRB, and reports directly to the USM. PARM, which is led by an executive director, develops and updates program management policies and practices, oversees the acquisition workforce, provides support to program managers, and collects program performance data. In March 2012, PARM issued its first Quarterly Program Accountability Report, which provided an independent evaluation of major programs’ health and risks.\nThe department’s program management offices are responsible for planning and executing DHS’s individual programs within cost, schedule, and performance goals. The program managers provide the IRB key information by preparing required acquisition documents that contain critical knowledge about their respective programs, facilitating the governance process. Nearly all of DHS’s program management offices are located within 12 of the department’s component agencies, such as the Transportation Security Administration, or U.S. Customs and Border Protection. Within these components, CAEs are responsible for establishing acquisition processes and overseeing the execution of their respective portfolios. Additionally, under AD 102, the USM can delegate Acquisition Decision Authority to CAEs for programs with life-cycle cost estimates between $300 million and $1 billion. Figure 2 depicts the relationship between acquisition managers at the department, component, and program level.\nThe Office of Program Analysis and Evaluation (PA&E), within the Office of the Chief Financial Officer (OCFO), is responsible for advising the USM, among others, on resource allocation issues. PA&E coordinates with DHS’s Office of Policy on the department’s long-term strategic planning efforts, analyzing budget submissions, cost estimates, and resource constraints. PA&E also oversees the development of the Future Years Homeland Security Program (FYHSP). DHS is required to submit the FYHSP to Congress annually with each budget request. The FYHSP is DHS’s 5-year funding plan for programs approved by the Secretary that are to support the DHS strategic plan. The FYHSP provides a detailed account of time-phased resource requirements for each component, as well as programs’ cost estimates, milestones, and performance measures.",
"Nearly all of the program managers we surveyed reported their programs had experienced significant challenges increasing the risk of poor outcomes, particularly cost growth and schedule slips. Sixty-eight of the 71 programs that responded to our survey reported that they experienced funding instability, faced workforce shortfalls, or their planned capabilities changed after initiation. Most program managers reported a combination of these challenges, as illustrated in figure 3.\nWe have previously reported that these challenges increase the likelihood acquisition programs will cost more and take longer to deliver capabilities than expected.realistic schedules needed to accurately measure program performance, Although DHS lacks the reliable cost estimates and it has submitted some cost information to Congress, and PARM conducted an internal review of its major acquisition programs in March 2012. We used this information and our survey results to identify 42 programs that experienced cost growth, schedule slips, or both. Cost information DHS submitted to Congress provides insight into the magnitude of the cost growth for 16 of the 42 programs. Using this information, we found total project costs increased from $19.7 billion in 2008 to $52.2 billion in 2011, an aggregate increase of 166 percent. See figure 4.\nWe have previously reported that cost growth and schedule slips can lead to reduced capabilities, decreasing the value provided to the operator—as well as the value of the resources invested in the programs. This poor performance threatens the department’s ability to successfully field the capabilities it is pursuing.",
"Prior to entering the Obtain phase, programs are to establish the specific capabilities they plan to develop to improve DHS’s ability to execute its mission. Forty-three survey respondents reported that their programs changed planned capabilities after the initiation of design and development activities, which occurs between ADE 2B and testing. We have previously found that both increases and decreases in planned capabilities are associated with cost growth and schedule slips. We have found that increasing planned capabilities can lead to cost growth or schedule slips because programs are more costly to change after they begin development activities. Alternatively, we have stated that programs may choose to decrease their planned capabilities in response to cost growth or schedule slips in an effort to maintain affordability or deliver certain capabilities when needed. At DHS, we found that more than half of the 43 programs that reported changing their capabilities had experienced cost growth or schedule slips, regardless of whether their planned capabilities increased, decreased, or both. See figure 5.\nThe 43 survey respondents that reported their planned capabilities changed identified five key reasons for the changes. Nineteen of the 43 survey respondents reported more than one reason. See figure 6.\nSurvey respondents identified operator input as the most common reason for increasing planned capabilities after the initiation of development efforts, even though officials at the department, component, and program levels all said operator input at the initiation of design and development is very useful. For example, in 2011, we reported that the U.S. Citizenship and Immigration Services’s Transformation program did not fully define its planned capabilities before it awarded a contract to develop a new system to enhance the adjudication of applications. After the contract was awarded, the program office worked with those officials most familiar with adjudication operations and discovered that the functions were more complex than expected. As a result, the program office revised the requirements, and the deployment date for key capabilities slipped from April 2011 to October 2012.\nAlternatively, DHS program managers identified funding availability as the most common reason for decreasing planned capabilities after the initiation of development efforts. In the past, we have stated that agencies may reduce planned capabilities in this manner when their programs experience cost growth. Decreasing planned capabilities in response to affordability concerns may be fiscally responsible, but as a result, operators may not receive the capability originally agreed upon to address existing capability gaps.",
"DHS is required to establish out-year funding levels for programs annually in the FYHSP. Changes to planned out-year funding levels create funding instability, which we have previously found increases the risk of cost growth, schedule slips, and capability shortfalls. Sixty-one survey respondents reported that their programs have experienced funding instability, and we found that 44 of the 61 programs had also realized cost growth, schedule slips, or capability reductions. Additionally, 29 survey respondents reported that their programs had to resequence the delivery of certain capabilities. For example, Coast Guard officials told us they deferred some of the HH-60 helicopter’s capabilities because of funding constraints across their portfolio of programs. The Coast Guard delayed delivery of dedicated radar to search the surface of the water in order to replace critical components, such as main rotor blades, as planned. Figure 7 identifies how program managers reported funding instability has affected their programs.\nForty-five of the 61 survey respondents that reported their programs experienced funding instability also reported reasons for the funding instability. Twenty-two survey respondents reported more than one reason. See figure 8.\nEighteen survey respondents reported that their program experienced a funding decrease because of another program’s funding needs. We have previously reported that agencies often change funding levels in this manner when they commit to more programs than they can afford. A PA&E official told us that DHS’s resource requirements exceed the department’s funding levels, and that the department has allowed major acquisition programs to advance through the acquisition life cycle without identifying how they will be funded. Furthermore, a PA&E official stated that DHS has not been able to determine the magnitude of its forthcoming funding gap because cost estimates are unreliable. The director of the department’s cost analysis division determined that only 12 major acquisition programs met most of DHS’s criteria for reliable cost estimates when it reviewed the components’ fiscal year 2013 budget submissions. In 2010, we reported that DHS officials had difficulty managing major programs because they lacked accurate cost estimates.\nGiven the fiscal challenges facing the federal government, funding shortfalls may become an increasingly common challenge at DHS, leading to further cost growth that widens the gap between resource requirements and available funding.",
"DHS acquisition policy establishes that each program office should be staffed with personnel who have appropriate qualifications and experience in key disciplines, such as systems engineering, logistics, and financial management. Fifty-one survey respondents reported that their programs had experienced workforce shortfalls—specifically a lack of government personnel—increasing the likelihood their programs will perform poorly in the future. We have previously reported that a lack of adequate staff in DHS program offices—both in terms of skill and staffing levels—increased the risk of insufficient program planning and contractor oversight, which is often associated with cost growth and schedule slips.Figure 9 below identifies the functional areas where DHS acquisition programs reported workforce shortfalls.\nWe found that 29 of the 51 DHS programs that identified workforce shortfalls had also experienced cost growth or schedule slips.workforce shortfalls have led to insufficient program planning, hindering the development of key acquisition documents intended to inform senior- level decision making. For example, CAEs and program managers said that workforce shortfalls limited program management offices’ interaction with stakeholders and operators, and delayed or degraded test plans and cost estimates. In addition, a PARM official explained that DHS has had to rely on contractors to produce cost estimates because of workforce shortfalls, and the quality of these cost estimates has varied.\nThe The USM has stated that properly staffing programs is one of DHS’s biggest challenges, and we have previously reported that the capacity of the federal government’s acquisition workforce has not kept pace with increased spending for increasingly complex purchases. PARM officials told us that the IRB’s program reviews include assessments of the program office workforce, but that the IRB considers staffing issues a relatively low priority, and we found the IRB has formally documented workforce-related challenges for only 11 programs.",
"DHS acquisition policy reflects many key program management practices.critical knowledge that would help leaders make better informed investment decisions when managing individual programs. This knowledge would help DHS mitigate the risks of cost growth and schedule slips resulting from funding instability, workforce shortfalls, and planned-capability changes. However, as of April 2012, the department had only verified that four programs documented all of the critical knowledge required to progress through the acquisition life cycle. In most instances, DHS leadership has allowed programs it has reviewed to proceed with acquisition activities without meeting these requirements. Officials explained that DHS’s culture has emphasized the need to rapidly execute missions more than sound acquisition management practices, and we have found that most of the department’s major programs are at risk of cost growth and schedule slips as a result. In addition, they lack the reliable cost estimates, realistic schedules, and agreed-upon baseline objectives that DHS acknowledges are needed to accurately track program performance, limiting DHS leadership’s ability to effectively manage those programs and provide information to Congress. DHS recognizes the need to implement its acquisition policy more consistently, but significant work remains.",
"In 2005, we reported that DHS established an investment review process that adopted many practices to reduce risk and increase the chances for successful outcomes. In 2010, we reported that AD 102 provided more detailed guidance for preparing key acquisition documents than the department’s predecessor policy. In October 2011, DHS updated the Guidebook and its appendixes, and we have found that it establishes a knowledge-based acquisition policy for program management that is largely consistent with key practices.\nA knowledge-based approach to capability development allows developers to be reasonably certain, at critical points in the acquisition life cycle, that their products are likely to meet established cost, schedule, and performance objectives. information needed to make sound investment decisions, and it would help DHS address the significant challenges we identified across its acquisition programs: funding instability, workforce shortfalls, and planned-capability changes. Over the past several years, our work has emphasized the importance of obtaining key knowledge at critical points in major system acquisitions and, based on this work, we have identified eight key practice areas for program management. These key practice areas are summarized in table 3, along with our assessment of DHS’s acquisition policy.\nIn our past work examining weapon acquisition issues and best practices for product development, we have found that leading commercial firms pursue an acquisition approach that is anchored in knowledge, whereby high levels of product knowledge are demonstrated by critical points in the acquisition process. See GAO-11-233SP.\nLegend: DHS policy reflects key practices; ◕ DHS policy substantially reflects key practices; ◑ DHS policy partially reflects key practices.\nWe found that DHS’s acquisition policy generally reflects key program- management practices, including some intended to help develop knowledge at critical points in the acquisition life cycle. Furthermore, the revised policy the department issued in October 2011 better reflects two key practice areas by bolstering exit criteria and taking steps to establish an adequate acquisition workforce. Specifically, the revised Guidebook and its appendixes require that refined cost estimates be reviewed at major milestones after the program baseline has been established, and used to determine whether a program has developed appropriate knowledge to move forward in the acquisition life cycle. These reviews can help reduce risk and the potential for unexpected cost and schedule growth. Additionally, the revised policy establishes that major program offices should be staffed with personnel with appropriate qualifications and experience in key acquisition disciplines. We have previously identified that the magnitude and complexity of the DHS acquisition portfolio demands a capable and properly trained workforce and that workforce shortfalls increase the risk of poor acquisition outcomes. The policy revisions could help mitigate this risk.\nHowever, there are three areas where DHS could further enhance acquisition oversight:\nThe policy requires that DHS test technologies and manufacturing processes, but it does not require that 1) programs demonstrate technologies in a realistic environment prior to initiating development activities at the outset of the Obtain phase, or 2) manufacturing processes be tested prior to production. These practices decrease the risk that rework will be required, which can lead to additional cost growth and schedule slips.\nThe policy requires that DHS establish exit criteria for programs moving to the next acquisition phase, and standardizes document requirements across all major programs, but it does not require that 1) exit criteria be quantifiable to the extent possible, or 2) consistent information be used across programs when approving progress within the Obtain phase, specifically at ADE 2B and 2C. These practices decrease the risk that a program will make an avoidable error because management lacks information needed to leverage lessons learned across multiple program reviews.\nThe policy requires that program managers be certified at an appropriate level, but it does not state that they should remain with their programs until the next major milestone when possible. This practice decreases the risk that program managers will not be held accountable for their decisions, such as proceeding without reliable cost estimates or realistic schedules.\nPARM officials generally acknowledged DHS has opportunities to strengthen its program-management guidance. Officials reported that they are currently in the process of updating AD 102, which they plan to complete by the end of fiscal year 2012. They also plan to issue revisions to the associated guidebook and appendixes in phases. PARM officials told us that they plan to structure the revised acquisition policy by function, consolidating guidance for financial management, systems engineering, reporting requirements, and so forth. PARM officials anticipate that this organization will make it easier for users to identify relevant information as well as streamline the internal review process for future updates.",
"DHS acquisition policy establishes several key program-management practices through document requirements. AD 102 requires that major acquisition programs provide the IRB documents demonstrating the critical knowledge needed to support effective decision making before progressing through the acquisition life cycle. For example, programs must document that they have assessed alternatives to select the most appropriate solution through a formal Analysis of Alternatives report, which must be approved by component-level leadership. Figure10 identifies acquisition documents that must be approved at the department level and their corresponding key practice areas.\nDHS acquisition policy requires these documents, but the department generally has not implemented its acquisition policy as intended, and in practice the department has not adhered to key program management practices. DHS’s efforts to implement the department’s acquisition policy have been complicated by the large number of legacy programs initiated before the department was created, including 11 programs that PARM officials told us were in sustainment when AD 102 was signed. We found that the department has only approved four programs’ required documents in accordance with DHS policy: the National Cybersecurity and Protection System, the Next Generation Network, the Offshore Patrol Cutter, and the Passenger Screening Program. Additionally, we found that 32 programs had none of the required documents approved by the department. See figure 11.\nSince 2008, DHS leadership—through the IRB or its predecessor body the Acquisition Review Board—has formally reviewed 49 of the 71 major programs that responded to our survey. It permitted 43 of those programs to proceed with acquisition activities without verifying the programs had developed the knowledge required for AD 102’s key acquisition documents. See figure 12.\nOfficials from half of the CAE offices we spoke to reported that DHS’s culture has emphasized the need to rapidly execute missions more than sound acquisition management practices. PARM officials agreed, explaining that DHS has permitted programs to advance without department-approved acquisition documents because DHS had an operational need for the promised capabilities, but the department could not approve the documents in a timely manner. PARM officials explained that, in certain instances, programs were not capable of documenting knowledge, while in others, PARM lacked the capacity to validate that the documented knowledge was adequate. In 2008 and 2010, we reported that several programs were permitted to proceed with acquisition activities on the condition they complete key action items in the future.However, PARM officials told us that many of these action items were not addressed in a timely manner. Additionally, program managers reported that there has been miscommunication between DHS headquarters and program offices regarding implementation of the acquisition policy, and we found that DHS headquarters and program managers often had a different understanding of whether their programs were in compliance with AD 102. For example, DHS headquarters officials told us that 19 of the 40 programs that reported through our survey they had department- approved acquisition program baselines (APB) in fact did not.\nBecause DHS has not generally implemented its acquisition policy, senior leaders lack the critical knowledge needed to accurately track program performance: (1) department-approved APBs, (2) reliable cost estimates, and (3) realistic schedules. Specifically, at the beginning of 2012, DHS leadership had approved APBs for less than one-third of the 63 programs we reviewed that are required to have one based on their progression through the acquisition life cycle. Additionally, we found that none of the programs with a department-approved APB also met DHS’s criteria for both reliable cost estimates and realistic schedules, which are key components of the APB. This raises questions about the quality of those APBs that have been approved, as well as the value of the DHS review process in practice. Figure 13 identifies how many programs currently have department-approved APBs, reliable cost estimates, and realistic schedules.\nThe APB is a critical tool for managing an acquisition program. According to DHS’s acquisition Guidebook, the program baseline is the agreement between program, component, and department level officials, establishing how systems will perform, when they will be delivered, and what they will cost. In practice, when the Acquisition Decision Authority approves a program’s APB, among other things, it is concurring that the proposed capability is worth the estimated cost. However, we found that DHS plans to spend more than $105 billion on programs lacking current, department- approved APBs. Specifically, when DHS submitted the FYHSP to Congress in 2011, it reported that 34 of the 43 programs lacking department-approved APBs were expected to cost $108.8 billion over their acquisition life cycles. DHS did not provide cost estimates for the other 9 programs because the data were unreliable.\nIn addition to overall cost, schedule, and performance goals, the APB also contains intermediate metrics to measure a program’s progress in achieving those goals. These intermediate metrics allow managers to take corrective actions earlier in the acquisition life cycle. DHS’s lack of APBs, PARM officials explained, makes it more difficult to manage program performance. In March 2012, PARM reported that 32 programs had experienced significant cost growth or schedule slips in its internal Quarterly Program Accountability Report. However, DHS has only formally established that 8 of its programs have fallen short of their cost, schedule, or performance goals, because approximately three-quarters of the programs PARM identified lack the current, department-approved APBs needed to authoritatively measure performance.\nTo accurately assess a program’s performance, managers need accurate cost and schedule information. However, DHS acquisition programs generally do not have reliable cost estimates and realistic schedules, as required by DHS policy. In June 2012, the department reported to GAO that its senior leaders lacked confidence in the performance data they receive, hindering their efforts to manage risk and allocate resources.\nGAO-10-588SP. approved APBs. Additionally, only 12 program offices reported that they fully adhered to DHS’s scheduling guidance, which requires that programs sequence all activities, examine the effects of any delays, update schedules to ensure validity, and so forth. Eight of these programs lacked department-approved APBs.\nDHS’s lack of reliable performance data not only hinders its internal acquisition management efforts, but also limits Congressional oversight. Congress mandated the department submit the Comprehensive Acquisition Status Report (CASR) to the Senate and House Committees on Appropriations as part of the President’s fiscal year 2013 budget, which was submitted in February 2012. However, DHS told us that it did not do so until August 2012. Congress mandated DHS produce the CASR in order to obtain information necessary for in-depth congressional oversight, including life-cycle cost estimates, schedules, risk ratings, and out-year funding levels for all major programs. The CASR has the potential to greatly enhance oversight efforts by establishing a common understanding of the status of all major programs.",
"In April 2012, PARM officials told us that DHS had begun to implement its acquisition policy in a more disciplined manner. They told us that they had adequate capacity to review programs, and would no longer advance programs through the acquisition life cycle until DHS leadership verified the programs had developed critical knowledge. For example, in February 2012, the IRB denied a request from the BioWatch Gen 3 program— which is developing a capability to detect airborne biological agents—to solicit proposals from contractors because its draft APB was not valid. PARM officials said they are using a risk-based approach to prioritize the approval of the department’s APBs. Specifically, they explained that one of their fiscal year 2011 initiatives was to attain department-level approval of APBs for all Level 1 programs in the Obtain phase of the acquisition life cycle. However, we found only 8 of the 19 programs PARM said fell into this category had current, department-approved APBs as of September 2012.\nIn an effort to improve the consistency of performance data reported by program managers, PARM officials stated that they are establishing scorecards to assess cost estimates and standard work breakdown structures for IT programs. The PARM officials also explained that CAE’s performance evaluations now include an assessment of the completeness and accuracy of performance data reported for their respective programs. However, DHS must overcome significant challenges in order to improve the reliability of performance data and meet key requirements in the department’s acquisition policy. For example, department and component-level officials told us that program managers do not report on their programs in a consistent manner. Additionally, DHS officials told us that they lack cost estimating capacity throughout the department and that they must rely heavily on contractors, which do not consistently provide high-quality deliverables. In August 2012, a PARM official stated that DHS was currently in the process of hiring eight additional government cost estimators to support programs.",
"DHS acquisition policy does not fully reflect several key portfolio- management practices, such as allocating resources strategically, and DHS has not yet reestablished an oversight board to manage its investment portfolio across the department. As a result, DHS has largely made investment decisions on a program-by-program and component-by- component basis. The widespread risk of poorly understood cost growth, coupled with the fiscal challenges facing the federal government, makes it essential that DHS allocate resources to its major programs in a deliberate manner. DHS plans to develop stronger portfolio-management policies and processes, but until it does so, DHS programs are more likely to experience additional funding instability in the future, which will increase the risk of further cost growth and schedule slips. These outcomes, combined with a tighter budget, could prevent DHS from developing needed capabilities.",
"In our past work, we have found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources. As a result, they can avoid pursuing more projects than their resources can support, and better optimize the return on their investment. This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated. With this enterprise perspective, companies can effectively (1) identify and prioritize opportunities, and (2) allocate available resources to support the highest priority—or most promising—opportunities. Over the past several years, we have examined the practices that private and public sector entities use to achieve a balanced mix of new projects, and based on this work, we have identified four key practice areas for portfolio management, summarized in table 4, along with our assessment of DHS acquisition policy.\nWe found that DHS’s acquisition policy reflects some key portfolio- management practices. DHS has not designated individual portfolio managers, but it requires that the department’s Chief Acquisition Officer— currently the USM—be supported by the IRB, which includes officials representing key functional areas, such as budget, procurement, IT, and human capital. DHS’s acquisition policy also establishes that requirements, acquisition, and budget processes should be connected to promote stability.\nHowever, as acknowledged by DHS officials, the policy does not reflect several other key portfolio-management practices:\nThe policy does not empower portfolio managers to decide how best to invest resources. This practice increases the likelihood resources will be invested effectively, and that portfolio managers will be held accountable for outcomes.\nThe policy does not establish that investments should be ranked and selected using a disciplined process. This practice increases the likelihood the portfolio will be balanced with risk spread across products.\nThe policy does not establish that (1) resource allocations should align with strategic goals, or (2) the investment review policy should use long-range planning. These practices increase the likelihood that the right amount of funds will be delivered to the right projects, maximizing return on investments.\nThe policy does not require portfolio reviews (1) annually to consider proposed changes, (2) as new opportunities are identified, or (3) whenever a program breaches its objectives. These practices provide opportunities for leaders to increase the value of investments, determine whether or not the investments are still relevant and affordable, and help keep programs within cost and schedule targets.\nPARM officials acknowledge that the department does not currently have a policy that addresses these key portfolio-management practices. Further, they told us that there has been less focus on portfolio management than program management to date because the acquisition process is still relatively immature. As a result, DHS largely makes investment decisions on a program-by-program and component-by- component basis. In our work at the Department of Defense, we have found this approach hinders efforts to achieve a balanced mix of programs that are affordable and feasible and that provide the greatest return on investment.\nPARM officials anticipate that DHS will improve its portfolio-management guidance in the future by formalizing its proposed Integrated Investment Life Cycle Model (IILCM). In January 2011, DHS presented a vision of the IILCM as a means to better integrate investment management functions, including requirements development, resource allocation, and program governance. DHS explained that the IILCM would ensure mission needs drive investment decisions and establish a common framework for monitoring and assessing the department’s investments. The IILCM would be implemented through the creation of several new department- level councils, as illustrated in figure 14, which would identify priorities and capability gaps.\nIn 2003, DHS established the Joint Requirements Council (JRC) to identify crosscutting opportunities and common requirements among DHS components, and help determine how DHS should use its resources. However, as we have previously reported, the JRC stopped meeting in 2006. In 2008, we recommended that the JRC be reinstated, or that DHS establish another joint requirements oversight board. At that time, DHS officials recognized that strengthening the JRC was a top priority. The department has proposed the creation of a Capabilities and Requirements Council (CRC) to serve in a similar role as the JRC, but the CRC is not yet established.\nIn the absence of a JRC, or the proposed CRC, DHS budget officials explained it is difficult to develop a unified strategy to guide trade-offs between programs because of the diversity of the department’s missions. Poor program outcomes, coupled with a tighter budget, could prevent DHS from developing needed capabilities. In our work at the Department of Defense, we have found that agencies must prioritize investments, or programs will continually compete for funding by promising more capabilities than they can deliver while underestimating costs. found that success was measured in terms of keeping a program alive rather than efficiently delivering the capabilities needed. It appears the lack of prioritization is affecting DHS in the same way. As discussed earlier in our assessment of program challenges, 18 of the department’s programs reported DHS decreased their out-year funding levels because of another program’s funding needs, and 61 programs reported they experienced some form of funding instability.\nUntil recently, the responsibility for balancing portfolios has fallen on components. However, DHS policy officials noted that component-level officials have a relatively limited perspective focused on those programs under their authority, making it more difficult to ensure the alignment of mission needs to department-level goals. Additionally, component-level officials can only make trade-offs across the portion of the DHS portfolio that falls under their purview, limiting opportunities to increase the department’s return on its investments.\nGAO-08-619.\nThe USM and PARM officials have stated they recognize the value of portfolio management, and they have taken some steps to fill the gap left without a functioning JRC or CRC. A PARM official stated that, starting in 2012, PARM is collaborating with the Offices of the Chief Information, Financial, and Procurement Officers, as well as the Office of Policy, to conduct portfolio reviews from a functional, cross-component perspective. In the past, PARM’s portfolio reviews focused on each component individually. This new functional approach is establishing portfolios based on departmentwide missions, such as domain awareness or screening, and PARM officials intend to produce trade-off recommendations for prioritizing funding across different components. They also intend to use functional portfolio reviews to provide greater insight into the effects of funding instability, and the USM has stated that the portfolio reviews will inform the department’s fiscal year 2014 budget. DHS intends for the proposed CRC to make trade-offs across the functional portfolios.\nPARM’s Quarterly Program Accountability Report (QPAR), issued in March 2012, also has the potential to inform DHS’s portfolio management efforts. In developing the QPAR, PARM used a standardized set of five criteria to measure the value of each program: mission alignment, architectural maturity, capability gap, mission criticality, and DHS benefit. This allowed PARM to identify 48 high-value and 13 low-value programs. However, the QPAR does not recommend using the information to prioritize resource allocations, which would address a key portfolio management practice. Further, DHS’s widespread lack of department- approved Mission Need Statements (MNS) undermines efforts to improve portfolio management and prioritize investments. The MNS links capability gaps to the acquisitions that will fill those gaps, making it a critical tool for prioritizing programs. The MNS also provides formal executive-level acknowledgment that there is a mission need justifying the allocation of DHS’s limited resources. However, only about 40 percent of DHS’s major acquisition programs have a department-approved MNS.",
"DHS has introduced seven initiatives that could improve acquisition management by addressing longstanding challenges we have identified— such as funding instability and acquisition workforce shortfalls—which DHS survey respondents also identified in 2012. Implementation plans are still being developed for all of these initiatives, and DHS is still working to address critical issues, particularly capacity questions. Because of this, it is too early to determine whether the DHS initiatives will be effective, as we have previously established that agencies must sustain progress over time to address management challenges. DHS is also pursuing a tiered-governance structure that it has begun to implement for IT acquisitions. Before the department can regularly delegate ADE decision authority through this tiered-governance structure, DHS must successfully implement its seven acquisition management initiatives and apply its knowledge-based acquisition policy on a more consistent basis to reduce risks and improve program outcomes.",
"In 2005, we identified acquisition management as a high-risk area at DHS. Since then, we have issued multiple reports identifying acquisition management challenges. In 2008, we made several recommendations intended to help DHS address those challenges, and in September 2010, we provided DHS a list of specific acquisition management outcomes the department must achieve to help address the high-risk designation. This list largely drew from our past recommendations, and stressed that the department must implement its knowledge-based acquisition policy consistently. DHS has generally concurred with our recommendations, but still faces many of the same challenges we have previously identified.\nIn 2011, DHS began to develop initiatives to address these challenges, and DHS has continued to evolve these plans in 2012. In January 2011, DHS produced the initial iteration of its Integrated Strategy for High Risk Management in order to measure progress in addressing acquisition management challenges we had identified, as well as financial management, human capital, IT, and management integration issues. The department subsequently produced updates in June 2011, December 2011, and June 2012. These updates present the department’s progress in developing and implementing its initiatives. Additionally, in December 2011, DHS issued the Program Management and Execution Playbook (Playbook), which expounded on some of those initiatives, and introduced a vision for a “more mature, agile, and effective process for program governance and execution.” Figure 15 identifies seven key DHS initiatives and how they correspond to acquisition management challenges we have identified.\nAs envisioned, the DHS initiatives would better position the department to implement its knowledge-based acquisition policy on a more consistent basis to reduce risks and ultimately improve individual program outcomes. The initiatives would also help address challenges identified by survey respondents in 2012, particularly funding instability and acquisition workforce shortfalls. Additionally, the IILCM would enhance DHS’s ability to effectively manage its acquisition portfolio as a whole.",
"DHS has made progress implementing some of the initiatives intended to address the challenges we have identified. In June 2012, DHS reported that all of its components had an approved CAE in place and the Procurement Staffing Model had been completed. In August 2012, DHS told us that eight Centers of Excellence had been chartered. However, from January 2011 to June 2012, the schedules for four of the seven initiatives slipped by at least 6 months, including the schedule for the IILCM, which slipped by a year. In March 2012, an official responsible for the IILCM initiative stated that many acquisition officials throughout the department do not yet understand the intended benefits of the IILCM. Thirty-two survey respondents reported that they were not at all familiar with the initiative, as opposed to nine that reported they were very familiar with the IILCM. Additionally, officials from three CAE offices, including two CAEs, told us that they were not familiar with the IILCM. Previously, we have reported that it is important to involve employees and obtain their ownership when transforming organizations.schedule slips and their causes.",
"DHS has a diverse, critical, and challenging mission that requires it to respond to an ever-evolving range of threats. Given this mission, it is important that DHS maintain an agile and flexible management approach in its day-to-day operations. However, DHS must adopt a more disciplined and systematic approach for managing its major investments, which are intended to help meet critical mission needs. DHS has taken some steps to improve investment management, but most of its major acquisition programs continue to cost more than expected, take longer to deploy than planned, or deliver less capability than promised. These outcomes are largely the result of DHS’s lack of adherence to key knowledge-based program management practices, even though many are reflected in the department’s own acquisition policy. DHS leadership has authorized and continued to invest in major acquisition programs even though the vast majority of those programs lack foundational documents demonstrating the knowledge needed to help manage risks and measure performance. This limits DHS’s ability to proactively identify and address the challenges facing individual programs. Further, although the department’s acquisition policy contains many key practices that help reduce risks and increase the chances for successful outcomes, the policy does not include certain program management practices that could further enhance acquisition management. For example, the policy does not require that programs demonstrate technologies in a realistic environment prior to initiating development activities, or that exit criteria be quantifiable to the extent possible.\nCost growth and schedule slips at the individual program level complicate DHS’s efforts to manage its investment portfolio as a whole. When programs encounter setbacks, the department has often redirected funding to troubled programs at the expense of others, which in turn are more likely to struggle. Additionally, DHS acquisition policy does not fully reflect key portfolio-management practices that would help improve investment management across the department. For example, the policy does not empower portfolio managers to invest resources in a disciplined manner or establish that investments should be ranked and selected using a disciplined process. DHS acknowledges the importance of having strong portfolio-management practices. However, DHS does not have a process to systematically prioritize its major investments to ensure that the department’s acquisition portfolio is consistent with DHS’s anticipated resource constraints, which is particularly important because of the diversity of the department’s missions. Since 2008, we have emphasized the need for DHS to re-establish an oversight board dedicated to addressing portfolio management challenges. DHS has produced plans to establish such a board, but the concept is still under development.\nIt is essential that DHS take a more disciplined acquisition management approach moving forward, particularly as the department must adjust to a period of governmentwide funding constraints. Without greater discipline, decisionmakers will continue to lack critical information and the department will likely continue to pay more than expected for less capability than promised, which will ultimately hinder DHS’s day-to-day operations and its ability to execute its mission. Further, Congress’s ability to assess DHS funding requests and conduct oversight will remain limited. To its credit, DHS has undertaken a variety of initiatives over the past two years designed to address the department’s longstanding acquisition management challenges, such as increasing acquisition management capabilities at the component-level. However, more disciplined program and portfolio management at the department-level is needed before DHS can regularly delegate major milestone decision authority to component-level officials. Widespread challenges—including funding instability and acquisition workforce shortfalls—cost growth, and schedule slips indicate how much further DHS must go to improve acquisition outcomes.",
"We recommend that the Secretary of Homeland Security direct the Under Secretary for Management to take the following five actions to help mitigate the risk of poor acquisition outcomes and strengthen the department’s investment management activities:\nModify DHS acquisition policy to more fully reflect the following program management practices:\nRequire that (1) programs demonstrate technologies in a realistic environment prior to initiating development activities, and (2) manufacturing processes be tested prior to production;\nRequire that (1) exit criteria be quantifiable to the extent possible, and (2) consistent information be used across programs at ADE 2B and 2C;\nState that program managers should remain with their programs until the next major milestone when possible;\nModify DHS acquisition policy to more fully reflect the following portfolio management practices:\nEmpower portfolio managers to decide how best to invest\nEstablish that investments should be ranked and selected using a\nEstablish that (1) resource allocations should align with strategic goals, and (2) the investment review policy should use long-range planning; and\nRequire portfolio reviews (1) annually to consider proposed changes, (2) as new opportunities are identified, and (3) whenever a program breaches its objectives;\nEnsure all major acquisition programs fully comply with DHS acquisition policy by obtaining department-level approval for key acquisition documents before approving their movement through the acquisition life cycle;\nOnce the department’s acquisition programs comply with DHS acquisition policy, prioritize major acquisition programs departmentwide and ensure that the department’s acquisition portfolio is consistent with DHS’s anticipated resource constraints; and\nClearly document that department-level officials should not delegate ADE decision authority to component-level officials for programs lacking department approved APBs or not meeting agreed-upon cost, schedule, and performance thresholds.",
"DHS provided us with written comments on a draft of this report. In its comments, DHS concurred with all five of our recommendations and noted that two should be closed based on actions taken. The department’s written comments are reprinted in appendix V. DHS also provided technical comments that we incorporated into the report as appropriate.\nDHS identified specific actions the department would take to address three of our recommendations. DHS stated that it was in the process of revising its policy to more fully reflect key program management practices. Additionally, DHS stated that it would continue to mature and solidify the portfolio review process over the next few years, and that it would revise its policy to reflect this process. DHS anticipates that this effort will also help the department prioritize its major acquisition programs departmentwide, and help ensure that the department’s acquisition portfolio is consistent with anticipated resource constraints.\nDHS concurred with and requested we close our recommendation that the department ensure all acquisition programs fully comply with DHS acquisition policy by obtaining department-level approval for key acquisition documents before approving their movement through the acquisition life cycle. DHS stated that, in effect, its executive review board is approving a program’s documents when it advances the program, thus satisfying this recommendation. As we noted in our report, DHS officials told us in April 2012 that the department has begun to implement its acquisition policy in a more disciplined manner and that it will no longer advance programs through the acquisition life cycle until DHS leadership verifies the programs have developed critical knowledge. However, it would be premature to close this recommendation until DHS demonstrates, over time, the consistent verification of the critical knowledge captured in key documents, especially as we found that nearly all of the department’s major acquisition programs lack at least some of these acquisition documents.\nDHS also concurred with and requested we close our recommendation that the department clearly document that department-level officials should not delegate ADE decision authority to component-level officials for programs lacking department approved APBs or not meeting agreed- upon cost, schedule, and performance thresholds. DHS stated that it amended AD 102 to clarify that decision authority for any program that breaches an approved APB’s cost, schedule or performance parameters will not be delegated to component-level officials, thus satisfying this recommendation. However, the amendment DHS provided does not include this language or clearly document the department’s stated position. For this reason, it would be premature to close this recommendation at this time.\nIn addition to commenting on our recommendations, the department made a number of observations on our draft report. For example, DHS stated that the report references many practices that occurred prior to the time period of the audit, and that the department has made measurable progress on a number of fronts. While we reviewed investment management activities going back to November 2008 to coincide with the issuance of AD 102, we also accounted for progress made through August 2012 by assessing ongoing DHS initiatives intended to address investment management challenges in the future.\nDHS also noted that our survey of 71 programs captured valuable information, but suggested the survey data cannot be generalized and expressed concern that it would be used as the basis for a recommendation. To clarify, none of the recommendations in this report are based on the survey data. In the absence of reliable program data, we surveyed program managers to obtain their perspectives on challenges facing the department’s acquisition programs, and we obtained responses from 92 percent of the major acquisition programs DHS identified in 2011. DHS noted that programs can experience cost growth and schedule slips without a “breach.” We recognize the validity of this point and our findings are consistent with this position.\nDHS incorrectly suggested that our data sources for quantifying cost growth – the Future Years Homeland Security Programs (FYHSP) issued in 2008 and 2011 – did not consistently account for costs beyond the initial five-year period. However, these two FYHSPs aggregated funding levels for each program to produce a total project cost. To measure total project cost growth for the 16 programs, as depicted in figure 4, we compared the total project costs reported in the 2008 FYHSP to the total project costs reported in the 2011 FYHSP. Thus, we measured changes in total project costs, not just costs over two different five-year periods.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until September 19, 2012. At that time, we will send copies to the Secretary of Homeland Security. In addition, the report will be 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) 512-4841 or huttonj@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 VI.",
"The objectives of this review were to assess the Department of Homeland Security’s (DHS) acquisition management activities. Specifically, we assessed the extent to which: (1) DHS’s major acquisition programs face challenges that increase the risk of poor outcomes; (2) DHS has policies and processes in place to effectively manage individual acquisition programs; (3) DHS has policies and processes in place to effectively manage its portfolio of acquisition programs as a whole; and (4) DHS has taken actions to resolve the high-risk acquisition management issues we have identified in previous reports. To answer these questions, we reviewed 77 of the 82 programs DHS included in its fiscal year 2011 Major Acquisition Oversight List (MAOL), which identified each program the department designated a major acquisition in 2011. We excluded 5 programs that were canceled in 2011; these are identified in appendix IV. The 77 selected programs were sponsored by 12 different components and departmental offices.\nTo determine the extent to which major DHS acquisition programs face challenges increasing the risk of poor outcomes, we surveyed the program managers for all 77 programs, and received usable responses from 71 programs (92 percent response rate). Appendix III presents the survey questions we asked, and summarizes the responses we received. The web-based survey was administered from January 12, 2012, to March 30, 2012. Respondents were sent an e-mail invitation to complete the survey on a GAO web server using a unique username and password. During the data collection period, nonrespondents received a reminder e-mail and phone call. Because this was not a sample survey, it has no sampling errors. The practical difficulties of conducting any survey may also introduce nonsampling errors, such as difficulties interpreting a particular question, which can introduce unwanted variability into the survey results. We took steps to minimize nonsampling errors by pretesting the questionnaire in person with program management officials for five different programs, each in a different component. We conducted pretests to make sure that the questions were clear and unbiased, the data and information were readily obtainable, and that the questionnaire did not place an undue burden on respondents. Additionally, a senior methodologist within GAO independently reviewed a draft of the questionnaire prior to its administration. We made appropriate revisions to the content and format of the questionnaire after the pretests and independent review. All data analysis programs used to generate survey results were independently verified for accuracy.\nTo determine the extent to which major DHS acquisition programs face challenges increasing the risk of poor outcomes, we also reviewed the 2008 and 2011 versions of the Future Years Homeland Security Program (FYHSP), all acquisition decision memoranda documenting DHS executive review board decisions from November 2008 to April 2012, the Office of Program Accountability and Risk Management’s (PARM) initial Quarterly Program Assessment Report (QPAR), issued March 2012, and other management memos identifying available program-performance data. The survey results and documentation review allowed us to identify program performance, and the reasons for any poor performance. We also interviewed individuals at the component and department-level to enhance our understanding of common challenges. At the component level, we interviewed six of the eight Component Acquisition Executives that had been designated by the USM, and interviewed representatives of the remaining two. At the department level, we interviewed policy, budget, and acquisition oversight officials, including the Deputy Assistant Secretary for the Office of Strategic Plans, the department’s Chief Information Officer, the Executive Director of PARM, and the Director of Program Analysis and Evaluation (PA&E). These officials provided a strategic perspective on program management challenges, and shared valuable insights regarding the limitations of available program performance data. Based on their input, we chose to use FYHSP data to calculate cost growth for individual programs where possible because the document is provided to Congress and constitutes DHS’s most authoritative, out-year funding plan.\nTo determine the extent to which DHS policies and processes are in place to effectively manage individual acquisition programs, as well as the department’s acquisition portfolio as a whole, we identified key acquisition management practices and assessed the extent to which DHS policies and processes reflected those practices. We identified the key practices through a review of previous GAO reports, which are listed in appendix II. We compared DHS Acquisition Directive 102-01 (AD 102), an associated guidebook—DHS Instruction Manual 102-01-001—and the guidebook’s 12 appendixes to those key practices, and identified the extent to which they were reflected in the department’s acquisition policy using a basic scoring system. If the DHS policy reflected a particular key practice, we assigned the policy a score of 5 for that practice. If the policy did not reflect the key practice, we assigned it a score of 1. We then took the average score for all the key practices in a particular area—as identified in appendix II—to establish an overall score for each key practice area. We concluded that key practice areas that scored a 5 were reflected in the policy, scored a 4 were substantially reflected, scored a 3 were partially reflected, and scored a 2 were minimally reflected. We subsequently met with PARM officials to discuss our analysis, identify relevant sections of the policy that we had not yet accounted for, and solicit their thoughts on those key practices that were not reflected in the policy. In order to assess DHS’s processes for implementing its policy, we surveyed program managers, and interviewed component and department-level officials. We also reviewed DHS’s plans for the Integrated Investment Life Cycle Model (IILCM), which is being designed to better integrate the department’s investment management functions. Further, we reviewed all acquisition decision memoranda documenting DHS executive review board decisions from November 2008 to April 2012, the March 2012 QPAR, and other management memos identifying available program-performance data, and any limitations of that data.\nTo determine the extent to which DHS has taken actions to resolve the high-risk acquisition management issues we have identified in previous reports and this audit, we reviewed the first three versions of the DHS Integrated Strategy for High Risk Management—issued in January, June, and December 2011. We also reviewed the DHS Program Management and Execution Playbook, issued in December 2011. We identified initiatives intended to improve acquisition management, the department’s progress in implementing those initiatives, and enduring challenges confronting the department. We also surveyed program managers, and interviewed component and department-level officials to obtain their perspectives on the initiatives.\nWe conducted this performance audit from August 2011 to September 2012 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.",
"To determine the extent to which the Department of Homeland Security (DHS) has policies and processes in place to effectively manage individual acquisition programs, and the department’s acquisition portfolio as a whole, we identified key acquisition management practices established in our previous reports examining DHS, the Department of Defense, NASA, and private sector organizations. The specific program- and portfolio-management practices, as well as the reports where we previously identified the value of those practices, are presented below.",
"",
"The following list identifies several key practices that can improve outcomes when managing a portfolio of multiple programs.",
"Information Technology: Critical Factors Underlying Successful Major Acquisitions. GAO-12-7. Washington, D.C.: October 21, 2011.\nAcquisition Planning: Opportunities to Build Strong Foundations for Better Services Contracts. GAO-11-672. Washington, D.C.: August 9, 2011.\nNASA: Assessments of Selected Large-Scale Projects. GAO-11-239SP. Washington, D.C.: March 3, 2011.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-11-233SP. Washington, D.C.: March 29, 2011.\nDefense Acquisitions: Strong Leadership Is Key to Planning and Executing Stable Weapon Programs. GAO-10-522. Washington, D.C.: May 6, 2010.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-10-388SP. Washington, D.C.: March 30, 2010.\nDefense Acquisitions: Many Analyses of Alternatives Have Not Provided a Robust Assessment of Weapon Systems Options. GAO-09-665. Washington, D.C.: September 24, 2009.\nDepartment of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008.\nGAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. GAO-09-3SP. Washington, D.C.: March 2009.\nDefense Acquisitions: Sound Business Case Needed to Implement Missile Defense Agency’s Targets Program. GAO-08-1113. Washington, D.C.: September 26, 2008.\nDefense Acquisitions: A Knowledge-Based Funding Approach Could Improve Major Weapon System Program Outcomes. GAO-08-619. Washington, D.C.: July 2, 2008.\nDefense Acquisitions: Realistic Business Cases Needed to Execute Navy Shipbuilding Programs. GAO-07-943T. Washington, D.C.: July 24, 2007.\nBest Practices: An Integrated Portfolio Management Approach to Weapon System Investments Could Improve DOD’s Acquisition Outcomes. GAO-07-388. Washington, D.C.: March 30, 2007.\nBest Practices: Better Support of Weapon System Program Managers Needed to Improve Outcomes. GAO-06-110. Washington, D.C.: November 30, 2005.\nNASA’s Space Vision: Business Case for Prometheus 1 Needed to Ensure Requirements Match Available Resources. GAO-05-242. Washington, D.C.: February 28, 2005.\nInformation Technology Investment Management: A Framework for Assessing and Improving Process Maturity. GAO-04-394G. Washington, D.C.: March 2004.\nExecutive Guide: Leading Practices in Capital Decision-Making. GAO/AIMD-99-32. Washington, D.C.: December 1998.",
"To help determine the extent to which major Department of Homeland Security (DHS) acquisition programs face challenges increasing the risk of poor outcomes, we surveyed the program managers for all 77 programs, and received usable responses from 71 programs (92 percent response rate). The web-based survey was administered from January 12, 2012, to March 30, 2012. We present the survey questions we asked and summarize the responses we received below.",
"",
"Number of respondents 28 3. In what phase(s) of the DHS Acquisition Directive (AD) 102 acquisition lifecycle is your program currently? (select all that apply) 1. Need (Prior to Acquisition Decision Event (ADE) 1) 2. Analyze/Select (Between ADE 1 and ADE 2) 4. Production/deploy/support (Post ADE 3)",
"",
"I do not refer to this source 4 DHS Acquisition Program Management Division (APMD)/ Program Analysis and Risk Management (PARM)\nNumber of respondents 26 5. Which of the following DHS-provided opportunities, if any, has your program management office used to understand DHS acquisition guidance, AD 102; and if used, how useful was the opportunity, if at all? 1. Check box at left if your program is not required to follow AD 102, and then click here to skip to question 13 Training session(s) on AD 102 hosted by DHS headquarters Did your program management office use this opportunity?\nIf used, how useful was the opportunity, if at all?\nNot at all useful 1 Manuals and templates for implementing AD 102 provided by DHS headquarters Did your program management office use this opportunity?\nIf used, how useful was the opportunity, if at all?\nNumber of respondents 50 Direct support for your program from DHS Acquisition Program Management Division (APMD)/ Program Analysis and Risk Management (PARM)\nDid your program management office use this opportunity?\nIf used, how useful was the opportunity, if at all?\nNot at all useful 2 Did your program management office use this opportunity?\nIf used, how useful was the opportunity, if at all?\nNumber of respondents 16 6. How clear or unclear is the DHS AD 102 acquisition guidance and framework for managing the following types of acquisitions?\nNeither clear nor unclear 6 unclear Very unclear 4 4 7. How clear or unclear is DHS AD 102 acquisition guidance, including the guidebook and appendices, regarding each of the following?\nNumber of respondents 22 8. How clear or unclear is DHS AD 102 acquisition guidance, including the guidebook and appendices, on how to develop each of the following key acquisition documents?\nOperational Requirements Document (ORD)\nTest and Evaluation Master Plan (TEMP)\nNumber of respondents 64 9. How long is the average component and DHS review period for key acquisition documents required by AD 102 (e.g. MNS, ORD, LCCE and APB)?\nMore than 1 year 5 10. After an Acquisition Review Board (ARB) review, how adequately does an Acquisition Decision Memo (ADM) communicate action items?\nNo opinion Not applicable 5 6 11. How has the introduction of AD 102 helped or hindered your ability to manage your program's cost and schedule and the overall acquisition program?\nNumber of respondents 65 12. If you would like to elaborate on any of your previous responses regarding the clarity and/or implementation of DHS acquisition guidance (AD 102) please use the following space.\n13. Does your program have a DHS-approved Acquisition Program Baseline (APB)?\nNo (please explain below) 31 13a. If your program does not have a DHS-approved APB, please explain why it does not have one in the box below. 14. How does your program's current projected cost compare against its DHS-approved APB?\nCost exceeds the APB by 8 percent or 15. How does your program's current projected schedule compare to its DHS-approved APB?\nSchedule is ahead of the APB 3 16. How do your program's current planned system capabilities compare to its DHS-approved APB?\nNumber of respondents 39 17. How frequently, if at all, does your program management office use each of the following performance metrics to monitor your program's progress?",
"",
"Submitted to DHS leadership, not yet approved 6 Operational Requirements Document (ORD)\nTest and Evaluation Master Plan (TEMP)\nSubmitted to DHS leadership, not yet approved 7 Submitted to DHS leadership, not yet approved 9 22. When setting operational requirements, which of the following processes best describes your program's efforts to consider alternatives at the program level?\nNo AOA or trade-off analysis was been set.\nNeither clear nor unclear 2 unclear Very unclear 1 3 26. Which of the following are reasons your program's KPPs have changed or been redefined since development activities began (ADE 2A)?\nAssociated capabilities were determined unnecessary Not a reason Do not know 2 14 To demonstrate traceability between MNS, ORD, and TEMP Not a reason Do not know 3 11 Not a reason Do not know 1 1 27. Since your program's design and development activities began (ADE 2A), how have each of the following factors affected your planned capabilities, if at all?",
"",
"Number of respondents 66 29. Prior to the initiation of low-rate initial production (ADE 2C), how many reliability goals were met, if any, by production- representative prototypes demonstrated in the intended environment?\nNot applicable, the program will not use low-rate initial production 21 30. Has the program used an independent testing authority?",
"",
"No Do not know 0 49 32. Does your program use a five-year funding plan to project resource needs?\nNo Do not know 0 3 33. Did your program's funding levels in each of the following budget documents meet your program's required funding needs as reflected in your APB? 1. Check box at left if your program does not have an APB, and then click here to skip to question 34 Number of respondents 71 At program start, component's commitment in a Resource Allocation Plan (RAP)\nNo, funds in the document were below the APB Do not know Not applicable 4 6 5 At program start, DHS's commitment in a Resource Allocation Decision (RAD)\nNumber of respondents 17 35. If your program has experienced funding instability (e.g. a change in planned out-year funding from one five-year funding plan to the next five-year funding plan), did it affect your program in each of the following ways?\nNumber of respondents 22 36. If a gap existed between FY11 enacted funding and FY11 required funding, how effectively were you, as a program manager, able to directly communicate the impact on your program to DHS and component leadership? 1. Check box at left if your program did not experience a gap between FY11 enacted and required funding, and then click here to skip to question 37 Component leadership (Component head, CAE, etc.)\nSomewhat effectively Not effectively 1 DHS leadership (Deputy Secretary, USM, PARM officials, etc.)\nSomewhat effectively Not effectively 1 3 37. If you would like to elaborate on how resource allocation (i.e. funding) has affected the program's ability to achieve cost, schedule and performance goals, please use the following space. 38. Since the program was initially staffed, how many program managers have overseen the program management office (PMO)?\nNumber of respondents 71 39. What is the number of government FTEs in your PMO for each of the following functional areas?\nNumber of government FTEs staffed at initiation of development activities Number of government FTEs currently staffed Number of government FTEs currently identified as a need by the program Business functions (includes auditing, business, cost estimating, financial management, property management, and purchasing)\nNumber of respondents 47 Engineering and technical (includes systems planning, research, development and engineering; life cycle logistics; test and evaluation; production, quality and manufacturing; and facilities engineering)",
"",
"Next-generation Periodic Reporting System (nPRS)",
"",
"Establishing the Integrated Investment Life Cycle Model (IILCM)\nNot at all familiar 31 Empowering the Component Acquisition Executives (CAEs)\nNot at all familiar 18 Establishing Functional Coordination Office (e.g. Screening Coordination Office)\nNumber of respondents 67 Developing APEX, a decision support tool owned by PARM to capture and synthesize information from nPRS and IMS Not at all familiar 37 47. How helpful, if at all, will the following DHS initiatives be in helping you manage your acquisition program?\nEstablishing the Integrated Investment Life Cycle Model (IILCM)\nNot at all helpful 6 Empowering the Component Acquisition Executives (CAEs)\nNot at all helpful 7 Establishing Functional Coordination Office (e.g. Screening Coordination Office)\nCreating Executive Steering Councils for program governance Not at all helpful 8 Forming the Capabilities and Requirements Council Not at all helpful 8 Developing APEX, a decision support tool owned by PARM to capture and synthesize information from nPRS and IMS Not at all helpful 9 48. Please use the following space to describe any additional actions that DHS could implement that would help you better manage your acquisition program (i.e. improvements for acquisition governance and document development).\n49. Please identify any significant challenges affecting your program's ability to achieve program objectives (i.e. cost, schedule, and capabilities) that have not been adequately addressed above. 50. If you would like, please identify any practices your program has found significantly helpful in managing your program.\nTable 6 below identifies the 71 major Department of Homeland Security (DHS) acquisition programs that responded to our survey. It consists of all the programs DHS included in its 2011 Major Acquisition Oversight List, with the exception of the 6 programs that did not respond to our survey (see table 7), and the 5 programs that were cancelled in 2011 (see table 8). Table 6 also identifies whether each program’s Mission Need Statement (MNS), Operational Requirements Document (ORD), Acquisition Program Baseline (APB), Integrated Logistics Support Plan (ILSP), and Test and Evaluation Master Plan (TEMP) have been approved at the department level.\nTable 7 identifies the programs that were included in DHS’s 2011 Major Acquisition Oversight List, but did not respond to our survey.\nTable 8 identifies the programs that were included in DHS’s 2011 Major Acquisition Oversight List, but were cancelled in 2011.",
"",
"",
"",
"In addition to the contact named above, Katherine Trimble (Assistant Director), Nathan Tranquilli (Analyst-in-Charge), John Crawford, David Garcia, Jill Lacey, Sylvia Schatz, Rebecca Wilson, Candice Wright, and Andrea Yohe made key contributions to this report.",
"Immigration Benefits: Consistent Adherence to DHS’s Acquisition Policy Could Help Improve Transformation Program Outcomes. GAO-12-66. Washington, D.C.: November 22, 2011.\nCoast Guard: Action Needed As Approved Deepwater Program Remains Unachievable. GAO-11-743. Washington, D.C.: July 28, 2011.\nOpportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011.\nHigh-Risk Series: An Update. GAO-11-278. Washington, D.C.: February 2011.\nDefense Acquisitions: Assessments of Selected Weapon Programs. GAO-11-233SP. Washington, D.C.: March 29, 2011.\nSecure Border Initiative: Controls over Contractor Payment for the Technology Component Need Improvement. GAO-11-68. Washington, D.C.: May 25, 2011.\nDepartment of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010.\nThe Office of Management and Budget’s Acquisition Workforce Development Strategic Plan for Civilian Agencies. GAO-10-459R. Washington, D.C.: April 23, 2010.\nDefense Acquisitions: Measuring the Value of DOD’s Weapon Programs Requires Starting with Realistic Baselines. GAO-09-543T. Washington, D.C.: April 1, 2009.\nDepartment of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008.\nHomeland Security: Challenges in Creating an Effective Acquisition Organization. GAO-06-1012T. Washington, D.C.: July 27, 2006.\nHomeland Security: Successes and Challenges in DHS’s Efforts to Create an Effective Acquisition Organization. GAO-05-179. Washington, D.C.: March 29, 2005.\nResults-Oriented Cultures: Implementation Steps to Assist Mergers and Organizational Transformations. GAO-03-669. Washington, D.C.: July 2, 2003 Best Practices: Better Matching of Needs and Resources Will Lead to Better Weapon System Outcomes. GAO-01-288. Washington, D.C.: March 8, 2001."
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{
"question": [
"What did GAO find when surveying DHS program managers?",
"What challenges did the managers face?",
"What does DHS lack?",
"What insights did GAO gain?",
"What does DHS acquisition policy reflect?",
"What does DHS acquisition policy require?",
"What does DHS's culture emphasize?",
"Why is DHS's leadership limited?",
"What does DHS acquisition policy not reflect?",
"Why has DHS made investment decisions program by program and component by component?",
"Why is it essential that DHS allocate resources to its major programs?",
"What does DHS plan to do?",
"How could the initiatives DHS introduced be helpful?",
"Why is it too early to tell whether these initiatives could be helpful?",
"What is DHS pursuing?",
"What does DHS invest in?",
"How has DHS managed past investments?",
"What does this report address?",
"How did GAO get information for this report?"
],
"summary": [
"Nearly all of the Department of Homeland Security (DHS) program managers GAO surveyed reported their programs had experienced significant challenges.",
"Sixty-eight of the 71 respondents reported they experienced funding instability, faced workforce shortfalls, or their planned capabilities changed after initiation, and most survey respondents reported a combination of these challenges.",
"DHS lacks the data needed to accurately measure program performance, but GAO was able to use survey results, information DHS provided to Congress, and an internal DHS review from March 2012 to identify 42 programs that experienced cost growth, schedule slips, or both.",
"GAO gained insight into the magnitude of the cost growth for 16 of the 42 programs, which increased from $19.7 billion in 2008 to $52.2 billion in 2011, an aggregate increase of 166 percent.",
"DHS acquisition policy reflects many key program management practices that could help mitigate program risks.",
"It requires programs to develop documents demonstrating critical knowledge that would help leaders make better informed investment decisions when managing individual programs.",
"Officials explained that DHS’s culture has emphasized the need to rapidly execute missions more than sound acquisition management practices.",
"Most major programs lack reliable cost estimates, realistic schedules, and agreed-upon baseline objectives, limiting DHS leadership’s ability to effectively manage those programs and provide information to Congress.",
"DHS acquisition policy does not fully reflect several key portfolio management practices, such as allocating resources strategically, and DHS has not yet re-established an oversight board to manage its investment portfolio across the department.",
"DHS acquisition policy does not fully reflect several key portfolio management practices, such as allocating resources strategically, and DHS has not yet re-established an oversight board to manage its investment portfolio across the department. As a result, DHS has largely made investment decisions on a program-by-program and component-by-component basis.",
"The widespread risk of poorly understood cost growth, coupled with the fiscal challenges facing the federal government, makes it essential that DHS allocate resources to its major programs in a deliberate manner.",
"DHS plans to develop stronger portfolio-management policies and processes, but until it does so, DHS programs are more likely to experience additional funding instability, which will increase the risk of further cost growth and schedule slips.",
"DHS has introduced seven initiatives that could improve acquisition management by addressing longstanding challenges GAO and DHS survey respondents have identified, such as funding instability and acquisition workforce shortfalls.",
"Implementation plans are still being developed, and DHS is still working to address critical issues. Because of this, it is too early to determine whether the DHS initiatives will be effective, as GAO has previously established that agencies must sustain progress over time to address management challenges.",
"DHS is also pursuing a tiered-governance structure, but it must reduce risks and improve program outcomes before regularly delegating major milestone decision authority.",
"DHS invests extensively in major acquisition programs to develop new systems that help the department execute its many critical missions.",
"We previously found that DHS had not managed its investments effectively, and its acquisition management activities have been on GAO’s High Risk List since 2005.",
"This report addresses the extent to which (1) major DHS acquisition programs face key challenges; (2) DHS has policies and processes to effectively manage individual acquisition programs; (3) DHS has policies and processes to effectively manage its portfolio of acquisition programs as a whole; and (4) DHS has taken actions to address the high-risk acquisition management issues GAO has identified in previous reports.",
"GAO surveyed all 77 major program offices DHS identified in 2011 (92 percent response rate), reviewed available documentation of acquisition decisions from November 2008 to April 2012, and interviewed officials at DHS headquarters and components."
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GAO_GAO-13-258
|
{
"title": [
"Background",
"KC-46 Program Cost, Schedule, and Performance Estimates Remain Unchanged but There Are Some Concerns as Development Progresses",
"Quantities, Schedule, Cost, and Expected Performance Unchanged Since Program Start",
"Development Contract Cost Estimates Exceed the Contract Ceiling Price and the Majority of Funding to Alleviate Program Risk Has Been Allocated",
"Program Is Working On Some Testing, Design, Manufacturing, and Technical Challenges",
"Flight Test Plans a Concern among Program Stakeholders",
"Completing Required Engineering Drawings for the Upcoming Critical Design Review May Be Challenging",
"Program Has Some Remaining Technical Challenges",
"Concurrency Increases Schedule Risk",
"Program Has Effective Mechanisms for Mitigating Risks and Conducting Program Oversight",
"Program Contracting Method and Acquisition Strategy Mitigate Risks",
"Program Development Schedule Mostly Meets Best Practices for Schedule Estimating",
"Program Has Generally Adhered to Acquisition Best Practices and Reform Legislation",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments",
"Appendix I: Scope and Methodology",
"Appendix II: Comparison of Current KC-135 versus Planned KC-46 Performance Capabilities",
"Appendix III: Description of KC-46 Key Performance Parameters",
"Appendix IV: Top Risks Identified by the KC- 46 Integrated Test Team and Proposed Mitigation Efforts",
"Risk Risk issue 1",
"Risk Risk issue 8",
"Appendix V: KC-46 Critical Technology Elements",
"Appendix VI: Description of GAO Scheduling Best Practices",
"Criterion (1) Capturing all activities",
"(2) Sequencing all activities",
"(4) Establishing the duration of all activities",
"(5) Verifying that the schedule can be traced horizontally and vertically",
"(6) Confirming that the critical path is valid",
"(7) Ensuring reasonable total float",
"(10) Maintaining a baseline schedule",
"Appendix VII: Key Boeing Suppliers for the KC-46 Program",
"Supplier and location Cobham (Davenport, Iowa)",
"Triumph Group Inc. (Berwyn, Pa.)",
"Appendix VIII: Comments from the Department of Defense",
"Appendix IX: GAO Contact and Acknowledgments",
"GAO Contact",
"Acknowledgments"
],
"paragraphs": [
"In February 2011, Boeing won the Air Force competition to develop the next generation aerial refueling tanker aircraft. Boeing received a FPIF development contract with incentives to control cost while limiting the government’s financial liability. The development contract is to design, manufacture, and deliver four KC-46 tankers for flight testing. The Air Force expects to exercise contract options for the first production lot in 2015 and the second production lot in 2016, both needed for Boeing to produce and deliver 18 operational aircraft in the final production configuration by August 2017. In addition, all required training must be complete, and the required support equipment, and sustainment support in place by August 2017. Then the acquisition strategy calls for Boeing to produce the remaining aircraft through year 2027 at a target rate of 15 aircraft per year. Separate competitions may occur for later acquisitions, nominally called the KC-Y and KC-Z, to replace the rest of the KC-135 fleet and the KC-10 fleet (the Air Force’s other large tanker).\nThe KC-46 program’s acquisition strategy is to convert a commercial Boeing 767 airframe into a militarized aerial refueling tanker in two phases. In the first, Boeing is modifying their 767 airframe with a cargo door and an advanced flight deck display borrowed from the new Boeing 787 aircraft and calling this modified version the 767-2C. In the second, the 767-2C airframe will be further militarized by adding the air refueling capabilities, an air refueling operator station that includes panoramic three-dimensional displays, and threat detection and avoidance systems. Figure 1 depicts how the 767-2C aircraft is to be configured into the KC- 46 tanker.\nThe new KC-46 tanker is expected to be more capable than the KC-135 it replaces in several respects. It will have a modernized KC-10 tanker refueling boom integrated with a fly-by-wire (computer assisted) control system and a permanent hose and drogue refueling system that will enable both types of refueling to be employed on the same mission.KC-135 has to land and switch equipment to transition from one mode to another. Also, the KC-46 is expected to be able to refuel in a variety of night-time and covert mission settings and will have countermeasures to protect it against infrared missile threats. Designed with more refueling capacity, improved efficiency, and increased cargo and medical evacuation capabilities than its predecessor, the KC-46 is intended to provide aerial refueling to Air Force, Navy, Marine Corps, and allied aircraft. Appendix II compares, in more detail, the current capabilities of the KC-135 with the planned capabilities of the new KC-46 tanker.\nThe KC-46 program is one of only a few major weapon system programs in recent years to employ a fixed price development contract. In the past, DOD has typically used cost-reimbursement contracts in which the government pays all allowable costs incurred by the contractor. Recent legislation and defense policy now emphasize the use of fixed price development contracts, where warranted, to limit the government’s exposure to cost increases. Defense officials believe that a fixed price development contract is appropriate for this program because KC-46 development is considered to be a relatively low-risk effort to integrate mostly mature military technologies onto a well-defined commercial derivative aircraft.",
"The KC-46 program estimates for cost, schedule, and performance are essentially unchanged from last year. While the current cost estimate shows an increase of about $217 million for development and procurement combined, program officials explained this increase was unneeded funding that will be returned to DOD. The contractor is running very close to its budget and schedule. Development work is more than one-fourth complete and the program successfully accomplished its preliminary design review (PDR) on schedule. Also, the program has now implemented metrics, in response to our prior recommendation, to measure the development progress toward achieving its nine key performance parameters and projects it will meet those requirements by the end of development. However, there are two areas of concern at this point. First, both the contractor and the government estimate that Boeing’s development cost will exceed the contract ceiling price of $4.9 billion, and second, the contractor has already allocated about 80 percent of the management reserves budget set aside for known and unknown development risks with about 5 years of work remaining.",
"Since the start of the KC-46 program about two years ago, planned aircraft quantities and key schedule events remain unchanged. The program’s latest cost estimate shows a total increase of $217 million in development and procurement, but Air Force officials told us that this is due to unneeded funding from DOD budget adjustments and the Tanker Replacement Transfer Fund. Officials said that the February 2011 cost estimate remains the program of record and that these funding additions will be returned to DOD. The program also completed a major schedule milestone in April 2012 with a successful PDR that determined no major design changes were needed. The PDR is an important risk reduction activity as the program moves into integration and manufacture of the KC- 46. Table 1 summarizes the planned quantities, costs, and milestone dates approved when the program began in February 2011 and the most current estimates in October 2012.\nThe current development cost estimate of $7.2 billion as reported in October 2012 includes $4.9 billion for the aircraft development contract and 4 test aircraft, $0.3 billion for the aircrew and maintenance training systems, and $2 billion for other government costs to include program office support, government test and evaluation support, contract performance risk, and other development risks associated with the aircraft and training systems. The total procurement cost estimate of $40.4 billion is to procure 175 production aircraft, initial spares, and other support items as priced in contract options. The military construction estimate of $4.3 billion includes the projected costs to build aircraft hangers, maintenance and supply shops, and other facilities to house and support the KC-46 fleet.\nThrough December 2012, Boeing has accomplished approximately $1.4 billion (28 percent) in development work and has more than $3.5 billion (72 percent) in estimated work to go over the next 5 years. Boeing reports it is running very close to its budget for cost and schedule. Minimal schedule delays to this point are attributed primarily to design difficulties with the aerial refueling system, hardware deliveries for the system integration labs, and configuration changes to the commercial platform needed to accommodate military specific hardware. DOD officials do not expect these delays to affect the completion of critical tasks that ultimately determine whether Boeing can meet the required delivery date in the development contract. While the schedule delays are relatively small, studies of more than 700 defense programs have determined there is limited opportunity for a program to get back on schedule once they are more than 15 to 20 percent complete. Also, the pace of development work is expected to accelerate. So far, on average, about $60 million worth of work has been completed per month, but over the next year more than $100 million worth of work per month is planned.\nThe program office currently projects that the KC-46 aircraft will meet the requirements of all nine key performance parameters by the end of development. These parameters are system characteristics considered critical or essential to developing an effective military capability. Satisfying these parameters will ensure that the KC-46 will be able to accomplish its primary mission of providing worldwide, day and night, adverse weather aerial refueling as well as its secondary missions. Several of these parameters address performance characteristics that are limited or do not exist in the current tanker fleet. For example, only 8 KC-135 aircraft have the capability to receive fuel from another aerial refueling tanker while airborne. At times this limits the range of the tanker force and lessens the efficient use of assets. The Air Force hopes to address this by enabling the entire KC-46 fleet to receive fuel from other tankers. Appendix III describes the key performance parameters for the KC-46 program.\nOur report on the KC-46 last year noted that the program had yet to fully implement specific metrics needed to measure progress against these parameters. As a result, we recommended it do so as soon as possible to help ensure that progress toward meeting these parameters can be appropriately measured. The program has now fully implemented metrics to help measure progress toward achieving these parameters. Now that these metrics have been fully established we plan to track their status in our subsequent annual reviews of the KC-46 program.",
"The KC-46 development contract is designed to hold Boeing accountable for cost, limit the government’s financial liability, and provide Boeing incentives to reduce costs in order to earn more profit. At this point in the program, both the contractor and the government estimate that development costs will exceed the contract ceiling price of $4.9 billion and Boeing has already allocated about 80 percent of the contract’s management reserves, which are set aside for known and unknown development risks, with about five years of development work remaining.\nBarring any changes to KC-46 requirements by the Air Force, the contract specifies a target price of $4.4 billion and a ceiling price of $4.9 billion at which point Boeing must assume responsibility for all additional costs.Currently, both Boeing and the Air Force project that the development effort will exceed the $4.9 billion ceiling price, with the Air Force concluding that the primary reason is the schedule risk associated with the remainder of the development effort. If so, the contractor will have to absorb all costs above this amount. Table 2 provides development contract details, current contractor and government estimates to complete, and the projected amounts over ceiling to be absorbed by the contractor.\nThe development contract performance baseline set aside $354 million in the management reserves account, about 7 percent of the contract ceiling price. As of December 2012, less than $72 million in unallocated reserves remain. About $282 million had been allocated, the majority to non- commercial militarization requirements, including: $94 million for increased system engineering and program $72 million for design and integration of military equipment with the $52 million for construction of system integration labs to reduce $42 million for additional test and evaluation challenges as well as cost growth for training activities, support equipment, and operational site activation.\nFigure 2 shows the use of management reserves to date and future projections based on past use. Since the start of performance reporting in May 2011, the contractor has allocated an average of about $15 million in reserves each month.\nThe quick rate of depletion of Boeing’s management reserves raises concerns. Two years into a 7-year development program, the contractor has already allocated about 80 percent of the total available. Less than $72 million is available for future contingencies related to the more than $3.5 billion in government funded contract work remaining. DOD anticipates this negative trend will continue, since Boeing has told them design and technical issues driving the allocation of management reserves are not fully resolved.\nAt the current allocation rate, our analysis shows that management reserves will be depleted in May 2013, prior to the critical design review in July 2013 and more than 4 years before the contractually required delivery date for 18 operationally ready KC-46 aircraft in August 2017.\nAccording to GAO’s Cost Estimating and Assessment Guide, significant use of management reserves early in a program may indicate contract performance problems and decreases the amount of reserves available for future risks, particularly during the test and evaluation phase when demand may be the greatest. At the current rate, none of the reserves will be available to complete the bulk of development work, as well as the entire period of development testing. Even though Boeing is contractually liable for all costs above the $4.9 billion ceiling price, unanticipated design changes, deficiencies discovered in testing, and other risks encountered that might require management reserves funding could place added pressures on cost and schedule as the development program moves forward. The program has not yet evaluated how the significant use of these funds early in development could impact future milestones.",
"With development generally proceeding as planned, the program is addressing, in varying degrees, some key challenges. All major stakeholders in the program have identified concerns about the degree of risk in the KC-46 flight test plans and an integrated test team is evaluating and adjusting test plans. Also, in preparing for the program’s critical design review, completing extensive engineering drawings on time will be challenging and some lower level subsystem design reviews are behind schedule. Furthermore, Boeing changed its plans and location for manufacturing and assembling military equipment and is still in the process of relocating key personnel and establishing needed facilities. While not as complex as a new fighter aircraft, the tanker program still needs to integrate critical technologies, develop and test software, keep the aircraft within its target weight, and at the same time, navigate risks posed by the concurrency, or overlap, between testing and production activities.",
"The Air Force, DOD, Boeing, and the FAA have all identified the aggressive KC-46 flight test schedule as a risk. Developmental flight tests, to prove aircraft design and demonstrate the aircraft will perform as expected, are set to occur within a 15-month window starting in early 2015 and ending in 2016. Concerns include the relatively short time for flight testing and fixing any deficiencies, plans for aircraft flying rates and personnel resources, and the time needed for air worthiness flight certifications.\nTo achieve developmental flight test plans, the contractor has proposed a 5- to 6-day-a-week flight test approach based on its commercial aircraft test practices. As part of this plan, Boeing intends to fly KC-46 test aircraft 5 days a week with a scheduled make-up day on day 6, and possibly an additional day, if necessary. This is a more aggressive pace than the two to three test missions per week for each test aircraft typically assumed by the Air Force for other aircraft programs. Air Force officials said their typical approach enables execution of test plans at a steady rate and includes sufficient time for data analysis, aircraft maintenance, aircrew training, and test planning between test flights. This issue and other flight test issues are being addressed by officials on the Integrated Test Team (ITT). The ITT was concerned about the Air Force’s access to contractor test documents and data but now has resolved this issue with Boeing. Also, the ITT is currently in the process of developing formal agreements with the Air Force, Navy, Boeing, and a foreign partner regarding the use of 18 military receiver aircraft to be used to certify the KC-46’s aerial refueling capabilities. Appendix IV provides a list of the top 8 flight test risks identified by the ITT and plans to mitigate those risks.\nGAO-12-366. scheduled to begin in May 2016, be delayed by at least 6 months to allow additional time for completion of developmental testing and initial aircrew and maintenance training due to the aggressive flight test schedule. Their assessment also cites a concern that the current schedule for military flight testing may need to be extended by 4 to 7 months. In addition, the DOD development testing office has stated that the proposed flight test plan allots little time for correction of deficiencies discovered during development testing prior to the planned start of operational testing. In January 2013, both offices approved the KC-46 overall test strategy, but each office still has concerns regarding the program’s detailed test plans, including the training of aircrew and maintenance personnel overlapping with the completion of developmental testing.\nThe FAA still has to certify airworthiness for both the 767-2C and then the KC-46. The first FAA certification must approve the modifications being made to the original baseline 767 design and the second certification must approve the installation of military aerial refueling equipment for the KC-46 tanker configuration. Boeing established plans for the FAA to accomplish part of both of these certifications concurrently rather than consecutively which is the typical procedure. FAA officials said that such a condensed timeframe will require additional agency resources which the Air Force has to pay under a program services agreement. According to DOD risk assessments, if problems arise during this concurrent certification process, little time will be left for Boeing to recover from delays.",
"The KC-46 critical design review (CDR) is scheduled for July 2013. The CDR is a major milestone that assesses the system’s final design so that the product can move into fabrication, demonstration, and test. It also verifies whether performance requirements can be met within cost and schedule constraints. To prepare for the complete system CDR, the contractor has been conducting individual subsystem design reviews during 2012, a few of which were delayed. The design review on the aerial refueling boom hardware, for example, has been rescheduled 5 months later than planned due to design problems. A design review of the software associated with the aerial refueling operator station has also been rescheduled. Also, an analysis to validate the software design was delayed from June 2012 until February 2013. Despite these slips, program officials told us subsystem reviews will still occur in time to support the July 2013 CDR. During the upcoming CDR, Air Force officials indicated they will also review and approve the contractor’s plans for system specifications, flight testing, and supplier management.\nAn important contractual requirement (and best practice) is for Boeing to release 90 percent of the total engineering design drawings by the CDR. At this point, Boeing data shows that, as of early December 2012, Boeing has completed the expected amount of drawings and about 60 percent of design drawings were complete, which is about 9,000 out of nearly 15,000 total drawings. However, given the time remaining, reaching the 90 percent requirement by CDR could be challenging. Drawings still to be completed include much of the more complex, new design efforts to integrate the military technologies on the commercial derivative airframe. Figure 3 shows that as of December 2012, Boeing is adhering to its schedule to complete the required number of drawings before CDR.\nThe location, facilities, and some personnel for militarizing the commercial-derivative aircraft have changed since the contract was awarded. The Air Force originally expected Boeing to do most of the work at its long-standing Wichita, Kansas, facility. In January 2012, however, Boeing announced plans to close its Wichita plant and move all military modification assembly work to Seattle (home to its commercial manufacturing operations) to achieve greater cost efficiencies and accommodate defense cuts. The company has relocated key personnel, and plans are in place for the remaining relocations. A temporary facility was opened in Seattle in October 2012 to begin production of the first refueling aircraft boom, and the company is also examining what additional facilities may be needed for future production and aircraft militarization. Air Force officials stated that Boeing must still meet all contractual requirements on-time and within cost, regardless of where development has been taking place, and has identified this transition as a watch item going forward.",
"The KC-46 program plans to integrate three critical technologies—a Three Dimensional Display, Airborne ESTAR, and Threat Correlation Software—needed to achieve the tanker’s capability requirements. These technologies have each been demonstrated in a relevant environment in accordance with DOD and statutory requirements, but have not yet been demonstrated in a realistic environment. Demonstrating technology in a realistic environment offers a higher level of maturity and is considered a best practice. We have previously reported that programs that began development with technologies demonstrated to this level experienced less cost growth than programs with less mature technologies.However, the program does not plan to demonstrate these critical technologies in a realistic, operational environment before production starts. Boeing is required to submit an update to its technology maturation plans prior to the CDR in July 2013 and the start of low-rate initial production in 2015. Appendix V describes the KC-46 program’s three critical technologies in detail.\nOther technical challenges include:\nSoftware development. Software development plans are still evolving and not complete at this time. While the total amount of software under development has been reduced by 40 percent since the start of development, increased amounts of certain types of software are now anticipated and the planned mix of software has also changed. Boeing now estimates they will be not be able to reuse as much existing software as they thought, and must instead develop more new and modified software. Table 3 shows the estimated changes to the KC-46 software plan. While needing less software overall is a positive, the need for more new and modified software typically requires more testing than software being reused. Growth in these two software classifications is not a favorable trend. However, at this point, officials do not expect that this will affect the software test schedule.\nAircraft weight. Projected weight increased since last year more than anticipated and is now expected to exceed the KC-46’s target weight. If the target weight is not achieved, the aircraft will not be able to carry as much fuel as required. Essentially, every one pound in excess weight equals one pound less fuel that can be carried to accomplish its primary mission of refueling other aircraft. Extra weight could also affect operating requirements for takeoff, mission radius, and landing. The program does have a mitigation strategy in place to help control weight. Historically, weapon system acquisition programs can experience weight gains during development. With about 5 years of development remaining, including the entire flight test program, additional weight reduction activities may be necessary.\nWing aerial refueling pod. Problems with buffeting, or instability, of the aircraft’s wing experienced on another Boeing tanker, led to the introduction of a new wing aerial refueling pod design for the KC-46. The new design also required changes in the way the refueling hose exits the pod, raising concerns whether the hose will be stable in flight. If the new design has technical shortcomings, additional cost and time for unplanned design changes and subsequent testing may be needed.\nBoom refueling system. Some changes to the boom refueling system design have been determined necessary, possibly delaying the development of boom hardware. Boeing has added manpower to help manage its suppliers and is addressing risk. According to the program office, the boom refueling system is still on schedule, but if hardware is delayed, boom testing could be as well.",
"Successful and timely resolution of design, manufacturing, testing, and technical challenges could lessen and help manage cost and schedule risks posed by the concurrency, or overlap, of development, testing, and production activities. As we reported last year, funding commitments and the start of low rate production is scheduled before significant development and testing activities are completed. Currently, about 60 percent of the dedicated KC-46 development flight testing is planned for completion by the start of production. While not as extensive or potentially costly as we have reported elsewhere, KC-46 concurrency can have cost and schedule consequences. Development flight testing is supposed to demonstrate the maturity of the design and to fix design and performance problems during the development phase. Discovering and fixing such problems during production may require modifications to aircraft already built and, as a result, affect schedule. Figure 4 shows the program’s current schedule with concurrency between planned development, testing, and production.",
"The KC-46 program continues to mitigate risks principally through its acquisition strategy and contract mechanism. The use of a fixed price incentive contract limits government cost risk and the plan to convert a commercial derivative aircraft into the KC-46 tanker lessens technology risk. Our assessments of the KC-46 master schedule, the acquisition plan, and management framework find that they favorably compare with best practices and acquisition reform legislation, with some exceptions.",
"The KC-46 fixed price development contract helps control costs by placing more responsibility on the contractor and limiting government liability for cost increases. Specific contract provisions ensure that Boeing must correct any deficiencies and bring them to the final aircraft configuration at no additional cost to the government. Program officials have also taken steps with the KC-46 acquisition strategy to limit changes to requirements similar to those that have caused problems in many previous acquisition programs. Now, an engineering or contract change affecting system requirements or possibly impacting program cost, schedule, and performance baselines must be approved by top Air Force officials. Program officials also maintain the program is being managed in an event-based manner—meaning the start of low-rate initial production is not driven by a certain schedule date, but instead will not be approved until Boeing demonstrates the knowledge and readiness required for production.\nAs DOD seeks to employ more fixed price development contracts, where appropriate, and acquire more evolutionary weapon system capabilities, different acquisition strategies and contract provisions come into play. At times, these factors, and others, can change the responsibilities among key stakeholders. For example, when using a strategy that couples a fixed price contract with a largely commercial-derivative system, the government generally has and needs less access to the contractor’s activities compared to when a purely military system is being acquired. KC-46 program officials told us the majority of preliminary and critical design reviews for components and subsystems used on the commercial 767-2C aircraft are conducted as Boeing internal events, with the Air Force participating but not leading these reviews. Also, officials told us they do not receive regular status updates for some types of contractor data, including engineering design drawings. Officials from the Defense Contract Management Agency, which oversees the KC-46 development contract, also told us their typical oversight of defense contracts involving commercial items is more constrained compared to its oversight of unique military weapon systems.",
"The KC-46 program’s schedule substantially meets the 10 best practices we have identified as being associated with effective schedule estimating. Our analysis found that while the schedule does not fully meet any of the 10 best practices, it is generally comprehensive, well- constructed with a logical sequence of activities, controlled, and credible. Table 4 summarizes these best practices and our assessment of the degree to which the KC-46 program has met them.\nOverall, the evidence suggests that the KC-46 program office and Boeing are working to develop and maintain a healthy master schedule. Still, our assessment identified three areas that could be improved where the current schedule partially meets the best practices.\nFirst, our analysis found that not all activities are reflected in the schedule. The schedule primarily contains Boeing’s activities but does not fully include government activities. To better satisfy best practices, a program’s schedule should reflect all efforts necessary for successful completion regardless of who performs them.\nSecond, we found a relatively large number of schedule lags and date constraints that may negatively impact the ability to predict how the delay or early completion of scheduled activities could affect the KC- 46 major milestones and planned finish date. While lags are included in a schedule to denote the passage of time, the KC-46 schedule provided few details on the reasons why such a large number of lags are included in their schedule. We also found a large number of constraints built into the schedule that are being used to control the timing of activities. Program officials stated these time constraints represent the contractor’s resource availability but they also prevent activities from starting sooner than planned to take advantage of time savings realized on earlier activities. It also requires constant manual upkeep of the schedule, increasing the likelihood of errors.\nThird, while the program office adhered to the best practice that a risk analysis be conducted on its planned schedule and even conducted a second revised schedule risk analysis after our initial assessment, we report this best practice as partially met. Our initial assessment found that the original program office schedule risk analysis may not have factored in enough risk into the contractor’s activity duration estimates, and assumptions used to conduct the risk assessment were not fully documented. Nor did it account for the correlation between activities, that is, the degree to which the duration of some related activities may vary together. Program officials reported that they revised their original analysis during October 2012 to research differences and record assumptions between their schedule risk analysis and the contractor’s. According to the program office, the differences were resolved and assumptions are now documented, which addressed some of our earlier concerns. While the program office reported these constructive efforts, the revised schedule risk analysis still does not account for the correlation between activities, and we did not have the time or complete information to accomplish an independent assessment of the revised analysis.",
"On the whole, the KC-46 program’s acquisition plan and management framework continue to favorably compare with the standards and requirements in GAO’s best practices work on acquisition development and reform legislation. The program has utilized: a time-defined development approach of about 7 years; a process requiring consultation with top Air Force officials before manufacturing readiness levels designed to provide a common measure and vocabulary for assessing manufacturing maturity and risk; and a knowledge-based acquisition approach, in which knowledge is acquired at key decision points, by ensuring requirements and resources match, the product design is stable, and manufacturing processes are mature.\nAs we reported last year, while the program has implemented many acquisition best practices, the Air Force did not conduct a technology development phase and instead proceeded directly into development. The program’s three critical technologies were assessed as approaching maturity and meeting internal defense policy, but below the fully mature level associated with best practices. Our prior work consistently shows that programs going directly into development before fully maturing all critical technologies typically incur additional costs and take longer to complete.\nThe program reports that it is also meeting many of the requirements of the Weapon Systems Acquisition Reform Act of 2009 (Reform Act) that encourages DOD to engage in a more robust discussion of trade-offs among cost, schedule, and performance. legislation, the program has implemented cost and schedule management requirements and is measuring and reporting on operation and sustainment costs. Further, they have also implemented cost effective measures including plans for future competitions for aircraft subsystems and several software integration laboratories. The Air Force is also employing an incremental acquisition approach, as mentioned in the Reform Act, to replacing the current refueling fleet by procuring the KC-46, and then later the KC-Y and KC-Z. This approach could leverage competition for future tanker aircraft development and procurement.\nPub. L. No. 111-23, § 201. technical, cost, and schedule delivery information to mitigate risk. Appendix VII provides a list of key Boeing suppliers for the KC-46 program. In addition, the Air Force has approved the contractor’s manufacturing program plan that leverages military modifications on the commercial 767 assembly line with Boeing planning to use a manufacturing readiness assessment and production reviews for quality assurance.",
"Entering its third year, the KC-46 development program is, for the most part, progressing as planned even though some concerns exist. The program has an ambitious schedule, particularly with regard to flight testing. While program estimates are essentially unchanged, the development contract cost estimate continues to be above the contract ceiling price, making it essential the government not change KC-46 requirements. Boeing has also allocated management reserves at a high rate which raises concerns because doing so early in a program is often an indicator of future contract performance problems. While the fixed price development contract caps the government’s cost liability, it would still behoove the Air Force to fully understand the causal factors driving the accelerated use of management reserves in order to recognize risks, consider potential trade-offs, and better understand circumstances that could impact on-time delivery to the warfighter. Also, improvements to a few aspects of the program’s master schedule could make it more complete and robust to further help ensure program success.",
"We are recommending that the Secretary of Defense take the following two actions on the KC-46 program.\nTo help understand and monitor the causes of the majority of contractor management reserves being allocated two years into development, the Secretary of Defense should direct the Air Force, after Boeing has fully resolved the relevant design and technical issues, to analyze the root causes for the rate of expenditure of reserves in order to help the Air Force fully recognize and mitigate risk areas.\nTo help maintain a more thorough and insightful KC-46 development schedule, the Secretary of Defense should direct the Air Force to address our concerns related to three schedule best practices (capturing all activities, sequencing all activities, and conducting a schedule risk analysis), where we concluded the program’s master schedule had only partially met best practice criteria.",
"DOD provided us with written comments on a draft of this report which are reprinted in appendix VIII. DOD concurred with our two recommendations. We also incorporated technical comments from DOD as appropriate.\nRegarding the recommendation to analyze the use of management reserves, DOD stated that the contractor has performed a root cause analysis and that the program office will monitor, analyze, and report on the use of management reserves. Regarding the recommendation to improve the master schedule, DOD stated that the Air Force is taking action to address each of the 3 schedule best practices we cited.\nWe are sending copies of this report to the Secretary of Defense; the Secretary of the Air Force; and the Director of the Office of Management and Budget. The report also is available at no charge on the GAO website at http://www.gao.gov.\nIf you or your staff has any questions concerning this report, please contact me at (202) 512-4841 or sullivanm@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 contributing to this report are listed in appendix IX.",
"We interviewed officials from the KC-46 program, Air Force, and Office of the Secretary of Defense (OSD) to obtain their views on KC-46 development progress, ongoing concerns and actions taken to address program technical risks, and future plans to complete KC-46 flight testing and manufacturing. We also reviewed program documentation and plans for compliance with current Department of Defense (DOD) policy, acquisition reform legislation, and GAO best practices for weapon system development.\nTo determine the extent the KC-46 program is meeting cost, schedule, and performance goals in the calendar year of this review (2012), we reviewed briefings by program and contractor officials, financial management documents, defense acquisition executive summary reports, selected acquisition reports, monthly activity reports, technical performance indicators, risk assessments, and other documentation. To evaluate cost information, we reviewed program office documentation on what actions are currently being taken in the areas of earned value management and contractor performance. We also reviewed contractor use of management reserves funding to project when this funding will likely be depleted. To assess the program’s development schedule progress, we reviewed the program’s latest master schedule and compared it against previous master schedules and reviewed monthly Defense Contract Management Agency (DCMA) reports for information relating to a 14-point schedule risk assessment they conduct as part of their ongoing oversight to identify changes that could impact key program milestone events. Regarding performance goals, we reviewed key performance parameters and progress in fully implementing technical performance measures used to evaluate whether program performance parameters are being achieved.\nTo identify the design, manufacturing, testing plan, and technology challenges, we met with contractor, Air Force, and DOD officials and examined program documentation such as the post preliminary design review report, manufacturing program plan, software block functionality plan, reliability growth curve charts, and critical technology element maturation plan. To measure progress regarding the relocation of military modification work on the KC-46 tanker, we met with Boeing officials and reviewed briefings on their transition plans from Wichita, Kansas to Everett, Washington and the implications on expertise, knowledge, personnel relocation, and associated costs and impact on program development and production. To assess progress toward test plans, we compared the revised KC-46 test and evaluation master plan to the original and against recent reviews completed by the Air Force and DOD test offices to evaluate whether changes have been made to mitigate flight testing concerns. Specifically, we analyzed contractor and program office mitigation efforts planned to deal with identified flight test challenges of the commercial derivative 767-2C and KC-46 tanker and also Federal Aviation Administration (FAA) air worthiness certification requirements. We also discussed related software development, test, and integration with the DCMA, Director, Operational Test, and Evaluation (DOT&E) officials, and OSD Developmental Test and Evaluation (DT&E) officials and reviewed DOT&E and DT&E annual assessments on the KC- 46 program, integrated test team minutes, program assessment reports, and contractor and program office risk summary charts to identify risk areas and what actions are being taken to address challenges to the program. Finally, we leveraged information received as part of a related GAO review on weapon system assessments, which includes the KC-46 program.\nTo assess the extent the program has developed effective, appropriate methods to mitigate challenges, we analyzed contractor and program office plans for risk mitigation contained on their respective risk and technical watch lists. We reviewed a preliminary design report and briefing and subsystems critical design review results. We concentrated especially on follow-up actions (redesigns) the program has identified as a need to address, the program’s critical technology maturation plan, key performance parameter achievement concerns and operational assessment criteria used to note significant trends in development efforts, programmatic voids, risk areas, and operational testing plans. We compared these risk mitigation plans to GAO’s commercial best practices work on weapon system programs, focusing on knowledge points, technology readiness levels, software development, and testing to identify processes and trends that provide a framework for improving weapon system development outcomes. Finally, to analyze risk in the program’s development schedule, we reviewed the integrated master schedule and determined the extent to which the program’s development schedule was prepared in accordance with best practices that GAO has identified as fundamental to having a reliable schedule. We then characterized the extent to which each of the 10 scheduling best practices were met; that is, we rated each characteristic as being either: not met, minimally met, partially met, substantially met, or fully met. We could not assess the contractor’s manufacturing processes because the program is only in its second year of development and it is too early for this assessment.\nIn performing our work, we interviewed officials from Air Mobility Command, Scott Air Force Base, Illinois; Air Force Operational Test and Evaluation Center, Detachment 5, Edwards Air Force Base, California; 412th Test Wing, Edwards Air Force Base, California; KC-46 program office, Wright-Patterson Air Force Base, Ohio; Defense Contract Management Agency, Seattle, Washington; and Federal Aviation Administration, Wichita, Kansas. We also met with and obtained information from the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, in Washington, D.C; the Director of Operational Test and Evaluation, Washington, D.C.; and the Deputy Assistant Secretary of Defense for Developmental Test and Evaluation, Washington, D.C.\nWe conducted this performance audit from June 2012 to February 2013 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.",
"Not capable of both on same mission.",
"Description Aircraft shall be capable of accomplishing air refueling of all Department of Defense current and programmed (budgeted) receiver aircraft. The aircraft shall be capable of conducting both boom and drogue air refueling on the same mission.\nAircraft shall be capable of carrying certain amounts of fuel (to use in air refueling) certain distances.\nAircraft shall be capable of worldwide flight operations in all civil and military airspace.\nAircraft shall be capable of transporting certain amounts of both equipment and personnel.\nReceiver Air Refueling Capability Aircraft shall be capable of receiving air refueling from any compatible tanker aircraft.\nAircraft shall be able to operate in chemical and biological environments.\nAircraft must be able to have effective information exchanges with many other Department of Defense systems to fully support execution of all necessary missions and activities.\nAircraft shall be capable of operating in hostile threat environments.\nAircraft shall be capable of conducting drogue refueling on multiple aircraft on the same mission.",
"",
"Military Type Certification Schedule and Flight Test Rate: Planned military-specific test schedule is more aggressive than historical experience. Planned flight hours per aircraft per month average (50 hours vs. approximately 30 hours) and test efficiency exceeds that for similar aircraft (85 percent vs. 55 percent).\nAir Force mitigation efforts Integrated Test Team (ITT) clarification: Approximately 90 percent of aircraft testing will be achieved under the Federal Aviation Administration (FAA) process. Previous commercial 767 aircraft test programs have significantly exceeded 30 flight hours per aircraft per month and 55 percent efficiency.\nReceiver Certification Planned Flight Test Hours: Aerial refueling certification testing of required Initial Operational Test and Evaluation (IOT&E) receiver aircraft will take longer (approximately 400 flight hours) than the hours and time in the current schedule. This is estimated to extend the test schedule by almost 6 to 8 months.\nITT clarification: Boeing flight test hours are indicative of actual receiver time on station, not total flight time. The method of calculating test hours is now understood correctly.\nAccess to Boeing Data and Personnel: Integrated Test Team requires access to Boeing proprietary commercial test data and commercial division personnel. Air Force Flight Test Center is concerned about Boeing proprietary Test Planning, Execution, and Reporting Tool interfacing with government tracking tools.\nITT resolution: Responsible Test Organization (RTO) and Boeing reached agreement that test planning will be conducted by Boeing. A common test and evaluation database is being implemented through Boeing’s Integrated Digital Environment (IDE) database system.\nResponsible Test Organization (RTO) Crew Staffing: RTO crew personnel could impact test operations schedule due to availability of RTO personnel. There are no contractual Type 1 (one-time or limited training) slots for replacement training and there have been issues with retention of crews due to permanent change of station and deployments.\nITT resolution: Boeing has agreed to include a 10 percent replacement training factor (by specialty) for all Type 1 training. An executable training plan has been built within the fixed-price construct. Increases in Type 1 training allocations for the 412th Test Wing is to be offset by personnel sharing.\nDevelopmental Testing (DT) / Operational Testing (OT) Maintenance Staffing: Insufficient number of qualified tanker maintenance personnel to support DT and IOT&E. Air Mobility Command and Air Force Materiel Command (AFMC) planning and programming effort required to meet requirement of 100 maximum slots to support IOT&E and 15 additional slots for DT.\nITT resolution: Initial staffing assumptions by the RTO and Air Force Operational Test and Evaluation Center (AFOTEC) did not support the pace of test outlined by Boeing’s Stage 2 flight test plans. RTO has since added additional manning slots for DT and will share resources with AFOTEC to meet OT demands. The KC-46 Program Office has adjusted Type 1 training requirements to the new demand.\nDT/OT Aerial Refueling Operator (ARO) Personnel: Insufficient number of qualified ARO personnel to support DT and IOT&E activities. Potential AFMC programming and budgeting input required for additional ARO positions for DT and OT activities.\nITT resolution: Initial staffing assumptions by the RTO and AFOTEC did not support the pace of test outlined by Boeing’s Stage 2 test plans. RTO has since added additional manning slots for DT and will share resources with AFOTEC to meet OT demands. The KC-46 Program Office has adjusted Type-I training requirements to the new demand. Additionally, the 370 Flight Test Squadron remained activated to support KC-46 testing.\nSchedule Sufficiency for Deficiency Correction: Flight- test schedule does not reflect sufficient time to correct discrepancies identified prior to start of operational testing. There is a lack of Integrated Test Team insight into schedule and contract and concerns whether the Joint Deficiency Reporting System can support pace of test operations.\nITT clarification: Although a Correction-of-Deficiency period is not identified on the current KC-46 Test and Evaluation Master Plan (TEMP) test schedule due to a lack of available space, there is a 90-day aircraft refurbishment period of time to bring the four test aircraft to production configuration. This time is annotated on the detailed test schedules provided by Boeing.",
"Receiver Aircraft Availability: Lack of military receiver aircraft availability to support aerial refueling certification testing. Air Force will have to maximize flexibility of receiver aircraft for air refueling certification testing by possibly utilizing Navy, Boeing, and foreign partner F/A-18 aircraft.\nAir Force mitigation efforts ITT clarification: Memorandums of Agreement / Memorandums of Understanding (MOAs/MOUs) will be implemented between organizations to facilitate support of test activity. MOAs are expected with owning aircraft using commands to support receiver certifications.",
"Appendix V: KC-46 Critical Technology Elements Description The display screens at boom operator stations inside the aircraft provide the visual cues needed for the operator to monitor the aircraft being refueled before and after contact with the refueling boom or drogue. The images of the aircraft on the screens are captured by a pair of cameras outside that aircraft that are meant to replicate the binocular aspect of human vision by supplying an image from two separate points of view, replicating how humans see two points of view, one for each eye. The resulting image separation provides the boom operator with greater fidelity and a more realistic impression of depth, or a 3rd dimension.\nTesting to Date Similar technology has been used on two foreign-operated refueling aircraft and a representative model in tests with other Boeing tankers.\nThis software module is planned to have an algorithm that allows for automatically re-routing and constructing new flight paths for the aircraft that are safe, flyable, and avoid potential threats. The algorithm is new and novel technology, critical to meeting operational requirements.\nAirborne ESTAR has been tested in a simulation that provided data on its performance, interfaces, and functionality.\nSomewhat similar to Airborne ESTAR, this new software module serves to correlate tracks from multiple potential threats and automatically help re-route the tanker’s flight path to avoid them.\nThe integration of software algorithms with the associated processor has been laboratory tested in a relevant environment.",
"",
"Explanation The schedule should reflect all activities as defined in the project’s work breakdown structure (WBS), which defines in detail the work necessary to accomplish a project’s objectives, including activities both the owner and contractor are to perform.",
"The schedule should be planned so that critical project dates can be met. To do this, activities need to be logically sequenced-that is, listed in the order in which they are to be carried out. In particular, activities that must be completed before other activities can begin (predecessor activities), as well as activities that cannot begin until other activities are completed (successor activities), should be identified. Date constraints and lags should be minimized and justified to help ensure that the interdependence of activities that collectively lead to the completion of events or milestones can be established and used to guide work and measure progress. (3) Assigning resources to all activities The schedule should reflect the resources (labor, materials, overhead) needed to do the work, whether they will be available when needed, and any funding or time constraints.",
"The schedule should realistically reflect how long each activity will take. When the duration of each activity is determined, the same rationale, historical data, and assumptions used for cost estimating should be used. Durations should be reasonably short and meaningful and allow for discrete progress measurement. Schedules that contain planning and summary planning packages as activities will normally reflect longer durations until broken into work packages or specific activities.",
"The detailed schedule should be horizontally traceable, meaning that it should link products and outcomes associated with other sequenced activities. These links are commonly referred to as “hand-offs” and serve to verify that activities are arranged in the right order for achieving aggregated products or outcomes. The integrated master schedule (IMS) should also be vertically traceable-that is, varying levels of activities and supporting subactivities can be traced. Such mapping or alignment of levels enables different groups to work to the same master schedule.",
"The schedule should identify the program critical path-the path of longest duration through the sequence of activities. Establishing a valid critical path is necessary for examining the effects of any activity’s slipping along this path. The program critical path determines the program’s earliest completion date and focuses the team’s energy and management’s attention on the activities that will lead to the project’s success.",
"The schedule should identify reasonable float (or slack)-the amount of time by which a predecessor activity can slip before the delay affects the program’s estimated finish date- so that the schedule’s flexibility can be determined. Large total float on an activity or path indicates that the activity or path can be delayed without jeopardizing the finish date. The length of delay that can be accommodated without the finish date’s slipping depends on a variety of factors, including the number of date constraints within the schedule and the amount of uncertainty in the duration estimates, but the activity’s total float provides a reasonable estimate of this value. As a general rule, activities along the critical path have the least amount of float. (8) Conducting a schedule risk analysis A schedule risk analysis uses a good critical path method (CPM) schedule and data about project schedule risks and opportunities as well as statistical simulation to predict the level of confidence in meeting a program’s completion date, determine the time contingency needed for a level of confidence, and identify high-priority risks and opportunities. As a result, the baseline schedule should include a buffer or reserve of extra time.\nExplanation Progress updates and logic provide a realistic forecast of start and completion dates for program activities. Maintaining the integrity of the schedule logic at regular intervals is necessary to reflect the true status of the program. To ensure that the schedule is properly updated, people responsible for the updating should be training in critical path method scheduling.",
"A baseline schedule is the basis for managing the project scope, the time period for accomplishing it, and the required resources. The baseline schedule is designated the target schedule, subject to a configuration management control process, against which project performance can be measured, monitored, and reported. The schedule should be continually monitored so as to reveal when forecasted completion dates differ from planned dates and whether schedule variances will affect downstream work. A corresponding baseline document explains the overall approach to the project, defines custom fields in the schedule file, details ground rules and assumptions used in developing the schedule, and justifies constraints, lags, long activity durations, and any other unique features of the schedule.",
"",
"DRS Laurel Technologies Inc. (Johnstown, Pa.) Eaton Aerospace (Grand Rapids and Jackson, Mich.)\nGE Aviation Systems (Grand Rapids, Mich. and Clearwater, Fla.)\nGoodrich (Colorado and Ontario, Canada) Honeywell (Phoenix and Tucson, Ariz.; Coon Rapids, Mich., and Urbana, Ohio)\nMoog Inc. (East Aurora, N.Y., Torrence, Calif., and Wolverhampton, UK)\nNorthrop Grumman (Rolling Meadows, Ill.) Parker Aerospace (Ariz., Calif., Florida, Ga., Mich., N.Y., N.C., Ohio, Tex., and Utah)\nPratt & Whitney (Middletown, Conn.) Raytheon Company (El Segundo, Calif.) Rockwell Collins (Cedar Rapids, Iowa)\nSpirit (Wichita, Ks. and Prestwick, Scotland)",
"",
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"In addition to the contact name above, the following staff members made key contributions to this report: Bruce Fairbairn, Assistant Director; Tina Cheng; Matt Drerup; Keith Hudson; John Krump; Don Springman; and Robert Swierczek."
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{
"question": [
"What does the KC-46 program estimate?",
"What has the program done as a result of a prior GAO recommendation?",
"What concerns are there regarding program cost?",
"What does GAO indicate about these concerns?",
"How is the program addressing key challenges?",
"What is additional work benefiting?",
"How is additional work being monitored?",
"How are KC-46 program acquisition strategy and contract type effective?",
"What is the benefit of a fixed price contract?",
"How do the KC-46 master schedule, acquisition plan, and management framework compare?",
"What exception are there to this comparison?",
"What does aerial refueling allow for?",
"What is the problem with the KC-135 Stratotanker?",
"What is the Air Force doing to fix this problem?",
"What does the National Defense Authorization Act for Fiscal Year 2012 require?",
"What does this report address?",
"How did GAO get information for this report?"
],
"summary": [
"The KC-46 program 2012 estimates for cost, schedule, and performance are virtually the same as last year's, with the contractor running very close to the planned budget and schedule.",
"In response to a prior GAO recommendation, the program now has fully implemented metrics to measure the progress toward its key performance parameters and expects to meet these requirements.",
"There are two areas of concern regarding program cost: first, both the contractor and government estimate the cost of development will exceed the contract ceiling price of $4.9 billion (although government liability is capped at that ceiling); and second, the contractor has already allocated about 80 percent of the management reserves budget, primarily for identified, yet unresolved, development risks, with the bulk of work--about 5 years--remaining.",
"GAO maintains that significant use of these funds early in a program may indicate problems.",
"First, defense, contractor, and federal aviation officials all identify the flight test schedule as a substantive concern. An integrated test team continues to evaluate and adjust flight test plans ahead of the 2015 start. Second, the contractor must still complete a significant number of engineering drawings needed for the upcoming critical design review; about three-fifths are complete and some lower level subsystem reviews are behind schedule. Third, the contractor is still in the process of relocating key personnel and establishing facilities needed for integrating defense equipment after deciding to close the original location.",
"Additional work continues to more fully mature critical technologies, solidify software plans, address growth in aircraft weight, and ensure there are no design issues with the wing refueling pods and the boom refueling system.",
"Program officials continue to monitor these issues to ensure they will not have major impacts.",
"The KC-46 program acquisition strategy and contract type are effective mechanisms for mitigating risks.",
"The use of a fixed price contract limits government cost risk and technology risk is lessened by converting a commercial derivative aircraft into the KC-46 tanker.",
"The KC-46 master schedule, acquisition plan, and management framework favorably compare with best practices and acquisition reform legislation, with some exceptions.",
"For example, the master schedule met 7 of 10 best practices criteria, but did not include and sequence all activities and could have incorporated a broader range of uncertainty, leaving room to improve the schedule so program success is not jeopardized.",
"Aerial refueling allows U.S. military aircraft to fly further, stay airborne longer, and carry more weapons, equipment, and supplies.",
"Yet the mainstay of U.S. tanker forces--the KC-135 Stratotanker--is over 50 years old. It is increasingly costly to support and its age-related problems could potentially ground the fleet.",
"As a result, the Air Force has initiated the $52 billion KC-46 program to replace the aerial refueling fleet. The program plans to produce 18 tankers by 2017 and 179 aircraft by 2027.",
"The National Defense Authorization Act for Fiscal Year 2012 requires GAO to annually review the KC-46 program through 2017.",
"This report addresses (1) progress made in 2012 toward cost, schedule, and performance goals, (2) identified program challenges, and (3) program risk mitigation tools.",
"To address these areas, GAO reviewed key program documents, discussed development plans and results with officials from the KC-46 program office, other defense offices, and the prime contractor, Boeing. GAO assessed the program's development schedule and technology risks. GAO also assessed the program's acquisition plan to determine compliance with acquisition legislation and acquisition best practices."
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CRS_RL33776
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{
"title": [
"",
"Introduction",
"Climate Change",
"Legislative Issues",
"Should Greenhouse Gases Be Regulated as Air Pollutants?",
"Should Legislation Focus on Individual Sectors, the Economy as a Whole, or Both?",
"Is Cap-and-Trade the Best Approach?",
"What Role for Carbon Taxes?",
"The Role of State Programs",
"California's Waiver Request",
"Mass. v. EPA Endangerment Finding",
"Other Clean Air Issues",
"Background",
"Revision of the Ozone and Particulate Standards",
"Ozone NAAQS",
"Particulate Matter (PM) NAAQS",
"CASAC's Views",
"Implementation of the PM NAAQS",
"CASAC's Role in the NAAQS-Setting Process",
"Revision of the NAAQS for Lead",
"Regulation of Lead: A Success, But Not Based on NAAQS",
"The Basis for the Proposed Standard",
"Implementing a Revised Standard",
"Lead Monitoring",
"CAIR and Multi-Pollutant Legislation for Power Plants",
"Clean Air Interstate Rule (CAIR)",
"Mercury from Power Plants",
"Background",
"The Court's Decision",
"Other Mercury Issues",
"Next Steps",
"New Source Review"
],
"paragraphs": [
"",
"Attention to environmental issues in the 110 th Congress focused early and heavily on climate change. The shift of control from Republicans to Democrats in the new Congress altered the political dynamic concerning this issue, although it did not result in enacted legislation. Hearings were held by at least 10 committees, and 17 bills to cap emissions of greenhouse gases (GHGs) were introduced. One of the bills, S. 2191 , was reported, May 20, 2008, by the Environment and Public Works Committee, and Senate debate on a modified version ( S. 3036 ) began June 2, 2008. A motion to invoke cloture failed June 6, on a vote of 48-36. On the House side, the Speaker urged quick action on legislation, and established a Select Committee on Energy Independence and Global Warming to highlight the issue, but no bills proceeded to markup.\nTen of the 17 GHG cap-and-trade bills would have amended the Clean Air Act, generally establishing a new Title VII to address the issue. (For additional information on climate change legislation, see CRS Report RL33846, Greenhouse Gas Reduction: Cap-and-Trade Bills in the 110 th Congress , by [author name scrubbed], [author name scrubbed], and [author name scrubbed].) Whether or not climate change legislation would amend the Clean Air Act, climate change hearings and markup were among the highest priorities for the committees that have jurisdiction over air issues (principally the Senate Environment and Public Works and House Energy and Commerce Committees). Other clean air issues were not the main focus of attention, but they were addressed, primarily through oversight of Administration actions.\nThis report provides a brief overview of the climate change issue as well as other Clean Air Act issues that were of interest in the 110 th Congress.",
"Climate change (often referred to as global warming) has been of interest to the Congress on some level for more than 30 years. Hearings on the topic occurred as early as 1975, with as many as 250 additional hearings since that time. In 1992, the United States ratified the U.N. Framework Convention on Climate Change (UNFCCC), which established a goal of reducing developed countries' greenhouse gas emissions to 1990 levels by the year 2000. In 1997, the parties to the UNFCCC, as a first step to advance stronger measures, negotiated binding emission reductions for developed countries in the Kyoto Protocol. The United States subsequently rejected the Protocol, focusing instead on research and on voluntary emission reduction programs. Despite these programs, U.S. emissions of greenhouse gases have continued to climb: in 2005, U.S. emissions were 16% higher than in 1990.\nIn recent years, Congress has expressed renewed interest in climate issues for several reasons. Perhaps the most important factor has been the continued strengthening of the science supporting the connection between emissions of greenhouse gases and climate changes, including mounting evidence that glaciers and polar ice caps are shrinking, global average temperatures are rising, and other climate-related phenomena are occurring. (For a summary of the science, see CRS Report RL33849, Climate Change: Science and Policy Implications , by [author name scrubbed].) In response, about two dozen states have entered into regional agreements to address the issue. (For a summary of state actions, see CRS Report RL33812, Climate Change: Action by States to Address Greenhouse Gas Emissions , by [author name scrubbed].) There has also been a shift in attitude on the part of some in industry, prompted in part by the growing patchwork of state-level and foreign requirements. New business coalitions have formed to urge Congress to address the problem, or to influence any legislation that Congress might consider.\nCongress was already beginning to respond to these changes before the 2006 elections. In the 109 th Congress, the Senate passed a Sense of the Senate resolution that acknowledged a \"growing scientific consensus\" that human activity is a substantial cause of greenhouse gas accumulation in the atmosphere, causing average temperatures to rise, and called for a mandatory, market-based program to limit greenhouse gas emissions. On a complicated issue such as greenhouse gas limits, the devil is in the details: agreement on general principles does not necessarily presage agreement on detailed legislative proposals. One detailed proposal reached the Senate floor before the 110 th Congress: the McCain-Lieberman bill ( S. 1151 in the 109 th Congress, S. 139 in the 108 th ) would have established a mandatory, market-based greenhouse gas reduction program. It was debated in the 109 th Congress as an amendment to the Energy Policy Act of 2005 ( S.Amdt. 826 ) and defeated by a 38-60 vote; as stand-alone legislation, it was defeated 43-55 in the 108 th Congress.\nIn the 110 th Congress, there was new impetus. In the Senate, the Chairs of both the Environment and Public Works Committee and the Energy and Natural Resources Committee announced their intentions to move legislation; the Environment and Public Works Committee approved S. 2191 , amended, December 5, 2007, by a vote of 11-8. The bill was reported ( S.Rept. 110-337 ) May 20, 2008, and Senate debate on a modified version of the bill ( S. 3036 ) began June 2. A motion to invoke cloture failed, however, June 6, on a vote of 48-36. In the House, the Speaker urged quick action, but markup of legislation did not occur. The Energy and Commerce Committee, which has jurisdiction, held a number of hearings and posted four white papers describing a possible cap-and-trade program on its website, before producing a discussion draft of climate change legislation, October 7, 2008. The same committee has jurisdiction over the related issue of energy policy and focused its efforts in the first session on the passage of landmark energy legislation ( P.L. 110-140 ), which was signed by the President December 19, 2007. There was further attention to climate change bills in the second session of the Congress, but a significant number of questions, both procedural and substantive, remain.",
"",
"The relationship of climate change legislation to the more traditional air pollution programs of the Environmental Protection Agency (EPA) is one such question. In brief, should greenhouse gases (particularly carbon dioxide) be considered air pollutants subject to regulation under the Clean Air Act, or are they more properly considered a side-effect of the use of fossil fuels to produce energy?\nThe answer to this question affects jurisdiction over a climate change program (particularly in the Senate, where both the Energy and Natural Resources Committee and the Environment and Public Works Committee have considered greenhouse gas legislation). It could determine whether EPA, the Department of Energy, or some other agency would administer an enacted climate change program. And it might affect whether states have authority independent of the federal government to control certain greenhouse gas emissions.\nOver the years, EPA has taken both sides of this issue. Under the Clinton Administration, the agency's General Counsel argued that CO 2 is an air pollutant, and thus could be regulated under the existing authority of the Clean Air Act. The agency did not actually propose such regulation; it simply maintained that it would have the authority to do so if it chose. Under the Bush Administration, a new General Counsel argued the opposite, maintaining that Congress had clearly distinguished CO 2 from other air pollutants and, while authorizing research and data collection under the existing Clean Air Act, had expressly decided not to regulate the pollutant. (For a further discussion of these issues, see CRS Report RL32764, Climate Change Litigation: A Growing Phenomenon , by [author name scrubbed].) The Bush Administration has also intervened in court to argue that controlling CO 2 and other greenhouse gas emissions from automobiles is equivalent to setting fuel economy standards (a regulatory authority that Congress reserved for the federal government), not controlling air pollution (where states have a regulatory role).\nIn its April 2, 2007 decision in Massachusetts v. EPA , the Supreme Court resolved the issue of the Clean Air Act's authority, finding:\nThe Clean Air Act's sweeping definition of \"air pollutant\" includes \" any air pollution agent or combination of such agents, including any physical, chemical ... substance or matter which is emitted into or otherwise enters the ambient air....\" ... Carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons are without a doubt \"physical [and] chemical ... substances[s] which [are] emitted into ... the ambient air.\" The statute is unambiguous.\nThus, the Court found no doubt that the Clean Air Act gives EPA the authority to regulate greenhouse gases (in this case, from new motor vehicles), although the specifics of such regulation might be subject to agency discretion. (For further discussion of the Court's decision, see CRS Report RS22665, The Supreme Court ' s Climate Change Decision: Massachusetts v. EPA , by [author name scrubbed].)\nAs noted, 10 of the 17 bills introduced in the 110 th Congress to cap greenhouse gas emissions would have amended the Clean Air Act, as would the Energy and Commerce Committee's discussion draft. In order to sidestep the complexities of treating GHGs as traditional pollutants, they generally would have created a new Title VII to establish a separate program for greenhouse gas emissions. In this respect, the bills emulated the 1990 Clean Air Act Amendments, which created separate titles to deal with acid precipitation (Title IV) and stratospheric ozone depletion (Title VI).",
"Most of the bills dubbed \"climate change\" bills would establish economy-wide programs to reduce greenhouse gas emissions. But recent Congresses, including the current one, have also seen dozens of bills aimed at the emissions of individual sectors, notably electric utilities, cars and trucks, electrical appliances, and commercial or government buildings. Together, these sectors account for the lion's share of energy use and GHG emissions. Electric utilities account for about 40% of U.S. emissions of CO 2 . Transportation (of which the dominant portion is cars and trucks) accounts for about one-third. Appliances, other electrical equipment, and buildings all play important roles as consumers of energy; thus, reducing their energy use through efficiency standards, better insulation, etc., can be important means of reducing GHG emissions.\nIf the focus is on individual sectors rather than the economy as a whole, the likelihood is that new legislation to reduce GHGs would not amend the Clean Air Act, and the resulting regulatory programs would be implemented and administered by agencies other than EPA. For example, the Corporate Average Fuel Economy (CAFE) standards, which have regulated the fuel economy of automobiles and light trucks since the mid-1970s, are set and administered by the National Highway Traffic Safety Administration of the Department of Transportation. P.L. 110-140 , signed by the President December 19, 2007, strengthened these standards for the first time since 1975. The new standards require that new vehicles achieve about a 40% improvement in fuel economy by 2020. The law also requires the Secretary of Transportation to establish standards for each model year, beginning with MY 2011. Appliance efficiency standards are set by the Department of Energy (DOE). These standards were also strengthened in P.L. 110-140 . Other potential elements of a GHG reduction program, such as building codes, are administered by state and local governments, although DOE provides input to commercial building codes under provisions of the Energy Policy Act of 1992. Power plants represent a particularly complicated sector, which, depending on the source of power, may be regulated by the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, or EPA, with a major role also for state governments. (For a discussion of federal programs and policies, see CRS Report RL31931, Climate Change: Federal Laws and Policies Related to Greenhouse Gas Reductions , by [author name scrubbed] and [author name scrubbed].)",
"The complexity and sheer number of measures that might need to be taken in order to have a significant impact on GHG emissions in sector-specific approaches leads many to suggest an economy-wide approach, in which a decreasing annual emissions cap is established, and emission allowances are distributed or sold to major emitters. As the cap (and hence, the number of allowances) is gradually ratcheted down, markets would determine who reduces emissions: companies that could do so at low cost would have incentives to take action; companies with fewer or more costly options could buy allowances to cover excess emissions. (For a more complete discussion of these issues see CRS Report RL33799, Climate Change: Design Approaches for a Greenhouse Gas Reduction Program , by [author name scrubbed].)\nSuch cap-and-trade programs have an enviable reputation, largely based on the success of the Clean Air Act's acid rain program. That program imposed a cap on sulfur dioxide emissions for a limited number of electric power plants in 1995, and in 2000 lowered the cap and expanded coverage to more plants. It met its emission reduction goals at low cost, with virtually 100% compliance, and with minimal administrative oversight. The success of the program was at least partly the result of the favorable circumstances in which it was implemented: the reduction targets were easily met because of an abundant supply of cheap low-sulfur coal; there were only about 1,000 entities (power plants) covered by the trading program, making it simple and inexpensive to monitor and administer; and most of the regulated entities were allowed 10 years to achieve compliance, by which time, early reductions had generated an enormous number of extra allowances that helped lubricate the trading system.\nSome other trading programs have not been as successful. Southern California's Regional Clean Air Incentives Market (RECLAIM), for example, which was implemented in 1994 to reduce emissions of nitrogen oxides (NOx) and sulfur dioxide (SO 2 ) in the Los Angeles area, saw a 50-fold increase in NOx allowance prices during the 2000-2001 California energy crisis. To permit its continued functioning and allow utilities to use backup power generators, electric utilities were removed from the RECLAIM system, charged a flat fee of $15,000 per ton for excess emissions, and subjected to new command and control requirements (i.e., the type of regulation the trading system was designed to avoid). The European GHG trading system (EU-ETS), established to help European Union countries meet their Kyoto Protocol targets, has also seen wild swings in short-term allowance prices during its start-up years, making planning and decision-making difficult for participating entities.\nA U.S. cap-and-trade system for GHG emissions would face a number of challenges. First, with the exception of electric utilities, sources of GHGs have not been generally required to monitor or report their GHG emissions; what we know about sources is based, for the most part, on estimates. Thus, a monitoring requirement would need to be established to serve as a basis for any future reduction scheme, whether cap-and-trade or not. P.L. 110-161 , the Consolidated Appropriations Act, 2008, directs EPA to develop regulations that establish a mandatory GHG reporting program that will apply \"above appropriate thresholds in all sectors of the economy,\" but a registry does not yet exist.\nSecond, decisions would need to be made regarding the comprehensiveness of any program: what economic sectors to include, what to establish as a small emitter exemption, etc. Again, this problem is not unique to cap-and-trade, but it assumes increasing importance if one is designing any economy-wide approach.\nThird, there is a wide array of issues related to the distribution or sale of allowances, including what year to choose as the base year against which to measure emission reductions; what criteria or method to use to allocate allowances; whether to auction allowances to existing sources of emissions or give them away; whether to establish reserves for new sources; etc.\nFourth, in order to prevent wild swings in allowance prices, a variety of flexibility mechanisms have been suggested, including a \"safety valve\" (a price at which the regulatory authority would sell additional allowances if the market cost rose above predicted levels); the banking of excess allowances (achieved through early reductions) for later use; borrowing authority; etc. Others have proposed a floor below which prices would not be allowed to fall, to reduce risk for sources that make GHG reductions. If a safety valve or floor were established, the price of additional allowances and/or the floor price would be key determinants of the stringency of the program.\nFifth, there are a number of issues related to whether and how to permit international trading of allowances. Many of the least cost GHG reduction options may be in developing countries, but verification of the baseline emissions and of the continued application of emission controls could pose challenges to the regulatory authority in such cases. Similar questions are raised by potential domestic or international offsets to emissions, in the form of sequestration activities.",
"The complications of establishing a viable cap-and-trade program suggest to some (especially to those trained in economics) that the simplest approach to controlling emissions would be to impose a carbon or GHG tax. From the point of view of economic efficiency, administrative ease, and comprehensiveness, a carbon tax has many advantages, but Congress has found it difficult to impose new taxes, limiting support for this option. It is worth noting that the \"safety valve\" discussed in the cap-and-trade section above would function to some extent like a carbon tax, and might represent a compromise between these two options.",
"Finally, as noted earlier, a number of states have begun programs to reduce GHG emissions. Although the federal government is challenging some of these, particularly those affecting mobile sources, states do have clear authority to regulate emissions from power plants, landfills, residential and commercial buildings, and other sources of GHGs. The extent to which such state programs might serve as national models is one issue; another is the degree to which a federal program might preempt state measures affecting similar sources.",
"The question of federal preemption has already arisen under current law. California has adopted regulations requiring new motor vehicles to reduce GHG emissions, beginning in model year 2009. The standards require gradual reductions of GHG emissions until they are about 30% below the emissions of the 2002 fleet in 2016. Compliance would be determined by fleet averages, rather than by the emissions of individual vehicles, and the regulations provide additional flexibility, including averaging, banking, and trading of credits within and among manufacturers.\nAlthough California finalized its regulations in 2005, the standards have not gone into effect because the state first needed to obtain a waiver of federal preemption from U.S. EPA. The Clean Air Act generally preempts states from adopting their own emission standards for mobile sources of air pollution, but it makes a conditional exception for California—whose air pollution problems have been more severe than those of other states, and whose emission control program pre-dated federal requirements. To obtain this exception, the state must be granted a waiver by the EPA Administrator. The act also permits other states to adopt standards identical to California's, if California is granted a waiver: 14 states have adopted identical standards. Together, the states that have adopted the California standards represent nearly half the U.S. auto market, so there is broad interest in EPA's decision and a great deal at stake.\nTo obtain a waiver, California must meet four conditions laid out in CAA Section 209(b): the state must determine that its standards will be at least as protective of public health and welfare as applicable federal standards; and the EPA Administrator must weigh whether the state's determination in this regard is arbitrary and capricious; whether the state needs such standards to meet compelling and extraordinary conditions; and whether the standards and accompanying enforcement procedures are consistent with Section 202(a) of the Clean Air Act.\nCalifornia appears to have a sound argument that it meets these tests. No federal standards address greenhouse gas emissions from mobile sources, so the requirement that the state's standards be at least as protective as federal standards would appear to be met. The state identified several compelling and extraordinary conditions that the standards are designed to address, and the state provided information describing technologies available to meet the standards, many of which are already available on vehicles, and addressed consistency with Section 202(a).\nThe legislative history of the waiver provision would also seem to support California's case. In the most recent amendment of Section 209(b), the House committee report stated: \"The Administrator is not to overturn California's judgment lightly. Nor is he to substitute his judgment for that of the State.\" (For a further discussion, see CRS Report RL34099, California ' s Waiver Request Under the Clean Air Act to Control Greenhouse Gases From Motor Vehicles , by [author name scrubbed] and [author name scrubbed].)\nNevertheless, the EPA Administrator announced on December 19, 2007, that he would deny the waiver request. According to press reports, the decision to deny the waiver was taken against the unanimous advice of the agency's technical and legal staffs. In a letter to California's Governor Schwarzenegger on that date, the Administrator cited the signing earlier the same day of the Energy Independence and Security Act ( P.L. 110-140 ), which established new fuel efficiency standards for motor vehicles, as providing a national approach to greenhouse gas emissions, a problem that, ne noted, is \"fundamentally global in nature.\" He also contrasted the problems caused by GHGs to the local and regional air quality problems addressed by previous California waiver requests, more than 50 of which have been granted by EPA since the late 1960s.\nOn February 29, 2008, the Administrator signed a formal decision document denying the waiver. (The decision document appeared in the March 6 Federal Register. ) In it, he based his denial on a finding that Section 209(b) was intended to allow California \"to address problems that are local or regional,\" not global climate change. He also held that the effects of climate change in California are not compelling and extraordinary, as the statute requires, compared to the effects in the rest of the country. On January 2, 2008, California and 15 other states filed suit challenging the Administrator's decision.\nThe auto industry, in addition to the Bush Administration, is opposed to the granting of a waiver. The industry maintains that there is effectively no difference between California and federal emission standards in their impact on criteria air pollutants, that the benefits of the GHG regulations are \"zero\", and that emissions will actually increase as a result of the regulations as consumers keep older, higher-emitting cars longer.\nIf California were granted a waiver, there might be other impediments to the implementation of its standards, as industry opponents challenge EPA's authority in court. Already, in several court cases, the issue has been raised whether EPA and California are prohibited from regulating greenhouse gases by the Corporate Average Fuel Economy (CAFE) requirements of the Energy Policy and Conservation Act of 1975 (EPCA). Under EPCA, the authority to set fuel economy standards is reserved for the federal government, and specifically, the National Highway Traffic Safety Administration. The auto industry maintains that the regulation of greenhouse gases is simply another method of regulating fuel economy, and, therefore, that California's GHG standards are preempted by EPCA. In the first of the cases to be tried, Green Mountain Chrysler Plymouth Dodge Jeep v. Crombie , and Association of International Automobile Manufacturers v. Crombie , now consolidated, the federal district court in Vermont ruled September 12, 2007, that the Clean Air Act/EPCA relationship is one of overlap, not conflict, and concluded that California and other states are not preempted by EPCA from setting mobile source GHG standards. In a second decision, Central Valley Chrysler Jeep, Inc. v. Goldstene , a district court in the Ninth Circuit similarly rejected claims that California's regulation of GHG emissions from cars and trucks was precluded or preempted by EPCA. Both of these decisions have been appealed.\nFollowing the Administrator's decision, legislation was introduced in both the Senate ( S. 2555 ) and the House ( H.R. 5560 ) to overturn the Administrator's denial. The Senate bill was reported, June 27 ( S.Rept. 110-407 ), but no further action was taken. The bills would consider California's application for a waiver to be approved, notwithstanding any other provision of law.",
"As a result of the Supreme Court's decision in Massachusetts v. EPA , EPA was ordered to decide whether to regulate mobile source GHGs nationally under Section 202 of the CAA. The issue here is whether GHGs are pollutants that, in the words of Section 202, \"cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.\" The Court's decision left EPA three options: (a) make a finding that motor vehicle GHG emissions may endanger public health or welfare, and issue emissions standards; (b) make a finding that such emissions do not endanger public health or welfare; or (c) decide that climate change science is so uncertain as to preclude making a finding either way (or cite some other \"reasonable explanation\" why EPA will not exercise its discretion either way).\nEPA has not spoken definitively on whether climate change endangers public health, but the agency appears to have already concluded that GHGs do affect welfare. Under the Clean Air Act, welfare is defined to include effects on soils, water, crops, vegetation, wildlife, weather, and climate. In his decision document on the California waiver request, which appeared in the Federal Register , March 6, 2008, the Administrator stated: \"It is widely recognized that greenhouse gases have a climatic warming effect by trapping heat in the atmosphere that would otherwise escape to space.\" He went on to enumerate impacts on temperature, precipitation, sea level rise, water resources, coastal communities, habitats, invasive species, air quality, and other factors. Given these statements, it is hard to see how the agency can do other than issue an affirmative endangerment finding for welfare.\nAfter the Supreme Court's decision, the Administrator (and the President, as well) gave every indication that they were on the way to making such a finding. The President, on May 14, 2007, said:\nLast month, the Supreme Court ruled that the EPA must take action under the Clean Air Act regarding greenhouse gas emissions from motor vehicles. So today, I'm directing the EPA and the Department of Transportation, Energy, and Agriculture to take the first steps toward regulations that would cut gasoline consumption and greenhouse gas emissions from motor vehicles....\"\nIn a briefing after the President's statement and at several Congressional hearings, the Administrator stated his intention to propose regulating GHGs from automobiles before the end of 2007. EPA's Semiannual Regulatory Agenda, issued in December 2007, said the agency would \"issue a notice of proposed rulemaking by the end of 2007 and a final rule by the end of October 2008.\"\nAccording to EPA staff, an endangerment of welfare finding was prepared and a proposed GHG emission standard was approved by the Administrator. The endangerment finding was sent to the White House Office of Management and Budget (OMB) somewhere between December 5 and December 8, 2007, and a proposed GHG emission standard was sent to the Department of Transportation.\nThe endangerment finding and the proposed standards have not been issued, however, and the Administrator has recently begun the process all over with a request for information from the public (termed an \"Advance Notice of Proposed Rulemaking,\" or ANPR). The ANPR was released July 11, 2008, and appeared in the Federal Register, July 30, 2008. EPA staff have apparently been told that work was discontinued so that the agency's activities could be reassessed given enactment of the Energy Independence and Security Act (EISA, P.L. 110-140 ), which set new Corporate Average Fuel Economy (CAFE) standards for motor vehicles, which will reduce their GHG emissions. In the months after the bill's enactment, however, EPA staff were not asked to analyze whether passage of the law changed the analysis of the costs and benefits of the proposed GHG regulations. Furthermore, as numerous commentators have noted, the passage of the new CAFE requirements does not affect EPA's obligation to issue a finding as to whether or not GHG emissions from mobile sources contribute to air pollution that endangers public health or welfare. In fact, Section 3 of EISA specifically states that nothing in the act supersedes the provisions of existing environmental law.\nIf the agency does eventually make an endangerment finding, it would still have substantial discretion in promulgating the actual standards to control GHGs. CAA section 202 does not explicitly impose any stringency or other criteria on GHG emission standards under the section. It says only that the Administrator \"shall by regulation prescribe (and from time to time revise) ... standards applicable to the emission of any air pollutant....\" Reflecting the apparently wide latitude EPA has in setting section 202 standards, commentators have suggested that EPA, following an endangerment finding, could set voluntary standards, or standards pegged to the CAFE standards for fuel economy. Presumably such standards would be subject to further review by the courts.\nCongressional committees, especially the House Oversight and Government Reform Committee and the Senate Environment and Public Works Committee, have expressed substantial interest in this issue, which has been addressed in several oversight hearings and in a continuing investigation. Senator Feinstein's S. 2806 would have required the Administrator to issue a finding within 60 days of the bill's enactment, but no action was taken on the bill.",
"In addition to climate change, there are a number of clean air issues in which Congress has expressed an interest. The rest of this report discusses seven of these issues, some of which have been the subject of oversight hearings.",
"Despite steady improvements in air quality in many of the United States' most polluted cities, the goal of clean air continues to elude many areas. The most widespread problems involve ozone and fine particles. As of June 2008, 132 million people lived in areas classified \"nonattainment\" for the ozone National Ambient Air Quality Standard; 88 million lived in areas that were nonattainment for fine particles (PM 2.5 ).\nAir quality has improved substantially since the passage of the Clean Air Act in 1970: annual emissions of the six most widespread (\"criteria\") air pollutants have declined 160 million tons (53%), despite major increases in population, motor vehicle miles traveled, and economic activity.\nMeanwhile, however, scientific understanding of the health effects of air pollution has caused EPA to tighten standards for ozone and fine particles. (Fine particles, as defined by EPA, consist of particulate matter 2.5 micrometers or less in diameter, abbreviated as PM 2.5 .) The agency attributes at least 33,000 premature deaths and millions of lost work days annually to exceedances of the PM 2.5 standard. Recent research has tied ozone pollution to premature mortality as well. Thus, there is continuing pressure to tighten air quality standards: a tightening of the standard for fine particles was promulgated October 17, 2006. The ozone standards were strengthened March 12, 2008. In addition to the standards themselves, attention has focused on the major sources of ozone and particulate pollution, such as coal-fired power plants and mobile sources.\nWith this background in mind, the remainder of this report provides a discussion of several interrelated air issues of interest in the 110 th Congress, including revision of the ozone, particulate, and lead standards, the role of independent scientific review in the setting of air quality standards, multi-pollutant legislation and the Clean Air Interstate Rule (CAIR) for electric power plants, mercury from power plants, and New Source Review. This report provides an overview of these issues; CRS reports that contain additional information and detailed sources are referenced in the appropriate sections.",
"",
"EPA Administrator Stephen Johnson signed final changes to the National Ambient Air Quality Standard (NAAQS) for ozone on March 12, 2008; the proposal appeared in the Federal Register on March 27. NAAQS are standards for outdoor (ambient) air that are intended to protect public health and welfare from harmful concentrations of pollution. By changing the standard, EPA has concluded that protecting public health and welfare requires lower concentrations of ozone pollution than it previously judged to be safe.\nThe ozone standard affects a larger percentage of the population than any other NAAQS: about 45% of the U.S. population currently lives in ozone \"nonattainment\" areas (the term EPA uses for areas that violate the standard), 132 million people in all. As a result of the standard's strengthening, more areas will be affected, and those already considered nonattainment may have to impose more stringent emission controls.\nThe revision lowers the primary (health-based) and secondary (welfare-based) standards from 0.08 parts per million (ppm) averaged over 8 hours to 0.075 ppm averaged over the same time. Using the most recent three years of monitoring data, 345 counties (54% of all counties with ozone monitors) would violate the new standards. Only 85 counties exceeded the pre-existing standards. Thus, the change in standards will have widespread impacts in areas across the country.\nThe revision follows a multi-year review of the science regarding ozone's effects on public health and welfare. The review found evidence of health effects, including mortality, at levels of exposure below the previous standard. As a result, both EPA staff and EPA's independent Clean Air Scientific Advisory Committee (CASAC) recommended strengthening it. CASAC concluded, \"There is no scientific justification for retaining the current primary 8-hr NAAQS....\" CASAC's 22-member panel unanimously recommended a range of 0.060 to 0.070 ppm for the primary (health-based) 8-hour standard.\nThe new standards will set in motion a long and complicated implementation process that has far-reaching impacts for public health, for sources of pollution in numerous economic sectors, and for state and local governments. The first step, designation of nonattainment areas, will not take place until 2010 at the earliest, but areas that exceed the new standards (based on current monitoring data) are already expressing concern about the potential impacts.\nA number of issues arise as a result of the standards' adoption, including whether the Administrator's choices for the primary and secondary standards are backed by the available science. Not only are the Administrator's choices weaker than those proposed by CASAC, but the administrative record makes clear that, in part, they were dictated by the White House over the objections of EPA.\nWhether the standards should lead to stronger federal controls on the sources of ozone pollution precursors is another likely issue. Current federal standards for cars, trucks, power plants, and other pollution sources are not strong enough to bring all areas into attainment, thus requiring local pollution control measures in many cases.\nEPA, the states, and Congress may also wish to consider whether the current monitoring network is adequate to detect violations of a more stringent standard. Only 639 of the nation's 3,000 counties have ozone monitors in place. With half of those monitors showing violations of the new standards, questions arise as to air quality in unmonitored counties.\nThe Clean Air and Nuclear Safety subcommittee of the Senate Environment and Public Works Committee held a hearing on proposed changes to the standards, July 11, 2007, and the committee's Subcommittee on Public Sector Solutions to Global Warming, Oversight, and Children's Health Protection discussed the final, promulgated version at a May 7, 2008 hearing on science and environmental regulatory decisions. For additional information on the ozone NAAQS proposal, see CRS Report RL34057, Ozone Air Quality Standards: EPA ' s March 2008 Revision , by [author name scrubbed].",
"The ozone review followed closely on the heels of a revision to the NAAQS for particulate matter. EPA Administrator Stephen Johnson signed those revisions on September 21, 2006, and the standards appeared in the Federal Register on October 17, 2006. In arriving at these revisions, EPA reviewed 2,000 scientific studies on particulates and found associations between particulates and numerous significant health problems, including aggravated asthma, chronic bronchitis, reduced lung function, irregular heart beat, heart attacks, and premature death in people with heart or lung disease.\nThe revisions strengthened the preexisting standard for PM 2.5 , but the standard was not strengthened to the degree recommended by the agency's staff or scientific advisors. As shown in Table 1 , the new standard cuts the allowable concentration of PM 2.5 in the air averaged over 24-hour periods from 65 micrograms per cubic meter (µg/m 3 ) to 35 µg/m 3 ; the annual standard, set at 15 µg/m 3 , does not change.\nEPA's professional staff and CASAC had recommended more stringent standards. CASAC endorsed a 24-hour standard in the range of 30 to 35 µg/m 3 and an annual standard in the range of 13 to 14 µg/m 3 . Of the 22 CASAC panel members, 20 concurred in the recommendation.\nIn the Administrator's judgment, the science underlying this recommendation was not sufficient, relying primarily on two studies, neither of which \"provide[s] a clear basis for selecting a level lower than the current standard....\" The Administrator agreed with CASAC that the science showed a relationship between higher levels of PM 2.5 and an array of adverse health effects, but he believed there was too much uncertainty in the analysis to justify lowering the annual standard. He also noted that EPA is undertaking substantial research to clarify which aspects of PM-related pollution are responsible for elevated risks of mortality and morbidity, including a multi-million-dollar research program whose timeline should permit the results to inform the Agency's next periodic reevaluation of the PM 2.5 standard, required by statute within five years. Thus, he concluded, \"it would be wiser to consider modification of the annual standard with a fuller body of information in hand than initiate a change in the annual standard at this time.\"\nThe PM NAAQS also addresses slightly larger, but still inhalable, particles in the range of 10 to 2.5 micrometers. These are referred to as thoracic coarse particles , or PM 10-2.5 . In its last review of the particulate standards (in 1997), the EPA had regulated these as particles 10 microns or smaller (PM 10 ), a category that overlapped the PM 2.5 category. Challenged in the D.C. Circuit Court of Appeals, the PM 10 standard was remanded to EPA, the court having concluded that PM 10 is a \"poorly matched indicator\" for thoracic coarse particles because it includes the smaller PM 2.5 category as well as the larger particles. In response, in January 2006, the EPA proposed a 24-hour standard for PM 10-2.5 . The standard would have been set at a level of 70 µg/m 3 , compared with the current 24-hour PM 10 standard of 150 µg/m 3 . The final standards promulgated in October 2006 reversed course, leaving in place both the form of the standard (i.e., PM 10 ) and the 24-hour level (150 µg/m 3 ). The only change to the PM 10 standard was the revocation of its annual component. The agency argues that it has provided more thorough reasoning in support of the use of PM 10 as its coarse particle indicator, and believes that its explanation will satisfy the court.",
"The Administrator's decisions on particulate matter represented the first time in CASAC's nearly 30-year history that the promulgated standards fell outside of the range of the scientific panel's recommendations. (The ozone standard promulgated in March 2008 now provides a second instance.) In a letter dated September 29, 2006, the seven members of CASAC objected to the Administrator's actions, both as regards PM 10 and PM 2.5 . With regard to PM 2.5 , the letter stated: \"CASAC is concerned that EPA did not accept our finding that the annual PM 2.5 standard was not protective of human health and did not follow our recommendation for a change in that standard.\" The letter noted that \"there is clear and convincing scientific evidence that significant adverse human-health effects occur in response to short-term and chronic particulate matter exposures at and below 15 µg/m 3 ,\" and noted that 20 of the 22 Particulate Matter Review Panel members, including all 7 members of the statutory committee, were in \"complete agreement\" regarding the recommended reduction: \" It is the CASAC ' s consensus scientific opinion that the decision to retain without change the annual PM 2.5 standard does not provide an ' adequate margin of safety ... requisite to protect the public health ' (as required by the Clean Air Act) ....\"\nWith regard to PM 10 , the letter stated that CASAC was \"completely surprised\" at the decision to revert to the use of PM 10 as the indicator for coarse particles, noting that the option of retaining the existing daily PM 10 standard was not discussed during the advisory process and that CASAC views this decision as \"highly problematic.\"\nThe Administrator is not required by statute to follow CASAC's recommendations; the act (Section 307(d)(3)) requires only that the Administrator set forth any pertinent findings, recommendations, and comments by CASAC (and the National Academy of Sciences) and, if his proposal differs in an important respect from any of their recommendations, provide an explanation of the reasons for such differences. Courts, in reviewing EPA regulations, generally defer to the Administrator's judgment on scientific matters, focusing more on issues of procedure, jurisdiction, and standing. Nevertheless, CASAC's detailed objections to the Administrator's decisions and its description of the process as having failed to meet statutory and procedural requirements could play a role during judicial review.",
"A NAAQS does not directly limit emissions; rather, it represents the EPA Administrator's formal judgment regarding the level of ambient pollution that will protect public health with an adequate margin of safety. Promulgation of a NAAQS sets in motion a process under which states and the EPA first identify nonattainment areas. After these areas are formally designated (a process the EPA estimates will take until April 2010 for the revised PM 2.5 standard), the states have three years to submit State Implementation Plans (SIPs) that identify specific regulations and emission control requirements that will bring the area into attainment. Attainment of the revised standard is to be achieved by 2015, according to the EPA, with a possible extension to 2020.\n(For a more detailed discussion of the PM NAAQS, see CRS Report RL33254, Air Quality: EPA ' s 2006 Changes to the Particulate Matter (PM) Standard , by [author name scrubbed] and [author name scrubbed].)",
"The completion of the PM NAAQS review was followed by an EPA announcement, on December 7, 2006, that it will modify the process for setting and reviewing NAAQS. Sections 108 and 109 of the Clean Air Act establish statutory requirements for the identification of NAAQS (or \"criteria\") air pollutants and the setting and periodic review of the NAAQS standards. However, the process used by the agency is as much the result of 38 years of agency practice as it is of statutory requirements. In Section 109, for example, the statute establishes a Clean Air Scientific Advisory Committee to make recommendations to the Administrator regarding new NAAQS and, at five-year intervals, to make reviews of existing NAAQS with recommendations for revisions. In practice, EPA staff, not CASAC, have prepared these reviews, drafting \"criteria documents,\" which review the science and health effects of criteria air pollutants, and \"staff papers,\" which make policy recommendations. CASAC's role has been to review and approve these EPA documents before they went to the agency's political appointees and the Administrator for final decisions.\nUnder the new procedures, the EPA's political appointees will have a role early in the process, helping to choose the scientific studies to be reviewed, and CASAC will no longer have a role in approving the policy staff paper with its recommendations to the Administrator. CASAC will be relegated to commenting on the policy paper after it appears in the Federal Register , during a public comment period. The goal, according to agency officials, is to speed up the review process, which has consistently taken longer than the five years allowed by statute. \"These improvements will help the agency meet the goal of reviewing each NAAQS on a five-year cycle as required by the Clean Air Act, without compromising the scientific integrity of the process,\" according to the memorandum that finalized the changes. The changes concern environmental groups and some in the scientific community, however, because they appear to give a larger role to the agency's political appointees and a smaller role to EPA staff and CASAC.\nAlthough the new NAAQS review procedures will change the role that CASAC has historically played, CASAC, at first, appeared less concerned with the changes than some who have advocated on its behalf. When the December 2006 decision memorandum was released, the committee's Chair said CASAC did not plan to issue a formal response. In response to a draft of the changes, the committee had made a number of suggestions, some of which, such as the convening of a science workshop at the outset of the process to better focus the review, were incorporated into the decision memorandum. The memorandum also addressed another of CASAC's major concerns, that the old process spent too much time compiling an encyclopedic review of the literature, much of which had little relevance to the policy questions that needed to be addressed. With respect to EPA taking comments from CASAC at the same time that it considers comments from the public, CASAC's Chair was reported to say, \"[S]ome of the members were concerned but most are not, because it doesn't change CASAC's ability to comment.\"\nIn early February 2007, however, reports circulated that CASAC had changed its mind. After its first experience with the new NAAQS review process (at a meeting to consider the NAAQS for lead), it was reported that the committee would compose a letter to the EPA Administrator critical of the new process:\nHenderson [CASAC Chair, Dr. Rogene Henderson] said that when EPA first proposed the NAAQS process changes in response to a memo by Deputy Administrator Marcus Peacock, CASAC had \"misunderstood how it would be implemented.\"\nHowever, \"the full consequences became apparent in the lead meeting,\" she said, with panel members concerned about not being able to review staff recommendations. The new process \"does not allow CASAC time for appropriate input to evaluate the science,\" she said.\nNegotiations between CASAC and EPA management followed the February 2007 public meeting, with the result that EPA modified its schedule to allow the CASAC Lead Review Panel to review a second draft of EPA's risk and exposure assessment before the agency's Policy Assessment was published in the Federal Register . This appeared to mollify some of CASAC's concerns, but CASAC continued to express \"serious concerns\" about other aspects of the Lead NAAQS review.\nReaction elsewhere has been stronger. Responding to the changes at the time of their announcement, the incoming Chair of the Environment and Public Works Committee, Senator Boxer, called them \"unacceptable,\" and said the committee planned to make them a top priority for oversight in the 110 th Congress. (The committee included them among the topics it considered February 6, 2007, in a hearing on \"Oversight of Recent EPA Decisions.\") Seven Democratic members of the committee, including Senator Boxer, wrote EPA Administrator Johnson, December 21, 2006, to express their strong opposition to the changes and to ask him to \"abandon\" them. Thus, the role of CASAC in NAAQS reviews could be the subject of further scrutiny in Congress.",
"On October 16, 2008, EPA Administrator Johnson announced his final approval of a more stringent National Ambient Air Quality Standard for lead, reducing the standard 90%, from 1.5 µg/m 3 to 0.15 µg/m 3 . The publication of the revised standard in the Federal Register , expected within a few weeks, is the final step in a multi-year review process that began as the result of a suit filed by the Missouri Coalition for the Environment and others in May 2004.",
"The current lead NAAQS was promulgated in 1978. The Clean Air Act requires that NAAQS be reviewed every five years, but a review of the standard has not been completed since that time. Despite this, regulation of airborne lead is often described as one of the key successes of the Clean Air Act and of the Environmental Protection Agency. The success occurred largely because EPA and other federal agencies used authorities other than NAAQS to order the removal of lead from a wide variety of products.\nIn 1970, lead was widely used as a gasoline additive, and emissions of lead nationwide totaled 224,100 tons. Lead was also present then in many consumer products, and thus was emitted to the air in industrial processes and from waste incinerators. The phasing out of lead from gasoline, paint, packaging materials, and consumer products, as well as stricter controls on industrial emissions, reduced lead emissions more than 99%, to 1,300 tons in 2007.\nAs a result, there are now only two nonattainment areas for lead under the 1978 standard: East Helena, MT, and Herculaneum, MO, with a combined population of 4,664 people. Both of these towns were sites of lead smelters that operated for more than 100 years, contaminating air, water, and soil nearby.\nMost of the emission reductions were motivated by concerns other than the effects of lead concentrations in ambient air. Lead was removed from gasoline in large part because it ruined the catalytic converters placed on vehicle exhaust systems, which were needed to control smog. Lead was removed from paint primarily to avoid its ingestion by children.",
"Airborne lead continues to cause negative effects, despite the reduction in emissions. In the current NAAQS review, EPA identified more than 6,000 studies on lead health effects, environmental effects, and lead in the air published since the previous review. These studies have found evidence of health effects at the levels of exposure currently experienced by much of the U.S. population. Lead particles can be inhaled or ingested, and, once in the body, can cause lower IQ and effects on learning, memory, and behavior in children. In adults, lead exposure is linked to increased blood pressure, cardiovascular disease, and decreased kidney function.\nThus, EPA staff and CASAC, the independent panel of scientists who advise the EPA Administrator, concluded that the NAAQS established in 1978 was far too lenient, that lead in ambient air still poses a threat to public health, and that the NAAQS should be significantly strengthened. CASAC and EPA staff recommended that the standard be reduced from 1.5 µg/m 3 to no higher than 0.2 µg/m 3 . In promulgating a more stringent NAAQS, the Administrator agreed with the scientists' recommendations, rejecting arguments that a NAAQS is no longer needed and concluding that the NAAQS needed to be substantially strengthened.",
"To implement the new standard, nonattainment areas will have to be identified (which may take until January 2012), following which there will be a 5- to 10-year-long implementation process in which states and local governments will identify and implement measures to reduce lead in the air.",
"Besides finding that the 1978 NAAQS was inadequate to protect public health and welfare, EPA's review concluded that \"[t]he current monitoring network is inadequate to assess national compliance with the proposed revised lead standards.\" Only 70 of the roughly 3,000 counties in the United States (about 2.3%) currently have lead monitors, leaving many areas of the country without any means of determining whether they are in violation of the lead NAAQS. In fact, according to EPA's Office of Air Quality Planning and Standards, at least 24 states have no monitors at all.\nTo address this shortfall, EPA proposed—in addition to the revised lead NAAQS—to require monitors near all sources of lead that exceed a threshold of between 200 and 600 kilograms (441 to 1,323 pounds) of emissions per year. The agency also proposed to require a small network of monitors to be placed in urban areas with populations greater than one million to gather information on the general population's exposure to lead in the air.\nIn the final rule, the Administrator chose thresholds different than proposed: he set the source threshold at one ton of emissions rather than 200-600 kilograms, and required monitors in urban areas with populations of 500,000 or more rather than one million. The final choice appears to have reflected concerns by industry groups, including the Battery Council International, who argued that emphasis should be placed more on exposure-oriented monitoring than on specific sources of emissions. According to press reports, the White House Office of Management and Budget weighed in at the last minute in support of the change in emphasis.\nThe states remain free to install more monitors than EPA requires, if they believe that the effects of industrial sources with less than one ton of emissions should be monitored; but finding the money to do so may be difficult at a time when many of the states are experiencing a shortage of revenues. (For additional information, see CRS Report RL34479, Revising the National Ambient Air Quality Standard for Lead , by [author name scrubbed].)",
"Besides air quality standards, the major focus of interest among members of Congress and other policy makers concerned with air quality in recent years has been the regulation of electric power plants. The centerpiece of the Bush Administration's approach to regulating power plants has been the Clean Air Interstate Rule (CAIR), a cap-and-trade regulation designed to reduce emissions of sulfur dioxide and nitrogen oxides, reducing the downwind effects of these pollutants on attainment of the ozone and PM 2.5 air quality standards. CAIR was vacated by the U.S. Court of Appeals for the D.C. Circuit July 11, 2008, in North Carolina v. EPA , dealing a serious setback to the Administration's approach to controlling power plant pollution. The decision has since been appealed.\nCoal-fired power plants are among the largest sources of air pollution in the United States; however, under the Clean Air Act, they are not necessarily subject to stringent requirements. Emissions and the required control equipment can vary depending on the location of the plant, when it was constructed, whether it has undergone major modifications, the specific type of fuel it burns, and, to some extent, the vagaries of EPA enforcement policies. More than half a dozen separate Clean Air Act programs could potentially be used to control emissions, which makes compliance strategy complicated for utilities and difficult for regulators. Because the cost of the most stringent available controls, for the entire industry, could range into the tens of billions of dollars, utilities have fought hard and rather successfully to limit or delay regulations affecting them, particularly with respect to plants constructed before the Clean Air Act of 1970 was passed.\nAs a result, emissions from power plants have not been reduced as much as those from some other sources. Many plants built in the 1950s and 1960s (generally referred to as \"grandfathered\" plants) have little emission control equipment. Collectively, these plants are large sources of pollution. In 2003, power plants accounted for 10.2 million tons of sulfur dioxide (SO 2 ) emissions (70% of the U.S. total), about 45 tons of mercury emissions (more than 40% of the U.S. total), and 3.6 million tons of nitrogen oxides (19% of the U.S. total). Power plants are also considered major sources of fine particles (PM 2.5 ), many of which form in the atmosphere from emissions from a wide range of stationary and mobile sources. In addition, power plants account for about 40% of U.S. anthropogenic emissions of the greenhouse gas carbon dioxide; these emissions are not subject to federal regulation but have been the focus of much debate in recent years.\nWith new ambient air quality standards for ozone and fine particles taking effect, emissions of NOx (which contributes to the formation of ozone and fine particles) and SO 2 (which is also among the sources of fine particles) would necessarily have to be reduced to meet standards. Mercury emissions have also been a focus of concern: 48 states have issued fish consumption advisories due to mercury pollution, covering 14 million acres of lakes, 882,000 river miles, and the coastal waters of 13 entire states. The continuing controversy over the interpretation of New Source Review requirements for existing power plants (discussed below) is also exerting pressure for a more predictable regulatory structure.\nThus, many in industry, environmental groups, Congress, and the Administration have said, for several years now, that the time is ripe for legislation that addresses power plant pollution in a comprehensive (multi-pollutant) fashion. Such legislation (the Administration version of which was entitled the Clear Skies Act) would address the major pollutants on a coordinated schedule and would rely, to a large extent, on a system such as the one used in the acid rain program, where national or regional caps on emissions are implemented through a system of tradeable allowances. The key questions have been how stringent the caps should be and whether carbon dioxide (CO 2 ), the major gas of concern with regard to climate change, would be among the emissions subject to a cap.\nIt now seems unlikely that the 110 th Congress will take action regarding multi-pollutant legislation. Four bills have been introduced in the Senate and one in the House— S. 1168 , S. 1177 , S. 1201 , S. 1554 , and H.R. 3989 —but no action has been scheduled, and little time remains. The focus of power plant regulation seems to have shifted toward broader climate change bills.",
"The Senate Environment and Public Works Committee has voted twice on a multi-pollutant bill, but none of the bills has progressed to the House or Senate floor. On March 10, 2005, however, EPA announced that it would use existing Clean Air Act authority to promulgate final regulations similar to the Administration's multi-pollutant bill (the \"Clear Skies\" bill) for utility emissions of SO 2 and NOx in 28 eastern states and the District of Columbia. The Clean Air Interstate Rule (CAIR) established cap-and-trade provisions that mimicked those of Clear Skies, but the regulations covered only the eastern half of the country. Also, as a regulation, CAIR had no authority to allow EPA to remove existing Clean Air Act requirements, as Clear Skies would have done. Under CAIR, the EPA projected that nationwide emissions of SO 2 would decline 53% by 2015 and NOx emissions 48%. The agency also projected that the rule would result in $85-$100 billion in health benefits annually by 2015, including the prevention of 17,000 premature deaths annually. CAIR's health and environmental benefits would be more than 25 times greater than its costs, according to EPA.\nCAIR was one of the few Bush Administration environmental initiatives that was generally supported by environmentalists. It also had broad support among the regulated community. But a variety of petitioners, including the State of North Carolina, which argued that the rule was not strong enough to address pollution from upwind sources, and some individual utilities that felt they were unfairly treated by the rule's emission budgets, challenged the rule in the D.C. Circuit, and the court vacated it July 11, 2008. A unanimous court found, in general, that EPA lacked authority to promulgate a regional cap-and-trade rule under Section 110 of the Clean Air Act unless it could show a link between the pollution emitted in specific states and nonattainment of standards or failure to maintain standards in downwind states. The court found that EPA had established a significant contribution made by power plants to pollution levels in other states as required by Section 110, but that its methodology for establishing emission budgets was unrelated to that link. The court also found the fuel adjustment factors in the rule to be arbitrary and capricious. It concluded \"CAIR's flaws are deep. No amount of tinkering will transform CAIR, as written, into an acceptable rule.\"\nDespite the seemingly high hurdle set by the language the court used, EPA, environmental groups, and the utility and mining industries have asked the court to review its decision. The court responded by asking appelants for briefs addressing two issues: first, whether any party wants the decision to vacate the rule to stand, and second, whether the court should stay a mandate implementing the decision until EPA issues a revised rule.\nFrom a policy standpoint, the court's decision seriously undermines the Bush Administration approach to clean air over the past eight years. CAIR was the lynchpin that held together the Administration's strategy for attainment of the ozone and fine particulate National Ambient Air Quality Standards (NAAQS), for achieving reductions in mercury emissions from coal-fired powerplants (as discussed further below), for addressing regional haze impacts from powerplants, and for responding to state petitions to control upwind sources of ozone and fine particulate pollution under Section 126 of the Clean Air Act. (For additional information on the CAIR rule, see CRS Report RL34589, Clean Air After the CAIR Decision: Back to Square One? , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]; and CRS Report RL32927, Clean Air Interstate Rule: Review and Analysis , by [author name scrubbed]. For a discussion of the costs and benefits of the principal multi-pollutant approaches, see CRS Report RL33165, Costs and Benefits of Clear Skies: EPA ' s Analysis of Multi-Pollutant Clean Air Bills , by [author name scrubbed] and [author name scrubbed].)",
"At the same time that EPA promulgated CAIR, the agency finalized through regulation a cap-and-trade program for mercury emissions from electric utilities. On February 8, 2008, the U.S. Court of Appeals for the D.C. Circuit vacated these regulations as well and remanded them to EPA for reconsideration.",
"EPA was required by the terms of the 1990 Clean Air Act Amendments and a 1998 consent agreement to determine whether regulation of mercury from power plants under Section 112 of the Clean Air Act was appropriate and necessary. It concluded that it was, in a December 2000 regulatory finding. The finding added coal- and oil-fired electric generating units to the list of categories of sources of hazardous air pollutants, and triggered other provisions of the consent agreement: that the agency propose Maximum Achievable Control Technology (MACT) standards for them by December 15, 2003, and finalize the standards by March 15, 2005.\nRather than promulgate MACT standards, however, which would have required controls on each coal-fired power plant by 2008, EPA reversed its December 2000 finding in March 2005, and established through regulations a national cap-and-trade system for power plant emissions of mercury. The final cap would have been 15 tons of emissions nationwide in 2018 (about a 70% reduction from 1999 levels, when achieved). There would also have been an intermediate cap of 38 tons in 2010. This intermediate cap would not have actually limited emissions, however, since the agency projected emissions at 31 tons in 2010 even if 99% of the generating units installed no mercury control equipment.\nThe caps would have been implemented through an allowance system similar to that used in the acid rain and CAIR programs, through which utilities can either control the pollutant directly or purchase excess allowances from other plants that have instituted controls more stringently or sooner than required. As with the acid rain and CAIR programs, early reductions could have been banked for later use, which the agency said would result in utilities delaying compliance with the full 70% reduction until well beyond 2018, as they used up banked allowances rather than installing further controls. The agency's analysis projected actual emissions to be 24.3 tons (less than a 50% reduction) as late as 2020. Full compliance with the 70% reduction would have been delayed until after 2025. (For additional information on the mercury rule, see CRS Report RL32868, Mercury Emissions from Electric Power Plants: An Analysis of EPA ' s Cap-and-Trade Regulations , by [author name scrubbed].)",
"The D.C. Circuit, in a 3-0 decision handed down February 8, 2008, found that once the agency had listed electric generating units (EGUs) as a source of hazardous air pollutants, it had to proceed with MACT regulations under Section 112 of the act unless it \"delisted\" the source category, under procedures the act sets forth in Section 112(c)(9). Delisting would have required the agency to find that no EGU's emissions exceeded a level adequate to protect public health with an ample margin of safety, and that no adverse environmental effect would result from any source—a difficult test to meet, given the agency's estimate that EGUs are responsible for more than 40% of mercury emissions from all U.S. sources. Rather than delist the EGU source category, therefore, the agency maintained that it could simply reverse its December 2000 \"appropriate and necessary\" finding, a decision that was much simpler because there were no statutory criteria to meet. The court found this approach unlawful. \"This explanation deploys the logic of the Queen of Hearts, substituting EPA's desires for the plain text of Section 112(c)(9),\" the court said in its unanimous opinion.",
"Besides the question of whether EPA complied with the law's requirements, critics have found other flaws in EPA's cap-and-trade approach to controlling mercury. One of the main criticisms has been that it would not address \"hot spots,\" areas where mercury emissions and/or concentrations in water bodies are greater than elsewhere. It would have allowed a facility to purchase allowances and avoid any emission controls, if that compliance approach made the most sense to the plant's owners and operators. If plants near hot spots did so, the cap-and-trade system might not have reduced mercury concentrations in the most contaminated areas. By contrast, a MACT standard would require reductions at all plants, and would therefore be expected to improve conditions at hot spots.\nMany also argue that the mercury regulations should be more stringent or implemented more quickly than the cap-and-trade regulations would have required. To a large extent, these arguments, and EPA's counter-arguments, rest on assumptions concerning the availability of control technologies. Controlling SO 2 , NOx, and mercury simultaneously, as the agency prefers, would allow utilities to maximize \"co-benefits\" of emission controls. Controls such as scrubbers and fabric filters, both of which are widely used today to control SO 2 and particulates, have the side effect of reducing mercury emissions to some extent. Under EPA's cap-and-trade regulations, both the 2010 and 2018 mercury emission standards were set to maximize use of these co-benefits, which would have resulted from controls installed to comply with CAIR. As a result, few controls would have been required to specifically address mercury emissions before the 2020s, the costs specific to controlling mercury would be minimal, and emissions would decline to about 50% of the 1999 level in 2020.\nBesides citing the cost advantage of relying on co-benefits, EPA has claimed that technology specifically designed to control mercury emissions (such as activated carbon injection, ACI) would not be generally available until after 2010. This assertion has been widely disputed. ACI and fabric filters have been in use on municipal waste and medical waste incinerators for more than a decade, and have been successfully demonstrated in at least 16 full-scale tests at coal-fired power plants, for periods as long as a year. Manufacturers of pollution controls and many others maintain that if the agency required the use of ACI and fabric filters at power plants, reductions in mercury emissions as great as 90% could be achieved at reasonable cost in the near future. Relying on these assertions, about 20 states have promulgated requirements stricter than the federal program, with several requiring 80% to 90% mercury reductions before 2010. (For additional information, see CRS Report RL33535, Mercury Emissions from Electric Power Plants: States Are Setting Stricter Limits , by [author name scrubbed].)",
"Under the D.C. Circuit's ruling, unless EPA delists the power plant category, it would appear that the agency does not have the legislative authority to establish a cap-and-trade program for their mercury emissions: the agency appears to be required by the statute to impose MACT standards on each individual plant once it has listed the category. The agency can, of course, appeal the court's ruling: on March 24, it did so, filing a petition for reconsideration by the full \"en banc\" Court of Appeals. The court denied the petition, May 20. The agency then petitioned for certiorari to the Supreme Court, October 17. If this petition is denied or if the agency loses its appeal, it will need to proceed with the development of MACT standards. To speed this process, Senator Carper introduced S. 2643 , which would have required the Administrator to propose MACT standards no later than October 1, 2008, and would have required new and existing power plants to achieve a reduction in mercury emissions of not less than 90%. The bill joined six earlier bills that would have set deadlines and generally would have required reductions of at least 90%. (For additional information, see CRS Report RS22817, The D.C. Circuit Rejects EPA ' s Mercury Rules: New Jersey v. EPA , by [author name scrubbed] and [author name scrubbed].)\nIn the meantime, while the agency considers its options and develops any new regulations in response to the remand, new coal-fired electric generating units and modifications of existing units will be required to obtain permits under a provisions of the law known as the \"MACT hammer\" (Section 112(g)(2)). Under this provision, if no applicable emission limits have been established, no person may construct a new major source or modify an existing major source in the category unless the Administrator or the state determine on a case-by-case basis that they meet the maximum achievable emission controls. On February 28, 2008, the Natural Resources Defense Council (NRDC) released a list of 32 coal-fired power plants in 13 states that it believes must now adopt MACT mercury controls under this provision.",
"A related issue that has driven some of the debate over the regulation of power plant emissions is whether the EPA has adequately enforced existing regulations, using a process called New Source Review (NSR). The New Source Review debate has occurred largely in the courts. The EPA took a more aggressive stance on NSR under the Clinton Administration, filing lawsuits against 13 utilities for violations at 51 plants in 13 states. The Bush Administration has taken action against an additional half a dozen utilities and, after years of negotiation, has settled many of the original suits. In the meantime, however, it has proposed major changes in the NSR regulations that critics argue will weaken or eliminate New Source Review as it pertains to modifications of existing plants.\nThe controversy over the NSR process stems from the EPA's use of it to require the installation of best available pollution controls on existing stationary sources of air pollution that have been modified. The Clean Air Act requires that plants undergoing modifications meet these NSR requirements, but industry has often avoided the NSR process by claiming that changes to existing sources were \"routine maintenance\" rather than modifications. In the 1990s, the EPA began reviewing records of electric utilities, petroleum refineries, and other industries to determine whether the changes were, in fact, routine. As a result of these reviews, since late 1999, EPA and the Department of Justice have filed suit or administrative actions against numerous large sources of pollution, alleging that they made major modifications to their plants, extending plant life and increasing output, without undergoing required New Source Reviews and without installing best available pollution controls.\nOf the utilities charged with NSR violations, at least 13 have settled with the EPA, generally without going to trial. Under the settlements, they have agreed to spend about $10 billion on pollution controls or fuel switching to reduce emissions at their affected units. Combined, these companies will reduce pollution by 1.65 million tons annually. Since July 25, 2000, the agency has also reached 17 agreements with petroleum refiners representing three-fourths of industry capacity. The refiners agreed to settle potential charges of NSR violations by paying fines and installing equipment to eliminate 315,000 tons of pollution.\nThose utilities charged with NSR violations that have not settled with the EPA claim that the EPA has reinvented the NSR rules, and that the agency's stricter interpretation of what constitutes routine maintenance will prevent them from making changes that would have previously been allowed without a commitment of time and money for permit reviews and the installation of expensive pollution control equipment. This provides disincentives for power producers, refiners, and others to expand output at existing facilities, they maintain.\nThe first case involving one of the nonsettling utilities went to trial in February 2003. In an August 7, 2003, decision, the U.S. District Court for the Southern District of Ohio found that Ohio Edison had violated the Clean Air Act 11 times in modifying its W. H. Sammis power plant. The company subsequently settled the case, agreeing to spend $1.1 billion to install controls that are expected to reduce pollution by 212,000 tons annually. In a second case, decided in April 2004 but appealed all the way to the U.S. Supreme Court, Duke Energy was found not to have violated the act despite undertaking modifications that increased total emissions without undergoing New Source Review. The U.S. District Court for the Middle District of North Carolina, in a decision upheld by the Fourth Circuit Court of Appeals, held that since the maximum hourly emissions rate did not increase as a result of the modifications, even if annual emissions did increase, the company was not required to undergo NSR and install more stringent pollution controls. On April 2, 2007, the Supreme Court overturned the lower court rulings in a unanimous decision, finding that EPA's regulations, promulgated in 1980, clearly specified an increase in actual annual emissions as the measure of whether a permit for a modification was required. To argue otherwise now would be to challenge the validity of the regulations, the Court concluded; such a challenge needs to be filed with the D.C. Circuit Court of Appeals within 60 days of a regulation's promulgation—it cannot be done more than 20 years later in the Fourth Circuit.\nWhile pursuing these enforcement actions, the Bush Administration has promulgated a number of changes to the NSR regulations that would make future enforcement of NSR less likely. In December 2002 and October 2003, the agency promulgated five sets of changes to the NSR rules. The most controversial were new regulations defining what constitutes routine maintenance. The new regulations would have exempted industrial facilities from undergoing NSR (and thus from installing new emission controls) if they were replacing safety, reliability, and efficiency-rated components with new, functionally equivalent equipment, and if the cost of the replacement components was less than 20% of the replacement value of the process unit. Using this benchmark, few, if any, plant modifications would trigger new pollution controls.\nThese changes were highly controversial. The Administration and its supporters characterized them as streamlining or improving the program; others saw them as permanently \"grandfathering\" older, more polluting facilities from ever having to meet the clean air standards required of newer plants. Fifteen states, three municipalities, and several environmental groups filed suit to block the \"equipment replacement / routine maintenance\" rule. The rule was stayed by the U.S. Court of Appeals for the D.C. Circuit on December 24, 2003. On March 17, 2006, a three-judge panel of the court unanimously struck the rule down. In its decision, the court held that the EPA's attempt to change the NSR regulations was \"contrary to the plain language\" of the Clean Air Act.\nThe EPA proposed further changes to the NSR regulations on October 20, 2005, and September 14, 2006 ; these regulations have yet to be promulgated. Under the October 2005 proposal, power plants could modify existing facilities without triggering NSR, provided that the facility's \"maximum hourly emissions achievable\" after the changes were no greater than the same measure at any point during the past five years. By focusing on the hourly rate, rather than the previous measure (annual emissions), the new rule would effectively allow increases in annual emissions any time a modification led to an increase in the hours of operation of a facility. The agency's proposal stated that this change would establish a uniform national emissions test, in conformance with the Fourth Circuit's decision in the Duke Energy case, and it downplayed the significance of the change in light of \"substantial emissions reductions from other CAA [Clean Air Act] requirements that are more efficient.\"\nSince that time, both of these justifications have disappeared—the Fourth Circuit decision being overturned by the Supreme Court, and the \"more efficient\" reduction requirements (an allusion to CAIR) now being vacated by the D.C. Circuit. Internal EPA documents released by an environmental group have also indicated that the proposed rule was strongly opposed by the Air Enforcement Division, whose Director concluded that it would adversely affect the agency's NSR enforcement cases and is largely unenforceable as written.\nThroughout the NSR debate, there appears to have been a conflict between the EPA's regulatory actions and its enforcement stance. While the agency stated in promulgating the equipment replacement rule that \"we do not intend our actions today to create retroactive applicability for today's rule,\" continued pursuit of the enforcement actions filed during the Clinton Administration created a double standard for utilities, with one set of rules applicable to those utilities unlucky enough to have been cited for violations prior to promulgation of the new rule, and a different standard applicable afterward. Despite earlier agency denials that the rule would affect ongoing investigations, in early November 2003, the EPA's enforcement chief, J. P. Suarez, and another EPA official were reported to have indicated that the agency would drop enforcement actions against 47 facilities that had already received notices of violation, and would drop investigations of possible violations at an additional 70 power companies. Agency staff who were involved in the enforcement actions note that the prospect of NSR rollbacks has caused utilities already charged with violations to withdraw from settlement negotiations over the pending lawsuits, delaying emission reductions that could have been achieved. (For additional information, see CRS Report RS21608, Clean Air and New Source Review: Defining Routine Maintenance , by [author name scrubbed], and CRS Report RL31757, Clean Air: New Source Review Policies and Proposals , by [author name scrubbed].)\nAt Congress's direction, the National Academy of Sciences began a review of the NSR program in May 2004. An interim report, released in January 2005, said the committee had not reached final conclusions, but it also said, \"In general, NSR provides more stringent emission limits for new and modified major sources than EPA provides in other existing programs\" and \"It is ... unlikely that Clear Skies would result in emission limits at individual sources that are tighter than those achieved when NSR is triggered at the same sources.\" The final report, issued July 21, 2006, found that\n[m]ore than 60% of all coal-fired electricity-generation capacity in the United States currently lacks the kinds of controls for SO 2 and NO x emissions that have been required under NSR. Also, the older facilities are more likely than newer facilities to undergo maintenance, repair, and replacement of key components, so a substantial portion of emissions from the electricity-generating sector is potentially affected by the NSR rule changes.\nNevertheless, the report reached ambivalent conclusions. On the one hand, the report stated, \"It is reasonable to conclude that the implementation of the ERP [the proposed Equipment Replacement Provision] could lead to SO 2 and NO x emission increases in some locations and decreases in others.\" On the other hand,\nthe committee concluded overall that, because of a lack of data and the limitations of current models, it is not possible at this time to quantify with a reasonable degree of certainty the potential effects of the NSR rule changes on emissions, human health, energy efficiency, or on other relevant activities at facilities subject to the revised NSR program.\nBesides the NAS study, on April 21, 2003, the National Academy of Public Administration released a report commissioned by Congress that made sweeping recommendations to modify NSR. The study panel recommended that Congress end the \"grandfathering\" of major air emission sources by requiring all major sources that have not obtained an NSR permit since 1977 to install Best Available Control Technology or Lowest Achievable Emissions Rate control equipment. In the interim, the NAPA panel concluded, the EPA and the Department of Justice should continue to enforce NSR vigorously, especially for changes at existing facilities."
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{
"question": [
"What were the highest priorities for committees with jurisdiction over air issues?",
"How were other clean air issues addressed?",
"What climate-related oversight issues exist?",
"What was the outcome of Massachusetts v. EPA?",
"What was the outcome of New Jersey v. EPA?",
"What was the outcome of North Carolina v. EPA?",
"What is happening with other cases involving climate change?",
"What may decisions in these cases lead to?",
"Why are some states going beyond requirements of federal law?",
"What is California's request?",
"What was the outcome of California's request?",
"What was California's response?"
],
"summary": [
"Climate change hearings and markup were among the highest priorities for the committees that have jurisdiction over air issues (principally Senate Environment and Public Works and House Energy and Commerce).",
"Other clean air issues were addressed largely through oversight of Administration actions.",
"Oversight issues included how best to control emissions of mercury and other pollutants from electric power plants; whether EPA's new standards for ambient air concentrations of fine particulates, ozone, and lead adequately reflect the state of the science; and whether EPA's new process for setting ambient air quality standards politicized what traditionally have been scientific judgments.",
"On April 2, 2007, the Supreme Court decided Massachusetts v. EPA, finding that EPA has authority under the Clean Air Act to regulate greenhouse gas emissions from new motor vehicles and requiring EPA to make a finding as to whether such emissions endanger public health or welfare.",
"On February 8, 2008, the D.C. Circuit Court of Appeals, in New Jersey v. EPA, found EPA's approach to the regulation of power plant mercury emissions to be unlawful.",
"On July 11, 2008, in North Carolina v. EPA, the D.C. Circuit vacated the Clean Air Interstate Rule (CAIR), which would have controlled emissions from power plants affecting air quality in downwind states.",
"Other cases involving climate change, clean air standards, and the regulation of power plants are pending at the D.C. Circuit Court of Appeals and in a number of federal and state courts.",
"Decisions in these cases may prompt hearings or legislation.",
"States interested in setting more stringent environmental standards are continuing to develop and implement regulations that go well beyond the requirements of federal law.",
"Of particular interest is California's request for a waiver of federal preemption to control greenhouse gas emissions from cars and light trucks.",
"On December 19, 2007, EPA announced that it would deny the waiver request, and the agency's Administrator signed a decision document formalizing his denial, February 29, 2008.",
"California and more than a dozen other states are challenging the denial in court. Legislation was introduced in both the Senate (S. 2555) and the House (H.R. 5560) to overturn the Administrator's decision. The Senate bill was reported June 27, 2008, but no further action was taken."
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GAO_GAO-14-676
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{
"title": [
"Background",
"VA’s Role in Supporting Veterans during Their Readjustment to Civilian Life",
"Characteristics of Veterans Readjusting to Civilian Life",
"The Readjustment Process for Veterans",
"Veterans Experience Difficulty When Readjusting to Civilian Life but Extent Is Unknown",
"Readjusting Veterans May Experience a Range of Economic, Social, and Other Difficulties",
"A Sizable Minority of Post 9-11 Veterans Have Physical and Mental Health Conditions",
"Veterans with Certain Characteristics May Be More Likely to Experience Difficulties",
"VA Offers an Array of Services to Readjusting Veterans, but Long-Standing Weaknesses Hinder Available Support",
"VA Offers a Range of Benefits and Services to Veterans Early in the Readjustment Process",
"Lengthy Wait Times for Benefits and Services, among Other Factors, Can Hinder Veterans’ Readjustment",
"VA’s Continuing Service Provision Challenges",
"VA’s Continuing Issues Collaborating with DOD",
"Agency Officials and Veterans Report a Range of Challenges and Opportunities to Better Support Readjusting Veterans",
"Conclusions",
"Recommendation for Executive Action",
"Agency Comments and Our Evaluation",
"Appendix I: Objectives, Scope, and Methodology",
"Literature Search",
"Visits to VA Facilities",
"Appendix II: Comments from the Department of Veterans Affairs",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments",
"Related GAO Products"
],
"paragraphs": [
"",
"VA administers a wide range of programs that provide benefits and services to eligible veterans who seek out the agency for assistance as they readjust to civilian life. For example, VA offers health care, disability compensation, educational benefits, life insurance, vocational rehabilitation services, and home loans. In 2014, VA requested $152 billion to support its programs that provided benefits and services to veterans. Of this amount, VA requested an estimated $58 billion for medical care for veterans, including almost $7 billion in mental health care. VA also requested an estimated $58.6 billion in disability compensation benefits to veterans with disabilities that resulted from their military service.\nThe Wounded Warrior Act was enacted as part of the National Defense Authorization Act for Fiscal Year 2008. For requirements in the Act related to the comprehensive policy to be jointly developed and implemented by DOD and VA, see Pub. L. No. 110-181, tit. XVI, § 1611, 122 Stat. 3, 430, 433. The Act defines a “recovering service member” as a member of the Armed Forces, including the National Guard or Reserve, who is undergoing medical treatment, recuperation, or therapy and is in an outpatient status while recovering from a serious injury or illness related to the member’s military service. See 122 Stat. 432. the services that are offered to them. In addition, the WWA required that the policy include provisions related to the tracking of recovering servicemembers to conduct oversight of their care, management, and transition. In 2009, DOD and VA began developing the Virtual Lifetime Electronic Record Initiative, to share health, benefit, and administrative data, such as personnel records and military history records securely. The VOW to Hire Heroes Act of 2011(VOW Act) made several changes to the Transition Assistance Program (TAP), a program that provides departing servicemembers counseling and offers employment assistance and information on federal veteran benefits, among other things. Concurrent with this Act, the administration initiated a redesign of TAP. The law also generally required servicemembers to attend TAP prior to separating from their service. The VOW Act required departing servicemembers to participate in a workshop on finding employment as part of TAP, among other changes. Other provisions of the VOW Act include allowing servicemembers to apply for civilian federal government positions as veterans prior to separating from the military, ensuring the program is tailored to individuals and the 21st century job market.\nFurthermore, VA and DOD collaborated in the development of several programs for servicemembers to receive VA disability compensation. The Benefits Delivery at Discharge program provides separating and retiring servicemembers the ability to apply for VA disability compensation when they have between 60 and 180 days remaining on active duty. Similarly, through the Quick Start program, VA and DOD provide the same service for those servicemembers who have less than 60 days remaining on active duty. In addition, VA collaborates with DOD to operate the Integrated Disability Evaluation System (IDES). IDES consolidates VA’s and DOD’s separate disability rating decisions into a single VA rating- decision and requires staff to perform outreach and nonclinical case management and explain VA results and processes to servicemembers.",
"Since September 11, 2001, the U.S. military has seen a shift in the demographics of those who have served in combat. Of the 2.1 million servicemembers who have deployed in support of Operation Enduring Freedom, Operation Iraqi Freedom, and Operation New Dawn (OEF/OIF/OND), about 12 percent were women, and 33 percent were members of the National Guard or Reserves. By comparison, during the Persian Gulf War in 1990, 6.8 percent of servicemembers were women, and 16 percent were members of the National Guard or Reserves. During the Vietnam War, about 0.2 percent of servicemembers were women and only 0.4 percent were members of the National Guard or Reserves.\nMoreover, veterans who have left the military since September 11, 2001, like veterans from prior eras, have had varied years of service and military experiences. They may have served for 20 years or more in the military and never served in combat, or they may have only served for a year or two. As of fiscal year 2012, more than 1.4 million veterans who have been receiving military retiree payments were in the military for 20 or more years. Between October 2001 and December 2012, more than 1.6 million servicemembers who served during OEF/OIF/OND had become veterans.health care services and over 600,000 were receiving disability compensation benefits.",
"When serving in the military, many servicemembers become accustomed to its culture and structure of discipline and hierarchy and giving priority to the group over the individual. During their service, all members of the military are employed and receive regular paychecks; medical care; and other benefits, such as housing allowances. Once they leave the military and become veterans, they must learn to become a civilian again. They are responsible for finding a job, going back to school, obtaining health insurance, child care, and finding a place to live, among other life activities. If veterans are also recovering from their war experiences, it can compound the difficulty they experience in successfully completing their readjustment.",
"",
"Veterans we spoke to and VA officials confirmed that veterans face a variety of difficulties related to readjusting to civilian life, including financial and employment, relationships, legal difficulties, homelessness, and substance abuse. One of VA’s strategic objectives is to improve veteran wellness and economic security. VA’s strategic plan also states that the ultimate measure of its success is the veteran’s success after leaving military service. However, there is limited and incomplete data available to assess the extent to which these veterans are affected by these difficulties. Therefore, it is not known to what extent veterans are facing one or a combination of these problems when they readjust to civilian life.\nFinancial and employment. Some veterans in our discussion groups at three of the four sites we visited said that they and several of their peers struggled financially in the time period immediately following their discharge, particularly if they had a family to support. VA officials confirmed that some veterans have experienced a range of difficulties after separating from the military, especially if they had no source of income as they readjust to civilian life. One of the veterans we spoke to said that his income dropped by four-fifths when he lost his military pay and benefits and could not find anything but a minimum wage job. Other veterans at one of the sites we visited described the challenge of paying for their living expenses during long waits for civilian employment or VA benefits to be processed. According to a 2008 study that examined unemployment among OEF/OIF veterans who had separated from the military by the end of 2006, veterans had a higher unemployment rate (6.5 percent) than nonveterans (4.7 percent). Veterans at three of the four sites we visited reported experiencing financial difficulties as they started civilian employment or received benefits. Several veterans we interviewed said they had applied for VA benefits in order to support themselves and endured lengthy waits for a VA decision. VA officials at two of the sites we visited and veterans at three of the sites mentioned that many veterans faced difficulties with the costs of civilian life, particularly housing, food, transportation, and child care. In particular, VA officials at one site we visited told us that veterans found the Post-9/11 G.I. Bill’s benefits for attending college were not enough to cover living expenses, especially during months that veterans do not attend school, such as during a summer break.no comprehensive data that identified the extent to which readjusting veterans experienced financial difficulties.\nHowever, during our review we found Relationships. As they work to readjust to civilian life, many veterans can experience relationship difficulties. Several veterans at three of the sites we visited said that they had difficulty adjusting to family life, and often felt that they could not inform their families of their struggles. Those who had talked to their families felt that their family members did not understand them very well. One veteran reported unintentionally assaulting his wife during nightmares while sleeping; another said he was reluctant to spend time individually with his children for fear of becoming angry and losing control. VA officials at two of the four sites we visited noted that they are seeing many veterans with marital issues and at one VA medical center, officials told us that some veterans seem to have no support system in place. However, during our review we found no studies or comprehensive data that identified the extent to which readjusting veterans experienced this issue.\nLegal problems. Some veterans recently separated from the military also face legal difficulties, including being arrested, convicted of a crime, and sentenced to serve time in jail. Although we found some data related to this issue, these may not represent the extent that veterans experience legal difficulties. For example, according to a 2007 report from the Department of Justice, there were an estimated 5,280 OEF/OIF veterans who had separated from the military between 2002 and 2004 who were incarcerated in either state or federal correctional facilities in 2004. Those data might represent an undercount, as one VA official tasked with outreach to veterans in correctional settings told us that not all veterans disclose their veteran status when they go to jail. In some areas, there are veterans treatment courts designed to serve the unique needs of veterans in the criminal justice system. According to VA, there were 257 veterans courts in the United States in 2013.\nS. Metraux, L. Clegg, J. Daigh, D. Culhane, and V. Kane, “Risk Factors for Becoming Homeless Among a Cohort of Veterans Who Served in the Era of the Iraq and Afghanistan Conflicts,” American Journal of Public Health, vol. 103, no. S2 (2013): S256, S258, S259.\n2011.identified the extent to which readjusting veterans were experiencing homelessness.\nD. Nazarian, R. Kimerling, and S. Frayne, “Posttraumatic Stress Disorder, Substance Use Disorders, and Medical Comorbidity Among Returning U.S. Veterans,” Journal of Traumatic Stress, vol. 25 (April 2012): 221, 224. Results from a sample of veterans who sought treatment cannot be generalized to a broader population of veterans (particularly those that had not sought VA treatment). mental health conditions. Some of the veterans and VA officials we spoke with at one site said that veterans were sometimes afraid to take their prescribed medications, or believed that the medications were not working (especially on pain symptoms). Some veterans turned to alcohol and illegal drugs to manage their physical or emotional pain. Other veterans said that the use of prescribed medication, particularly painkillers, causes addiction, sleepiness, or other side effects. VA officials at two of the sites we visited reported that some veterans appear at VA facilities seeking help for physical or mental conditions, including a substance abuse problem that must also be treated. A study with a small sample of veterans found that those who experienced any type of trauma were far more likely to screen positive for substance abuse than those who had not experienced any type of trauma.",
"A sizable minority of veterans who have served since September 11, 2001, had physical or mental health conditions in the first few years of their readjustment to civilian life. Although the literature we reviewed provided a limited perspective of veterans’ early readjustment experiences, a number of physical health conditions emerged, particularly musculoskeletal problems and pain, which can contribute to difficulties in integrating back into civilian life. Physical health conditions are the most common for recently-separated veterans. According to a 2010 study, 32 percent of veterans had been diagnosed by either DOD or VA with diseases of the musculoskeletal system and connective tissues after separating from the military, and about 27 percent had been diagnosed with diseases of the nervous system and sense organs. Other studies that focused on OEF/OIF veterans receiving health care through VA show that between 43 and 49 percent reported some level of pain, with the majority of this group reporting moderate to severe pain—a level of pain that was more likely to interfere with functional activities. VA officials at two of the four sites we visited told us that reports of pain were common, and it was a difficult problem for VA and veterans to manage. Studies also found that pain was frequently associated with other physical and mental health conditions.\nAuthors of these studies acknowledged the limitations of generalizing the results from a sample of veterans who sought treatment to a broader population of veterans (particularly those that had not sought VA treatment). Estimates could be influenced by methodologies that tended to include either veterans’ self-reported conditions or a review of clinical records. Although the veterans in the studies typically completed one or more questionnaires that had been previously validated, self-reported data do not reflect diagnoses by clinical professionals and a social desirability factor could lead to underreporting of certain sensitive problems or inflated symptom reporting in an effort to seek benefits, such as disability compensation. veterans were diagnosed by VA or DOD with a mental disorder or psychosocial problem after their separation from the military, including 10 percent who were diagnosed with PTSD and about 3 percent who had Traumatic Brain Injury (TBI). Other studies estimated that 10 to 12 percent of post-9/11 veterans were diagnosed with PTSD. These percentages do not include veterans who sought treatment for their mental health conditions from private providers or who have not sought treatment at all. For readjusting OEF/OIF veterans, estimates of PTSD for the studies in our review generally ranged from 13 to 18 percent. VA officials at two sites and veterans at one site said PTSD and other mental health conditions, in some instances, made it difficult for some veterans to keep a job or relate to family members. VA officials at all four sites, as well as veterans at one site, reported that some veterans believe that employers will turn them down for certain jobs or their security clearance will be in jeopardy due to past or current mental conditions, particularly PTSD. VA officials at two of the sites we visited said that many veterans feel stigmatized about seeking mental health treatment. Officials added that, in many cases, mental health problems are only identified—and the possibility of treatment discussed—after some veterans seek VA treatment for their physical health conditions.\nMany veterans with mental health conditions have screened positive for other conditions or received more than one diagnosis. More specifically, a 2007 study of recently-separated veterans who were diagnosed with a mental health condition by VA shows that 56 percent of them had more than one mental health diagnosis. Another study noted that high percentages of veterans who sought treatment had both PTSD and depression. Veterans who had experienced trauma were far more likely to screen positive for depression than those who had not experienced trauma. VA officials at two sites we visited also mentioned the effects of Military Sexual Trauma (MST) on victims, including the sense of betrayal that results. Victims are often reluctant to divulge such incidents (whether in the military or after separation). If military commanders ignored victims’ allegations, VA officials said that it creates a second betrayal. Experiences with MST may lead to PTSD and depression. Finally, VA officials at one site we visited mentioned that experiencing both physical and mental health conditions at the same time were challenging during their readjustment. A 2008 study noted that the severity of PTSD was significantly associated with poorer physical health functioning, even after accounting for demographic factors, combat and chemical exposure, and health risk behaviors. Also, another study found that a significantly larger proportion of veterans suffering from headaches, in comparison to those without headaches, had experienced physical injury and screened positive for depression and PTSD.",
"Some groups of veterans may be more likely to experience readjustment difficulties or be diagnosed with a physical or mental condition than others. In a study we reviewed, veterans with combat exposure were almost four times more likely to be diagnosed with PTSD than those without combat exposure. This study found that veterans who had served in ground units of the Army or Marines had PTSD rates that were 3.7 times higher than those who had served in the Navy or Air Force. Another study that tracked OEF/OIF veterans seeking treatment with the VA shows that younger veterans of active duty service were at a higher risk for diagnoses of PTSD or mental health compared with active duty veterans at least 40 years old, which the authors attribute to younger veterans more likely being at lower rank and having had greater combat exposure.\nStudies we reviewed showed that younger veterans experienced higher rates of mental health diagnoses and alcohol abuse than older veterans. One study reported that veterans of younger age groups were at a higher risk of receiving PTSD and other mental health diagnoses compared with those in the oldest age group (at least 40 years of age). Another study indicated that younger veterans were more likely to engage in binge drinking than older veterans. Age was also significantly associated with screening positive for possible alcohol abuse. Some VA officials we spoke to on our site visits stated that many young veterans have difficulties in finding a job and a place to live. They may also deny they have a problem, refuse to seek help, or only do so after their lives have turned for the worse. VA officials we spoke to said that some young people joined the military to escape economic or social difficulties at home may return to civilian life to find that some of their difficulties remained. Also, VA officials told us that if veterans had certain problems before they joined the military, such as mental health or substance abuse problems, they will probably have them after they leave the military.\nStudies we reviewed provided varying results regarding any differences in the readjustment experience by other demographic characteristics such as gender, race, and ethnicity. One study found that PTSD was less frequently diagnosed in female veterans than in male veterans (9.9 percent versus 11.3 percent), but depression was more frequently diagnosed (12.2 percent vs. 7.5 percent). Another study found that PTSD was again diagnosed less frequently for female veterans than male veterans at 28.2 percent and 35.7 percent, respectively; the prevalence of substance abuse diagnosed was 6.2 percent for females and 12.5 percent for males. The prevalence of PTSD and substance abuse together was 3.8 percent and 8.1 percent, respectively, for females and males. Another study found that female veterans were less likely to screen positive for binge drinking. However, another study reported that the proportion of patients with possible PTSD symptoms did not vary substantially according to gender or race. One study found that differences across these demographic groups of OEF/OIF vets regarding risk for receiving mental health or PTSD diagnoses were minimal.",
"",
"VA offers assistance to servicemembers before they leave military service by informing them through outreach and education on the range of benefits and services available to them. The types of benefits and services VA offers range from education to health care and life insurance to burial and memorial benefits. VA officials told us they use VA liaisons and outreach efforts, including the Transition Assistance Program (TAP). According to VA officials, VA liaisons are located on many military bases and play a key role in educating servicemembers about VA benefits and services. More specifically, VA liaisons assist with transferring individuals to Veterans Health Administration (VHA) health care facilities and provide information to servicemembers, veterans, and their families about VHA health care services. TAP provides information on services that are available, including services and benefits offered through the VA, either while servicemembers are on active duty or after they have separated from the military. TAP also provides separating servicemembers with counseling and information on available employment assistance and other federal benefits, identifies servicemembers who did not meet the TAP career readiness standards, and provides referral to the appropriate federal partners for additional supports and services. In addition, VA officials told us National Guard and Reserve members can learn about VA services and benefits through the Yellow Ribbon Reintegration Program (YRRP). YRRP connects servicemembers, families, and communities with resources using the YRRP website, newsletter, and YYRP-sponsored events. According to officials, YRRP is designed to make individuals aware of the supports and services available to them.\nVA reaches out to veterans through a variety of activities and tools. Veterans can learn about VA, for example, through mobile Vet Centers, Welcome Home events, as well as community events. Mobile Vet Centers, which are customized recreational vehicles, allow VA staff the ability to travel to communities to provide information and render counseling services to veterans, especially to veterans living in rural areas. Welcome Home events are held at VA medical centers and offer health screenings and disseminate VA benefits information.VA also educates veterans and family members through the VA website and uses various social media outlets including Facebook™ and Twitter™.\nAlthough VA reaches out to veterans in a number of ways, servicemembers and veterans must take the initiative to register for VA benefits and services either online, by mail, over the phone using a toll- free number, or they can do so in person at a VA medical facility or regional office. Veterans can also work with veteran service organizations (VSO) to apply for VA benefits and services. VSOs act as advocates for veterans during their application for benefits and can assist them with obtaining medical records and explaining the benefits and services that VA offers. Senior VA officials told us that VA conducts outreach to veterans, but ultimately it is up to the veteran to sign up for the benefits and services. In recent years, VA has encouraged servicemembers and veterans to apply for VA benefits, such as medical care and disability compensation, using the agency’s eBenefits system. eBenefits is designed to enable veterans, servicemembers, and families to learn about and manage their military and veterans benefits and personal information online. Many VA officials told us they encourage servicemembers and veterans to apply for benefits through this system.Officials from one medical facility we visited told us that one of the advantages of using eBenefits is that it allows veterans to search for the benefits and services they could be entitled to from their residence, instead of having to come to a VA facility.\nFor veterans who were wounded, became ill, or injured as a result of their service, VA offers specific benefits and services. Disability compensation is a monetary benefit paid to veterans with disabilities that were the result of their military service. This benefit award is based on the severity of disability. The Vocational Rehabilitation and Employment (VR&E) program helps eligible veterans prepare for, obtain, and maintain suitable employment or achieve independence in daily living. VR&E offers job training, education, employment, job coaching, and independent living services. For veterans receiving health care services for their medical conditions, VA offers prosthetic equipment such as home respiratory therapy, artificial limbs, wheelchairs, and optical and electronic devices for visual impairments.conditions, such as PTSD or depression, may receive mental health treatment and counseling services at VA medical centers and Vet Centers.\nVeterans who suffer with mental health For the most severely wounded, ill, and injured servicemembers and veterans, VA provides intensive case management services. Under the Federal Recovery Coordination Program (FRCP), VA serves servicemembers and veterans with complex medical or social problems which may include traumatic brain injury, amputation, burn, spinal cord injury, blindness, PTSD, as well as those considered at risk for psychosocial complications. Federal Recover Coordinators advocate in all clinical and non-clinical aspects of recovery, rehabilitation, and reintegration and participate in the development of a Federal Individual Recovery Plan to provide coordination of care and benefits through the continuum of care. VA also operates Polytrauma Rehabilitation Centers that provide integrated inpatient rehabilitation to address a variety of health issues including physical, cognitive, emotional adjustment, and health and wellness. The centers serve patients who are in prolonged states of reduced consciousness, including coma.\nFor veterans of the Iraq and Afghanistan conflicts, VA provides additional benefits and services. These individuals may be eligible to receive education benefits through the Post-9/11 GI Bill which provides participants up to 36 months of education benefits to defray the costs of post-secondary degrees, technical training, and other expenses, such as books and supplies, and housing, among other costs. Veterans who served in combat generally are eligible to receive 5 years of free health care through the VA. In addition, all post-9/11 veterans who enter the VA health care system are referred to the Operation Enduring Freedom(OEF)/Operation Iraqi Freedom (OIF)/Operation New Dawn (OND) Care Coordination Program, which screens these veterans to determine if and the extent to which care is needed and assists them with accessing VA and community resources.designed to identify combat veterans and the degree of care that is needed to treat their medical conditions. If the screenings indicate case management is needed, veterans are referred to the Post-Deployment Integrated Care Initiative (PDIC). The PDIC provides an integrated approach to health care by treating the veteran with physical and mental health care, and social work simultaneously, rather than identifying and treating one problem at a time. According to program managers, this approach provides patient-centered care and increased coordination between providers. It also includes a comprehensive psychosocial and medical intake process for combat veterans with full integration of all services as well as regular meetings by medical care providers to discuss patient care and system issues. VA officials told us that while only veterans who have experienced combat situations are eligible to receive care through PDIC, VHA is exploring the possibility of expanding this practice to all veterans.",
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"Medical care. VA continues to face long-standing challenges in providing some benefits and services in a timely way, which can hinder veterans as they readjust to their civilian lives. Our past reports, as well as reports by VA, have highlighted the continuing challenges VA faces in ensuring veterans are able to access medical care. For over a decade we have reported on continuing issues with VA medical service delivery including, in 2004, we found that some veterans in Chattanooga, Tennessee, encountered difficulties with accessing VA’s inpatient and outpatient health care services. We recommended that VA explore alternatives to further improve access to health care for these veterans by expediting the opening of additional VA medical facilities.\nSubsequently, VA reviewed Chattanooga veterans’ access to inpatient and outpatient health care and opened two clinics. However, in 2009, VA reported that its facilities were unable to keep up with a steady increase in the demand for outpatient care services, leading to veterans not being able to access medical care. The report noted that VA added new guidance and performance measures to help alleviate excessive wait times for medical appointments. In 2011, we found that veterans were hindered from accessing mental health care from VA in part because of difficulty in scheduling appointments. Although VA reported that they were making improvements toward achieving timely access to medical appointments, in 2012, we found that medical appointment wait times reported by VHA were unreliable. We recommended that VA improve the reliability of its medical appointment wait time measures, ensure medical centers consistently implement the scheduling policy, and require medical centers to allocate staffing resources based on scheduling needs. VA reported revising its scheduling policy and developing a training module that schedulers were required to complete, implementing revised wait time measures, and studying options to better understand staffing level gaps. That same year, VA’s Office of Inspector General found that VA had overstated its success in providing veterans with timely appointments for mental health treatment.\nIn 2014, VA completed an audit to determine if broader, more systemic problems existed and found multiple deficiencies with VA’s appointment scheduling practices for medical care. However, veteran complaints about long wait times persist. VA officials and veterans also told us during our site visits that veterans continued to wait a long time to see VA physicians. At two of the four medical facilities we visited, VA officials told us that veterans have expressed frustration with how long it was taking to see a physician. Officials from one of the medical centers told us that there are long wait times to get appointments and some veterans stop using VA services because of the lack of timely appointments. Veterans from three of the four sites we visited complained about the lengthy wait times to see their physicians. One veteran told us that VA does not give veterans a choice of appointment times, and added this can be problematic if one is employed or attending school. He also told us that veterans do not want to miss these appointments because it can take months to reschedule.\nDisability compensation. We have reported for over 10 years, and we heard confirmations during interviews with VA officials and veterans, on the continuing challenge VA faces in processing disability compensation in a timely fashion. For example, in 2003, we found that while VA acted to improve the timeliness of its disability claims processing, the agency remained far from achieving its goals. At a 2008 congressional hearing, we testified that despite VA taking steps to improve its disability claims process, challenges remained in reducing the backlog and wait times for processing claims. In 2012, we reported that the number of days to process disability compensation benefits was increasing and recommended that VA partner with other federal agencies to reduce timeframes and ensure the development of a robust backlog plan. VA agreed with our recommendations and reported initiating a pilot program to centralize records requests and published a strategic plan to eliminate the disability compensation claims backlog. While VA addressed several of our recommendations, we concluded that additional follow up would be needed. In fiscal year 2014, VA reported that 58 percent of veterans experienced wait times that were longer than its goal of 125 days and the average time to complete a claim was 378 days. For veterans, especially those in the beginning phases of their readjustment, making timely decisions on disability compensation benefits can potentially lessen the accompanying financial transition difficulties. Veterans from three of the sites we visited pointed to claims processing timeliness as a factor in their difficulty with readjusting to civilian life. For example, one female veteran told us that VA took 15 months to process her claim, and during this time, she was unable to support herself and had to reside with her family. Another veteran told us he has been waiting 2 years for his disability compensation to be processed, has run out of unemployment benefits, and is now on the verge of becoming homeless.\nPost-9/11 GI Bill. Since the Post-9/11 GI Bill was implemented in 2009, VA has had challenges informing veterans about the program and protecting them from questionable recruiting practices by some post- secondary schools. In 2011, we reported that veterans wanted more information about the program, including how to compare Post-9/11 GI Bill benefits with other VA education benefits, as well as the effect of dropping or adding classes. We recommended that VA develop performance measures for outreach to servicemembers and veterans and for the quality of information provided by its Right Now Web service. We also recommended VA consider developing and maintaining an online policy manual for the Post-9/11 GI Bill, and provide updates to school certifying officials nationwide. VA addressed some of our recommendations but we concluded that additional monitoring of its new outreach performance measures was needed, and we continued to urge VA to measure the quality of its Right Now Web service. In 2014, we reported that VA’s response to protecting veterans from schools that were using inappropriate or aggressive recruiting practices was not always sufficient. More specifically, we found that while VA offered education counseling services to students, applying for the services was difficult and not all veterans were aware of its availability. We concluded that if veterans are not better protected and informed, they may end up using their educational benefits on programs that do not meet their career goals and recommended that VA improve outreach and accessibility of its education counseling services.and noted that it was taking additional steps to enhance the outreach and delivery of its education counseling services.",
"Integrated Disability Evaluation System. Similarly to VA’s Disability Compensation, VA and DOD’s Integrated Disability Evaluation System (IDES) has had difficulty with making timely decisions on servicemembers’ claims for VA disability compensation. In 2010, we testified that the time to make decisions on IDES claims was affected by insufficient staffing and VA and DOD medical staff disagreeing over servicemember diagnoses. In 2011, we found that as program participation increased, so did the processing times for benefits. We recommended that VA and DOD develop a system-wide IDES monitoring mechanism. VA reported upgrading the IDES tracking system to include data fields that can capture, monitor and report when diagnostic disagreements occur, but we are continuing to monitor the tracking system to determine whether the agency can effectively monitor cases with diagnostic disagreements. In 2012, we reported that the processing times for decisions made for IDES claims continued to increase. We recommended that VA ensure care coordination and disability evaluation issues are fully resolved by the agencies and that its partners have sustained leadership attention and collaboration to ensure continuity of care and seamless transition for servicemembers. VA agreed with our recommendation and reported that the agency had established a committee with DOD to address comprehensive overhaul of the care coordination process. In 2013, VA reported that 16 percent of servicemembers were awarded VA disability compensation benefits within 30 days of their discharge from the service. Being able to provide compensation benefits to veterans shortly after they were discharged from the service would bring greater financial security, thereby reducing the risk for negative outcomes such as bankruptcy and homelessness.\nElectronic medical records. In addition, VA continues to face long- standing problems coordinating with DOD on sharing electronic medical records. Developing a method for sharing electronic health records that can be accessed throughout a patient’s military and veteran status is particularly important. This method can help ensure greater availability of health care information for servicemembers and veterans at the time and place of care. Since 1998, VA and DOD have tried different ways to enable the sharing of electronic servicemember medical records, but our past reports and VA reports have shown ongoing challenges. For example, in 2003, we found that VA faced problems in developing an information technology strategy for sharing information with DOD on patients and that VA and DOD continued to operate separate information technology systems. A 2008 VA report noted that service treatment records continued to be transferred from DOD to VA by paper copy because the infrastructure to transfer the records electronically had not yet been built and its current efforts to have a health information exchange had one or more serious flaws. In 2011, VA highlighted its efforts to address the incompatibility between VA and DOD electronic health records systems by attempting to create a virtual lifetime electronic record, but we found impediments persisted in the agencies’ efforts to electronically view or exchange health information. Our report cited insufficient real-time and electronic access to comprehensive health information possibly delaying the receipt of care and benefits. We recommended that VA ensure electronic sharing of health records issues are fully resolved by the agencies and its partners have sustained leadership attention and collaboration to ensure continuity of care and seamless transition for servicemembers. VA agreed with our recommendations, and reported establishing a committee to review the care coordination of servicemembers; however, VA did not identify actions it would take to address electronic sharing of health records. In 2013, VA and DOD testified that their long-term plans for sharing medical record data were too expensive to continue and that they were exploring a different strategy. Veterans from all of the sites we visited told us of the difficulties they had with obtaining copies of their medical records. For example, one veteran told us that his medical records were not centrally located, making it difficult for him to collect his full record. Without medical records describing the treatment veterans received while in the military, VA faces difficulties with ensuring continuity of care when veterans transition to VA’s health system.\nMedication. VA has also had long-standing problems collaborating with DOD on managing medications during veterans’ readjustments. As early as, 2002, we found there was an increased risk for patient medication errors because VA and DOD had separate and uncoordinated information and formulary systems—lists of available medicines. We recommended that VA and its partner improve its capabilities for sharing electronic information. VA had agreed with our recommendations and in fiscal 2007 it had started to deploy a system to view patient medication and allergy information. However, in 2003, we reported that VA and DOD providers and pharmacists were still unable to electronically access health information to aid in making medication decisions for veterans, such as verifying drug allergies and interactions. A decade later, in 2013, we again found that VA’s and DOD’s efforts in managing servicemember medications during their transition of care were somewhat limited because not all DOD military treatment facilities offered such transition assistance. We recommended that VA and DOD identify and apply best practices for managing servicemembers’ medication needs during transitions of care. While both agencies agreed with our recommendations, VA and DOD did not identify any actions to address them. During our site visits, one veteran at a medical facility told us how medications that were prescribed by DOD medical staff were not forwarded to VA, resulting in him being prescribed different medications. As our previous work has found, medication management is critical to effective continuity of care for servicemembers transitioning out of the military because of the potential adverse health effects that could arise if not taken as intended.",
"During our interviews with agency officials and discussions with veterans and other stakeholder groups, we heard a number of challenges that VA faces in helping veterans during the readjustment experience. First, although VA has an agreement with DOD to let VA know when servicemembers are leaving the military, some VA officials told us it can be difficult to identify recently separated veterans, including those who may be experiencing readjustment difficulties, because they did not know who was leaving the military. Second, at two of the sites we visited, veterans we spoke with told us they separated too quickly from the military without the time they needed to prepare for certain aspects of civilian life, such as finding a job, making sure they were financially stable, or becoming better acquainted with what VA offered. Third, we repeatedly heard from VA official and veterans that some veterans may hesitate to use VA services. For example, officials at one site we visited told us that some younger veterans do not want to be diagnosed as having PTSD because it will keep them from entering certain civilian careers, such as homeland security. Officials at two of the sites we visited told us that some veterans try to manage their own issues or problems, instead of seeking assistance. At one of the sites we visited, veterans told us they hesitated to enroll in VA services because they did not want to ask for help. Lastly, VA officials told us that despite an increased effort to educate National Guard and Reserve members, before and after they demobilize, some are likely being missed. Should these veterans not receive VA’s assistance in a timely way, any difficulties they may be experiencing during their readjustment to civilian life may worsen.\nIn light of the difficulties we heard, several VA officials suggested ways that VA could improve its support to veterans with an elevated risk of experiencing a difficult readjustment. First, some called for additional VA research. At one site we visited, VA officials suggested there were opportunities to research ways to identify individuals who are predisposed to PTSD as well as conducting a study on reasons veterans are not using VA services. Second, in discussing the issue of the speed of transition out of the military, VA officials at one site we visited suggested establishing a “buffer zone” that would allow servicemembers time to readjust to being a civilian, before they are discharged from the military. Such a buffer zone has the potential to enhance VA’s ability to reach out to servicemembers before they become veterans, assess their needs, and prepare the appropriate services for when they leave. While this effort would need to be developed and coordinated with DOD, veterans at all of the sites we visited noted that having time to adjust to the idea of being a civilian and relearning what civilian life is like would be beneficial.\nConsistent with the importance that VA’s strategic plan places on veterans’ success after leaving military service, the opportunity to possibly better serve veterans at risk for having readjustment difficulties could also be informed by the approach VA takes to support ill and injured veterans. For example, veterans who enter the OEF/OIF/OND Care Coordination Program receive a full mental health assessment. These assessments inform case managers about the difficulties veterans are facing and helps inform where they refer veterans for further assistance. Senior VA officials told us the assessments conducted by the OEF/OIF/OND Care Coordination Program can be used as gateways to provide veterans, who are experiencing difficulties such as, TBI, depression, and alcohol abuse, with an integrated treatment approach. These officials added that the goal is to treat veterans holistically, rather than offering mental, physical and social work care separately. Similarly, the FRCP was designed to coordinate clinical and nonclinical services for the most seriously wounded, ill, or injured. Servicemembers and veterans who are enrolled in the program are offered assistance with developing a plan that sets recovery goals and then guides them through the continuum of care of medical treatment and stabilization, rehabilitation, and community reintegration. FRCP employs dedicated care coordinators to guide servicemembers, veterans, and their families through the complex systems of health care, services, and benefits provided by DOD, VA, other federal agencies, and the private sector. To the extent that VA does not consider this approach for veterans likely to experience difficult transitions, especially those with known risk factors, some veterans may be left to themselves to deal with the after effects of combat. Importantly, some veterans we spoke with said that obtaining support early in the readjustment process is crucial because veterans who receive assistance immediately after separating from the military may have a better chance of achieving a successful readjustment. According to Standards for Internal Control in the Federal Government, agencies should identify risks, estimate the risk’s significance, assess the likelihood of its occurrence, and decide how to manage the risk and what actions should be taken.is not occurring as early as possible, VA could be missing an opportunity to use its resources most efficiently and effectively. That is, if veterans do not receive the fullness—or any—of the support they need, the difficulties that emerge early in the readjustment process may worsen, resulting in potentially greater harm to the veteran and putting the agency at risk for an increase in the amount of resources it must then provide in the veteran’s readjustment process.",
"As over 1 million servicemembers separate from the military over the next 6 years, many will rely upon the programs administered by VA for support during their transition. For some veterans, this transition will go smoothly and without major difficulty. For others, however, the first few years after they leave the military will be difficult. Even though hundreds of articles, studies, and reports have been written about the experiences of veterans, relatively few discuss how recently separated veterans are adjusting to civilian life, and the issue of how well veterans are faring is still not well understood. Meanwhile, despite VA’s network of outreach efforts and the range of benefits and services it administers, many veterans continue to struggle to access support, and the agency continues to face long- standing challenges in providing benefits in a timely manner. And, while the Transition Assistance Program may help identify some of those at risk for having a difficult readjustment, the program does not cover the breadth of issues many veterans face once they leave the military. As a result, some veterans who need support may be missed. However, until VA has a better understanding of the needs of recently-separated veterans, and which veterans may be more likely to face difficulties, it is difficult to know what steps VA should take. For instance, if many veterans face multiple problems that need to be addressed across its organizational boundaries, from health care, disability, and employment services, then more coordinated case management services may be needed. If veterans wait too long to seek out the help they need, then an effort to identify and target veterans for early intervention may be needed. If VA discovers severe struggles exist among a relatively narrow but identifiable small group of veterans during the initial years of civilian life, then VA is better positioned to take an early and cost-effective approach to helping rebuild lives. For veterans, having timely access to programs and services may improve their chances of having positive health, economic, and social outcomes. For VA, better-supported veterans may be less likely to end up in need of more intensive care and case management services over time, which would put less strain on VA’s limited resources.",
"We recommend that the Secretary of Veterans Affairs take steps to better understand both the difficulties faced by readjusting veterans and the characteristics of those who may be more likely to face such difficulties, and use the results to determine how best to enhance its benefits and services to these veterans.",
"We provided a draft of this report to VA for review and comment. In its written comments, reproduced in appendix II, VA generally agreed with our conclusions and concurred with our recommendation. VA also described its recent efforts and plans for improvement. For example, VA described its implementation of recent changes to the Transition Assistance Program, now known as the Transition Goals, Plans, Success program, and its plans to use an upcoming longitudinal evaluation to inform policy changes and program improvements. VA also provided technical comments that were incorporated, as appropriate.\nWe are sending copies of this report to appropriate congressional committees, the Secretary of Veterans Affairs, 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 questions about this report, please contact me at (202) 512-7215 or bertonid@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.",
"The objectives of this review were to examine what is known about (1) the extent to which veterans experience difficulties during their readjustment to civilian life, and (2) how VA assists veterans in their readjustment, and what challenges and opportunities exist. To address these objectives, we conducted a literature search, interviewed relevant officials from VA and DOD, reviewed VA’s strategic plan, annual performance reports, and other documents, visited four locations with VA facilities, and held eight discussion groups with 45 veterans and family members. We also interviewed national representatives from the Wounded Warrior Project and Disabled American Veterans. We focused on the initial readjustment period, and for the purposes of this review defined it as the first 5 years after a veteran separates from the military. The scope of this review was active, reserve, and National Guard OEF/OIF/OND-era veterans who separated from military service after September 11, 2001. Active servicemembers and veterans of the Coast Guard were outside the scope of this study. While the readjustment period for each veteran may vary, and some may continue to experience difficulties beyond the first few years, we focused our review on the initial readjustment period.",
"We conducted an extensive search for studies on the difficulties faced by readjusting veterans, and then screened the studies in two phases. The purpose of the first phase was to identify the range and types of difficulties experienced by post-9/11 veterans in the first few years after they separated from the military. The purpose of the second phase was to identify the percentage of veterans who experienced each difficulty we identified, and the characteristics of the veterans who experienced them.\nWe conducted electronic searches of over 30 databases. Key databases searched include ArticleFirst, CINAHL, Electronic Collections Online, Education Resources Information Center, MEDLINE, National Technical Information Service, PolicyFile, ProQuest, PsycINFO, SciSearch, Social Sciences Abstracts, Sociological Abstracts, and WorldCat. We searched for English-language documents published between September 2001 and May 2013, using Boolean search phrases designed to capture difficulties experienced by veterans within our scope, including variations of the words “veteran”, “challenge”, “problem”, “civilian”, “transition”, “discharge”, “return”, “re-entry” or “re-integration”, “Iraq”, Afghanistan”, “Enduring Freedom”, and “war on terror”, From these sources, we identified 401 documents that were potentially relevant to our review.\nFor the first phase, we reviewed the titles and abstracts for each of the 401 documents and for additional documents we identified by searching GAO and the Congressional Research Service’s report databases and conducting general Internet searches. We looked for common themes and developed a list of issues or themes about veterans’ readjustment difficulties. One analyst performed these review tasks, and then another analyst verified the results. They discussed any disagreements on the reviews, screenings, and themes, and worked with a third analyst to resolve any remaining disagreements. We presented this list to VA officials and veterans during our interviews and site visits and asked whether we had identified the types of difficulties faced by recently transitioned veterans. In general, the officials and veterans agreed that our list captured the range and types of difficulties faced by recently transitioned veterans, and we made a few additions based on these interviews.\nFor the second phase, we screened out documents that were not published books, peer-reviewed journals, state or federal government reports, or reports from associations and research organizations (e.g., RAND). We started with the same 401 documents from our original literature search and screened out 114 documents that were from the following sources: unpublished papers, dissertations and theses, general news articles, conference papers, and hearings.\nWe reviewed the titles and abstracts of the remaining 287 documents and excluded 179 that focused exclusively on out-of-scope individuals or unambiguously used methods that would not provide relevant prevalence information. Our screening criteria also excluded articles that did not report data from the population relevant to this engagement (U.S. military veterans who had already transitioned from the military to civilian life after 2001); collected data from case studies, focus groups, or other qualitative methods or in a single U.S. county or city; or were non-empirical theory or opinion articles. Two analysts (one with content expertise and one with methodological expertise) independently reviewed each document’s title and abstract according to a detailed coding manual to indicate whether it should be included for further review or excluded based on one of the screening criteria. Initial disagreements between analysts were resolved through discussion. When in doubt, a document was included rather than excluded during this abstract review.\nWe then reviewed the remaining 108 documents in a more detailed screening step. Two analysts with the same mix of expertise as above reviewed the complete documents and excluded articles that did not meet any of the screening criteria above, did not report any quantitative data relevant to our review, or did not report data for recently-transitioned veterans (i.e., those who had transitioned from the military to civilian life within 5 years previous to the start of the study’s data collection). Additionally, documents that included reviews of the literature but did not collect new data (referred to as “review articles” hereafter) were cataloged but excluded at this stage. Initial coding disagreements between analysts were resolved through discussion. When in doubt, a document was included rather than excluded during this step. Only 13 documents met all our screening criteria for a full review.\nWe then examined the bibliographies of those 13 documents along with the bibliographies of 24 review articles and identified 136 additional potentially relevant documents. Then, using the same exclusion criteria noted above, one analyst coded each document and a second analyst reviewed each document and concurred or did not concur with the initial coding. Disagreements were resolved through discussion. When in doubt, a document was included rather than excluded at this step. We excluded 124 of these documents, which resulted in 12 additional documents to fully review.\nTwo analysts then conducted a full review of the 25 documents (13 from the original search and 12 from the second search) to extract relevant prevalence and characteristic information and identify important caveats for our uses of the results. We excluded an additional seven documents during our full review stage, thus leaving 18 of them that met our inclusion criteria. The studies that were included are shown in table 2. We have described the limitations of the results for our use of individual studies within the body of this report.",
"We visited VA facilities in four locations across the United States. We selected the locations based on a number of factors including; geographic diversity, a mix of military services with bases in the area (i.e., Army, Navy, Air Force, or Marines), a high concentration of veterans among the local population, and close proximity to VA facilities. At each of the selected locations, we visited one VA Medical Center and one Vet Center. In three of the four locations, we visited VA regional offices that were closest to the VA Medical Center. At the VA Medical Centers, we spoke with officials from the OEF/OIF/OND Care Coordination Program and the Post Deployment Integrated Care Initiative as these programs specifically serve readjusting veterans. Similarly, Vet Centers serve readjusting veterans, and at each of those facilities we spoke with counselors and senior Vet Center staff. At the regional offices we spoke with officials from Disability Compensation, Vocational Rehabilitation and Employment (VR&E), homeless coordinator programs as well as senior regional office officials. We included Disability Compensation and VR&E because these programs serve large numbers of veterans, including readjusting veterans. We included homeless coordinators because VA offers specific programs for veterans at risk of becoming homeless, which is one of the difficulties we identified through our initial research.\nAt each VA Medical Center and Vet Center, we conducted nongeneralizable discussion groups with veterans to gain a better understanding of their experiences with readjusting to civilian life. VA officials from each center invited veterans who had separated from the military within the last few years and who served during the OEF/OIF era (since September 11, 2001). At each location we visited we conducted two group discussions with veterans with between two and eight veterans attending each discussion. At two of the discussion groups, family members were present and a total of 45 veterans and family members participated. At the start of each discussion group we asked the veterans to rate how well they felt prepared for their transition from military to civilian life. We also asked them to rate the level of difficulty they had with employment, getting the right health care, being healthy, going back to school, getting along with family and friends, managing finances, getting assistance from VA, avoiding legal trouble, and finding a place to live. We used their responses to guide the discussions to gain a qualitative understating for why veterans experienced difficulties with their readjustment and what VA could do to better assist them. We conducted interviews with representatives from veteran service organizations at three of the four locations we visited because of their experience in working with veterans including representatives from American Legion, AmVets, Disabled American Veterans, the Military Order of the Purple Heart and Veterans of Foreign Wars.\nWe conducted this performance audit from March 2013 to September 2014 in accordance with generally accepted government auditing standards. These 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.",
"",
"",
"",
"In addition to the contact named above, Brett Fallavollita (Assistant Director); Paul Schearf (Analyst-In-Charge), Janina Austin, David Chrisinger, Lorraine Ettaro, Jeffrey Fiore, David Forgosh, Ashley McCall, Sheila McCoy, Michael Silver, Almeta Spencer, Roger Thomas, Karin Wallestad, James Whitcomb, and Paul Wright made key contributions to this report.",
"Military Sexual Trauma: Improvements Made, but VA Can Do More to Track and Improve the Consistency of Disability Claim Decisions. GAO-14-477. Washington, D.C.: June 9, 2014.\nVA Education Benefits: VA Should Strengthen Its Efforts to Help Veterans Make Informed Education Choices. GAO-14-324. Washington, D.C.: May 13, 2014.\nTransitioning Veterans: Improved Oversight Needed to Enhance Implementation of Transition Assistance Program. GAO-14-144. Washington, D.C.: March 5, 2014.\nVA Education Benefits: Student Characteristics and Outcomes Vary across Schools. GAO-13-567. Washington, D.C.: July 25, 2013.\nVA Health Care: Additional Steps Needed to Strengthen Beneficiary Travel Program Management and Oversight. GAO-13-632. Washington, D.C.: July 15, 2013.\nVA Education Benefits: VA Needs to Improve Program Management and Provide More Timely Information to Students. GAO-13-338. Washington, D.C.: May 22, 2013.\nElectronic Health Records: Long History of Management Challenges Raises Concerns about VA’s and DOD’s New Approach to Sharing Health Information. GAO-13-413T. Washington, D.C.: February 27, 2013.\nVA Health Care: Reliability of Reported Outpatient Medical Appointment Wait Times and Scheduling Oversight Need Improvement. GAO-13-130. Washington, D.C.: December 21, 2012 (and related testimonies, GAO-13-363T, February 13, 2013; and GAO-14-679T, June 9, 2014).\nVeteran Homelessness: VA and HUD Are Working to Improve Data on Supportive Housing Program. GAO-12-726. Washington, D.C.: June 26, 2012.\nVeterans’ Disability Benefits: Timely Processing Remains a Daunting Challenge. GAO-13-89. Washington, D.C.: December 21, 2012 (and related testimony, GAO-13-453T, May 13, 2013).\nRecovering Servicemembers and Veterans: Sustained Leadership Attention and Systematic Oversight Needed to Resolve Persistent Problems Affecting Care and Benefits. GAO-13-5. Washington, D.C.: November 16, 2012.\nDOD and VA Health Care: Medication Needs during Transitions May Not Be Managed for All Servicemembers. GAO-13-26. Washington, D.C.: November 2, 2012.\nVA and DOD Health Care: Department-Level Actions Needed to Assess Collaboration Performance, Address Barriers, and Identify Opportunities. GAO-12-992. Washington, D.C.: September 28, 2012.\nDefense Health: Coordinating Authority Needed for Psychological Health and Traumatic Brain Injury Activities. GAO-12-154. Washington, D.C.: January 25, 2012.\nHomeless Women Veterans: Actions Needed to Ensure Safe and Appropriate Housing. GAO-12-182. Washington, D.C.: December 23, 2011.\nVA Mental Health: Number of Veterans Receiving Care, Barriers Faced, and Efforts to Increase Access. GAO-12-12. Washington, D.C.: October 14, 2011.\nVeterans’ Education Benefits: Enhanced Guidance and Collaboration Could Improve Administration of the Post-9/11 GI Bill Program. GAO-11-356R. Washington, D.C.: May 5, 2011.\nDOD and VA Health Care: Federal Recovery Coordination Program Continues to Expand but Faces Significant Challenges. GAO-11-250. Washington, D.C.: March 23, 2011.\nVA Education Benefits: Actions Taken, but Outreach and Oversight Could Be Improved. GAO-11-256. Washington, D.C.: February 28, 2011.\nVA Health Care: VA Spends Millions on Post-Traumatic Stress Disorder Research and Incorporates Research Outcomes into Guidelines and Policy for Post-Traumatic Stress Disorder Services. GAO-11-32. Washington, D.C.: January 24, 2011.\nVA Health Care: Reporting of Spending and Workload for Mental Health Services Could Be Improved. GAO-10-570. Washington, D.C.: May 28, 2010.\nVA Health Care: VA Has Taken Steps to Make Services Available to Women Veterans, but Needs to Revise Key Policies and Improve Oversight Processes. GAO-10-287. Washington, D.C.: March 31, 2010.\nVeterans’ Disability Benefits: VA Has Improved Its Programs for Measuring Accuracy and Consistency, but Challenges Remain. GAO-10-530T. Washington, D.C.: March 24, 2010.\nRecovering Servicemembers: DOD and VA Have Made Progress to Jointly Develop Required Policies but Additional Challenges Remain. GAO-09-540T. Washington, D.C.: April 29, 2009.\nVA National Initiatives and Local Programs that Address Education and Support for Families of Returning Veterans. GAO-09-22R. Washington, D.C.: October 22, 2008.\nVA and DOD Health Care: Efforts to Provide Seamless Transition of Care for OEF and OIF Servicemembers and Veterans. GAO-06-794R. Washington, D.C.: June 30, 2006.\nMilitary and Veterans’ Benefits: Enhanced Services Could Improve Transition Assistance for Reserves and National Guard. GAO-05-544. Washington, D.C.: May 20, 2005.\nDOD and VA: Systematic Data Sharing Would Help Expedite Servicemembers’ Transition to VA Services. GAO-05-722T. Washington, D.C.: May 19, 2005."
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"question": [
"How have veterans who served in the military after September 11, 2001 readjusted to civilian life?",
"What do difficulties veterans face include?",
"How does VA plan to help veterans?",
"Why will it be difficult for VA to help veterans?",
"What information is available to VA?",
"What services has VA provided to veterans during their first few years out of the military?",
"What is VA struggling with in regards to the services it provides?",
"What did VA staff and veterans recommend VA do to improve services?",
"Why is it important that VA obtain comprehensive information on difficulties of recently-separated veterans?",
"What is a key issues facing the nation?",
"What does this report examine?",
"How did GAO get information for this report?",
"How did GAO select sites to interview people for the report?"
],
"summary": [
"While many veterans who served in the military after September 11, 2001, have successfully readjusted to civilian life with minimal difficulties in the first few years after they were discharged, others have experienced difficulties, according to veterans GAO heard from in discussion groups and studies GAO reviewed.",
"These readjustment difficulties include financial and employment, relationships, legal, homelessness, and substance abuse.",
"According to VA's strategic plan, one of its strategic objectives is to improve veteran wellness and economic security, and it states that the ultimate measure of VA's success is the veteran's success after leaving military service.",
"However, there is limited and incomplete data to assess the extent to which veterans experience readjustment difficulties. Therefore, it is not known to what extent veterans are facing one or a combination of problems when they readjust to civilian life.",
"There is relatively more information available on the number of veterans who had a physical or mental condition within a few years of leaving the military.",
"Specifically, VA provides a wide range of services and benefits through several programs, such as education, health care, counseling, employment, home loans, and insurance. VA informs veterans of these benefits and services before they leave military service through outreach and education.",
"However, GAO's prior work over the last decade has shown that VA has struggled for years to, among other issues, (1) provide timely access to medical appointments, (2) make timely disability compensation decisions, and (3) coordinate the transfer of medical records from DOD.",
"For example, a few VA staff suggested that VA conduct additional research to identify veterans who are predisposed to PTSD and better understand why some veterans do not use VA services. Veterans at all of the sites GAO visited suggested that it would be beneficial for separating servicemembers to have additional time to adjust to the idea of being a civilian and relearning what civilian life is like.",
"Without comprehensive information on the difficulties experienced by recently-separated veterans, VA cannot assess risks to achieving its objectives and may be missing opportunities to enhance assistance to veterans by not providing needed services early in the veteran's readjustment process. GAO recommends that VA take steps to better understand the difficulties faced by readjusting veterans and use this information to determine how best to enhance its benefits and services for these veterans.",
"Providing support and services for transitioning veterans is a key issue facing the nation.",
"This report examines what is known about (1) the extent to which veterans experience difficulties during their readjustment to civilian life; and (2) how VA assists veterans in their readjustment, as well as what challenges and opportunities exist.",
"GAO conducted a literature search, interviewed VA and DOD officials, and held eight nongeneralizable discussion groups with a total of 45 veterans and family members. GAO also conducted interviews with relevant officials at VA facilities in four states.",
"GAO selected these sites based on diversity of military service branches in a local area, geography, a high concentration of veterans, and proximity to VA resources."
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CRS_RL33661
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{
"title": [
"",
"A Slowdown in the Supply of Labor",
"Which Employers Are Most Likely to be Affected?",
"Baby-Boom Dependent Industries",
"Baby-Boom Dependent Occupations",
"A Baby-Boom Induced Shortage of Labor?",
"An \"Adequate\" Number of Workers",
"The Supply of Labor Domestically and Internationally",
"The Baby-Boom Generation in \"Retirement\"",
"The Echo-Boom Generation as Workers",
"Immigration and Offshoring"
],
"paragraphs": [
"U.S. employers again have turned their attention to the shortage of labor they anticipate will occur in the not-too-distant future. Concern about this possibility waned when the historically low unemployment rates from 1998 to 2000 rose during, and for some two years after, the March-November 2001 recession. In 2007, however, the national unemployment rate averaged just 4.6%. This suggests the presence of tight labor market conditions that are related to long-running demographic trends. The oldest members of the baby-boom generation will reach 60 years of age by the end of 2006, and every year thereafter, more of the 76 million persons born between 1946 and 1964 will move into their early 60s, when most workers traditionally have retired. As a consequence, observers—particularly members of the business community—have expressed the belief that the supply of U.S. labor will fall short of employer demand in coming decades.\nWhile the public budgetary effects of the aging of the baby-boom cohort have been much studied, the implications for the private economy have been less thoroughly researched. Proponents of the labor shortage scenario assert that the nation's rate of economic (output) growth will slow because worker-starved U.S. firms would be unable to produce the quantity of goods and services demanded by U.S. consumers. They further argue that the competitive position of U.S. industries will suffer because foreign companies would expand sales not only to the domestic market but also to other markets now supplied by U.S. firms. Even if businesses were able to coax more individuals into the U.S. labor force by bidding up wages, it is claimed that a similar end-result could occur. Employers would try to pass the increased cost of production onto buyers, resulting in higher prices that, among other things, would diminish the purchasing power of U.S. workers' wages. The market share of U.S. businesses could shrink as well, if domestic and foreign purchasers react to these higher prices by switching to less costly goods and services from other countries.\nThis frequently voiced view omits actions that employers could take, other than raising wages, to ameliorate the labor market tightness they expect to occur when baby-boomers stop working. It also assumes that baby-boomers will behave similarly to preceding generations of older workers in terms of the rate at which they participate in the labor force and the length of their working lives. The scenario similarly does not consider that Congress might take legislative action to mitigate the effect on the private economy of a perceived shortfall of workers—something it has done in the recent past (e.g., loosening and raising the cap on H-1B visas for foreign workers in professional occupations). In addition, shortage proponents often paint firms with a broad brush, raising the question of whether each firm is as likely as the next to be affected by the baby-boomers' retirement.\nThis report takes a close look at the labor shortage scenario prompted by baby-boomers moving from the work phase to the retirement phase of their lives. It first sets forth past and projected trends in the supply of labor available to U.S. businesses in general. The potential impact of the baby-boom generation's withdrawal from the workforce on different industries, and the occupations within them, is then analyzed. The report concludes with an examination of factors that could affect the likelihood of an imbalance between labor supply and demand in the coming years.",
"With over 153 million persons employed or actively seeking employment in 2007, the labor force more than doubled in size since 1967. (See Table 1 .) Within the 40-year period, however, the pace of growth fell by more than half during the most recent compared to the first 20 years.\nThe diminished rate of labor force growth in recent decades is related, in part, to the substantially reduced number of births in the United States. The cohort of some 76 million individuals born between 1946 and 1964 was aptly dubbed the baby-boom generation. As the members of this very large group entered the workforce 16 or more years after birth, the baby-boomers greatly increased the aggregate supply of labor: by 28.0% between 1967 and 1977, and by 21.1% between 1977 and 1987. (See column 2 of Table 1 .) The baby-boom generation was followed into the labor force by the suitably named baby-bust cohort, which totals some 45 million persons born between 1965 and 1976. The small size of the baby-bust group contributed to the decrease in young workers and the ebbing of overall labor force growth as its oldest members began to enter the workforce during the 1980s.\nDuring the 1990s, the baby-boomers continued to buoy the overall supply of labor. By 1989, the youngest baby-boomers had reached 25 years of age, and the oldest members of the group were 43 years of age. The entire cohort thus was in the prime work-age group (25-54 years old), which historically has had the highest rate of participation in the labor force. (The labor force participation rate, shown by age over time in Figure 1 , below, is the share of the civilian noninstitutional population that is employed or actively seeking employment.) In 2007, for example, more than 4 of every 5 persons in the population aged 25-54 were members of the labor force; in contrast, about 3 of every 5 individuals aged 16-24 had a job or were looking for one, while still fewer persons 55 years and older—less than 2 in 5—were attached to the workforce. The advancement of the numerous baby-boomers into the prime work-ages consequently offset, in part, the baby-bust's dampening impact on the supply of labor during the 1990s.\nAfter 2000, however,\na segment of the baby-boomer population passes into the 55-years-and-older group and thus moves from a group with a high participation rate in the labor force to an age category with a much lower participation rate, causing the overall participation rate to decrease.\nThe aging of female baby-boomers already has contributed to the seeming end of the decades-long rise in women's labor force participation, which \"[o]n the basis of the current trend . . . reached its peak at 60 percent in 1999, and the trend will be at best flat in the future.\" The recent movement of older baby-boomers into the age range of low rates of supply to the labor force is shown in column 5 of Table 1 .\nThe youngest members of the baby-boom cohort will have turned 55 years old by 2019, which could cause the workforce to grow more slowly between 2000 and 2019 than it did between 1980 and 2000. Indeed, the U.S. Bureau of Labor Statistics (BLS) projects that the decelerating rate of increase in the labor supply could continue through 2020. Although the labor force is projected to expand from 141 million people in 2000 to 165 million people in 2020, the gain will steadily dwindle—falling from 1.1% annually over the 2000-2010 period to 0.6% annually over the 2010-2015 period to 0.2% annually over the 2015-2020 period.\nFurther contributing to the slowdown is the progress of the small baby-bust group into the age range with strong attachment to the labor force. The oldest members of the baby-bust generation turned 25 years of age in 1990; the youngest, in 2000. They will be among those replacing the entire baby-boom generation in 2020, when it will have aged out of the 25-to 54-year-old group. Despite the high rate of labor force participation for those in the prime work-ages shown in Figure 1 , the small number of baby-bust workers means that they\nwill not be able to compensate for the large cohorts of baby boomers leaving the prime-aged group and moving into a group with much lower participation rates. The result is a decrease in the overall labor force participation rate and a slower rate of growth of the labor force.",
"The slowdown in the supply of labor that employers have begun to encounter has led them to worry about how much harder it will become to hire replacements for baby-boomers as more of them reach the retirement phase of their lives during the coming decades. The ebbing of labor force growth could present more of a difficulty for some firms than others, depending on the age composition of their current workforces. For example, mature industries (e.g., steelmakers) in contrast with emerging industries (e.g., biotechnology) did much of their hiring many years ago; hence, baby-boomers probably comprise a larger share of the workforces of mature than emerging industries. Still other industries are known for having fairly young workforces (e.g., leisure and hospitality), and are less likely to have many jobs to fill as a result of retirements. (Instead, these other industries probably are more concerned about the relatively small additions to the youth labor force shown in Table 1 , which is affected by more than demographic trends. )\nThe first step in assessing the comparative hiring needs of employers associated with the retirement of the baby-boom generation was to calculate baby-boomers' share of employment, overall and by industry in 2005, utilizing Current Population Survey (CPS) data. The industries estimated to have employed a significantly above-average percentage of baby-boomers in 2005 (more than 42.1% of 41-to 59-year-olds) are considered the most prone to the effect of the group's withdrawal from the labor force. Within each of the \"baby-boom dependent industries,\" CRS next estimated the baby-boomers' share of employment by occupation to determine the job categories most likely to develop vacancies due to retirements. (The size of the CPS sample limits the degree of detail by occupation within industries that could be estimated accurately.)\nIn addition to identifying baby-boom dependent industries and the occupations within them, the section immediately below discusses possible reasons for them having a very high prevalence of 41-to 59-year-olds. What the impending retirement of baby-boomers might actually mean for the industries' future occupational staffing requirements is analyzed thereafter.",
"Some 24 of the 51 industries included in the analysis employed a significantly above-average share of baby-boomers in 2005. Although half of the 24 industries are in manufacturing, baby-boom dependent industries span the economy—from the following industries in the goods-producing sector—\nforestry, fishing, and hunting; mining, including oil and gas extraction; and 12 manufacturing industry groups (i.e., textile, apparel, and leather manufacturing; paper and printing; petroleum and coal products; chemical manufacturing; plastics and rubber products; nonmetallic mineral product manufacturing; primary metal and fabricated metal products; machinery manufacturing; computer and electronic products; electrical equipment, appliance, and component manufacturing; transportation equipment manufacturing; and miscellaneous manufacturing);\nto the following industries in the service-producing sector—\nwholesale trade; transportation and warehousing; utilities; insurance; real estate; educational services (e.g., public and private elementary and secondary schools); hospitals, private and public; health care services, except hospitals; membership associations and organizations; and public administration (excluding public schools and hospitals).\nThe utilities industry (e.g., private and public establishments that provide electricity, natural gas, and water) has the highest proportion of baby-boomers, with almost 3 of every 5 workers between 41 and 59 years old in 2005. (See column 2 of Table 2 .) One possible reason for the marked incidence of baby-boomers in the industry is its comparatively high unionization rate. While just 12.5% of all persons employed in 2005 were union members, according to CPS data, the figure among utilities workers was more than twice that, at 28.8%. Older workers are likely to be more prevalent in highly unionized industries that \"thus favor seniority and generally have lower turnover rates due to higher wages and better benefits than nonunion jobs.\" In terms of retirement benefits in particular, the type of pensions that unions historically have negotiated with management—defined-benefit plans—encourages long job tenure because its benefit formula typically is based on a combination of peak-years' earnings and years of service.\nUnionization probably also explains, in part, why 50.4% of employees in the transportation and warehousing industry (e.g., railroads and airlines) and 49.3% of employees in the 12 manufacturing industries combined are members of the baby-boom generation. (See column 2 of Table 2 .) In addition, the baby-boom dependent manufacturing industries did much of their hiring many years ago and have grown their workforces little, if at all, since then. As an example, consider transportation equipment manufacturing: When the first members of the baby-boom generation were born in 1946, the industry employed 1.2 million production and nonsupervisory workers; it was an abundant source of jobs for young workers during the next two decades, but since factory employment peaked at 2.1 million in 1968, many more workers have been permanently let go than have been hired. The order in which unionized employees usually are laid off—namely, in an inverse relationship to seniority (last-hired, first-fired)—has served to reinforce the marked presence of baby-boomers on these manufacturers' payrolls. So, too, has manufacturing's image reportedly dissuaded younger persons from considering the field when making career decisions.\nMore than three out of every 10 persons employed by federal, state, and local governments were union members in 2005, despite variability across jurisdictions in whether and which employees (e.g., education and public safety) can be organized. Variability also exists in the scope of negotiable subjects, with all levels of government often excluding leave and benefit policies from the collective bargaining process. In these instances, legislators have passed laws that prescribe human resources policies or the precepts that underlie them. With regard to retirement benefits, elected officials usually have provided defined-benefit pensions to public employees; as noted above, traditional pensions encourage lengthy job tenure and hence, older workforces. Almost all full-time state and local government workers (including teachers at public elementary, secondary, and postsecondary institutions) were covered by defined-benefit plans in 1994, which enable them to retire with unreduced benefits at age 55 or younger and typically after 30 years of tenure. All federal employees also are eligible for a defined-benefit pension plan. Like their state and local counterparts,\n\"[m]any federal employees become eligible to retire at age 55 with 30 years of service, and the average retirement age was 60.4 in 2004, according to OPM data.\"\nA little over one-half of public employees (excluding school personnel) and 48.7% of workers in the (public and private) educational services industry were baby-boomers in 2005, as shown in column 2 of Table 2 . But in that year, just 20%-25% of baby-boom employees might have been retirement-eligible, based on their age (i.e., at least 55 years old). Going forward, then, retirements could rise considerably in the public administration and educational services industries as many more of these employees reach the ages associated with pension eligibility.\nYet the impact of baby-boomers' withdrawal from the labor force can be expected to differ across industries, depending on their future employment trends. Those industries that reduce the size of their workforces will not need to fill every vacancy. A number of baby-boom dependent industries in the goods-producing sector are projected to employ fewer workers in 2016 than they did in 2006: mining; manufacturing; and forestry, fishing, and hunting. The only baby-boom dependent industry in the service-producing sector projected to experience declining employment is utilities. However, even industries in which total employment is projected to decrease might need to replace employees who retire from particular occupations. In other words, industries with declining aggregate employment (e.g., chemical and transportation equipment manufacturers) may, at a minimum, maintain employment levels in certain occupations (e.g., engineers).",
"Almost all baby-boom dependent industries have staffed their management ranks with substantial shares of baby-boomers, as shown in column 2 of Table 2 . In fact, 41-to 59-year-olds accounted for a significant portion of managers economy-wide in 2005, at 52.8%, on average. If BLS projections of the creation of almost 1.6 million new management positions between 2006 and 2016 prove correct, then the effect of the baby-boom's retirement from the occupational group could be widespread.\nWhether it would be difficult to replace retired managers is another matter. One case study of a large manufacturing firm estimated that increased retirements among senior management would result in an almost imperceptible decrease in job tenure and slightly faster promotions from the ranks one step down the corporate ladder, if all replacements were internal. \"This is true for most organizations, and the reason is because in a typical pyramidal-shaped organizational chart, the levels below have many more incumbents than those above.\" There is anecdotal evidence, as well, of baby-boomers who survived corporate restructuring (which pared the number of executive positions) not being in a hurry to retire. According to a survey of senior-level managers, 44% planned to continue working past age 64. The phenomenon of older workers failing to make way for others to advance is referred to as the \"gray ceiling,\" and it seemingly extends beyond management occupations (to lawyers, for example).\nMany of the baby-boom dependent industries also rely heavily on 41-to 59-year-olds to fill office and administrative support jobs, as shown in column 2 of Table 2 . The 12 manufacturing industries, mining, and utilities, for example, are projected to employ fewer office and administrative support personnel over the 2006-2016 period. These industries consequently could utilize the retirement of baby-boomers as the least painful way of coping with reduced occupational demand.\nOther occupational groups with a very high incidence of baby-boomers appear to be more industry-specific. For example, the retirement of baby-boomers from production jobs (e.g., machinists) could create difficulties for manufacturers. Not only did baby-boomers comprise almost one-half of production employment in baby-boom dependent manufacturing industries in 2005, but 41-to 59-year-old production workers also accounted for a large share (about one-fifth) of the industries' workforce. (See columns 2 and 3 in Table 2 .) Although manufacturers' demand for production workers generally is projected to decrease between 2006 and 2016, several of the baby-boom dependent manufacturing industries could increase employment in specific occupations (e.g., welding, soldering, and brazing workers).\nMuch the same can be said about transportation and material moving occupations (e.g., drivers and stock movers) in the transportation and warehousing industry. Baby-boomers made up nearly one-half of transportation and material moving workers in the industry in 2005, and 41-to 59-year-olds in the occupational group accounted for close to one-fourth of the industries' workforce. (See columns 2 and 3 of Table 2 .) In this case, the industry is projected to add 294,000 workers in transportation and material moving occupations over the 2006-2016 period, with much of the job growth accounted for by motor vehicle operators (e.g., heavy and tractor-trailer truck drivers).\nSimilarly, the retirement of baby-boomers from health care practitioner and other related technical occupations (e.g., physicians, nurses, therapists, and health technologists) could pose supply problems for the health care services industry. About one-half of the individuals employed in this occupational group by hospitals and other health care services establishments were aged 41-59 in 2005. (See column 2 of Table 2 .) These baby-boomers represented 24.3% of total employment at hospitals and 16.2% of total employment at other health care services enterprises (e.g., nursing and residential care facilities), as shown in column 3 of the table. In addition, the health care services industry employed the majority of persons working as health care practitioners and in related technical occupations in 2006, and the industry is projected to increase employment in these occupations by almost 1.1 million between 2006 and 2016.\nFor the same reasons, the retirement of baby-boomers from educational, training, and library occupations could cause difficulties for the educational services industry (public and private) in particular. Baby-boomers in 2005 comprised 47.6% of the industry's employment in the occupational group, of which elementary and secondary school teachers are a large part. These baby-boomers also are important to the functioning of the industry, accounting for more than one-fourth of its total employment. (See columns 2 and 3 of Table 2 .) Moreover, state and local government educational agencies and private providers of educational services are projected to increase their employment of educational, training, and library workers by almost one million between 2006 and 2016. Speaking more generally, the retirement of baby-boomers could have a substantial effect on the educational services industry because of its large number of baby-boom dependent occupations.\nPublic administration also appears to have many baby-boom dependent occupations. \"[T]he wide variety of jobs and differing growth among the three branches of government, with employment projected to decline in Federal government and to grow in State and local government,\" makes it difficult to gauge the impact of baby-boomer retirements on the industry, however.",
"Thus, many industries throughout the economy are very dependent on baby-boom workers and seemingly face the prospect of tightening labor market conditions as these individuals move toward the typical retirement ages. Employers with older workforces that seek not only to replace all baby-boomers exiting occupations critical to their operations, but also to increase employment in those fields, could face especially intense competition for labor in the short run.\nAn actual shortage of labor is unlikely in the long run, however, because businesses can be expected to raise wages, thereby\nprompting some pension-eligible baby-boomers to continue working, enticing those outside the labor force (e.g., discouraged workers) to enter, or those employed part-time to increase their work hours, encouraging individuals qualified for jobs that are in particularly high demand, but who are employed in other fields, to change positions, and motivating youngsters attending school and unemployed persons, among others, to prepare for these now more lucrative occupations.\nAdmittedly, these accommodations to the new labor market realities could take some time to occur. The adjustment period could be prolonged if companies are slow to make non-wage changes as well, such as relaxing hiring standards or providing training to persons who, but for the tight labor market, would not have been hired (e.g., high school dropouts) or retained (e.g., employees with outdated skills). In addition, firms will vary in their ability to alter compensation and other human resources policies, making them unequal competitors in their attempt to attract and retain an adequate number of workers.",
"An underlying assumption of the labor shortage scenario is that, in order for the U.S. economy to continue growing, companies must have more workers on their payrolls in the future than at present. Proponents of this viewpoint essentially are arguing that the rate of economic growth is closely and directly linked to the pace of labor force growth. The U.S. economy generally has been able to expand faster than the labor supply, however, by more efficiently utilizing the available pool of workers. Former Federal Reserve Chairman Alan Greenspan noted that\nAn expansion of labor-force participation by immigrants and the healthy elderly offers some offset to an aging population. However, it is heightened growth of output per worker that presents the greatest potential to boost the growth of gross domestic product.\nConfronted with a bidding war for relatively scarce workers, businesses could well try to increase productivity through substitution of less expensive capital for labor and initiation of organizational and technological innovations. Indeed, a good deal of empirical research indicates that past slowdowns in labor force growth have been accompanied by acceleration in productivity growth. This historical relationship provides some optimism for future increases in the productivity growth rate partly offsetting the diminishing pace of labor force growth in coming decades.\nThere are factors in addition to the rate of increase in the size of the workforce that affect the growth rate of labor productivity. A key variable is the quality of labor—that is, the amount of knowledge embodied in a nation's workers. One analysis tentatively estimated that, while business investment in traditional kinds of capital (e.g., expenditures on plant and equipment) might have accounted for a little more than 27% of the growth in output per hour worked between 1995 and 2003, business investment in intangible forms of capital (e.g., expenditures on employee training) and changes in labor composition (e.g., educational attainment) might have accounted for 38% of the increase in labor productivity over the period.\nIt has been suggested that the human capital characteristics of recent migrants to the United States and their descendants might attenuate the historically inverse relationship between labor force and productivity growth, however. The United States has been experiencing a shift in the countries of origin of immigrants, from European toward Mexico and other Latin American countries. Because Latin American immigrants generally have completed fewer years of school than European immigrants, the change in country mix has lowered the average educational attainment of recent immigrants. The impact this will have on the human capital possessed by future members of the U.S. labor force depends of such factors as trends in source countries' educational attainment and the rate of convergence in years of schooling completed by immigrants' descendants and the native-born population. Although there have been marked gains in high school completion among recent cohorts of Mexican migrants to the United States, the wide gap in educational attainment between native-born and Mexican workers is likely to persist for quite some time. Years of school completed by U.S.-born Hispanics (i.e., second-and subsequent-generation Hispanics) also are expected to remain well below the U.S. average. These findings led Little and Triest to surmise that the average level of educational attainment among U.S. workers could be dampened as a result of the labor force's increasingly Hispanic composition, unless the educational status of Hispanic youth changes dramatically.\nIn contrast, Census Bureau staff who developed projections of educational attainment based upon alternative assumptions—continued immigration and no immigration—found the net impact of immigrants on overall schooling levels in the future to be indeterminate. The counterfactual case (zero immigration) showed an increase of a few percentage points in the rate of high school completion, while the impact on college completion was uncertain. The continued immigration case showed little difference in future educational attainment. Because still other projections by ethnicity revealed that all groups could have rising levels of schooling, Day and Bauman surmised \"that changes in ethnic composition [of the U.S. population toward Hispanics, for example] do not suppress educational attainment to the extent some observers have feared.\"\nSome analysts are not sanguine about the economy's ability to achieve rates of productivity growth sufficient to fully compensate for the slowdown in labor force growth. Nyce and Schieber projected labor supply, based on continuation of current patterns of labor force participation by age, and labor demand over the 2000-2010 period under four scenarios of productivity growth: 1.5% annually, which was the average rate of increase over the past three decades; 1.75% and 2.0% annually, which mark the range of increases in labor productivity in the past decade; and 2.23% annually, which is a rate last surpassed in the 1950s and 1960s but not again attained for any long period thereafter. They estimated that the United States could be faced with a shortfall of labor unless output per hour worked grows by 2.23% for a sustained period of time or patterns of labor force participation change—for example, if more members of the population join the labor force and current workers retire later.",
"",
"Another assumption underlying the labor shortage scenario is that members of the baby-boom generation will sharply curtail their involvement in the labor force once in their 60s. Surveys of boomers suggest that many intend to work during the typical retirement ages, however.\nThe labor force participation rate of older workers (55 years and over) actually began increasing in the mid-1980s. By 2006, the group's participation in the labor force had risen significantly to 38.0%. It is anticipated that this strong upward trend will continue going forward: in 2016, when baby-boomers will be between 52 and 70 years old, the BLS projects that the labor force participation rate of older workers could reach 42.8%. In light of the large size of the baby-boom population, such an increase in the percentage of persons continuing to work at older ages would greatly affect the supply of labor.\nMany variables have come together to spur the ongoing increase in labor force participation among older workers. Improvement in the population's health has increased the ability of individuals to work at older ages, should they desire. The decrease in physically demanding jobs operates in the same direction. The life span of individuals has lengthened as well, which could make the extension of one's years in the labor force a financial necessity—particularly for those with limited savings and retirement benefits. The tendency of employers to eliminate health benefits coverage for retirees also could be prompting older workers to remain in the labor force, at least until they qualify for Medicare. So, too, could the movement of employers away from traditional (defined-benefit) pensions to defined-contribution retirement plans. The latter, which employers began to offer in the 1980s after section 401(k) was inserted in the Internal Revenue Code (IRC), are age-neutral and do not pay out a guaranteed level of benefits. One empirical analysis found that most of the increase between 1992 and 2004 in the intention of baby-boomers to continue working after age 62 was due to decreased rates of employer-provided retiree health benefits, higher levels of educational attainment among workers, and reduced rates of coverage under traditional pension plans.\nIn addition to changes in the IRC, Congress has enacted and amended other laws over the years that encourage older workers to remain engaged in the labor force and remove obstacles to their continued participation. Several such changes were made to the public pension system, including gradually raising from 65 the age at which workers can receive full retirement benefits, increasing the reduction in benefits for those who retire between 62 and the full retirement age, and enhancing the delayed retirement credit for those who forgo benefits receipt until after they have attained full retirement age. Most recently, Congress loosened the earnings test for employed beneficiaries between 62 and the full retirement age and eliminated it for those at or above the full retirement age. If policymakers become convinced that a labor shortage is imminent, they might consider additional modifications of the public pension system, such as further relaxing or eliminating the earnings test for workers between 62 years old and the full retirement age. The results of empirical research are mixed, however, on whether removal of the earnings test for employed beneficiaries at or above the full retirement age has increased the labor supply.\nSome regard federal policies that ban age-based discrimination in the workplace and virtually eliminate mandatory retirement to be among the leading reasons for the increase in labor force participation among older members of the population. When the Age Discrimination in Employment Act of 1967 (ADEA) was passed, it barred employers from discriminating against people between 40 and 65 years old on the basis of age. Thus, firms still were permitted to include involuntary retirement clauses in their pension plans as long as they were not applied to persons under age 65. In 1978, the ADEA was amended to protect individuals up to 70 years old from workplace discrimination; the age restriction was removed by amendment of the ADEA in 1986. As a result, most private pension plans no longer can include involuntary retirement provisions.\nNonetheless, it appears that older workers who lose long-held jobs have limited reemployment opportunities due, perhaps, to age-based hiring discrimination and lawful considerations of employers. Individuals who willingly retire from their career jobs but who would like to continue working for another company on a part-time basis, for example, could face similar employer reluctance to hire them.\nLegal statutes, such as the Employee Retirement Income Security Act (ERISA), were cited as an obstacle by almost 12% of companies that consider their aging workforces an issue that needs to be dealt with. Provisions in ERISA and the IRC arguably dampen employer demand for older workers who would prefer to phase into retirement rather than fully withdraw from the labor force. Currently, a company can only retain older employees and distribute pension benefits to them if they have reached the plan's normal retirement age which, by law, cannot be above age 65. An employer can make pension distributions to employees who have reached the plan's early retirement age (e.g., age 62) only after they leave the firm. Thus, a business cannot compensate employees between 62 and 65 years old who would like to continue at the firm, but work fewer hours or weeks, through a combination of reduced wages and partial pension distributions. Companies have asserted that amending the law to permit in-service pension payments would make them more willing to provide phased-retirement arrangements. However, the net impact of allowing in-service distributions at the early retirement age on labor force participation and hours worked among older employees is unknown.\nAnother reason suggested for employers being reticent about hiring older workers is that the group is thought to be comparatively expensive to cover under health insurance plans. Companies that provide health benefits must offer all employees, including those at least 65 years old who are eligible for Medicare, the same plan. If newly hired older workers accept employer-sponsored health benefits, Congress requires that Medicare be the secondary payer. Firms with health benefit packages might be more inclined to hire Medicare-eligible job applicants were their own plans instead designated the secondary payer. While this policy change might raise employer demand for older workers seeking new career jobs or bridge-to-retirement jobs, it also would increase the costs of the Medicare program.\nHowever, the majority of U.S. companies do not appear to have yet focused on the implications of an aging labor force. Human resources (hr) practitioners who are cognizant of the importance of recruiting and retaining baby-boom employees have urged companies to reexamine and change their attitudes toward older workers as they did, with a lag, when women began entering the labor force in large numbers during the 1970s. According to a survey of hr staff, some 40% reported that their organizations were just becoming aware of the possibility of a worker shortage associated with retirement of baby-boom employees and a similar share indicated that they were just at the start of reviewing their policies and practices accordingly. As of 2005, only 11% had made changes to prepare for a potential labor shortage. The results of a survey released in 2007 indicate that only 26% of employers had analyzed the age makeup of their workforces and only 34% had projected retirement rates of their employees. Accordingly, 35% of employers had not developed \"strategies to encourage late-career employees to work past the normal retirement age.\" Another survey released in 2007 finds that 29% of employers believe the aging of the workforce is of little or no significance to them. The results differ by industry, however, with industries having comparatively older workforces (e.g., health care providers) regarding the issue as more significant than industries with younger employees (e.g., high technology businesses). These industry differences are not surprising \"when learning that the primary reason (53 percent) respondents indicated that this is not an issue is that their workforces will not be eligible for retirement within the next five to ten years.\"",
"Proponents of the labor shortage viewpoint usually look just at the very different size of two groups, namely, the baby-boom and baby-bust generations. The much smaller cohort that immediately followed the baby-boomers into the workforce is not the only source of replacements for retirees, however.\nThe baby-boom produced numerous offspring, who have been labeled the echo-boom generation. Variously defined as having been born starting during the mid-to-late 1970s, and ending sometime during the mid-to-late 1990s, the echo-boom—at about 72 million—approaches the size of its parents' generation. The oldest members of the echo-boom joined the labor force during the 1990s, and were responsible for the turnaround in the size of the youth labor force over the 1997-2007 period shown in Table 1 . Members of the echo-boom started to turn 25 years old and enter the prime work-age group (25-54)—with its high rates of labor force participation—during the early years of the current decade, just when their parents began to leave the group.\nRather than an actual shortage of labor, some observers thus have suggested that the labor market may develop \"an experience problem.\" Employers might indeed demand that individuals have many years of work experience to fill certain positions (e.g., managers), but they may not feel the same way about other jobs. Companies might, for example, prefer to hire recent college graduates for occupations that have been changed substantially by technology (e.g., skilled blue-collar jobs in manufacturing) rather than upgrading the skills of experienced middle-aged workers who have, at most, a high school diploma.",
"Even if U.S. demographics were such a strong determinant of the supply of labor,\nthe US is not a closed economy dependent only on domestic labor to produce goods and services. In the global economy, demographic and labor conditions in other countries affect the US labor market. Globalization gives US firms access to labor overseas through foreign direct investment, offshoring, or subcontracting and access to foreign-born labor that immigrates to the US. The claims of a coming labor shortage must be assessed in a global context.\nIf globalization were to continue at its current pace, one prominent labor economist expects\nUS firms to be able to meet potential shortfalls in domestic labor supplies for tradable goods and services by hiring labor overseas, and to seek immigrant labor to ameliorate potential labor shortages in the production of non-traded goods or services.\nThe limited availability of U.S. computer programmers to make the technological fixes necessary for a smooth transition into the 21 st century (i.e., the Y2K crisis) and the ready supply of qualified foreign workers sparked firms to obtain H-1B nonimmigrant professional specialty visas, which allowed them to temporarily bring these individuals into the country. The perceived scarcity of information technology workers (e.g., computer systems analysts and engineers) in the domestic labor force prompted the 105 th and 106 th Congresses to raise the H-1B visa cap from FY1999 to FY2003, and the 106 th and 108 th Congresses to create permanent exemptions from the visa limit. In addition, the 107 th Congress passed legislation to allow H-1B nonimmigrants to remain beyond the statutory limit on their time in the country if their employers petition for them to become legal permanent residents (LPRs) of the United States. Employers continue to urge Congress to reexamine the H-1B visa program to enable them to bring into the country greater numbers of skilled guest workers.\nBusinesses similarly have turned to temporary and immigrant labor to fill jobs in other occupations when U.S. workers are deemed to be in short supply (e.g., landscape laborers and nurses). In view of the ongoing tightening of the U.S. labor market, firms will likely intensify their pressure on Congress to allow them even greater access to this pool of less skilled labor. Some Members have expressed support for proposals that would raise ceilings on current visa categories for guest workers and would expand existing or establish new exemptions from nonimmigrant visa caps. Yet the labor market effects of immigration and the ability to link, in a timely manner, migrant inflows with U.S. labor market conditions remain unsettled issues.\nAnother means of augmenting the domestic labor supply available to U.S. businesses is offshoring or offshore outsourcing. Initially, the principal U.S. firms sending work to be performed in other countries were manufacturers, which meant that most of the jobs first offshored involved blue-collar occupations such as the industry's baby-boom dependent production jobs shown in Table 2 . More recently, the widespread availability of technologies that permit low-cost, good-quality, high-speed transmission of voice and data communications has enabled companies in the service sector to tap into the supply of white-collar workers residing in other nations. Although good data on the extent and nature of offshoring are limited, estimates suggest that some of the baby-boom dependent occupations shown in Table 2 have characteristics that make their duties amenable to export (e.g., office and administrative support, and business and financial operations).\nThe core activities of several baby-boom dependent industries could make it difficult for them to utilize labor living outside U.S. borders (e.g., truck drivers in the transportation industry, sales agents in the real estate industry, elementary and secondary school teachers in educational services, and nurses in hospitals). Public sentiment also has prompted policymakers to try to limit offshoring of activities traditionally performed by employees of baby-boom dependent industries (e.g., public administration)."
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{
"question": [
"What does the unemployment rate of 2007 suggest?",
"How will baby-boomers affect retirement group in America?",
"How will the baby-boomers affect the US economy?",
"Why is an actual shortage of workers unlikely in the long run?",
"What is a key assumption of the labor shortage scenario?",
"Based on this assumption, how are rates of output growth and labor force growth associated?",
"How has the economy been able to expand faster than labor supply?",
"What is an assumption underlying labor shortage scenario?",
"Why has the degree to which older people participate in workforce changed?",
"What are people urging Congress to do with regards to this trend?",
"What else has Congress been urged to do to deal with labor supply?",
"What is the problem with asserting the need to replace retiring baby-boomers?",
"What is the other cohort people asserting this belief need to consider?",
"What is overlooked in the context of shortages?"
],
"summary": [
"The unemployment rate in 2007 averaged just 4.6%, which is low by historic standards and suggests the presence of tight labor market conditions that are related to long-running demographic trends.",
"The oldest members of the baby-boom generation turned age 60 at the end of 2006, and every year thereafter, more of this large birth-cohort will move into the ages when workers traditionally have retired.",
"Consequently, the business community in particular has asserted that the future supply of labor will fall short of employer demand and that U.S. economic growth and competitiveness would be put in jeopardy.",
"An actual shortage of workers is unlikely in the long run because companies can be expected to take various actions in response to the accelerating slowdown in labor force growth—although it appears few have yet done so.",
"A key assumption of the labor shortage scenario is that firms must have more workers in the future than at present for the economy to continue to grow.",
"Proponents of this viewpoint thus are asserting that rates of output growth and labor force growth are closely and directly linked.",
"But, the economy historically has been able to expand faster than the labor supply by more efficiently utilizing the available pool of workers.",
"Another assumption underlying the shortage scenario is that baby-boomers will sharply curtail their work activity once in their sixties.",
"The degree to which older persons participate in the workforce already has risen due, in part, to changes that Congress made to the Social Security retirement system and age discrimination law.",
"Some have urged Congress to make further modifications to encourage more older individuals to continue working and more employers to hire and retain them.",
"Similarly, Congress has been urged to further amend immigration law to permit more foreign labor to be brought into the country to fill jobs for which U.S. workers are deemed to be in short supply.",
"Additionally, those who assert that the need to replace retiring baby-boomers will result in a shortage of workers usually consider only the labor supplied by the baby-bust generation.",
"This 45 million birth-cohort, which immediately followed the 76 million baby-boomers into the labor force, is not the only source of replacement workers: the 72 million members of the echo-boom began to enter the workforce during the 1990s.",
"Access to foreign labor through offshore outsourcing, in addition to guest worker programs, also is often overlooked in the context of shortages."
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CRS_R41870
|
{
"title": [
"",
"Most Recent Developments",
"FY2011 Continuing Resolution, Related Actions, and Prior Year Funding",
"Status of FY2012 Appropriations",
"Action on the FY2012 Legislative Branch Appropriations Bill",
"Submission of FY2012 Budget Request on February 14, 2011",
"Senate and House Hearings on the FY2012 Budget",
"House Consideration of the FY2012 Bill",
"Senate Consideration of the FY2012 Bill",
"FY2012 Legislative Branch Funding Issues",
"Senate",
"Overall Funding",
"Senate Committee Funding",
"Senators' Official Personnel and Office Expense Account",
"Highlights of the Senate Hearing on the FY2012 Budget of the Senate",
"House of Representatives",
"Overall Funding",
"House Committee Funding21",
"Members' Representational Allowance22",
"Highlights of the House Hearing on the FY2012 Budget of the House of Representatives",
"Support Agency Funding",
"U.S. Capitol Police",
"Highlights of the House and Senate Hearings on the FY2012 Budget of the U.S. Capitol Police",
"Architect of the Capitol",
"Overall Funding Levels",
"Highlights of the House and Senate Hearings on the FY2012 Budget of the Architect of the Capitol",
"Administrative Provisions",
"Congressional Budget Office (CBO)",
"Administrative Provisions",
"Highlights of the House and Senate Hearings on the FY2012 Budget of the CBO",
"Library of Congress (LOC)",
"Administrative Provisions",
"Highlights of the House and Senate Hearings on the FY2012 Budget of the Library of Congress",
"Government Accountability Office (GAO)",
"Highlights of House and Senate Hearings on the FY2012 Budget of the GAO",
"Government Printing Office (GPO)31",
"Highlights of House and Senate Hearings on the FY2012 Budget of the Government Printing Office",
"Office of Compliance",
"Highlights of the Senate Hearing on the FY2012 Budget of the Office of Compliance",
"Open World Leadership Center",
"Ongoing Discussion of Location of Open World",
"John C. Stennis Center for Public Service Training and Development",
"For Additional Reading",
"CRS Reports",
"Selected Websites"
],
"paragraphs": [
"",
"Although the House passed and the Senate Appropriations Committee reported a separate legislative branch appropriations bill ( H.R. 2551 ), no further action was taken before the beginning of FY2012. From October 1, 2011, until December 23, 2011, the legislative branch operated on a series of continuing appropriations resolutions ( P.L. 112-33 , through October 4; P.L. 112-36 , through November 18; P.L. 112-55 , through December 16; P.L. 112-67 , through December 17; and P.L. 112-68 , through December 23).\nDivision G of the FY2012 Consolidated Appropriations Act ( H.R. 2055 , P.L. 112-74 ), which was enacted on December 23, 2011, provided $4.307 billion in discretionary funding for the legislative branch. This level is $236.9 million (5.2%) below the FY2011 enacted level and $549.6 million (11.3%) below the request. The legislative branch represents approximately 0.4% of the total discretionary appropriations provided in this act.",
"The Department of Defense and Full-Year Continuing Appropriations Act, 2011 ( P.L. 112-10 ) provided $4.54 billion for legislative branch activities for FY2011. This act continued funding and language contained in the FY2010 Legislative Branch Appropriations Act ( P.L. 111-68 ), unless otherwise specified, and included an across-the-board rescission of 0.2%. The FY2011 level represented a decrease of nearly 3% from the $4.66 billion provided for FY2010.\nFrom October 1, 2010, until the enactment of this legislation on April 11, 2011, the legislative branch operated on continuing resolutions. These continuing resolutions included P.L. 111-242 (through December 3, 2010), P.L. 111-290 (through December 18, 2010), P.L. 111-317 (through December 21, 2010), P.L. 111-322 (through March 4, 2011), P.L. 112-4 (through March 18, 2011) and P.L. 112-6 (through April 8, 2011).\nAdditionally, both the House and Senate adopted language in the 112 th Congress affecting spending within each chamber. H.Res. 22 , adopted by the House on January 6, 2011, reduces the authorized amounts for the Members' Representational Allowances, House leadership offices, and all committees except the Committee on Appropriations by 5%, with a 9% reduction for the Committee on Appropriations. An amendment ( S.Amdt. 182 ) offered by Senator Nelson (NE) to S. 493 , the Small Business Innovation Research/Small Business Technology Transfer Reauthorization Act of 2011, stated, \"It is the sense of the Senate, that it should lead by example and reduce the budget of the Senate by at least 5 percent.\" The amendment was adopted on March 16, 2011. No further action on this bill occurred as of the date of this report. Section 1902 of P.L. 112-10 also contained language reducing allowances for Senators' offices by 5%.\nPreviously, the FY2010 Legislative Branch Appropriations Act ( P.L. 111-68 ) provided $4.66 billion for FY2010 legislative branch operations, and the FY2009 Omnibus Appropriations Act provided $4.40 billion. In FY2009, an additional $25 million was provided for the Government Accountability Office (GAO) in the American Recovery and Reinvestment Act of 2009. P.L. 111-32 , the FY2009 Supplemental Appropriations Act, also contained funding for the police radio system ($71.6 million) and Congressional Budget Office ($2 million).",
"",
"",
"The FY2012 U.S. Budget submitted on February 14, 2011, contained a request for $4.857 billion in new budget authority for legislative branch activities, an increase of approximately 7% from the FY2011 enacted level. This request, however, preceded the enactment of the FY2011 appropriations law on April 11, 2011, which reduced FY2011 funding by nearly 3% from the FY2010 level.\nBy law, the legislative branch request is submitted to the President and included in the budget without change.\nA substantial portion of the increase requested by legislative branch entities was to meet (1) mandatory expenses, such as increased government contributions, and (2) expenses related to increases in the costs of goods and services due to inflation.",
"Table 3 lists the dates of hearings of the Legislative Branch Subcommittees in 2011.",
"The House Appropriations Committee released a subcommittee allocation containing $4.314 billion in new budget authority for the legislative branch for FY2012. This level is $227 million less than the FY2011 enacted level.\nThe House Appropriations Committee Subcommittee on the Legislative Branch held a markup on July 7, 2011, and reported the bill to the full committee with no amendments by voice vote.\nThe full committee held its markup on July 13, 2011. Two amendments were adopted by voice vote, including a manager's amendment with report language related to Open World and workforce diversity, and an amendment offered by Ranking Member Honda directing the House Chief Administrative Office to review and improve contracting controls. Three amendments were rejected, including (1) an amendment offered by Representative Flake prohibiting the use of the Members' Representational Allowance for online advertising (voice vote); (2) an amendment offered by Representative Moran prohibiting the use of funds for the purchase of polystyrene products for food service facilities in the House of Representatives (Roll no. 1, 18-26); and (3) an amendment offered by Representative Flake to prohibit the use of the Members' Representational Allowance for certain mailings not on a Member's stationery (voice vote). The full committee ordered reported a $3.3 billion bill with a roll call vote of 28-19 ( H.R. 2551 , H.Rept. 112-148 ). The total funding level represents a $227 million, or 6.4%, reduction from the FY2011 level (not including Senate items).\nThe House Rules Committee met on July 20, 2011, to discuss a special rule for the legislative branch appropriations bill. A total of 33 amendments were submitted, and 16 were made in order under the rule for consideration of the bill ( H.Res. 359 , H.Rept. 112-173 ). The House agreed to this rule on July 21, 2011 (Roll no. 613, 239-172).\nConsideration of the bill began on July 21, 2011, and continued the next day. The following 16 amendments—the most offered on the legislative branch appropriations bill since at least FY1984— were considered, and 7 were adopted:\n1. H.Amdt. 697 , offered by Mr. Honda, to transfer Member Transition Activities funds to increase the Capitol Police fund by $1,000,000 in order to establish a Security Fund for Members' District Office Security Upgrades, which was agreed to by voice vote. 2. H.Amdt. 698 , offered by Mr. Watt, to reduce funding for the Office of Congressional Ethics by 40% ($619,200) and transfer the funds to the Spending Reduction Account, which failed by recorded vote (102-302). 3. H.Amdt. 699 , offered by Mr. Broun, to reduce funding for the Joint Economic Committee by $1,050,750 (25%) and transfer those dollars to the spending reduction account, which failed by voice vote. 4. H.Amdt. 700 , offered by Mr. Broun, to reduce funding for the Office of Compliance to the FY2008 level ($467,000 reduction), which failed by voice vote. 5. H.Amdt. 701 , offered by Ms. Hayworth, to reduce funding for the Botanic Garden by $632,780, which was agreed to by recorded vote (299-112). 6. H.Amdt. 702 , offered by Mr. Broun, to reduce funding for the Botanic Garden to the FY2008 level (a $3,192,000 reduction), which failed by recorded vote (153-260). 7. H.Amdt. 703 , offered by Mr. Altmire, to restore $1 million in funding to the Thirty-Year Mass Deacidification Program with the Library of Congress's Salaries and Expenses Account, which was agreed to by voice vote. 8. H.Amdt. 704 , offered by Mr. Stutzman, to reduce the GPO funding by $4,946,140.80 by transferring $3,414,150.29 from GPO, Congressional Printing and Binding and $1,531,990.51 from GPO, Office of Superintendent of Documents, to the spending reduction account, which was agreed to by recorded vote (218-194). 9. H.Amdt. 705 , offered by Mr. Paulsen, to prevent the distribution of printed legislation to Member offices unless a Member requests the legislation, which was agreed to by voice vote. 10. H.Amdt. 706 , offered by Mr. Paulsen, to prevent use of funds to distribute printed copies of the Congressional Record to Member offices, which was agreed to by voice vote. 11. H.Amdt. 707 , offered by Mr. Thompson, to prohibit use of funds to purchase, acquire, install, or use any medium screw base compact fluorescent lamp or light bulb (CFL), which failed by recorded vote (130-283). 12. H.Amdt. 708 , offered by Mr. Hanna, to prohibit use of funds by the Chief Administrative Officer to make any payments from any MRA for the leasing of a vehicle in an amount that exceeds $1,000 in any month, which was agreed to by voice vote. 13. H.Amdt. 709 , offered by Mr. Flake, to require all mail funded by the Members' Representational Allowance (MRA) and from funds for official mail for committees and leadership offices of the House bear the official letterhead of the Member, committee, or office involved, which failed by voice vote. 14. H.Amdt. 710 , offered by Mr. Flake, to prohibit use of funds by Members, committees, and leadership for purchase of online ads that link to a website maintained by Members, committees, and leadership offices, which failed by voice vote. 15. H.Amdt. 711 , offered by Mr. Holt, to provide $2.5 million for the congressional Office of Technology Assessment and reduce funding for the House Historic Buildings Revitalization Trust Fund by the same amount, which failed by recorded vote (176-235). 16. H.Amdt. 712 , offered by Mr. Moran, to prohibit the use of funds for polystyrene containers in the food service facilities of the House of Representatives, which failed by recorded vote (179-234).\nThe House passed the bill, as amended, on July 22 (Roll no. 629, 252-159).",
"On September 8, 2011, the Senate Appropriations Committee reported a subcommittee allocation of $4.307 billion ( S.Rept. 112-76 ). The committee reported its version of H.R. 2551 , as amended, on September 15, 2011, by a recorded vote of 28–2 ( S.Rept. 112-80 ).",
"The following sections discuss the various legislative branch accounts as well as issues discussed during the hearings on the budget requests. Although a comparison of the FY2012 requests to the FY2011 enacted levels is provided, the budget requests were submitted prior to the enactment of the FY2011 appropriations act and the funding levels for FY2011 were unknown.",
"",
"The FY2012 Consolidated Appropriations Act ( P.L. 112-74 ) provides $868.59 million for Senate operations, a decrease of $45.56 million (-5.0%) from the $914.15 million provided in FY2011 and $102.95 million (-10.6%) less than the requested level of $971.55 million.\nPreviously, the FY2011 level represented a reduction of $12.01 million (-1.3%) from the FY2010 level of $926.16 million.\nFY2012 requests and FY2011 funding levels for headings within the Senate account are presented in Table 5 .",
"Appropriations for Senate committees are contained in two accounts:\nThe inquiries and investigations account contains funds for all Senate committees except Appropriations. The Senate had requested $161.3 million for inquiries and investigations, an increase of $21.1 million from the $140.2 million provided in FY2011 and FY2010. The Senate-reported bill and the Consolidated Appropriations Act provided $131.3 million, a decrease of $8.9 million. The Committee on Appropriations account contains funds for the Senate Appropriations Committee. The Senate has requested $15.8 million, which is equal to the FY2010 and FY2011 (not including a 0.2% rescission) funding level. The Senate-reported bill would have provided $14.9 million, a decrease of $948,000. This level was continued in the Consolidated Appropriations Act.",
"The Senators' Official Personnel and Office Expense Account provides each Senator with funds to administer an office. It consists of an administrative and clerical assistance allowance, a legislative assistance allowance, and an official office expense allowance. The funds may be used for any category of expenses, subject to limitations on official mail.\nThe Senate-reported bill would have provided $396.2 million, a level continued in the Consolidated Appropriations Act. This level represents a decrease of $13.0 million (-3.2%) from the FY2011 level of $409.2 million. Nearly $447.0 million was requested for FY2012, an increase of $37.8 million. The proposed FY2012 decrease follows a decrease in FY2011 of $12.8 million (-3.0%) from the FY2010 level of $422.0 million.",
"At a hearing on May 12, 2011, the Senate subcommittee discussed the transfer of the administration of subscription services from the office of the Sergeant at Arms to the Secretary of the Senate; the Senate payroll system; the cost of administering state offices; and attempts to balance security and personnel costs.",
"",
"The House-passed version of H.R. 2551 would have provided $1.226 billion for FY2012, a level continued in the Consolidated Appropriations Act ( P.L. 112-74 ). This level represents a decrease of $85.7 million (-6.5%) from the FY2011 level of $1.311 billion. The House had requested $1.334 billion, an increase of $22.3 million (1.7%) over the FY2011 level.\nFY2012 requests and FY2011 funding levels for headings in the House of Representatives account are presented in Table 6 .\nThe proposed FY2012 decrease follows a decrease in FY2011 of $57.6 million (-4.2%) from the FY2010 level of $1.369 billion.\nAdditionally, as stated above, on January 6, 2011, the House agreed to H.Res. 22 , which reduces the authorized amounts for the Members' Representational Allowances, House leadership offices, and all committees except the Committee on Appropriations by 5%, with a 9% reduction for the Committee on Appropriations.",
"Funding for House committees is contained in the appropriation heading \"committee employees,\" which comprises two subheadings.\nThe first subheading contains funds for personnel and nonpersonnel expenses of House committees, except the Appropriations Committee, as authorized by the House in a committee expense resolution. The House-passed bill would have provided nearly $126.0 million, a decrease of $8.6 million from the $134.5 million requested for FY2012 and provided for FY2011. The FY2011 level was a decrease of $5.3 million from the $139.9 million provided in FY2010.\nThe second subheading contains funds for the personnel and nonpersonnel expenses of the Committee on Appropriations. The House-passed bill would have provided $26.7 million. The House had requested $28.5 million, which is equivalent to the FY2011 level and a decrease of $2.8 million from the FY2010 level of $31.3 million.\nThe Consolidated Appropriations Act ( P.L. 112-74 ) provided funding at the levels contained in the House-passed version of H.R. 2551 .",
"The Members' Representational Allowance (MRA) is available to support Members in their official and representational duties. The Consolidated Appropriations Act provides $573.9 million, the same level as the House-passed version of H.R. 2551 . This level is $59.9 million less than the $633.8 million requested for FY2012 and $39.1 million less than the $613.1 million provided in FY2011. The FY2011 level was a decrease of nearly $47 million from the $660.0 million provided in FY2010.",
"At a hearing on May 12, 2011, the House subcommittee discussed Member and district office security, including costs; expenses for legal services related to the Defense of Marriage Act following Attorney General Eric Holder's February 23, 2011, letter to Speaker John Boehner regarding the President's determination that Section 3 of this act is unconstitutional and the Speaker's March 9, 2011, announcement that the House General Counsel was directed to initiate a legal defense of this law; greening efforts, including functions of the Architect of the Capitol and the use of Styrofoam in the House cafeteria; and the House wounded warrior program and the experiences and long-term employment prospects of its alumni.",
"",
"The U.S. Capitol Police (USCP) are responsible for the security of the Capitol Complex including the U.S. Capitol, the House and Senate office buildings, the U.S. Botanic Garden, and the Library of Congress buildings and adjacent grounds.\nThe USCP had requested $387.6 million for FY2012, an increase of $47.5 million (14.0%). The House-reported bill would have provided $340.1 million, the same as provided in FY2011. H.Amdt. 697 increased this amount by $1 million, transferred from transition activities, for district office security. The Senate-reported bill would have provided $331.4 million, a decrease of $8.7 million (-2.6%) from the FY2011 enacted level. The Consolidated Appropriations Act provides $340.1 million, the same level as FY2011.\nThe USCP FY2012 request and FY2011 funding level are also presented in Table 7 .\nPreviously, the FY2010 appropriations act provided $328.3 million and P.L. 111-212 provided an additional $12.96 million in supplemental appropriations. The USCP had requested $15.956 million in FY2010 supplemental appropriations.\nAppropriations for the police are contained in two accounts—a salaries account and a general expenses account. The salaries account contains funds for the salaries of employees; overtime pay; hazardous duty pay differential; and government contributions for employee health, retirement, Social Security, professional liability insurance, and other benefit programs. The general expenses account contains funds for expenses of vehicles; communications equipment; security equipment and its installation; dignitary protection; intelligence analysis; hazardous material response; uniforms; weapons; training programs; medical, forensic, and communications services; travel; relocation of instructors for the Federal Law Enforcement Training Center; and other administrative and technical support, among other expenses. The Capitol Police requested $299.3 million for salaries (an increase of $22.2 million, or 8%) and $88.3 million (an increase of $25.3 million, or 40.1%). The House-reported bill would have continued funding at the FY2011 level, and the district office security amendment increased this amount by $1 million. The Senate-reported bill would have provided $276.9 million, a decrease of $203,000 (-0.1%), for salaries and $54.5 million, a decrease of $8.5 million (-13.5%), for general expenses. The Consolidated Appropriations Act continues funding at the same level as FY2011 for both salaries and general expenses.\nAnother appropriation relating to the Capitol Police appears within the Architect of the Capitol account for Capitol Police buildings and grounds. The Capitol Police had requested $32.3 million, an increase of $5.4 million (19.9%), over the FY2011 enacted level of nearly $27.0 million. The House-passed bill would have provided $21.5 million, a decrease of $5.5 million (-20.2%). The Senate-reported bill would have provided $18.2 million, a decrease of $8.7 million (-32.4%). The Consolidated Appropriations Act continues funding at the same level as FY2011.\nThe conference agreement also contained administrative provisions related to the waiver of erroneous payments as well as the transfer of funds between the \"salaries\" and \"general expenses\" headings. The conferees also recommended no more than 634,667 hours of overtime and added reporting requirements.",
"At a hearing on May 12, 2011, the Senate subcommittee discussed the basis of the Capitol Police request for the 2012 presidential nominating conventions; the size of the Inspector General office and the request for three additional full-time equivalents (FTEs); the status of the radio modernization project; and potential cost savings, including savings from minimizing entry doors.\nOn June 2, 2011, the House subcommittee discussed the activities and budget request of the Capitol Police, including determinants of the Capitol Police mission; how the Capitol Police could adjust to a funding reduction; efforts to establish safe evacuation procedures, particularly for the disabled; the role of the Capitol Police Board; the status of racial and gender discrimination complaints and the hiring of a new diversity officer; and district office security assessments.",
"The Architect of the Capitol (AOC) is responsible for the maintenance, operation, development, and preservation of the United States Capitol Complex, which includes the Capitol and its grounds, House and Senate office buildings, Library of Congress buildings and grounds, Capitol Power Plant, Botanic Garden, Capitol Visitor Center, and Capitol Police buildings and grounds. The Architect is responsible for the Supreme Court buildings and grounds, but appropriations for their expenses are not contained in the legislative branch appropriations bill.",
"Operations of the Architect are funded in the following 10 accounts: general administration, Capitol building, Capitol grounds, Senate office buildings, House office buildings, Capitol power plant, Library buildings and grounds, Capitol Police buildings and grounds, Capitol Visitor Center, and Botanic Garden.\nThe Architect had requested $706.1 million, an increase of $120.3 million (20.5%) from the FY2011 level.\nThe House-reported bill ( H.R. 2551 ) would have provided $489.6 million, not including funding for Senate office buildings. H.Amdt. 701 reduced funding for the Botanic Garden account by $632,780.\nThe Senate-reported version of H.R. 2551 would have provided $506.6 million, a decrease of $93.8 million (-15.6%). The Senate-reported bill also included a rescission of nearly $17.5 million from prior year unobligated balances.\nThe Consolidated Appropriations Act provides $567.5 million, a decrease of 5.5% from the FY2011 enacted level of $600.4 million (not including rescissions).\nPreviously, the FY2011 level ($585.8 million, including a $14.6 million rescission for the Capitol Visitor Center), represented a decrease of $15.8 million (2.6%) from the $601.6 million provided in FY2010. The Architect had requested $754.8 million, an increase of $153.2 million (25.5%). In FY2010, a 21.7% increase (or $644.6 million) was requested and a 13.6% increase was provided ($601.6 million). In FY2009, a 55.4% increase ($642.7 million) was requested and a 28% increase ($529.6 million) was provided. The FY2008 budget authority represented a decrease of 8.1% from the $449.9 million (including supplemental appropriations) provided in FY2007.\nThe FY2012 request and FY2011 funding level for each of the AOC accounts is presented in Table 8 .",
"At a hearing on March 3, 2011, the Senate subcommittee discussed the timing of repairs to the Capitol dome; the completion of the tunnel project, scheduled for 2012; the completion of the radio project; potential savings from a unified legislative branch financial management system; Capitol Power Plant east chiller relocation project; and how the agency would operate under various potential funding cuts.\nAt a hearing on March 15, 2011, the House subcommittee discussed the project prioritization process, the Capitol dome project, the Cannon revitalization project, energy consumption and savings, and repairs to the House garages.",
"The Consolidated Appropriations Act contains an administrative provision directing the Architect of the Capitol to transfer amounts made available for construction projects to the Capitol Police to reimburse them for overtime expenses related to these projects. The act also contains language transferring a parcel of land from the National Park Service to the Architect of the Capitol.",
"CBO is a nonpartisan congressional agency created to provide objective economic and budgetary analysis to Congress. CBO cost estimates are required for any measure reported by a regular or conference committee that may vary revenues or expenditures.\nCBO requested $46.9 million for FY2012, less than $100,000 more than the $46.8 million provided for FY2011 in P.L. 112-10 . The House-passed version of H.R. 2551 would have provided $43.8 million (a decrease of nearly $3.0 million, or -6.4%). The Senate-reported version would have provided $44.4 million (a decrease of $2.4 million, or -5.1%). The Consolidated Appropriations Act provides $43.8 million, a decrease of 6.4%.\nPreviously, $45.2 million was provided for FY2010, $44.1 million was provided in the FY2009 Omnibus Appropriations Act, and $2.0 million, to remain available through FY2010, was provided in the FY2009 Supplemental Appropriations Act ( P.L. 111-32 ).",
"CBO requested two administrative provisions for FY2012, neither of which were included in the House-passed or Senate-reported versions of H.R. 2551 or the Consolidated Appropriations Act. The requested provisions would have\n1. allowed unobligated balances of expired Congressional Budget Office appropriations for FY2012 and each fiscal year to remain available until expended for information technology security projects, and 2. allowed appropriations available to the Congressional Budget Office to be used to pay the compensation of certain employees with non-immigrant visas.",
"At the House hearing on May 11, 2011, the subcommittee discussed CBO's workload, impetus for reports, protocols for determining priorities, process for making long-term projections, and potential consequences of budget cuts on CBO operations.\nAt a hearing on March 17, 2011, the Senate subcommittee discussed the prioritization of cost estimates; CBO's information technology request; its use of outside specialists; and plans for a tighter budget environment.",
"The Library of Congress serves simultaneously as Congress's parliamentary library and the de facto national library of the United States. Its broader services to the nation include the acquisition, maintenance, and preservation of a collection of more than 147 million items in a wide range of traditional and new media; service to the general public and scholarly and library communities; administration of U.S. copyright laws by its Copyright Office; and administration of a national program to provide reading material to the blind and physically handicapped. Its direct services to Congress include the provision of legal research and law-related services by the Law Library of Congress, and a broad range of activities by the Congressional Research Service (CRS), including in-depth and non-partisan public policy research, analysis, and legislative assistance for Members and committees and their staff; congressional staff training; information and statistics retrieval; and continuing legal education for Members of both chambers and congressional staff.\nThe Library requested $666.7 million, an increase of $38.1 million (6.1%) from the FY2011 level of $628.7 million. The House-passed version of H.R. 2551 would have provided $575.3 million, a decrease of $53.4 million (-8.5%). The Senate-reported version would have provided $579.2 million, a decrease of $49.5 million (-7.9%). The Consolidated Appropriations Act provides $587.3 million, a decrease of $41.3 million (-6.6%).\nPreviously, the FY2011 level represented a decrease of $14.7 million (-2.3%) from the $643.3 million provided in FY2010. The FY2010 level represented an increase of 6.0% over the FY2009 level of $607.1 million, and the FY2009 level represented an increase of approximately 7.8% over the $563.0 million provided in the FY2008 Consolidated Appropriations Act. These figures do not include additional authority to spend receipts.\nThe FY2012 budget contains the following headings:\nSalaries and expenses—The Consolidated Appropriations Act provides $413.7 million, (not including $6.35 million in authority to spend receipts), a decrease of $18.0 million (-4.2%). The House-passed bill would have provided $406.1 million (not including $6.35 million in authority to spend receipts), a decrease of $25.7 million (-5.9%) from the $431.8 million provided for FY2011. The Senate-reported bill would have provided $405.5 million (not including $6.35 million in authority to spend receipts), a decrease of $26.3 million (-6.1%). The Library had requested nearly $456.0 million (not including $6.35 million in authority to spend receipts), an increase of $24.2 million (5.6%). The FY2011 level was an $8.0 million decrease (1.8%) from the $439.8 million provided for FY2010. Copyright Office—The Consolidated Appropriations Act provides $16.1 million, a decrease of $1.7 million (-9.5%), not including authority to spend $35.5 million in receipts. The House-passed bill would have provided $14.5 million, a decrease of $3.4 million (-18.9%) from the $17.8 million provided in FY2011. The Senate-reported bill would have provided $16.99 million, a decrease of $834,000 (-4.7%). The Library had requested $21.7 million, an increase of $3.9 million. The FY2011 level was a decrease of $3.0 million (-14.6%) from the $20.9 million provided for FY2010. These numbers do not include authority to spend receipts. Congressional Research Service—The Consolidated Appropriations Act provides $106.8 million, a decrease of $4.2 million (-3.8%). The House-passed bill would have provided $104.1 million, a decrease of $6.9 million (-6.2%) from the FY2011 level of $111.0 million. The Senate-reported bill would have provided $105.8 million, a decrease of $5.2 million (-4.7%). $117.1 million was requested for CRS, an increase of $6.1 million (5.5%). The FY2011 level was a decrease of $1.5 million (-1.3%) from the $112.5 million provided for FY2010. Books for the Blind and Physically Handicapped—The Consolidated Appropriations Act provides $50.7 million, a decrease of $17.4 million (-25.5%) from the $68.0 million provided for FY2011. The House-passed bill also would have provided $50.7 million. The Senate-reported bill would have provided $50.9 million, a decrease of $17.2 million (-25.3%). The Library had requested $71.9 million, an increase of $3.9 million. The FY2011 level was a decrease of $2.1 million (-3.0%) from the $70.2 million provided for FY2010.\nThe Architect's budget also contains funds for the Library buildings and grounds. The Consolidated Appropriations Act provides $46.9 million, an increase of $1.2 million (2.6%) from the $45.7 million provided for FY2011. The House-passed bill would have provided $38.5 million, a decrease of $7.2 million (-15.8%). The Senate-reported bill would have provided $38.5 million, a decrease of $17.9 million (-39.3%). A total of $67.9 million was requested, an increase of $22.2 million (48.5%). The FY2011 level represented a 0.2% reduction from the $45.8 million provided for Library buildings and grounds in FY2010.",
"The Library requested two recurring administrative provisions—related to authority to obligate funds for reimbursable and revolving fund activities and providing transfer authority—as well as two provisions also requested in FY2011, which would\n1. make available balances of expired Library of Congress appropriations available for the purposes of making payments for employees of the Library of Congress under Section 8147 of Title 5, United States Code (relating to workers compensation payments); and 2. authorize the Librarian of Congress to dispose of surplus or obsolete personal property of the Library of Congress, with amounts received credited to funds available for the operations of the Library of Congress and available for the costs of acquiring similar property.\nThe House-passed bill contains the workers compensation provision but not the surplus property provision. The Senate-reported version of the bill contains both of these provisions as well as a provision amending the Library of Congress Fiscal Operations Improvement Act of 2000 related to the use of revolving funds.\nThe Consolidated Appropriations Act included the four provisions requested by the Library.",
"At a hearing on March 11, 2011, the House subcommittee examined Library operations at various potential funding levels; the use of overseas offices; the search for a chief of the Asia Division; the relationship between fees for copyright registrants and costs to process registrations; the requested information technology security funding; and telework.\nAt a hearing on March 31, 2011, the Senate subcommittee discussed the impact of funding cuts; the deferral of projects; and requests for additional staff and information technology security funding.",
"GAO works for Congress by responding to requests for studies of federal government programs and expenditures. GAO may also initiate its own work. Formerly the General Accounting Office, the agency was renamed the Government Accountability Office effective July 7, 2004.\nThe Consolidated Appropriations Act provides $511.3 million (not including $22.3 million in offsetting collections), a decrease of $34.96 million (-6.4%) from the $546.3 million provided for FY2011. The House-passed bill ( H.R. 2551 ) would have provided $511.3 million (not including $18.3 million in offsetting collections), a decrease of nearly $35.0 million (-6.4%). The Senate-reported version of H.R. 2551 would have provided $504.5 million (not including $18.3 million in offsetting collections), a decrease of $41.7 million (-7.6%). The act also contained one administrative provision, also included in the House-passed version of H.R. 2551 , related to voluntary separation incentive payments.\nGAO had requested $556.8 million (not including $18.3 million in offsetting collections), an increase of $10.6 million (1.9%) from FY2011 and equal to the $556.9 million (not including $15.22 million in offsetting collections) provided in FY2010. GAO received $531.0 million, not including offsetting collections, in the FY2009 Omnibus Appropriations Act and an additional $25 million in P.L. 111-5 to cover responsibilities under the American Recovery and Reinvestment Act of 2009.",
"At a hearing on March 11, 2011, the House subcommittee discussed GAO's use of field offices; tenant use of excess space in GAO's headquarters; studies related to Member security; and funding for mandates, including work required under the American Recovery and Reinvestment Act of 2009.\nAt a hearing on March 17, 2011, the Senate subcommittee discussed the methodology used for GAO reports, and how the agency is responding to the budget environment.",
"The Consolidated Appropriations Act provides $126.2 million, a decrease of $8.9 million (-6.6%) from the $135.1 million provided for FY2011 in P.L. 112-10 . The House-reported bill ( H.R. 2551 ) would have provided $113.0 million, a decrease of $22.1 million (-16.3%). H.Amdt. 704 , offered by Mr. Stutzman and agreed to by recorded vote (218-194), further reduced this funding by $4,946,140.80. The Senate-reported version of H.R. 2551 would have provided $116.8 million, a decrease of $18.3 million (-13.5%). GPO had requested $148.5 million, an increase of $13.4 million (9.9%).\nThe FY2011 level represented a decrease of $12.4 million (-8.4%) from the $147.5 million for FY2010. The FY2010 level represented an increase of 4.9% over the $140.6 million provided in the FY2009 Omnibus Appropriations Act. The FY2009 level represented an increase of 12.7% over the $124.7 million provided in the FY2008 Consolidated Appropriations Act.\nGPO's budget authority is contained in three accounts: (1) congressional printing and binding, (2) Office of Superintendent of Documents (salaries and expenses), and (3) the revolving fund. FY2009 levels for these accounts are as follows:\nCongressional printing and binding—The Consolidated Appropriations Act provides $90.7 million, a decrease of $2.9 million (-3.1%). The House-reported bill would have provided $78.0 million. H.Amdt. 704 further reduced this level by $3,414,150.29 (-20.3%, total). The Senate-reported bill would have provided $81.3 million, a decrease of $12.3 million (-13.1%). GPO had requested $100.0 million, an increase of $6.4 million (6.9%) over the $93.6 million provided for FY2011. The FY2010 appropriations act had provided $93.8 million. Office of Superintendent of Documents (salaries and expenses)—The Consolidated Appropriations Act provides $35.0 million, a decrease of $4.8 million (-12.1%). The House-reported bill also would have provided $35.0 million, although H.Amdt. 704 reduced this level on the floor by $1,531,990.51 (for a total decrease of 16.0%). The Senate-reported bill would have provided $35.0 million, a decrease of $4.8 million (-12.1%). GPO had requested $42.2 million, an increase of $2.3 million (5.9%) over the $39.8 million provided for FY2011. The FY2010 appropriations act had provided $40.9 million. Revolving fund—The revolving fund supports the operation and maintenance of the Government Printing Office. The Consolidated Appropriations Act provides $500,000 for the revolving fund. The House-passed bill did not provide funding for the revolving fund. The Senate-reported bill would have provided $500,000, a decrease of $1.16 million (-69.8%) from the nearly $1.66 million provided in FY2011. GPO had requested $6.3 million, an increase of $4.6 million. Previously, the FY2010 act provided $12.8 million for the revolving fund.\nThe congressional printing and binding account pays for expenses of printing and binding required for congressional use, and for statutorily authorized printing, binding, and distribution of government publications for specified recipients at no charge. Included within these publications are the Congressional Record ; Congressional Directory ; Senate and House Journals; memorial addresses of Members; nominations; U.S. Code and supplements; serial sets; publications printed without a document or report number, for example, laws and treaties; envelopes provided to Members of Congress for the mailing of documents; House and Senate business and committee calendars; bills, resolutions, and amendments; committee reports and prints; committee hearings; and other documents.\nThe Office of Superintendent of Documents account funds the mailing of government documents for Members of Congress and federal agencies, as statutorily authorized; the compilation of catalogs and indexes of government publications; and the cataloging, indexing, and distribution of government publications to the Federal Depository and International Exchange libraries, and to other individuals and entities, as authorized by law.",
"At a hearing in the House on May 11, 2011, the subcommittee discussed the cost of producing and delivering the Congressional Record ; GPO's overhead, including the cost of maintaining unused space; security concerns; staffing issues, including the management structure and efforts to reduce discrimination complains; the future of paper in digital age and the operation of FDsys (the Federal Digital System , which will replace GPO Access ); and the timing of requested funding for the 2013 presidential inauguration.\nAt a hearing on March 17, 2011, the Senate subcommittee discussed the changing role of the GPO in the digital age; why GPO included in its request funding for the 2013 Presidential inauguration; use of GPO's revolving fund for capital improvements and possible alternatives; and plans for responding to the tight budget environment.",
"The Office of Compliance is an independent and nonpartisan agency within the legislative branch. It was established to administer and enforce the Congressional Accountability Act, which was enacted in 1995. The act applies various employment and workplace safety laws to Congress and certain legislative branch entities.\nThe Consolidated Appropriations Act provides $3.82 million, the same level as contained in the House-passed version of H.R. 2551 . This level represents a decrease of $260,000 (-6.4%) from the $4.08 million provided in P.L. 112-10 for FY2011. The Senate-reported bill would have provided $3.87 million, a decrease of $207,000 (-5.1%). The office requested $4.78 million, an increase of $705,000 (17.3%).\nThe FY2011 level represented a decrease of $300,000 (-6.9%) from the $4.4 million provided in FY2010. The FY2010 level represented an increase of 7.5% from the $4.1 million provided in the FY2009 Omnibus, which was an increase of 21.8% over the FY2008 level of $3.3 million.",
"At a hearing on March 3, 2011, the Senate subcommittee discussed actions to minimize costs; how the agency would operate under various potential funding cuts; and discussions with the Library of Congress regarding information technology concerns.",
"The Open World Leadership Center administers a program that supports democratic changes in other countries by inviting their leaders to observe democracy and free enterprise in the United States. The first program was authorized by Congress in 1999 to support the relationship between Russia and the United States. The program encouraged young federal and local Russian leaders to visit the United States and observe its government and society.\nEstablished at the Library of Congress as the Center for Russian Leadership Development in 2000, the center was renamed the Open World Leadership Center in 2003, when the program was expanded to include specified additional countries. In 2004, Congress further extended the program's eligibility to other countries designated by the center's board of trustees, subject to congressional consideration. The center is housed in the Library and receives services from the Library through an inter-agency agreement.\nOpen World requested $12.6 million for FY2012, an increase of $1.2 million (10.7%) from the $11.38 million provided in P.L. 112-10 . The House-passed bill would have provided $1.0 million, a decrease of 91.2%. The House report states, \"The program has some strong champions on the Committee, but with reductions being made to most every program within the Federal budget the Committee has elected to shut down the program and recommends $1,000,000 for shutdown expenses.\" The Senate-reported bill, in contrast, would have provided $10.0 million (-12.1%). The Senate report states that \"despite the fiscal constraints of the budget this program is necessary for the promotion of democratic principles in countries with historically oppressive rule.\" The Consolidated Appropriations Act provides the Senate-reported level of $10.0 million.\nThe FY2011 level represented a decrease of $623,000 (5.2%) from the $12.0 million provided for FY2010, and the FY2010 level represented a decrease of 13.7% from the $13.90 million provided in the FY2009 Omnibus. In FY2008, Open World received $8.98 million in budget authority, a decrease of 35% from the $13.86 million provided in FY2007 and FY2006.",
"The location of Open World at the Library of Congress, as well as its inclusion in the legislative branch budget, has been a topic of discussion at appropriations hearings in recent fiscal years.\nThe FY2010 House Appropriations Committee report states that \"the Legislative Branch Subcommittee has been clear that it expects the Open World program to become financially independent of funding in this bill as soon as possible.\" This sentiment was also expressed in the conference report, which stated the following:\nThe conferees are fully supportive of expanded efforts of the Open World Center to raise private funding and expect this effort to reduce the requirements for funding from the Legislative Branch appropriations bill in future years. The Committees look forward to a report of progress being made by the Center's fundraising program prior to hearings on its fiscal year 2011 budget request.\nPreviously, during a hearing on the FY2009 budget, Ambassador John O'Keefe, the executive director of Open World, testified that the program may attract different participants if associated with the executive branch rather than the Library of Congress. The FY2009 explanatory statement directed the Open World Leadership Center Board of Trustees to work with the State Department and the judiciary to establish a shared funding mechanism.\nThe subcommittee also had discussed this issue during the FY2008 appropriations cycle, and language was included in the FY2008 Consolidated Appropriations Act requiring Open World to prepare a report by March 31, 2008, on \"potential options for transfer of the Open World Leadership Center to a department or agency in the executive branch, establishment of the Center as an independent agency in the executive branch, or other appropriate options.\"",
"The center was created by Congress in 1988 to encourage public service by congressional staff through training and development programs. The House-passed bill did not provide funding for FY2012. The Senate-reported bill and the Consolidated Appropriations Act include $430,000, the same as requested.\nPreviously, P.L. 112-10 provided $429,140 for FY2011 (including the 0.2% rescission), and $430,000 was provided in FY2010 and FY2009.",
"",
"CRS Report R41214, Legislative Branch: FY2011 Appropriations , by [author name scrubbed]\nCRS Report R40617, Legislative Branch: FY2010 Appropriations , by [author name scrubbed]",
"These sites contain information on the FY2012 and FY2011 legislative branch appropriations requests and legislation, and the appropriations process.\nHouse Committee on Appropriations http://appropriations.house.gov/\nSenate Committee on Appropriations http://appropriations.senate.gov/\nCRS Appropriations Products Guide http://www.crs.gov/Pages/AppropriationsStatusTable.aspx?source=QuickLinks\nCongressional Budget Office http://www.cbo.gov\nGovernment Accountability Office http://www.gao.gov\nOffice of Management & Budget http://www.whitehouse.gov/omb/"
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"question": [
"What did the legislative branch submit on February 15, 2011?",
"How does this submission compare to funds provided for FY2011?",
"What did the FY2011 act provide?",
"What did the House Appropriations Committee Subcommittee hold in July 2011?",
"What did the committee order in July?",
"How does this order compare to the FY2011 level?",
"What did the House agreed to in July?",
"What did the House pass in July?"
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"The legislative branch budget request of $4.857 billion, which is included in the President's budget, was submitted on February 14, 2011.",
"This represents an approximately 7% increase over funds provided for FY2011, although the request was submitted prior to the enactment of the FY2011 appropriations act.",
"The FY2011 act (P.L. 112-10, enacted on April 11, 2011) provided $4.54 billion for legislative branch activities, which represented a decrease of nearly 3% from the $4.66 billion provided for FY2010.",
"The House Appropriations Committee Subcommittee on the Legislative Branch held a markup on July 7, 2011, which was followed by a full committee markup on July 13.",
"The full committee ordered reported a $3.3 billion bill, H.R. 2551 (H.Rept. 112-148).",
"This total represents a $227 million, or 6.4%, reduction from the FY2011 level.",
"The House agreed to a rule for consideration of the bill (H.Res. 359) on July 21, 2011.",
"The House passed the bill, as amended, on July 22 (Roll no. 629, 252-159)."
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CRS_R40227
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{
"title": [
"",
"Introduction",
"Background",
"GAO Bid Protests",
"Number of Bid Protest Cases Filed With GAO",
"Number of Government Procurements Protested",
"Number of Bid Protests Sustained by GAO",
"Changing Trends in GAO Protests: Comparing Rate of Protests to Rate of Obligations",
"Why Companies File Bid Protests",
"Does the Threat of a Protest Drive Agency Behavior?",
"Common Grounds for GAO Sustaining Bid Protests",
"Are Bid Protests Delaying Contracts?",
"DOD Contracts and Bid Protests",
"Appendix. Bid Protests Filed Against DOD"
],
"paragraphs": [
"",
"Bid protests of federal government contracts filed with the Government Accountability Office (GAO) have received congressional scrutiny due to high-profile protests of awards, including protests filed against a $1.6 billion Department of Defense (DOD) contract for cloud services (protested by Amazon, Citrix Systems, and other companies); a contract to provide security background checks for the Department of Homeland Security (protested by US Investigations Services), and a NASA contract to develop crew space transportation capability (protested by Sierra Nevada Corp.). The increasing number of protests and the impact protests can have in delaying contract award or performance have raised concerns regarding the impact of protests on agency operations, especially in DOD. Both the House- and Senate- passed versions of the FY2016 National Defense Authorization Act seek to require a report on the GAO bid protest process.\nThis report is one of two providing Congress with background on the GAO bid-protest process. It analyzes (1) trends in bid protests filed with GAO, (2) why companies protest, (3) the impact bid protests have on acquisitions, (4) the most common grounds for GAO to sustain a protest, and (5) trends in bid protests filed against DOD. Its companion report, CRS Report R40228, GAO Bid Protests: An Overview of Time Frames and Procedures , by [author name scrubbed] and [author name scrubbed], provides background and an overview of the time frames and procedures in a GAO bid protest.",
"The Federal Acquisition Regulation (FAR) regulates how the federal government acquires goods and services by implementing statutes and codifying uniform policies and procedures for the executive branch. The intent of the FAR is to help guide the federal acquisition system to \"deliver on a timely basis the best value product or service to the [government], while maintaining the public's trust and fulfilling public policy objectives.\" One of the guiding principles of the FAR, as set forth in the Competition in Contracting Act ( P.L. 98-369 ), is to promote competition for government contracts.\nIn an effort to protect the integrity of the procurement system, the FAR and federal law provide mechanisms for contractors to object to (protest) contract awards. Generally, any interested party who believes that a contract has been awarded unlawfully can seek relief and contest the award by filing a protest. GAO has been a forum for resolving protests for 90 years and is the only administrative institution with the authority to hear protests across the federal government; the Court of Federal Claims (COFC) is the only judicial forum for hearing such protests. Companies can also file a protest with the agency awarding the contract, and under certain circumstances, with specialized entities, such as the Small Business Administration or the Bureau of Indian Affairs. GAO, however, is the primary location for resolving government contract protests.",
"GAO may generally hear protests alleging illegalities or improprieties in solicitations, cancellations of solicitations, awards, or proposed awards of contracts. The procedures for bringing and conducting GAO protests are designed to ensure \"the inexpensive and expeditious resolution of [bid] protests\" to \"the maximum extent practicable.\" Protesters need not file formal briefs or technical pleadings, can represent themselves, and can have protests decided without hearings. All protests are required to be resolved within 100 calendar days of being filed. The filing of a GAO protest often results in an automatic stay of contract award or performance that can interrupt agencies' procurements for as long as the protest is pending.\nGAO may dismiss, deny, or sustain a protest. A dismissal or denial allows the agency to proceed with the challenged procurement. A sustained decision, in contrast, generally disrupts the procurement because GAO will issue recommendations to the agency about the challenged procurement—such as re-competing the contract or amending the existing solicitation. GAO's recommendations are not legally binding upon the agency, but the agency must notify GAO if it does not fully implement GAO's recommendations. Agencies almost always comply with GAO recommendations on protested procurements. Protesters who are disappointed with GAO's decision can seek reconsideration or effectively appeal GAO's decision by filing a protest with the Court of Federal Claims.",
"In FY2014, GAO received 2,561 cases, an increase of 5% over the previous year and an increase of almost 125% since FY2001. In FY2007, Congress expanded GAO's jurisdiction to include protests of some task/delivery orders, A-76 contracts, and Transportation Security Administration contracts. Excluding protests from expanded jurisdiction, from FY2001 to FY2014, protests increased by almost 100% (see Figure 1 ). However, over the last four years, the number of protests has remained relatively constant (2,206 in FY2011 vs. 2,269 in FY2014).\nMost protests are dismissed, withdrawn by the protester, or settled prior to GAO issuing an opinion. Since FY2001, on average, GAO issued an opinion on 22% of cases. When GAO issued an opinion, on average, the protest was sustained 20% of the time. As a result, from FY2001 to FY2014, approximately 4% of all protests filed were sustained (see Figure 5 ). However, this data may overstate the number of procurements with sustained protests, as a single procurement can have multiple protests sustained (see below, \" Number of Government Procurements Protested \").\nIn addition to GAO sustaining a protest, protesters can also obtain relief when a contracting agency voluntarily acts to correct the allegation charged in the protest. For example, if a protester claims that a request for proposal did not accurately describe the contract requirements, the agency could voluntarily amend the request for proposal. Many analysts consider the increasing willingness of agencies to voluntarily take corrective action as one of the most significant trends in bid protests. In many cases, voluntary action by an agency could indicate that the agency believes that a given protest has merit. However, there may be instances when an agency takes corrective action even when it believes that the procurement was done properly (for example, meeting with the protesting party to clarify why the protester lost the competition could be corrective action).\nThe percentage of protesters obtaining relief—either through a protest being sustained or voluntary action taken by an agency—is called the effectiveness rate. From FY2001 to FY2014, the effectiveness rate of GAO protests grew from 33% to 43% (see Figure 2 ). Over the last five fiscal years the effectiveness rate has remained relatively stable, averaging 42%.\nSome observers believe that the increase in the effectiveness rate is a result of the predictable nature of GAO opinions. If GAO decisions are sufficiently predictable to allow agencies to determine how GAO will rule in a given situation, agencies may be more likely to voluntarily take corrective action than wait for GAO to sustain a protest. Under this theory, the effectiveness rate is a rough measure of the number of protests that have actual or potential merit.\nSome government officials and analysts have suggested that agencies usually take corrective action when GAO has indicated its intent to sustain a protest. The data does not support this contention. According to GAO\nThe vast majority of agency corrective action occurs before agencies have submitted their reports responding to the merits of the protest. Prior to receipt of the agency report, GAO attorneys are unable to assess the merits of a protest and therefore do not provide parties with outcome prediction alternative dispute resolution. Accordingly, where the vast majority of agency corrective action is occurring prior to the submission of the agency report, the corrective action is self‐initiated by the agencies, without GAO prompting or involvement.\nOthers believe that corrective action often reflects agencies' risk-averse efforts to avoid even the potential of a protest being sustained. These observers could argue that the high likelihood of protests being resolved through voluntary agency corrective actions encourages companies to file protests. These analysts could also argue that if agencies allowed more cases to be decided on the merits (only taking voluntary corrective action where there is clear precedent that GAO would sustain the protest), companies might be less inclined to file protests.",
"Bid protest data reported to Congress, while an accurate reflection of the work load assumed by GAO in its function as a forum for bid protests, over-represents the number of procurements protested. In instances where more than one protest is filed in connection to a single procurement, each protest is counted separately and assigned a distinct tracking number. The data GAO provides to Congress also includes cost claims and requests for reconsiderations.\nAdjusting for cost claims, requests for reconsideration, multiple filings on a single procurement, and expanded jurisdiction, in FY2014, GAO's workload consisted of 2,269 filings, but only 2,135 procurements were protested. From FY2001-FY2014, the number of procurements protested tripled, from some 700 to over 2,100 (see Figure 3 ).",
"In recent years, as the number of protests has increased, the number of bid protests sustained by GAO has trended higher (see Figure 4 ). However, the percentage of overall protests sustained by GAO has trended lower (see Figure 5 ). This data seems to indicate that the increase in the number of protests sustained is a reflection of the increased number of protests filed, not an increase in the rate of government error.",
"A closer look at the data indicates a significant shift in bid protest trends over the last six years (see Figure 6 ). From FY2001-FY2008, total government procurement spending, adjusted for inflation, increased at a faster rate (over 100%) than the number of protests filed (35%). This trend reversed itself in FY2008: from FY2008-FY2014 total government spending, adjusted for inflation, decreased 25% while total protests increased 45%. This data indicates that, when compared to the rate of government spending, bid protests decreased from FY2001-FY2008, and increased from FY2008-FY2014.\nThe rate at which GAO sustains protests has also seen a significant shift in recent years. From FY2001-FY2008 GAO sustained protests in 22% of their opinions; from FY2009-FY2014 that number dropped to 17% (see Figure 7 ). In FY2014, 13% of protests filed were sustained, the lowest rate since before 2001. This data seems to indicate that while companies are more likely to file a bid protest, they are somewhat less likely to win a bid protest.\nEven when GAO sustains a protest, the protesting company is not guaranteed to win the contract in question. According to one analysis, out of some 1,500 procurements protested in FY2010, GAO sustained a protest in 45 procurements; out of those 45 procurements, in 8 instances the protesting party went on to win the contract. In other words, of the original 1,500 procurements protested, GAO sustained a protest and the protesting party went on to win the contract 0.5% of the time. However, this figure does not account for cases where the agency took corrective action prior to GAO issuing an opinion. Taking into account agency corrective action, one observer estimated that a \"protester has a 12% chance of ultimately winning a contract award as a result of its protest.\"\nEven though protests have increased significantly over the last few years, the number of protests filed in FY2014 was not very high by historical standards (see Figure 8 ). From FY1986-FY2000, GAO received on average over 2,200 protests annually.",
"Media reports discussing the increase in bid protests over the last few years have fueled the debate over why the number of protests is rising. Generally, companies file a bid protest based on the belief that the government has made a material error in the bidding process. According to analysts, the most common government errors cited in protests are poorly written or vague contract requirements, failure to follow the process or criteria laid out in the request for proposals, and failure to adequately document government findings. Some analysts have attributed these errors to an inexperienced or insufficiently trained acquisition workforce.\nIn contracts that are complex, have elaborate requests for proposals, or have poorly written requirements, contractors may not always understand the basis upon which awards were made. Not understanding the award criteria can lead contractors to think they were treated unfairly or that an error was made in the award process. A number of analysts and government acquisition officials have attributed confusion on behalf of contractors, in part, to poor communication between government and industry, including agencies not adequately debriefing losing bidders after a contract award. When agencies do not adequately debrief losing bidders, the losing companies may file a protest to determine why they lost the competition. To the extent that poor communication between government and agencies result in bid protests, improving agency communication, clarity, and debriefs could result in fewer protests.\nMany analysts have argued that the increase in the value of individual contracts, longer periods of contract performance, policy trends to insource more work, and decreased defense spending make contractors more desperate to win each contract—and more willing to protest an award. For example, an incumbent contractor might file a protest with GAO to trigger an automatic stay of award. If a stay of award is granted, the incumbent may get a temporary bridge contract, thereby extending the time it has to work on the contract and generate revenue. Other reasons companies may protest include hoping to influence the outcome of future competitions (akin to \"yelling at the referee\"); proving to shareholders and executive managers that they are doing everything they can to win contracts; or even seeking to hurt the competition by delaying a contract award. To the extent that decreased defense spending and consolidation of contracts drives protests, as defense spending and the industry landscape stabilize, the number of protests may begin to decrease in the future.",
"The specter of a company filing a bid protest appears to influence agency behavior—sometimes positively and sometimes negatively. Fear of protests may motivate agency officials to conduct more rigorous market research, hold a competition instead of awarding a sole-source contract, or conduct a more thorough and fair competition. Fear of a protest could also prompt officials to try to structure a contract in a manner they deem less likely to be protested, such as using lowest price technically acceptable (LPTA) as an award criteria instead of a best-value competition (when best value may be more appropriate).\nAccording to a survey of acquisition professionals conducted by Lone Star Analysis, government procurement officials often spend significant time and effort to avoid protests, resulting in procurements that are more complex, cost more (to both the government and bidders), and take longer to award. A majority of respondents to the Lone Star survey believes that in most acquisitions\nStringent rules restrict procurement package preparation to avoid protest, rather than improve acquisition; Pre-proposal discussions are curtailed to avoid the appearance of improper discussions; Post selection debriefings are \"dumbed down\" to avoid protest; Both Lowest Price Technically Acceptable and Multiple Award contracts are used to avoid protests; Legitimate sole source providers are re-competed to avoid protests; and Important requirements are not used as award criteria to avoid protests.",
"Knowing what aspect of the contracting process most often results in bid protests being sustained could help agencies focus on improving those aspects of contracting. Such improvements could help reduce the number of protests being filed and sustained. According to GAO, in FY2014, the most common grounds for sustaining protests were a result of agencies\nnot adhering to established evaluation criteria, issuing flawed selection decisions, making unreasonable technical evaluations, and not treating all bidders equally.\nAnother common ground for sustaining protests is agencies failing to maintain adequate documentation. According to Gary Allen, a Senior Attorney in GAO's Procurement Law Division, Office of the General Counsel,\nOne of the big issues that we have at GAO are documented records. Our responsibility or review of protests is not to reevaluate a procurement but is to see... whether the contracting office or whoever the source selection authority is, is reasonable in their decision and the only way we can make that determination is when there is a documented record.",
"Under the Competition in Contracting Act (CICA), the mere filing of a bid protest with GAO may result in an automatic stay, or postponement, of contract award or performance. When a protest is filed prior to award, an agency may not award a contract until the protest has been resolved. Similarly, when a protest is filed after award, the agency must withhold authorization of performance under the contract while the protest is pending. If performance has begun, the agency must \"immediately direct the contractor to cease performance under the contract\" until the protest is resolved.\nCongress mandated the stay of award in 1984 to ensure that in cases where GAO found that procurement law or regulation was violated there would be sufficient opportunity for agencies to remedy the violation. As the report of the House Committee on Government Operations stated in 1984, Congress believed\na cardinal failing of this bid protest process [is that] GAO has no power to stop a contract award or contract performance while a protesting is pending. As a result, agencies usually proceed with their contracts knowing that they will preclude any possibility of relief simply by delaying the bid protest process.\nIf an agency believes that delaying a contract will have severe consequences, CICA provides grounds for agency overrides of automatic bid-protest stays. According to CICA, agencies may override stays when there are \"urgent and compelling circumstances\" that impact the interests of the United States and when performing the contract is in \"the best interests of the United States.\"\nTo ensure timely resolution of protests, Congress required GAO to resolve protest within 100 calendar days of the protest being filed. According to GAO officials, GAO has never failed to complete its work within the required time period. In many cases the protest is resolved much earlier, most often as a result of the protesting party withdrawing the case or GAO dismissing the protest. In addition, GAO can dismiss protests that do not meet filing guidelines and can issue a summary decision on a protest at any time.\nAccording to GAO, in FY2014, protests were resolved on average within 39 days. More than half of all protests were resolved before an agency filed a report with GAO responding to the protest (through the case being dismissed or withdrawn by the protester). These cases were resolved on average in 21 days. This data, however, can be somewhat misleading.\nMuch of the impact a protest can have on a program's schedule occurs outside of the period between when a protest is filed and the case is closed by GAO. Agency actions to address the complaint in a protest—either through voluntary action or because a protest was sustained—can delay contract awards for weeks or months, costing millions of dollars and delaying delivery of goods and services. The Next-Generation Jammer technology development contract was reportedly delayed by six months when GAO sustained a protest and recommended that the Navy re-evaluate proposals.",
"The number of bid protest cases against DOD has increased from approximately 600 in FY2001 to 1,200 in FY2014, an increase of 100% (see Figure 9 ). Most protests against DOD were dismissed, withdrawn by the protester, or resolved prior to GAO issuing an opinion. GAO issued an opinion on 23% of protests. In cases where GAO issued an opinion, protests were sustained 11% of the time. From FY2001 to FY2014, on average 4% of protests filed against DOD were sustained by GAO (see Table A-1 for protests filed and sustained, by service).\nJust as the number of protests filed against DOD has increased, the number—and value—of contract actions signed by DOD has also increased (see Figure 10 ). According to the Federal Procurement Data System, between FY2001 and FY2014, after adjusting for inflation, the value of total DOD contract obligations increased 45% compared to an increase of 100% in the number of protests filed in the same period.\nIn recent years, the percentage of protests sustained against DOD has decreased (see Figure 11 ). From FY2001-FY2008, GAO sustained on average more than 5% of all protests filed; from FY2009-FY2014, GAO sustained approximately 2% of all protests filed.\nDOD procurements are less likely to be protested than those of the rest of government. From FY2008 to FY2014, on average, DOD accounted for almost 70% of total government contract obligations but about55% of total protests against the federal government (see Figure 12 ).\nProtests against DOD are also sustained at a lower rate than the rest of government. From FY2008-FY2014, 2.5% of all protests against DOD were sustained by GAO, compared to over 5.0% of all protests against federal civilian agencies. Protests against civilian agencies are also growing at a faster rate than protests against DOD. From FY2001-FY2014, the number of DOD procurements that were protested increased 170% (from 421 to 1,138) compared to an increase of 260% (from 279-997) for civilian agencies (see Table 1 ).",
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"question": [
"Why have bid protests on federal government contracts received congressional scrutiny?",
"What have concerns over delays triggered and prompted?",
"What did the House and Senate do to deal with concerns?",
"What is the effectiveness rate?",
"How has the effectiveness rate changed over the last five fiscal years?",
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"summary": [
"Bid protests on federal government contracts filed with the Government Accountability Office (GAO) have received congressional scrutiny due to protests of high-profile awards and reports that the number of protests is increasing.",
"Concerns over delays in contract award or performance triggered by a GAO protest, coupled with the increasing number of GAO protests, have prompted concerns about the potential impact of protests upon government agency operations, especially in the Department of Defense (DOD).",
"Both the House- and Senate- passed versions of the FY2016 National Defense Authorization Act call for a report on the bid protest process.",
"The percentage of protesters obtaining relief—either through a protest being sustained or voluntary action taken by an agency—is called the effectiveness rate.",
"Over the last five fiscal years the effectiveness rate has remained relatively stable, averaging 42%.",
"Some observers believe that the increase in the effectiveness rate is a result of the predictable nature of GAO opinions. When agencies can determine how GAO will rule in a given situation, they are more likely to voluntarily take corrective action.",
"Under this theory, the effectiveness rate is a rough measure of the number of protests that have merit.",
"Others believe that voluntary action by agencies is often a result of a risk-averse culture that seeks to avoid even the potential of a protest being sustained.",
"These observers could argue that the high likelihood of protests being resolved through voluntary agency action encourages companies to file protests.",
"Analysts believe that protests are sometimes the result of poor communication between government and industry, poorly written requirements, and agencies not adequately debriefing losing bidders after an award.",
"If poor communication results in bid protests, improving agency communication, clarity, and debriefs could result in fewer protests.",
"When agencies do not adequately debrief bidders, companies may file a protest to determine why they lost a competition."
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GAO_GAO-15-771
|
{
"title": [
"Background",
"Types of E-cigarettes",
"U.S. E-cigarette Market",
"E-Cigarette Use among U.S. Adults and Adolescents",
"Proposed Rule to Subject Additional Products, Including E-cigarettes, to FDA’s Tobacco Regulation",
"Taxation of E-cigarettes",
"Effect of E-cigarette Use on Cigarette Federal Excise Tax Revenue Is Not Currently Evident",
"No Current Evidence That E-cigarette Use Has Affected Cigarette FET Revenue",
"Relationship between Use of E-cigarettes and Cigarettes Could Determine E-cigarettes’ Effect on Cigarette FET Revenue",
"Comprehensive Data on E-cigarette Quantities and Prices Are Not Available from Federal Agencies",
"Treasury and FDA Do Not Collect Data on E- cigarette Quantities Comparable to Data Collected for Cigarettes and Other Tobacco Products",
"Bureau of Labor Statistics Has Begun to Collect Limited E-cigarette Price Data",
"Concluding Observations",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Results of Regression Analysis Testing the Effect of Electronic Cigarette Use on Federal Excise Tax Revenue from Traditional Cigarettes",
"Appendix III: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
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"",
"The term “e-cigarettes” refers to a wide range of products that share the same basic design and generally consist of three main parts: a power source (typically a battery), a heating element containing a wick (to deliver liquid to the heating element), and a cartridge or tank containing liquid solution. Cartridges and liquid are often sold separately from e- cigarette devices containing the battery and heating element. Liquid typically contains nicotine, a solvent (e.g., propylene glycol, glycerin, or both), and flavorings. E-cigarettes heat liquids to deliver aerosol that usually contains nicotine and other chemical substances to the user by inhalation. E-cigarettes come in two main forms:\nClosed systems that include disposable e-cigarettes or require users to buy e-cigarette components, including the cartridge with liquid, from the same manufacturer or brand.\nOpen systems that enable users to purchase the heating element, battery, tank, and liquid separately and from different manufacturers or brands.",
"Industry experts we interviewed estimated that the size of the U.S. e- cigarette market in 2014 was about $2.5 billion. Although there are no definitive data on the relative proportions of imported and domestically manufactured e-cigarettes, industry experts we interviewed told us that the majority of e-cigarettes sold in the United States are imported from China.\nThe U.S. e-cigarette market has developed rapidly in the last decade. U.S. Customs and Border Protection issued a customs ruling for the classification of e-cigarette imports to the United States as early as 2006.\nUSPTO issued a registration for a trademark applied to e-cigarettes as early as May 2008 and had recorded more than 1,600 U.S. trademark registrations for e-cigarette devices, parts, liquid, and services as of March 2015. Hundreds of e-cigarette companies participate in the U.S. e- cigarette market. Large tobacco companies began entering the U.S. e- cigarette market in 2012 and now manufacture some of the leading closed system e-cigarette brands, according to industry experts we interviewed. Some industry experts we spoke with predict that the U.S. e- cigarette market will continue to grow, although factors such as the extent of federal and state regulation create uncertainty about the rate of growth.\nE-cigarettes are sold in multiple types of outlets, including traditional retail stores, such as convenience stores and grocery stores, as well as at “vape stores” and over the Internet. According to industry experts, closed system e-cigarette products are mainly sold in traditional retail outlets, while open system e-cigarette products are often sold online and at vape stores. Private companies collect point-of-sale data on the quantities and prices of e-cigarettes sold at traditional retail stores, according to documentation from these companies; however, these data do not cover online sales or “vape store” sales. Financial analysts from one firm estimate that 40 to 60 percent of e-cigarettes are sold online or at vape stores.",
"In 2014, CDC reported a statistically significant increase in the percentage of U.S. adults who had used e-cigarettes in the preceding 30 days, from 1 percent in 2010 to 2.6 percent in 2013. Past-month e- cigarette use was especially prominent among current adult cigarette smokers and grew in this population, at a statistically significant level, from 4.9 percent in 2010 and 2011 to 9.4 percent in 2012 and 2013. Past- month e-cigarette use by former adult cigarette smokers also rose, from 1 percent to 1.3 percent during the same period, although the increase was not statistically significant.\nThe National Youth Tobacco Survey by CDC and FDA showed a statistically significant increase in high school students’ past-month e- cigarette use, from 1.5 percent in 2011 to 13.4 percent in 2014. In addition, the survey found that in 2014, high school students’ past-month e-cigarette use surpassed their use of cigarettes and other tobacco products at a statistically significant level (see fig. 2). The survey further found a statistically significant increase in past-month e-cigarette use among middle school students.",
"In April 2014, FDA issued a proposed rule to deem e-cigarettes and other products meeting the Tobacco Control Act’s definition of “tobacco product” to be subject to the agency’s regulation. FDA received more than 135,000 comments about the proposed deeming rule during the public comment period, which ended in August 2014. FDA announced its intent to issue the final rule in June 2015 in the spring 2015 semiannual regulatory agenda. The final rule had not been issued as of August 2015.\nThe Tobacco Control Act aimed to, among other things, promote cessation to decrease health risks and social costs associated with tobacco-related diseases. According to the act, FDA can, by regulation, require restrictions on the sale, distribution, advertising, and promotion of a tobacco product if the agency determines that the proposed regulation is appropriate for the protection of public health, based on a consideration of the risks and benefits to the population as a whole, including users and nonusers of tobacco products. In the act, Congress recognized that virtually all new users of tobacco products are under the age of 18.\nIn the proposed deeming rule, FDA stated that it was researching the effect of e-cigarette use on public health. FDA noted that e-cigarettes could have a positive net impact if using them resulted in minimal initiation by children and adolescents and in significant numbers of smokers’ quitting. The FDA also noted that e-cigarette use could have a negative net impact if it resulted in significant initiation by young people, minimal quitting, or significant dual use of combustible products, such as cigarettes, and noncombustible products, such as e-cigarettes.",
"The IRC, which defines tobacco products subject to FET and sets rates of tax, does not specifically define or list a tax rate for e-cigarettes. However, two states—Minnesota and North Carolina—have imposed an excise tax on e-cigarettes or vapor products containing nicotine. The Minnesota Department of Revenue issued a notice in 2012 stating its position that e-cigarettes are subject to the tobacco products tax; the current tax rate is 95 percent of the wholesale price of the nicotine- containing liquid or, if the liquid cannot be sold separately, of the complete e-cigarette. North Carolina has taxed vapor products at 5 cents per milliliter of nicotine-containing liquid or other material since June 2015. In addition, at least 18 states and the District of Columbia have proposed legislation to tax e-cigarettes, vapor products, nicotine vapor products, or e-cigarette cartridges since 2013. For example, a bill in Maine proposed to include e-cigarettes in its definition of cigarettes and to apply the same tax rate to cigarettes and e-cigarettes, and a bill in Montana proposed a tax on vapor products, such as e-cigarettes, that would be partially based on the weight in milligrams of the nicotine present in the product.\nAs of January 2015, three countries—Italy, Portugal, and South Korea— imposed national-level taxes on e-cigarettes that contain nicotine, and each of these countries applies its tax to nicotine-containing e-cigarette liquid, according to an industry expert. In addition, according to research by the Law Library of Congress, Serbia recently enacted legislation to introduce an excise tax on e-cigarette liquid, which went into effect in August 2015.",
"",
"Our analysis of Treasury data on cigarette FET revenue found no current evidence that e-cigarette use has affected the historical decreasing trend in FET collections over the past 6 years. We used a time series regression to determine the change in cigarette FET revenue from April 2009, when the last increase in FET on cigarettes and other tobacco products became effective, through December 2014. Variables in the model control for (1) historical decreases in cigarette FET revenue over the last 6 years; (2) quantities of cigars, pipe tobacco, and roll-your-own tobacco removed from domestic factories or released from customs custody for distribution in the United States; and (3) monthly seasonality effect. Our model tests for the inclusion of e-cigarettes at different points in time and tests for any significant changes from the historical trend. We found no significant evidence that e-cigarettes have decreased the collection of FET revenue from cigarettes at a rate greater than the 6-year historical trend.\nSpecifically, we found that, when other variables in the model are held constant, the 6-year historical trend of cigarette FET revenue decreased at a rate between $4.4 million and $5.5 million per month (see fig. 3). However, we found no significant evidence of a decrease in FET revenue from cigarettes at a rate greater than the 6-year historical trend during the time frame when e-cigarettes have been on the U.S. market. We estimate that cigarette FET revenue would need to decrease by an additional $2 million to $3 million per month to signal a significant effect from e-cigarettes.\nSeveral factors may explain why our analysis did not detect an effect of e- cigarette use on cigarette FET revenue. First, the e-cigarette market— estimated at $2.5 billion in sales in 2014—is relatively small compared with the cigarette market, which had $80 billion in sales in the same year. As a result, without a substantial increase in the e-cigarette market, any effect on the cigarette market would be too minor to significantly affect cigarette FET revenue. Second, comprehensive and reliable data on e- cigarette sales and prices—which would enable us to corroborate the size of the e-cigarette market and accurately identify when it became significant—are not available. Third, comprehensive and reliable data about the extent to which e-cigarettes are used as substitutes for cigarettes are also not available. Without such data and information, estimating the effect of e-cigarette use on cigarette FET revenue will be difficult, even if the e-cigarette market continues to grow.",
"How consumers’ use of e-cigarettes relates to their use of cigarettes— whether e-cigarettes are substitutes, complements, or unrelated—may determine any effect of e-cigarette use on cigarette FET revenue. The relationship between the use of e-cigarettes and cigarettes is currently unknown, according to public health officials. Table 1 describes these three possible relationships and summarizes their potential revenue effects.\nThe most recent data from the National Youth Tobacco Survey by CDC and FDA showing high school students’ increasing use of e-cigarettes and decreasing use of cigarettes (see fig. 2), suggest that cigarette FET revenue could decline further if these trends continue. If the percentage of high school students using cigarettes continues to decline, and if other factors such as current levels of regulation remain constant, the number of cigarette smokers could dwindle further in the coming years as the current cohort of high school students ages. A continued decline in cigarette smoking among high school students—which could be due, in part, to increased use of e-cigarettes—would reduce cigarette FET revenue at a greater rate than the average historical trend.\nFDA and CDC are undertaking efforts that, over time, may enable them to better understand e-cigarettes’ relationship to cigarettes and other tobacco products, according to agency officials. For example, FDA and CDC are refining survey instruments that they use to measure adults’ and youths’ use of e-cigarettes, cigarettes, and other tobacco products, such as the National Health Interview Survey and the National Youth Tobacco Survey. In addition, FDA, in collaboration with the National Institutes of Health, is funding a longitudinal cohort study, the Population Assessment of Tobacco and Health, which asks detailed questions about adults’ and youths’ use of e-cigarettes, cigarettes, and other tobacco products. FDA officials said that they expect to receive the data from the first year of the study in the summer of 2015. Further, according to FDA and CDC officials, other national surveys, state-level surveys, results of National Institutes of Health and other studies currently under way, and, if available, e-cigarette quantity data could help researchers analyze trends and observe statistical relationships.",
"",
"Treasury and FDA do not collect data on quantities of e-cigarettes on the U.S. market, and we did not identify any other federal agencies that do so. However, Treasury collects data on quantities of domestically manufactured tobacco products that are subject to FET to ensure that the proper FET amount is paid. FDA collects data on quantities of tobacco products that it regulates under its tobacco product authorities to calculate user fees that fund FDA’s tobacco regulation activities.\nTreasury and FDA collect data on quantities for different sets of tobacco products because their authorities to regulate tobacco products stem from different statutes:\nTreasury’s authorities stem from the IRC. The IRC defines “tobacco products” as cigarettes, roll-your-own tobacco, smokeless tobacco, cigars, and pipe tobacco and sets FET rates for these products. The IRC defines each of these products as containing or consisting of tobacco.\nFDA’s tobacco product authorities stem from the Federal Food, Drug, and Cosmetic Act as amended by the Tobacco Control Act. The Tobacco Control Act defines “tobacco product,” in part, as any product made or derived from tobacco. The act granted FDA immediate authority over cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. The act also gave FDA authority to deem by regulation any other product meeting the Tobacco Control Act’s definition of tobacco product to be subject to FDA’s tobacco product authorities. Under this authority, in April 2014 FDA proposed to deem additional products, including e-cigarettes, to be subject to its tobacco product regulation.\nTreasury collects data on quantities of cigarettes and other federally taxed tobacco products from domestic manufacturers of these products, but does not collect such data for e-cigarettes, because the IRC does not define or list a tax rate for e-cigarettes. According to Treasury officials, on the basis of definitions of the tobacco products enumerated in the IRC, Treasury’s ability to tax e-cigarettes—and collect data for them—depends on whether e-cigarettes contain tobacco. Treasury officials said that for e- cigarettes that do not contain tobacco, Treasury could not assert federal taxation and any related data collection by regulation; instead, such authority would require an act of Congress. As of August 2015, Treasury had not collected any FET or data associated with e-cigarettes, according to Treasury officials.\nFDA does not collect data on quantities of e-cigarettes sold on the U.S. market. FDA’s preliminary economic impact analysis accompanying the proposed deeming rule states that when the deemed products become subject to FDA’s tobacco product authorities, the agency can begin collecting data to determine the number of regulated entities and to monitor the number and type of unique products sold to the public.\nAt present, FDA collects data on quantities of four tobacco products (cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco) that it regulates under its tobacco product authorities to apply the legally mandated method for allocating user fees among the domestic manufacturers and importers of those products. In July 2014, FDA stated that if additional products are deemed subject to its tobacco regulation, the agency would conduct a new rulemaking to make appropriate changes to the user fee regulation. FDA also stated that it recognized that the issue of whether it had authority to assess user fees on some deemed products was controversial and that it intended to solicit public comment to further explore issues related to user fee assessments on tobacco products that may be deemed subject to FDA’s tobacco product authorities. According to FDA officials, if e-cigarettes become subject to user fees, FDA would likely need data on quantities of e- cigarettes sold on the U.S. market, comparable to data that the agency collects for the four products currently subject to user fees.\nTable 2 summarizes information about Treasury’s and FDA’s collection of data on quantities of cigarettes, other tobacco products, and e-cigarettes.",
"The Department of Labor’s Bureau of Labor Statistics (BLS) began collecting limited e-cigarette price information in September 2014 as part of its ongoing data collection for the Consumer Price Index. The Consumer Price Index provides monthly data on changes in the prices paid by urban consumers for a representative “basket” of goods and services. The index is divided into more than 200 categories representing the goods and services that an urban consumer might typically buy. BLS collects e-cigarette price information, under the category “tobacco products other than cigarettes,” for disposable e-cigarettes, starter kits, liquid refills, and e-cigarette replacement cartridges. These items may or may not contain nicotine and may have any flavor.\nAccording to BLS officials, the number of observations on e-cigarette prices is too small to calculate a reliable national average price or reliable state-level prices. According to the officials, U.S. consumers’ e-cigarette expenditures, while increasing, represent a small share of total expenditures in the representative basket of goods and services. Additionally, BLS officials explained that the Consumer Price Index sample for “tobacco products other than cigarettes” is refreshed over a 4- year cycle; the length of time it takes to fully replace samples causes Consumer Price Index sample shares (the percentage of the sample composed of the prices of a given product) to lag real-world percentages for items for which consumers’ expenditures are changing rapidly. The Consumer Price Index sample included 10 e-cigarette price observations as of June 2015 and, according to the BLS officials, will increase to 14 e- cigarette price observations by October 2015. BLS would require more resources in order to collect substantially more data on e-cigarettes, according to BLS officials.",
"Our analysis shows no current effect of the growing e-cigarette market on FET revenue from cigarettes. Given the limited information about the e- cigarette market, it is difficult to accurately estimate this market’s size or analyze its potential effect on FET revenue from cigarettes and other tobacco products. The increased regulation of tobacco products at the federal and state level, among other things, has contributed to a decline in cigarette use and FET revenue. Recent CDC studies show that e- cigarette use has significantly increased among high school students, while cigarette use has significantly declined. As the regulation of e- cigarettes unfolds and the market develops, e-cigarette use patterns may change. Federal agencies’ efforts to develop a better understanding of the relationship between e-cigarette and cigarette use will help analysts and government officials develop a more complete understanding of the e-cigarette market and its effect on cigarette FET revenue.",
"We provided a draft of this report to DOL, HHS, and Treasury. We also provided relevant portions to U.S. Customs and Border Protection and USPTO. We received technical comments from DOL, HHS, and Treasury and incorporated the comments as appropriate.\nWe are sending copies of this report to the appropriate congressional committees; the Secretaries of Health and Human Services, Labor, and the Treasury; 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) 512-3149 or gootnickd@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.",
"This report examines the extent to which (1) use of electronic cigarettes (also known as e-cigarettes) affects federal excise tax (FET) revenue from cigarettes and (2) data on quantities and prices of e-cigarettes on the U.S. market are available from federal agencies.\nTo address these objectives, we reviewed documents and interviewed officials from the Department of the Treasury’s (Treasury) Alcohol and Tobacco Tax and Trade Bureau and Treasury’s Office of Tax Analysis, the Food and Drug Administration (FDA), the Centers for Disease Control and Prevention (CDC), the U.S. Bureau of Labor Statistics (BLS), and the U.S. Patent and Trademark Office (USPTO) to obtain information and views about e-cigarette and tobacco sales and revenue trends and regulation. We determined the reliability of USPTO e-cigarette trademark registration data by interviewing cognizant USPTO officials. We also interviewed industry experts, including e-cigarette industry members, tobacco industry members, financial analysts, researchers, and representatives of public health organizations. We interviewed organizations and companies that represent a range of perspectives. We spoke with industry associations that represent small and midsized e- cigarette companies; we also spoke with representatives of leading companies that produce e-cigarettes, as measured by dollar share from available data, including an independent e-cigarette company and tobacco companies. The views expressed by these representatives are not generalizable and do not represent the views of the entire e-cigarette industry. We also attended an e-cigarette industry conference as well as three FDA public workshops featuring current research on e-cigarette product science and implications of e-cigarette use for individual health and population health.\nTo determine whether e-cigarette use affects cigarette FET revenue, we examined cigarette FET revenue from April 2009 through December 2014. For this analysis, we used monthly data obtained from Treasury on FET revenue from cigarettes removed from domestic factories or released from customs custody for distribution in the United States. In addition, using these removals data and testimonial evidence, we constructed a multivariate model that estimates the effect of e-cigarette use on cigarette FET revenue. In particular, we regressed cigarette FET revenue on a number of variables, including other tobacco products, a trend, presence of e-cigarettes on the market, and seasonality. We assessed the reliability of the data by checking the data for inconsistency errors and for completeness. We determined that the cigarette removals data were sufficiently reliable for the purposes of this report. See appendix II for more explanation of our analysis.\nTo examine the extent to which data on quantities and prices for e- cigarettes on the U.S. market are available from federal agencies, we interviewed cognizant officials from Treasury, FDA, CDC, BLS, and the Congressional Budget Office, as well as industry experts. To describe Treasury’s collection of data on quantities of federally taxed tobacco products, we reviewed documents and interviewed officials from Treasury’s Alcohol and Tobacco Tax and Trade Bureau. To describe FDA’s collection of data on quantities of tobacco products regulated by the agency, we examined FDA’s regulatory actions, including its April 2014 proposed rule to deem additional products, including e-cigarettes, to be subject to the agency’s tobacco product authorities, and the July 2014 final user fee rule, and we interviewed cognizant FDA officials. To describe BLS’s collection of data on e-cigarette prices, we reviewed documents and interviewed BLS officials.\nWe conducted this performance audit from September 2014 to September 2015 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.",
"We constructed a multivariate model to estimate the effect of electronic cigarette (e-cigarette) use on federal excise tax (FET) revenue from traditional cigarettes. The model uses monthly data obtained from the Department of the Treasury’s (Treasury) Alcohol and Tobacco Tax and Trade Bureau and controls for a 6-year historical trend in cigarette FET revenue, from April 2009 through December 2014; the presence of other tobacco products (cigars, roll-your-own tobacco, and pipe tobacco); and seasonality effects. The model also includes a time variable that tests for the presence of e-cigarettes. We used five different dates during the period January 2012 to October 2013 for the time variable, and we estimated regressions for each date. In particular, the model uses the following equation: and imported cigarettes collected in period t; 𝐶𝐶𝐶𝐶𝐶𝐶_𝑟𝑟𝑟𝑟𝑟𝑟𝑡𝑡=𝛼𝛼+𝛽𝛽𝑐𝑐𝐶𝐶𝐶𝐶𝑐𝑐𝑟𝑟𝑐𝑐𝑡𝑡+𝛾𝛾𝑟𝑟𝛾𝛾𝛾𝛾_𝑝𝑝𝐶𝐶𝑝𝑝𝑟𝑟𝑡𝑡+𝛿𝛿𝑡𝑡𝑟𝑟𝑟𝑟𝑡𝑡𝑡𝑡𝑡𝑡+𝜃𝜃𝑟𝑟𝑐𝑐𝐶𝐶𝐶𝐶_𝑐𝑐𝑠𝑠𝛾𝛾𝑝𝑝𝑟𝑟𝑡𝑡 𝐶𝐶𝐶𝐶𝐶𝐶_𝑟𝑟𝑟𝑟𝑟𝑟𝑡𝑡= the amount of FET revenue, in nominal dollars, from domestic where 𝛼𝛼 = an intercept; 𝑐𝑐𝐶𝐶𝐶𝐶𝑐𝑐𝑟𝑟𝑐𝑐𝑡𝑡 = the sum of small and large cigar removals in number of sticks 𝑟𝑟𝛾𝛾𝛾𝛾_𝑝𝑝𝐶𝐶𝑝𝑝𝑟𝑟𝑡𝑡 = the sum of roll-your-own and pipe tobacco removals in in period t; 𝑡𝑡𝑟𝑟𝑟𝑟𝑡𝑡𝑡𝑡𝑡𝑡 = a monthly trend that controls for the historical changes in pounds in period t; 𝑟𝑟𝑐𝑐𝐶𝐶𝐶𝐶_𝑐𝑐𝑠𝑠𝛾𝛾𝑝𝑝𝑟𝑟𝑡𝑡 = a dummy variable that equals one for each month on or cigarette revenue at period t; after the date that indicates the presence of e-cigarettes in the market (because there is no clear indicator of this presence, we selected five different dates to indicate the beginning of this presence); monthly seasonality, with June as the reference month; and 𝑚𝑚𝛾𝛾𝑡𝑡𝑡𝑡ℎ𝑠𝑠𝛾𝛾_𝐶𝐶𝑡𝑡𝑡𝑡𝐶𝐶𝑐𝑐𝑐𝑐𝑡𝑡𝛾𝛾𝑟𝑟𝑐𝑐𝑡𝑡 = a set of eleven dummy variables controlling for µ𝑡𝑡 = an error term assumed to be heteroskedastic and possibly autocorrelated.",
"",
"David Gootnick, (202) 512-3149 or gootnickd@gao.gov.",
"In addition to the contact named above, Christine Broderick (Assistant Director), Christina Werth, Sada Aksartova, Pedro Almoguera, Grace Lui, and Srinidhi Vijaykumar made key contributions to this report. In addition, Tina Cheng and Reid Lowe provided technical assistance."
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"What explanations are there for GAO's finding?",
"What does data from a study by Centers for Disease Control and Prevention suggest?",
"What could happen if this data trend continues?",
"How is the use of cigarettes in the United States changing?",
"What does the Treasury collect regarding cigarettes?",
"What is the result of decline in cigarette use?",
"What did the FDA propose in April 2014?"
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"summary": [
"GAO's analysis found no evidence that use of electronic cigarettes (e-cigarettes) has affected federal excise tax (FET) revenue from traditional cigarettes, which has been declining over time (see figure).",
"Possible reasons for the lack of a detectable effect include the small size of the e-cigarette market (estimated at $2.5 billion in 2014) relative to the cigarette market ($80 billion in the same year); lack of comprehensive and reliable data on e-cigarette quantities and prices; and lack of comprehensive and reliable information about the extent to which e-cigarettes substitute for cigarettes.",
"Data from a recent survey by the Centers for Disease Control and Prevention showing high school students' increasing use of e-cigarettes and decreasing use of cigarettes suggest that these students may substitute e-cigarettes for cigarettes to some extent.",
"If the percentage of high school students using cigarettes continues to decline, cigarette FET revenue could also decrease at a greater rate than the average historic trend observed since April 2009, when FET on cigarettes and other tobacco products was last increased.",
"While use of traditional cigarettes in the United States continues to decline, use of e-cigarettes is increasing.",
"Treasury collects FET on cigarettes and other tobacco products manufactured in the United States.",
"The decline in cigarette use has led to a decline in cigarette FET revenue, from $15.3 billion in fiscal year 2010 to $13.2 billion in fiscal year 2014. FDA currently regulates four tobacco products.",
"In April 2014, FDA proposed to deem additional tobacco products, including e-cigarettes, subject to its tobacco product authorities."
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GAO_GAO-15-34
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{
"title": [
"Background",
"Key Environmental Laws Allow Deadline Suits and EPA Considers Several Factors in Responding to Those Suits",
"Key Environmental Laws Allow Citizens to File Deadline Suits to Compel EPA Rulemaking",
"EPA and DOJ Consider Several Factors in Deciding Whether to Settle Deadline Suits",
"Settlements Resulting in Major Rules Included Rulemaking Schedules, and EPA Received Public Comments on Drafts of Most Settlements",
"Settlements in Deadline Suits Established a Schedule for Issuing Rules",
"EPA Received Public Comments on Drafts of Most Settlements in Deadline Suits",
"According to EPA Officials, Settlements in Deadline Suits Primarily Affect Rulemaking Priorities in a Single EPA Office",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"Appendix II: Major Rules Issued by EPA from May 31, 2008 to June 1, 2013",
"Appendix III: Contents of Settlements Following Deadline Suits That Compelled EPA to Issue 9 Rules from May 31, 2008 to June 1, 2013",
"Appendix IV: Comments from the Environmental Protection Agency",
"Appendix V: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"For the purposes of this report, we use the term deadline suit to mean a lawsuit in which an individual or entity sues because EPA has allegedly failed to perform any nondiscretionary act or duty by a deadline established in law. A nondiscretionary act or duty is an act or duty required by law. This report examines deadline suits that seek to compel EPA to either (1) issue a statutorily required rule when that rule has a deadline in law or (2) issue a statutorily required rule or make a determination that issuing such a rule is not appropriate or necessary pursuant to the relevant statutory provision, when issuing that rule or making that determination has a deadline in law. For example, a deadline suit may involve a person suing EPA because EPA failed to issue a rule by a date established in statute. Similarly, a person may sue EPA because it missed a recurring deadline to review and revise, as necessary or appropriate, an existing rule. In August 2011, we reported that the number of new environmental litigation cases—of all types—filed against EPA each year from fiscal year 1995 through fiscal year 2010 averaged 155 cases per year.\nBefore filing a deadline suit, a person generally must file a Notice of Intent to Sue (NOI) with EPA. Among other things, a NOI generally must identify the provision(s) of the law that requires EPA to perform an act or duty and a description of the action taken or not taken by EPA that is claimed to constitute a failure to comply with the provision. Sixty days after filing the NOI, the filer may initiate a deadline suit seeking a court order requiring EPA to complete the statutorily required action.\nA settlement takes the form of either a settlement agreement or a consent decree. For purposes of this report, the term settlement refers to both settlement agreements and consent decrees. Both are negotiated agreements between EPA and the plaintiff. A settlement agreement is not subject to court approval but can result in a stay of the lawsuit. If EPA fails to meet the terms of the settlement agreement, then the plaintiff can ask the court to lift the stay in order to proceed with the lawsuit. A consent decree is entered as a court order. If EPA fails to meet the terms of a consent decree, the court can enforce or modify the consent decree, including citing EPA for contempt of court.\nUnless a more specific statute governs, when EPA or any other federal agency promulgates a rule, whether or not in conjunction with a deadline suit, it generally follows procedures prescribed in the Administrative Procedures Act (APA). Among other things, the APA governs the process by which federal agencies develop and issue regulations. It includes requirements for publishing notices of proposed and final rules in the Federal Register and for providing opportunities for the public to comment on notices of proposed rulemaking. Many rules promulgated under the authority of the Clean Air Act do not follow the procedures prescribed in the APA, but rather follow similar but more specific procedures set forth in the act.",
"GAO identified seven key environmental laws that allow individuals to file a deadline suit to compel EPA to issue a statutorily required rule, or perform a statutorily required review of a rule to determine whether to revise the rule. EPA works with DOJ to consider several factors in determining whether or not to settle the deadline suit and the terms of any settlement.",
"GAO identified seven key environmental laws for which EPA has primary regulatory authority that allow citizens to file a deadline suit. Table 1 lists the seven laws.\nWith the exception of the Emergency Planning and Community Right-to- Know Act (EPCRA), the key environmental laws allow citizens to file deadline suits to compel EPA to perform any act or duty required by the respective law, including issuing any required rules. For example, the provision in the Clean Air Act states: “ny person may commence a civil action on his own behalf - … against the Administrator where there is alleged a failure of the Administrator to perform any act or duty under this chapter which is not discretionary with the Administrator.” The provision in EPCRA that allows citizens to file deadline suits is different from the other key environmental laws because citizen suits may only be filed to compel certain actions listed in the law.",
"Within EPA, the Office of General Counsel is responsible for handling deadline suits. It works with the appropriate program offices in EPA, such as the Office of Air and Radiation (OAR) or the Office of Water, when negotiating settlements for deadline suits. EPA’s Office of General Counsel also coordinates with DOJ’s Environmental and Natural Resources Division.\nAccording to EPA and DOJ officials, when a deadline suit is filed, the agencies work together to determine how to respond to the lawsuit, including whether or not to negotiate a settlement with the plaintiff or allow the lawsuit to proceed. In making this decision, EPA and DOJ consider several factors to determine which course of action is in the best interest of the government. According to EPA and DOJ officials, these factors include: (1) the cost of litigation, (2) the likelihood that EPA will win the case if it goes to trial, and (3) whether EPA and DOJ believe they can negotiate a settlement that will provide EPA with sufficient time to complete a final rule if required to do so. EPA and DOJ officials told us that they often choose to settle deadline suits when EPA has failed to fulfill a mandatory duty because it is very unlikely that the government will win the lawsuit. In many such cases, the only dispute is over the appropriate remedy, i.e., fixing a new date by which EPA should act. Additionally, in such cases, officials may believe that negotiating a settlement is the course of action most likely to create sufficient time for EPA to complete the rulemaking if it is required to issue a rule. EPA and DOJ have an agreement under which both must concur in the settlement of any case in which DOJ represents EPA.\nSee 28 C.F.R. §§ 0.160-0.163. duty. Thus, in general, this policy restricts DOJ from entering into a settlement if it commits EPA to take an otherwise discretionary action, such as including specific substantive content in the final rule unless an exception to this restriction is granted by the Deputy Attorney General or Associate Attorney General of the United States. According to EPA and DOJ officials, to their knowledge, EPA has been granted only one exception to the general restriction on creating mandatory duties through settlements—a 2008 settlement in a suit related to water quality criteria for pathogens and pathogen indicators. The Meese memo also provides that DOJ should not enter into a settlement agreement that interferes with the agency’s authority to revise, amend, or promulgate regulations through the procedures set forth in the APA.stated that they have not, and would not agree to settlements in a deadline suit that finalizes the substantive outcome of the rulemaking or declare the substance of the final rule.",
"The terms of settlements in deadline suits that resulted in EPA issuing major rules in the last 5 years established a schedule to either promulgate a statutorily required rule or to promulgate a statutorily required rule or make a determination that doing so is not appropriate or necessary pursuant to the relevant statutory provision. EPA received public comments on all but one of the draft settlements in these suits.",
"EPA issued 32 major rules from May 31, 2008 through June 1, 2013 (see app. II). According to EPA officials, the agency issued 9 of these rules following settlements in deadline suits. They were all Clean Air Act rules. The 9 rules stem from seven settlements. Two of the settlements established a schedule to complete 1 or more rules, and five established a schedule to complete 1 or more rules or make a determination that such a rule was not appropriate or necessary in accordance with the relevant statute. Some of the schedules included interim deadlines for conducting rulemaking tasks, such as publishing a notice of proposed rulemaking in the Federal Register. Appendix III provides information on the schedules contained in each settlement.\nIn addition to schedules, the seven settlements also included, among other things, provisions that allowed deadlines to be modified (including the deadline to issue the final rule) and specified that nothing in the settlement can be construed to limit or modify any discretion accorded EPA by the Clean Air Act or by general principles of administrative law. Consistent with DOJ’s 1986 Meese memorandum, none of the settlements we reviewed included terms that required EPA to take an otherwise discretionary action or prescribed a specific substantive outcome of the final rule.\nThe seven settlements, committing EPA to issue the 9 statutorily required rules, were finalized between about 10 months and more than 23 years after the applicable statutory deadlines. For each of the 9 rules, figure 1 shows the date the regulation was due, the date the settlement was filed with the court, and the date the final rule was published in the Federal Register.",
"The Clean Air Act requires EPA, at least 30 days before a settlement under the act is final or filed with the court, to publish a notice in the Federal Register intended to afford persons not named as parties or interveners to the matter or action a reasonable opportunity to comment in writing. EPA or DOJ, as appropriate, must then review the comments and may withdraw or withhold consent to the proposed settlement if the comments disclose facts or considerations that indicate consent to the settlement is inappropriate, improper, inadequate, or inconsistent with Clean Air Act requirements. The other six key environmental laws with provisions that allow citizens to file deadline suits do not have a notice and comment requirement for proposed settlements. According to an EPA official, with the exception of the agency’s pesticide program, EPA generally does not ask for public comments on defensive settlements if the agency is not required to do so by statute.\nThe 9 major rules EPA issued from May 31, 2008 to June 1, 2013 following seven settlements in deadline suits were Clean Air Act rules. For each settlement, EPA published a notice in the Federal Register providing the public the opportunity to comment on a draft of the settlement. EPA received between one and 19 public comments on six of the draft settlements. No comments were received on one of the draft settlements. Based on EPA summaries of the comments, the comments concerned the reasonableness of the deadlines contained in the settlements or supported or objected to the settlements. For example, some comments supported the deadline or asserted that the deadlines should be accelerated, others comments stated that EPA would have difficulty meeting the deadlines. EPA determined that none of the comments on any of the draft settlements disclosed facts or considerations that indicated that consent to the settlement in question would be inappropriate, improper, inadequate, or inconsistent with the act. Table 2 shows the number of public comments EPA received on each draft settlement.",
"According to EPA officials, settlements in deadline suits primarily affect a single office within EPA—the Office of Air Quality Planning and Standards (OAQPS)—because most deadline suits are based on provisions of the Clean Air Act for which that office is responsible. According to EPA’s Office of General Counsel, provisions in the Clean Air Act that authorize the National Ambient Air Quality Standards (NAAQS) program and Air Toxics program account for most deadline suits. These provisions have recurring deadlines requiring EPA to set standards and to periodically review—and revise as appropriate or necessary—those standards. OAQPS sets these standards through the rulemaking process. For example, the Clean Air Act requires EPA to review and revise as appropriate NAAQS standards every 5 years and to review and revise as necessary technology standards for numerous air toxics generally every 8 years.\nThe effect of settlements in deadline suits on EPA’s rulemaking priorities is limited. OAQPS officials said that deadline suits impact the timing and order in which rules are issued by the NAAQS program and the Air Toxics program, but not which rules are issued. The officials also noted that the impact of deadline suits on the two programs differs because of the different characteristics of the programs.\nRegarding the NAAQS program, the Clean Air Act requires EPA to review and revise as appropriate the NAAQS standards for six pollutants—called criteria pollutants—at 5-year intervals. NAAQS standards limit the allowable concentrations of criteria pollutants in the ambient air. There is more than one standard for each criteria pollutant. EPA establishes the required standards through the rulemaking process and recently conducted seven NAAQS reviews to review the standards and revise as appropriate. According to an OAQPS official, prior to 2003, EPA did not review NAAQS on a regular cycle. Beginning in 2003, EPA faced four deadline suits for failure to complete NAAQS reviews for the six criteria pollutants. EPA settled two of these suits and was subject to a court order regarding the other two suits after it failed to successfully negotiate settlements with the plaintiffs. The settlements and court orders led EPA to perform the statutorily required reviews of the NAAQS standards for the six criteria pollutants and to promulgate seven rules—one for each NAAQS review. The last of these seven rules was promulgated in April 2012. According to officials, the deadline suits addressing the NAAQS standards did not affect which NAAQS standards were reviewed since EPA reviewed all of the standards. According to officials, the deadline suits did affect the timing and order in which EPA conducted the reviews to accommodate the time frames in the settlements and court orders. Additionally, according to officials, as a result of the experience in responding to the deadline suits, the agency is striving to maintain the 5- year statutory review cycle for criteria pollutants going forward. However, officials noted that it is difficult for EPA to complete its NAAQS reviews every 5 years. From April 2012 through September 2014, EPA has promulgated one rule following a NAAQS review after it settled a deadline suit and has missed the statutory deadline for reviewing the standards of two other criteria pollutants, one of which EPA is under court order to complete by October 2015 following a deadline suit.\nRegarding the Air Toxics program, OAQPS officials said that the impact of deadline suits on the Air Toxics program is different from that of the impact on the NAAQS program because of the large number of rules that the Air Toxics program promulgates. For example, the Clean Air Act establishes a schedule under which EPA established 120 standards to reduce the emissions of 187 hazardous air pollutants. These National Emission Standards for Hazardous Air Pollutants (NESHAP) apply to certain categories of sources of these pollutants, such as cement manufacturing, municipal solid waste landfills, and semiconductor manufacturing. Generally, the act requires EPA, no less often than every 8 years, to review the standard, and revise as necessary. It makes any necessary revisions through the rulemaking process. The review must take into account developments in practices, processes, and control technologies. For sources subject to Maximum Achievable Control Technology (MACT) standards promulgated pursuant to section 112(d)(2) of the Clean Air Act, EPA must also conduct a residual risk assessment within 8 years after the initial promulgation of the standard. EPA refers to these two reviews together as the risk and technology review (RTR). As of October 2014, EPA has completed 28 RTRs (27 of these reviews following deadline suits) and has not completed 57 RTRs for which the statutory deadline has passed and 36 RTRs for which the statutory deadline has not passed. Additionally, officials report that, currently, most of the resources available to complete RTRs are focused on a 2011 settlement. This settlement listed 27 NESHAPs for which RTRs were overdue. OAQPS officials said that they have been unable to meet all of the time frames contained in the 2011 settlement and, as a result, have negotiated amendments to the settlement extending the time frames. Officials said that they intend to complete all of the overdue RTRs but are focused on fulfilling the terms of the 2011 settlement and several other settlements to which EPA has entered into that address a smaller number of reviews. Additionally, in September 2013, EPA received a NOI concerning 43 additional NESHAPs for which a RTR is overdue. EPA officials said that they are engaged in settlement discussions over one of these reviews for which EPA has been sued.\nAdditionally, we discussed with EPA budget officials the potential impact of budget allocation decisions associated with deadline suits on EPA offices that are not subject to deadline suits. According to the budget officials, EPA accounts for anticipated workload arising out of litigation in its budgeting cycle for affected programs but does not make changes in existing budget allocations specifically to address settlements in deadline suits. Thus, according to the official, the resources available to EPA offices not subject to these settlements are not directly impacted by the settlements.",
"We provided a draft of this report to EPA and DOJ for review and comment. In written comments from EPA, reproduced in appendix IV, the agency generally concurs with our analysis and states that the report accurately describes EPA’s approach to deadline suit litigation brought against it. EPA also provided technical comments, which we incorporated as appropriate. In addition, in an e-mail received November 24, 2014, the DOJ Audit Liaison stated that the DOJ concurs with our report and has no additional comments.\nAs agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Attorney General, the Administrator of the EPA, and other interested parties. In addition, the report will be 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) 512-3841 or gomezj@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 members who made major contributions to this report are listed in appendix V.",
"The objectives of this report are to examine (1) key environmental laws that allow citizens to file deadline suits that may compel the Environmental Protection Agency (EPA) to conduct a rulemaking and the factors EPA and the Department of Justice (DOJ) consider in determining whether or not to settle these lawsuits, (2) the terms of settlements in deadline suits that led EPA to promulgate major rules in the last 5 years and the extent to which the public commented on the terms of the settlements, and (3) the extent to which settlements in deadline suits have affected EPA’s rulemaking priorities.\nTo examine the key environmental laws that allow citizens to file deadline suits that may compel EPA to conduct a rulemaking, we identified through legal research nine key environmental laws for which EPA has primary regulatory authority. Through additional legal research, we determined that two of these laws do not include provisions that permit citizens to file deadline suits. These laws are the Federal Insecticide, Fungicide, and Rodenticide Act and related provisions of the Federal Food, Drug, and Cosmetic Act. To understand the factors that EPA considers in determining whether or not to settle deadline suits, we held discussions with officials from EPA’s Office of General Counsel and DOJ because both agencies are involved in making these determinations. We also discussed the processes and procedures that EPA follows when settling citizen deadline suits.\nTo examine the terms of settlements in deadline suits that led EPA to promulgate major rules in the last 5 years, we developed a list of major rules EPA issued from May 31, 2008 through June 1, 2013 by searching a database that GAO maintains to help implement the Congressional Review Act. We determined that the data were sufficiently reliable for the purpose of identifying major rules issued by EPA. EPA officials then identified which major rules EPA issued following a settlement in a deadline suit. We relied on EPA because neither EPA nor DOJ maintains a database that links settlements to rules, and there is no comprehensive public source of such information. For the purposes of this report, we use the term deadline suit to mean a lawsuit in which an individual or entity sues because EPA has allegedly failed to perform any nondiscretionary act or duty by a deadline established in law. A nondiscretionary act or duty is an act or duty required by law. This report only examines deadline suits that seek to compel EPA to either (1) issue a statutorily required rule when that rule has a deadline in law or (2) issue a statutorily required rule or make a determination that issuing such a rule is not appropriate or necessary pursuant to the relevant statutory provision, when issuing that rule or making that determination has a deadline in law. We did not review other types of suits against EPA. We obtained the settlements by accessing court records through the Public Access to Court Electronic Records. We then analyzed the content of each settlement and summarized the results.\nTo examine the extent to which the public commented on the terms of the settlements, we obtained from EPA legal memoranda summarizing the number and content of public comments EPA received on drafts of the settlements. Because each of the major rules issued following settlements in deadline suits were Clean Air Act rules, EPA solicited public comments on drafts of the settlements as required by the Clean Air Act. The act also requires EPA or DOJ to consider any public comments provided on settlements and authorizes them to withdraw or withhold consent to the proposed settlement if the comments disclose facts or considerations that indicate consent to the settlement is inappropriate, improper, inadequate, or inconsistent with the Clean Air Act requirements. EPA made these determinations and documented its decisions in legal memoranda that it provided to us. We analyzed the contents of these memoranda to determine the extent and nature of the public comments EPA received on draft settlements.\nTo examine the extent to which settlements in deadline suits have affected EPA’s rulemaking priorities, we obtained from EPA’s Office of General Counsel data on deadline suits it had settled from January 2001 through July 2014 and the EPA office(s) responsible for implementing the terms of the settlements. We assessed the reliability of the data by interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purposes of this report. The data showed that one office was responsible for implementing the terms of most of the settlements. We spoke with officials from this office to understand the extent to which settlements in deadline suits had affected the timing and order of the rules they promulgated, as well as which rules they promulgated. We also spoke with EPA budget officials to understand the extent to which settlements in deadline suits affected budget allocation decisions for EPA offices not subject to settlements in deadline suits.\nWe also interviewed individuals from academia, an environmental group, industry, and a state official from Oklahoma, to obtain their perspectives on deadline suits. We chose these individuals because they had experience or knowledge related to deadline suits and could provide the perspective of different stakeholder groups. For example, one interviewee provided legal representation for an environmental group that filed a deadline suit, and another interviewee authored a report critical of how EPA responds when faced with a deadline suits. The views of these individuals cannot be generalized to those with whom we did not speak.\nWe conducted this performance audit from September 2013 to December 2014 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.",
"The Environmental Protection Agency (EPA) issued 32 major rules from May 31, 2008 to June 1, 2013. According to EPA officials, the agency issued 9 of these rules following settlements in deadline suits and issued 5 of the 32 rules to comply with court orders following deadline suits in which plaintiffs and EPA were unable to reach a settlement. The remaining 18 rules, according to agency officials, were not associated with a deadline suit. Table 3 lists the 32 major rules EPA issued from May 31, 2008 to June 1, 2013.",
"The Environmental Protection Agency (EPA) issued 9 major rules from May 31, 2008 to June 1, 2013 following seven settlements in deadline suits. Each of the seven settlements established a schedule to either issue a statutorily required rule or make a determination that such a rule is not appropriate or necessary pursuant to the relevant statutory provision. EPA negotiated extensions to the deadlines to issue the final rules in five of the seven settlements. Table 4 summarizes the contents of the seven settlements.",
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"In addition to the individual named above, Vincent P. Price, Assistant Director; Rodney Bacigalupo; Elizabeth Beardsley; John Delicath; Charles Egan; Cindy Gilbert; Tracey King; and Kathryn Smith made key contributions to this report."
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"What laws did GAO identify?",
"What did these laws include?",
"How do EPA and DOG decide whether to settle a deadline suit?",
"What did the terms of settlements in EPA deadline lawsuits establish?",
"What did the settlements not include?",
"What does the Clean Air Act require regarding settlements?",
"What did EPA determine about comments on settlements?",
"Why do deadline suits primarily affect OAQPS?",
"How do deadline suits affect OAQPS?",
"What do provisions require of EPA?",
"How is OAQPS associated with these provisions?",
"What do laws such as the Clean Air Act require?",
"What power do citizens have regarding this requirement?",
"What is the concern with the EPA negotiating settlements to issue rule?",
"What was GAO asked to review?",
"What does the report that GAO wrote examine?",
"What did GAO identify?",
"How did GAO interact with the rules EPA identified?",
"What documentation did GAO identify?",
"How did GAO determine extent to which settlements affected EPA's rulemaking priorities?"
],
"summary": [
"GAO identified seven key environmental laws that allow citizens to file a deadline suit against the Environmental Protection Agency (EPA) (see table) and EPA and the Department of Justice (DOJ) consider several factors in determining whether or not to settle these suits.",
"The seven key environmental laws include, among others, the Clean Air Act and the Clean Water Act.",
"EPA and DOJ officials stated that the factors they consider include (1) the cost of litigation, (2) the likelihood that EPA will win the case if it goes to trial, and (3) whether EPA and DOJ believe they can negotiate a settlement that will provide EPA with sufficient time to complete a final rule if required to do so.",
"The terms of the settlements in these deadline suits established a schedule to issue a statutorily required rule(s) or to issue a rule(s) unless EPA determined that doing so was not appropriate or necessary pursuant to the relevant statutory provision.",
"None of the seven settlements included terms that finalized the substantive outcome of a rule.",
"The Clean Air Act requires EPA to solicit public comments on drafts of settlements.",
"EPA determined that none of the comments disclosed facts or other considerations compelling it to withdraw or withhold consent for the settlement.",
"According to EPA officials, settlements in deadline suits primarily affect a single office within EPA—the Office of Air Quality Planning and Standards (OAQPS)—because most deadline suits are based on provisions of the Clean Air Act for which that office is responsible.",
"OAQPS officials said that deadline suits affect the timing and order in which rules are issued but not which rules are issued.",
"These provisions have recurring deadlines requiring EPA to set standards and to periodically review—and revise as necessary—those standards.",
"OAQPS sets these standards through the rulemaking process.",
"Laws, such as the Clean Air Act, require EPA to issue rules by specific deadlines.",
"Citizens can sue EPA for not issuing rules on time.",
"EPA sometimes negotiates a settlement to issue a rule by an agreed upon deadline. Some have expressed concern that the public is not involved in the negotiations and that settlements affect EPA rulemaking priorities.",
"GAO was asked to review EPA settlements in deadline suits.",
"This report examines (1) key environmental laws that allow deadline suits and the factors EPA and DOJ consider in determining whether to settle these suits, (2) the terms of settlements that led EPA to issue major rules in the last 5 years and the extent to which the public commented on the settlements, and (3) the extent to which settlements in deadline suits have affected EPA's rulemaking priorities.",
"GAO identified key laws allowing deadline suits through legal research and interviewed agency officials to understand the factors considered in determining whether to settle these suits.",
"EPA identified the major rules it issued following settlements and GAO examined the text of those settlements.",
"GAO examined EPA documentation to determine the extent to which the public commented on the settlements.",
"Through data from EPA's Office of General Counsel and discussions with officials, GAO determined the extent to which settlements affected EPA's rulemaking priorities."
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GAO_GAO-17-309
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{
"title": [
"Background",
"DOD Used Prototyping to Reduce Technical Risks, Validate Designs, and Investigate Integration Challenges on Major Weapon Acquisition Programs",
"Major Acquisition Programs Selected Prototyping Approaches That Addressed Key Risks",
"Major Acquisition Program Officials Stated That Prototyping Provided a Good Return on Investment",
"Several Practices Helped Programs Get More Out of Their Prototyping Efforts",
"DOD Has Established New Initiatives to Increase Prototyping and Innovation, but Does Not Have a Strategy to Guide Its Investments",
"DOD Has Started New Initiatives to Expand Prototyping and Experimentation",
"New Prototyping Initiatives Face a Variety of Barriers",
"DOD Actions Partially Align with Practices for Fostering Innovation in the Private Sector",
"Developing an Innovation Strategy",
"Ensuring Adequate Funding to Address Innovation Goals",
"Balancing Demand Pull and Supply Push",
"Learning Quickly Through Prototyping and Experimentation",
"Fostering Greater Risk Tolerance",
"Conclusions",
"Recommendations for Executive Action",
"Agency Comments",
"Appendix I: Objectives, Scope, and Methodology",
"DOD’s Use of Prototyping on Major Programs Prior to System Development",
"DOD’s Use of Prototyping to Increase Innovation Outside of Major Programs",
"Appendix II: Department of Defense Research, Development, Test, and Evaluation Budget Activities",
"Appendix III: Budget Activity 6.3 and 6.4 in Fiscal Year 2016",
"Appendix IV: Overview of Selected Programs’ Prototyping Efforts and Reasons for Not Prototyping",
"Appendix V: Programs’ Cost and Schedule Performance and Knowledge Attainment",
"Appendix VI: Examples of Prototyping Benefits that Contributed to Sound Business Cases",
"Appendix VII: Relative Cost of Prototyping Efforts",
"Appendix VIII: Technology Readiness Levels",
"Appendix IX: Department of Defense Initiatives Using Prototyping to Further Innovation",
"Appendix X: Comments from the Department of Defense",
"Appendix XI: GAO Contact and Staff Acknowledgments",
"GAO Contact",
"Staff Acknowledgments"
],
"paragraphs": [
"DOD’s science and technology community—including research laboratories, test facilities, industry, and academia—conducts initial research, development, and testing of new technologies to improve military operations and ensure technological superiority over potential adversaries. Afterwards, the acquisition community typically manages product development, in which technologies are further advanced and system development begins. These activities are generally supported by DOD’s RDT&E budget, which DOD groups into seven budget activity categories for its budget estimates and the President’s Budget. The categories follow a mostly sequential path for developing technologies from basic research to operational system development, as is shown in figure 1. The first three budget activity categories represent DOD’s science and technology activities to advance research and technology development, while the remaining budget activity categories are typically associated with product development for acquisition programs. See appendix II for a description of each budget activity.\nFunding for prototyping is mostly found in advanced technology development and advanced component development, budget activity 6.3 and 6.4 respectively. Appendix III provides a breakdown of budget activity 6.3 and 6.4 funding by organization for fiscal year 2016. Funding in budget activity 6.3 is not directly tied to acquisition programs whereas budget activity 6.4 is typically used for that purpose. Funding for acquisition programs, including budget activity 6.5, was $28 billion in fiscal year 2016 and has varied over time, whereas science and technology funding was $13 billion and has remained relatively flat, as is shown in figure 2.\nThere are numerous types and definitions of prototyping. One construct used by parts of DOD refers to conceptual, developmental, and operational prototypes, each of which has a different purpose and time horizon for when they can be expected to be incorporated into or become their own acquisition program. Figure 3 includes more information about each of these types of prototypes. Although each type is more mature or closer to a capability that can be fielded than its predecessor, prototyping does not have to proceed sequentially. For example, an operational prototype might not be preceded by a conceptual or developmental prototype, if it is based on existing mature technologies or concepts.\nPrototyping can involve a variety of different approaches, in terms of what is being developed and demonstrated, who is building the prototype, and how it is being acquired or managed. System prototyping is when a prototype that includes components for an entire system is developed, such as a prototype of a ground vehicle or missile. Subsystem prototyping is when a prototype is developed that includes a group of components that combine to perform a major function for a system, such as a power supply system for a radar. In a DOD context, prototypes can be developed by contractors or groups of contractors, government labs, or both, and efforts can be managed by the science and technology community, acquisition programs, or other types of research and development organizations. When two or more contractors or other entities prototype the same component, subsystem, or system, the effort is referred to as competitive prototyping.\nOver the years, DOD and Congress have taken steps to encourage prototyping during the technology development phase of weapon system acquisition programs. In 2007, the Office of the Under Secretary of Defense for Acquisitions, Technology, and Logistics issued a memorandum on prototyping and competition that expressed concern that DOD decisions on acquisition programs were being based largely on paper proposals that provided inadequate knowledge of technical risk and a weak foundation for estimating development and procurement cost. To help address these concerns, the memorandum required pending and future acquisition programs to formulate acquisition strategies that call for conducting competitive prototyping up through the start of system development. Not long after, in 2009, Congress passed WSARA, which included a provision on competitive prototyping for MDAPs as well as many other reforms. WSARA called for competitive prototyping at the system level or—if not feasible—for critical subsystems, and allowed competitive prototyping to be waived only if the cost of producing competitive prototypes would exceed the life-cycle benefits of producing them or if without a waiver, DOD would be unable to meet critical national security objectives. If competitive prototyping was waived, WSARA required that programs produce a prototype before milestone B, if the expected life-cycle benefits of producing such prototypes exceeded the cost and its production was consistent with achieving critical national security objectives. Originally implemented by DOD in December 2009, Congress repealed WSARA’s competitive prototyping provision in 2015. However, as of the time of this review, DOD still required program officials to consider using prototyping and competitive prototyping at the system or subsystem level as a risk mitigation technique. Congress also included several new prototyping-related provisions in the fiscal year 2017 NDAA, which are discussed later in this report.\nDOD prototyping also occurs outside or independent of acquisition programs. One of the purposes of this type of prototyping can be to further disruptive innovation. Disruptive innovation attempts to shift the balance of military power in our favor by providing new capabilities, potentially unforeseen by the warfighter. The capabilities can be a result of new technologies, new ways to integrate existing technologies, or changes to how systems are employed. Disruptive innovation can also include providing existing capabilities at substantially lower cost, thereby increasing military advantage. Examples of potentially disruptive technologies include directed energy, hypersonics, and low cost missile defense capabilities. Prototyping can be a way to “test the waters” or experiment with new and potentially disruptive concepts and technologies without the level of commitment associated with starting acquisition programs. Prototyping in this environment may involve more risk, including less mature technologies. There may also be no residual value at the end of a project other than increased knowledge and potentially a prototype “on the shelf” for further maturation.",
"Most major weapon system acquisition programs we examined used prototyping to reduce technical risk, investigate integration challenges, and validate designs, among other things. Program officials chose prototyping approaches to align with their assessments of program risks, with riskier programs prototyping more extensively. They generally found that prototyping provided a good return on investment. It helped programs better understand requirements, the feasibility of proposed solutions, and cost—the key elements of a program’s business case. Identifying key risks early and structuring prototyping efforts to inform key decisions helped maximize the utility of programs’ prototyping efforts.",
"The programs we reviewed used prototyping primarily to reduce technical risks, investigate integration challenges, validate designs, and mature technologies. Of the 22 MDAPs we reviewed, 17 used some form of prototyping during technology development and 5 did not prototype. Of the 17 programs that prototyped, officials from 15 programs told us they chose to prototype because it made the most sense given the program’s needs. Officials from the other 2 programs told us their programs prototyped at the direction of the Under Secretary of Defense (USD) for Acquisition, Technology and Logistics (AT&L)—the milestone decision authority for their programs. All 17 programs prototyped for multiple reasons and officials from 11 programs identified four or more reasons. The reasons cited by each program are depicted in figure 4.\nProgram officials stated that they tailored their prototyping approaches to their program’s risks, with riskier programs prototyping more extensively. Ten of the programs we reviewed conducted system-level prototyping, 7 programs conducted subsystem prototyping, and 5 did not prototype (see appendix IV for a brief overview of each program’s prototyping efforts or the reasons it did not prototype). Prototyping approaches varied within these categories. Some programs prototyped one or two subsystems while others used multiple contractors and multiple-phased prototyping efforts at the system and subsystem level. The five programs that did not conduct any prototyping used known designs and existing technologies, which DOD generally considers less risky. Four of the five entered the acquisition process without a technology development phase and most obtained waivers from the competitive prototyping requirements in DOD policy. Figure 5 shows examples of programs’ prototyping efforts—or lack thereof—and how they align with the program officials’ understanding of their risks.\nThe 10 programs that developed system level prototypes ranged from the Joint Light Tactical Vehicle, which involves less expensive, lower complexity items that will eventually be purchased in the tens of thousands, to the Space Fence Ground-Based Radar, which will only produce one, large ground-based radar to detect, track, and provide information about objects in Earth’s orbit. System level prototyping led to improved understanding of: (1) integration challenges and the feasibility of system designs; (2) significant unknowns, such as costs for ambitious requirements; (3) uncertainties related to integrating mature technologies in new ways; and (4) new technologies. Six of these programs first conducted subsystem prototyping to mature new or existing technologies used in new ways before using system-level prototyping to investigate integration challenges.\nThe seven programs that developed subsystem prototypes ranged from an F-22 modernization program that was upgrading the aircraft’s weapon and communication systems to the Ship to Shore Connector Amphibious Craft, an air-cushioned landing craft that transports personnel, weapon systems, and cargo. Subsystem level prototyping efforts focused on narrower areas of perceived risk, such as maturing critical technologies, integrating a subsystem with other hardware or software, or testing specific components that are being considered for use in a system design. The programs that conducted subsystem prototyping were often building on or well-positioned to leverage existing weapon systems. Five of the seven programs in this category used existing platforms, either hardware or software, for their subsystem prototyping efforts. For example, the Ship to Shore Connector Amphibious Craft utilized the Navy’s existing landing craft as a platform to prototype and test new components.\nOf the 17 programs that prototyped, 12 used competitive prototyping. They did so for a variety of reasons, including to prove out potential solutions when more than one solution could be feasible and to gain knowledge from multiple sources about uncertainties, such as integration challenges, design feasibility, or cost. We found that most of the competitive prototyping efforts included system-level designs and almost all programs that conducted system-level prototyping used competitive approaches, as is shown in figure 6. Competitive prototyping may generate more information about proposed solutions because contractors sometimes propose different design approaches or system concepts to meet DOD’s capability needs. DOD’s 2007 prototyping and competition memorandum also noted that competition would generate more knowledge about technical risk and build a stronger foundation for estimating costs.",
"According to officials from 16 of the 17 programs that prototyped, the benefits gained from their prototyping effort were worth the cost and provided a positive return on investment. The benefits gained were central to the development of a sound business case, which includes evidence that (1) the customer’s needs are valid and can best be met with the chosen concept and (2) the chosen concept can be developed and produced with existing resources, such as time, money, and available technology. We have previously found that establishing a sound business case is essential to achieving better program outcomes. See appendix V for an analysis of acquisition outcomes to date for the programs we examined. Prototyping provided programs with information on technology maturity, the feasibility of the design concepts, potential costs, and the achievability of planned performance requirements, which helped inject realism into their business cases. Appendix VI includes examples of these benefits, several of which we highlight below:\nPrototyping demonstrated key technologies or proposed design solutions. For example, Space Fence officials stated that prototyping helped them determine that a riskier, cutting edge design involving a 15 percent smaller radar was feasible. Without prototyping, the program would not have had sufficient information to be confident in the riskier option, nor would the contractor have proposed it without the opportunity to demonstrate that it worked.\nPrototyping informed programs’ understanding of prices and helped validate business case cost estimates. During the prototyping process, contractors select vendors, develop supplier relationships, purchase materials, and build a version of the system or parts of the system, all of which provide information on potential costs. Air and Missile Defense Radar program officials stated that prototyping increased the cost information available to the program and led to cost reductions. They explained that competitive prototyping incentivized the contractors to determine their cost drivers in order to be more competitive in the next phase.\nPrototyping helped programs better understand requirements and—in most cases—helped them make performance tradeoffs to meet cost targets. In the case of Joint Light Tactical Vehicle, prototyping helped program officials determine that two versions of the vehicle were too heavy to be transported as planned. The program then lowered its transportability requirements by eliminating the need to airlift the vehicles in extreme conditions. This change allowed the vehicles to be heavier and resulted in $35,000 in savings per vehicle, according to the Army.\nPrototyping provided a variety of other benefits as well. For example, prototyping helped programs improve system performance. Small Diameter Bomb II officials said that data collected during its prototype testing set the stage for improvements in its target classification software. It also helped identify potential reliability issues early. The Next Generation Jammer Increment 1 and Ship to Shore Connector Amphibious Craft programs changed certain subsystem materials based on information learned about wear during prototype testing. Further, for 11 programs, the prototypes served as test assets during system development or were used to continue development efforts.\nCompetitive prototyping approaches generated additional benefits, such as enabling more favorable business terms. According to the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics, the Air and Missile Defense Radar program’s use of competition resulted in over $100 million in savings and will reduce operation and support costs over the life of the program. Air and Missile Defense program officials explained that having three competitors was helpful because it reduced the likelihood that contractors would team up in the next phase, leaving the government with only one proposal. In other cases, competition improved the quality of the systems being offered to DOD. For example, Space Fence program officials told us that competition spurred contractors to introduce cutting edge designs and continue refining those designs in order to remain competitive in the next phase of the program. Finally, officials from several programs stated that contractors supplemented prototyping efforts using their own funds and believed contractors did this in order to make their subsequent offers more competitive.\nA common perception is that competitive prototyping might cost more up front because multiple contracts are awarded, but our analysis showed that programs using multiple contractors did not have higher relative costs for technology development. Programs that used a competitive approach planned to spend a similar percentage or less of their total expected RDT&E funding prior to the start of system development as those programs that did not competitively prototype. Using competitive prototyping approaches did create additional administrative burdens in the short term because program offices had to manage multiple contractors and maintain firewalls to ensure fair competitions, but officials from across the programs we examined stated it was worth the investment.",
"Officials from all 17 programs that prototyped told us their prototyping efforts were useful; however, we found some programs got more out of their prototyping efforts than others. Based on those programs’ experiences and lessons other programs shared, we identified the following five practices that helped programs maximize the utility of their prototyping efforts. 1. Identify risks early and target prototyping efforts to address them. Officials from seven programs described early activities that helped identify risks and shape their prototyping efforts. The Air and Missile Defense Radar program planned a big leap in technology over the existing radar, which was fielded over 30 years ago. The program conducted early technology maturity assessments that identified the large aperture digital beamforming and calibration critical technology as the program’s key risk area. The program focused its prototyping efforts on maturing this and other critical technologies and demonstrating them in a relevant environment. It is on track to complete system development on time and within its estimated research and development cost. 2. Structure prototyping efforts to be completed in time to inform key decisions—particularly source selection. We found that many of the programs prototyped before selecting their system development contractor and about three-quarters of the programs also held preliminary design review before entering system development. Prototyping helped inform these decisions and related assessments. Common Infrared Countermeasure program officials told us they required contractors’ proposals for the program’s system development contract to include solutions to address reliability failures identified during prototyping. 3. Specify the level of fidelity needed to provide the necessary information about which risks to address. Officials from 15 programs told us they prototyped designs similar to the actual design of the system they will develop. This is known as high fidelity prototyping. Officials from a few programs noted that doing so enabled them to understand what the system entailed and, if needed, make trade-offs accordingly. In contrast, Integrated Air and Missile Defense program officials stated that the results from prototyping were not as helpful to make programmatic decisions because they were limited to demonstrating the feasibility of a certain system concept using a generic government design. 4. Ensure the appropriate level of insight into the design and cost information. Officials from each program said they had sufficient visibility into the prototyping efforts, but some officials described having more insight into the efforts and their results than others. The level of insight can be affected by factors, such as the type of information a program requires a contractor to provide under a prototyping contract. Space Fence officials noted that in addition to conducting a live prototype demonstration, they had access to reports and data from contractors’ efforts. The officials said that the data obtained through prototyping were helpful for pricing. The program used the data to mature its cost estimate and was able to use a firm fixed price contract for system development. Space Fence finalized its design just over a year after entering system development, has had no cost growth to date, and anticipates that the contractor will deliver the system earlier than initially planned. 5. Keep plans flexible to adapt to information learned during the effort. Officials from four programs told us they used multi-phased prototyping approaches and a few described adding or removing contractors. Officials from at least three programs told us they changed strategies or modified their approach based on information learned or in response to a tighter budget environment. For example, after the Common Infrared Countermeasure program determined its technologies were less mature than expected, it added two prototyping phases to continue maturing the technologies, testing the system with related systems, and demonstrating manufacturing processes. The program entered system development with its technologies nearing maturity and completed its system design in just over a year. It has had about 6 percent cost growth as of October 2016 and is estimating completing system development on time.",
"To help ensure U.S. military capabilities outpace those of potential adversaries, DOD has expanded prototyping efforts focused on innovation, including disruptive innovation, and has started several new initiatives outside of major acquisition programs to address gaps in its innovation portfolio. However, these initiatives face barriers, such as limited funding and competing priorities. Literature on private sector innovation, including the use of prototyping, identifies key enablers for these types of efforts, such as developing a strategy for innovation, identifying relative levels of investments that align with innovation goals, and protecting funding for technology investments that have higher risk, but perhaps more reward across the enterprise. DOD has taken steps that are consistent with a few of these enablers, but lacks others, such as an innovation strategy that could also address the role of prototyping.",
"Since 2012, DOD and the military departments have established seven new offices to increase prototyping and experimentation and further innovation. Prototyping can be a way to “test the waters” with new and potentially disruptive concepts and technologies. Experimentation puts prototypes into the warfighter’s hands, so that the capabilities they provide can be assessed in an operational context. Most of the efforts we examined aim to mature technologies for future capabilities, but without the rigidity, commitment, and additional cost associated with starting new acquisition programs. Other than the experimentation initiatives, all of them involve demonstrations that seek to improve DOD’s or the military services’ understanding of the viability, maturity, and potential utility of the technologies, subsystems, or systems being prototyped. The demonstrations also inform decisions regarding potential next steps, such as transition to a military service in the case of mature capabilities that are ready to be put into use or to an acquisition program for those that need further development. Table 2 provides an overview of these initiatives.\nThe new initiatives help address gaps in DOD’s science and technology and weapon system investments and expand efforts to identify and mature potentially innovative and disruptive technologies. For example, the Army Technology Maturation Initiative uses budget activity 6.4 funding, which is typically associated with acquisition programs, to conduct higher-fidelity prototyping and further mature technology outside of those programs. Other initiatives focus on modifying already fielded equipment and technologies to use them in new ways, combining prototyping and rapid acquisition practices to field capabilities faster, and encouraging experimentation to explore how capabilities being prototyped could be employed in an operational setting.\nThe two most mature prototyping-related initiatives have made some progress. For example, the Strategic Capabilities Office reported that it is currently in the process of transitioning six of its technology demonstration and prototyping projects to the military services. The Army’s Technology Maturation Initiative has also demonstrated some progress—it has six projects that have either transitioned to a program of record or are in the process of transitioning. However, with the exception of the Navy’s Technology Innovation Games, the other four initiatives are still in the early planning phases. Some of them are still in the process of developing charters, determining project selection processes, and documenting priorities. Most of the new rapid capabilities offices were developed so recently that they were also not in the fiscal year 2017 budget request, but the Army plans to temporarily support its office with funding from existing Army accounts.",
"DOD’s new prototyping initiatives face several barriers that can make it challenging to obtain funding to start projects, manage the initiatives to achieve innovation, and transition the prototypes to acquisition programs. Literature on private sector innovation, including the use of prototyping, suggests that private sector firms face some of these same barriers. Key barriers we identified include:\nFunding structure: Several studies have suggested that maturing technologies outside and independent of acquisition programs to higher technology readiness levels can promote innovation and facilitate technology transition. However, DOD’s funding structure and how it is commonly interpreted may limit the amount of higher fidelity prototyping conducted outside of acquisition programs. DOD’s science and technology community manages and invests research and development funding in budget activities 6.1-6.3, but does not typically use budget activity 6.4 funds. According to DOD regulation, projects funded with budget activity 6.3 are to mature technologies to technology readiness levels 4, 5, or 6, while those funded with budget activity 6.4 are to result in the achievement of technology readiness level 6 or 7 (see app. VIII). Due in part to this budget activity structure, the science and technology community typically sees its role as maturing technologies to no higher than technology readiness level 6. As a result, until DOD and the military services’ recent prototyping initiatives, there were not many offices focused on further maturing technologies outside of acquisition programs.\nRisk averse culture: Although it is appropriate to minimize risks in acquisition programs, some officials stated that excessive risk aversion outside of acquisition programs can stifle innovation. According to the Defense Science Board, over time, DOD has become increasingly risk averse and experimentation has moved towards scripted demonstrations, testing, and training. Pressure to justify budgets, demonstrate utility to the warfighter, and advance careers all contribute to this risk aversion. Many prototyping and innovation initiatives we reviewed emphasized high transition rates of between 80 and 100 percent. Generally speaking, transition means that a technology has been sufficiently matured and is ready to transition to a user such as a weapon acquisition program or the warfighter in the field. On one hand, a high transition rate can be an indicator that an initiative is generating a good return on investment and is developing capabilities that meet customers’ needs. But, for prototyping initiatives with the stated purpose of encouraging innovation, particularly disruptive innovation, making high transition rates a goal could be counterproductive and lead to a lower tolerance for risk or failure. For private sector projects focused on innovation, companies can aim for transition rates as low as 20 to 50 percent.\nCompeting priorities: Officials identified competition with projects the military services have previously funded and prioritized as a barrier to innovation efforts—both when requesting funding to prototype and later when trying to transition. Innovation literature suggests that companies frequently face this same problem. Resources are often not available for bolder projects because funds are consumed by pre- existing projects; furthermore, companies are more likely to devote resources to sustaining innovation, which gradually improves on existing products, rather than riskier disruptive innovation. The Secretary of Defense testified to Congress in September 2016 that he has seen the constant temptation over the years to starve new and future-oriented defense investments in favor of more established and therefore well-entrenched programs. He expressed concern that funding was being taken away from initiatives such as the Strategic Capabilities Office, to instead pay for existing acquisitions. In fiscal year 2016, 6.4-funded initiatives that focus on prototyping and innovation represented less than 4 percent of budget activity 6.4 funds.\nLong budget timelines: Long budget timelines make it difficult to start prototyping projects that address emerging threats in a timely manner. For example, as is illustrated in figure 8, a project conceived in February 2017 might not be authorized and appropriated funding until October 2018. Projects that are expected to take 3 to 5 years to complete in effect require 5 to7 years from conception to completion. If there is a continuing resolution, it could take longer. These long timelines make it difficult to achieve the adaptability and faster capability development and fielding times that DOD seeks to keep pace with rapidly evolving threats. DOD can take special steps to provide funding in other ways, such as through reprogramming; but, in general, long budget timelines not only make it difficult to succeed fast, they also make it difficult for initiatives to “fail fast” and for DOD to move on to potentially more promising projects.\nSynchronization with acquisition programs: Prototyping efforts may not be complete at the most opportune time for acquisition programs, as is reflected in figure 9. If the effort is completed too early, technology can rapidly become obsolete before a relevant acquisition program is begun. If a prototyping effort is completed after an acquisition program has begun, the program may not be willing to adopt it. Defense Advanced Research Projects Agency officials noted that partners must budget 2 years in advance to further mature or transition technologies, which exacerbates this problem. Congress included a provision in the Fiscal Year 2017 NDAA that, depending on how it is implemented by DOD, could help make it easier to transition new technologies and components to programs that have already begun system development. The NDAA requires that certain MDAPs be designed and developed, to the maximum extent practicable, with a modular open systems approach.This type of approach, which includes a modular design and standard interfaces, enables system components to be more readily replaced.",
"The literature we reviewed on private sector innovation highlights several key practices related to how to organize and manage innovation units, fund projects, and address potential culture barriers. These partially align with recent DOD actions. Some of these practices apply directly to prototyping, while others address innovation more broadly. The key practices or enablers we identified are listed in table 3 below.\nWe compared DOD’s new prototyping initiatives with these enablers to determine whether DOD is well-positioned to generate the type of innovation, including disruptive innovation, that it is seeking.",
"DOD has issued multiple memorandums related to prototyping and innovation, as reflected in table 4, but these documents fall short of a strategy. Specifically, with regard to prototyping and innovation, none of the documents we reviewed communicate strategic goals and priorities or delineate roles and responsibilities among DOD and the military services’ initiatives, which are elements of the innovation strategies described in the literature as well as standards for internal control. Congress included a provision in the Fiscal Year 2017 NDAA that provides some strategic direction for certain prototyping projects. It calls for the military services to establish or identify oversight boards that will develop triennial strategic plans to prioritize capability and weapon system component portfolio areas for prototyping projects, among other things. However, it is not yet clear whether there will be a mechanism to tie these efforts into a department-wide strategy.\nDOD’s lack of an innovation strategy means it has to rely on other mechanisms to coordinate and provide strategic direction for its prototyping initiatives, although those mechanisms do not cover some of DOD’s prototyping and innovation activities and do not establish department-wide priorities. For example, Communities of Interest (COI), which are organized by the Assistant Secretary of Defense for Research and Engineering (ASD(R&E)), help plan, coordinate, and share knowledge on science and technology activities for budget activities 6.2 and 6.3, but there are no analogous mechanisms for 6.4-funded activities, including those related to prototyping and innovation. The 17 COI working groups are generally organized by portfolio—for example, advanced electronics—and include representatives from across DOD. They periodically develop roadmaps for their portfolios. ASD(R&E) officials explained that the road mapping process is not directly tied to budget decisions and does not establish department-wide science and technology priorities. However, it does help identify investment gaps, opportunities for collaboration, and areas of potential overlap or overinvestment. DOD’s Long Range Research and Development Planning Program suggested using COIs to prioritize the technology investments it identified, which would expand their focus beyond science and technology. We have previously found that one way to better manage potentially fragmented activities is to improve collaboration and coordination. Without an approach that covers relevant 6.4-funded activities, DOD may be missing out on opportunities to take a more strategic approach to prototyping and innovation across the department, including sharing information and identifying areas of potential under- or overinvestment related to prototyping and experimentation.\nDOD is undergoing organizational changes that could provide more focused leadership, strategy development, and coordination for prototyping and innovation-related activities:\nThe NDAA for Fiscal Year 2017 establishes the position of Under Secretary of Defense for Research and Engineering. According to the conferees, the creation of this position was part of organizational changes to DOD that seek to, among other things, advance technology and innovation. The duties of the Under Secretary of Defense for Research and Engineering include advancing technology and innovation and establishing policies on all defense research and engineering.\nDOD’s Defense Innovation Board has recommended that DOD establish the position of Chief Innovation Officer, to coordinate, oversee, and synchronize innovation activities across the department.\nDOD has established the position of Deputy Director for Prototyping and Experimentation to oversee program execution, provide technical and programmatic advice, and work with DOD entities to identify shortfalls and potential technologies and projects to address them. However, the position only has authority over prototyping and experimentation efforts within the office of the Deputy Assistant Secretary of Defense for Emerging Capability and Prototyping. To influence prototyping activities outside of that office including military service led initiatives, the Deputy Director stated that he has to leverage his personal relationships and experience.\nWith DOD’s increased level of effort and investment in prototyping and innovation comes the potential for inefficiencies if efforts are not coordinated and aligned with an overarching strategy. Although these offices are generally attempting to meet different needs and are using a variety of approaches to achieve innovation, without an articulated strategy, there is a potential for overlap if their goals and approaches evolve over time.",
"With the exception of the Strategic Capabilities Office, DOD and the military services have not allocated large amounts of funding to their new prototyping and innovation initiatives in their budget requests and they will have to compete with other priorities to receive funding in the future. DOD’s fiscal year 2017 budget request included less than $100 million for each of the six other initiatives we examined. One approach identified in the academic literature that helps ensure innovative projects receive sufficient funding, in the face of competing priorities and a risk averse culture, is called a “strategic buckets” approach. Under this approach, management makes a strategic decision to allocate set “buckets” of resources for different types of projects, including breakthroughs, and then takes steps to ensure adequate funding for innovation efforts. The distribution of resources among different buckets is dictated by the organization’s strategy. This approach is consistent with portfolio management best practices, which call for organizations to use an integrated approach to prioritize needs and allocate resources in accordance with strategic goals. Figure 10 includes a notional depiction of how this approach could be adapted to the basic tenets of DOD’s prototyping and innovation efforts.\nTo implement a strategic buckets approach for innovation, an organization needs to develop innovation goals, reflect those goals in its innovation strategy, inventory current projects and funding allocations, and then adjust funding levels, if needed, to make sure they align with its goals and strategy. Decisions to change relative levels of investment in different buckets may be made over time in response to changing world events. For example, DOD’s concern about losing its eroding warfighting edge in certain areas could cause it to place a higher priority on prototyping systems that could lead to disruptive innovations.\nThe Navy’s approach to managing its science and technology investments, including its prototyping and innovation initiatives, has elements of a “strategic buckets” approach. It maps out roughly the percentage of funding that it plans to request for different parts of its science and technology portfolio, including some of its prototyping and innovation initiatives, as is reflected in figure 11 below. The Navy uses this information to help develop its science and technology budgets. The Navy has not extended the concept to other research and development budget activities, such as 6.4, which are largely driven by decisions on individual acquisition programs.\nDOD has also employed aspects of this approach to set and enforce minimum funding levels for its science and technology investments, but it lacks certain prerequisites needed to apply it more broadly to prototyping. ASD(R&E) officials explained that, in recent years, the Office of the Secretary of Defense has communicated an investment floor for budget activities 6.1 through 6.3 in the Defense Planning Guidance, which provides strategic direction for DOD budget formulation. ASD(R&E) enforces these levels by reviewing military service budget requests and directing funding increases or other shifts to ensure the floor is met across the department. Although ASD(R&E) has responsibility for overseeing research and development activities under budget activities 6.1 through 6.4, ASD(R&E) officials stated that they do not review budget requests for budget activity 6.4 because they are primarily allocated to acquisition programs. By not exercising its authority over the full range of budget activity 6.1 through 6.4 funding, ASD(R&E) is missing an opportunity to assess prototyping activities collectively from an enterprise level to determine if and how this funding might best be used to support DOD’s prototyping and innovation initiatives and its strategic goals.\nDOD also lacks the innovation strategy and baseline understanding of its prototyping projects and their associated funding, to identify areas of potential over- and under-investment as well as appropriate investment targets. Better Buying Power 3.0 called for (1) the USD(AT&L) and Vice Chairman of the Joint Chiefs of Staff, who oversees the weapon system requirements process, to conduct annual reviews of each service’s budget activity 6.3- and 6.4-funded prototyping and experimentation activities, and (2) the ASD(R&E) to develop, maintain, and publish a database of government and industry experimentation capabilities and events, and make annual recommendations to the military services and USD(AT&L) for additional prototyping. USD(AT&L) and military service officials stated that the reviews have not been held due to difficulties with scheduling. In addition, although ASD(R&E) officials took steps to develop the database, it was not completed and efforts to make the information available through a different database were unsuccessful. Both the reviews and the database could have provided useful information about prototyping and experimentation activities and opportunities across the department.\nThe NDAA for Fiscal Year 2017 included a provision that could provide more information about funding for select prototyping initiatives outside of acquisition programs. This provision could better position DOD to set and track prototyping investment targets. In budget requests after fiscal year 2017, for budget activity 6.4, the provision requires DOD to state the amounts requested for prototyping and experimentation of weapon system components and technologies separate from acquisition programs of record. Those requests are to reflect priority areas for prototyping. Furthermore, the legislation calls for military services to establish or identify prototyping oversight boards to, among other things, annually recommend funding levels for prototype projects across capability or weapon system component portfolios although no analogous recommendations are required for efforts outside of the military services.",
"Most of DOD and the military services’ prototyping and innovation initiatives use more of a “demand pull’ approach to selecting projects, which could limit their likelihood of generating disruptive capabilities (see app. IX for a list of these initiatives). This was the case for both older and newer initiatives. Demand pull initiatives focus on prototyping technologies or systems to address validated requirements, which means they have built in constituencies ready to support them. On the other hand, “supply push” initiatives take on projects without a stated customer need and do not align with existing organizational structures. This can make it difficult to gain support for supply push type projects, particularly when it is time to transition them into programs. For example, the Navy had to establish an Unmanned Maritime Systems program office when unmanned underwater capabilities languished because there were no “customers” given existing organizational structures. DARPA, with an annual budget of over $1 billion, is DOD’s largest example of an organization that primarily uses a supply push model.\nAn overreliance on demand pull can lead to incremental improvements in capabilities without ever achieving a more disruptive breakthrough. The Deputy Assistant Secretary of Defense for Research stated that DOD’s requirements process is a model for slightly improving how DOD conducts operations now rather than thinking outside the box of the art of the possible. DOD does not have a similar process designed to foster more innovative solutions. Without an innovation strategy that sets goals and aligns funding for demand pull and supply push projects accordingly, DOD’s prototyping and innovation initiatives might not produce the types of disruptive capabilities and breakthroughs the department is seeking.",
"Most DOD prototyping and innovation initiatives we reviewed took steps so that they could learn quickly through their projects. Almost all of them have expected project turnarounds of 3 to 5 years or less. Initiatives such as the Army’s Technology Maturation Initiative and the Strategic Capabilities Office also regularly reviewed projects to determine whether they were still needed or feasible based on initial efforts and, if they were not, terminated projects accordingly. Two longstanding initiatives employed approaches to speed up the funding process. DOD’s Joint Concept Technology Demonstration program notifies Congress about new projects via letter prior to starting them rather than waiting to request approval in each budget request. Officials from the Future Naval Capabilities Program stated that they use funding left over from projects completed in a given year for other projects, as long as the amount falls below a certain threshold.",
"DOD and military department officials acknowledge that there is a risk averse culture across the department, even with respect to prototyping and innovation initiatives. However, neither the officials we spoke with nor recent memorandums have described ways DOD is changing its metrics or incentives to encourage more risk tolerance within these initiatives, which is one of the enablers highlighted in the literature on private sector innovation. Other enablers, such as developing an innovation strategy and ensuring adequate funding to support it, could also help foster a more risk tolerant environment. DOD’s Defense Innovation Board is also in the process of identifying ways to develop a culture of innovation in DOD in which new ideas can be tested and fail without fear of ending or derailing the career of a science and technology manager, acquisition professional, or military officer.",
"Prototyping is a tool that can help DOD address a variety of both long- standing and recent weapon system acquisition and modernization challenges. When used effectively, it can help reduce risks and improve the likelihood that a weapon system acquisition program will be completed on time and on budget. Furthermore, it helps keep DOD’s technology pipeline stocked with new and innovative technologies that might provide the next great leap ahead in military capabilities and may even deter adversaries by demonstrating advanced capabilities.\nIn the period since the Weapon System Acquisition Reform Act (WSARA) of 2009 was implemented, DOD acquisition programs have used prototyping to reduce risk and inject realism into their business cases, which has helped place them on sound footing for future success. The results were notable on the programs we reviewed—lower technical risk, better understanding of requirements, and more information on potential costs, among other benefits. With the recent repeal of WSARA’s competitive prototyping requirements, there is a risk that programs will choose not to prototype. In doing so, those programs would forfeit the significant benefits that early prototyping can offer.\nDOD’s efforts to expand prototyping and experimentation to help achieve the innovation and disruption needed to maintain its technological and military advantage are in a more nascent stage. However, challenges, such as limited funding, a risk averse culture, and competing priorities, are already apparent and may make it difficult for the efforts to gain momentum. Pending organizational changes, including the creation of the positions of Under Secretary of Defense for Research and Engineering and Chief Innovation Officer, provide an opportunity for DOD to elevate and take a more strategic approach to the mission of advancing technology and innovation.\nThe literature on private sector practices provides a roadmap for how this new DOD leadership can enable innovation, including through the use of prototyping. But DOD will need to fully embrace certain key enablers that are not currently present in the department, including a strategy that addresses its disparate prototyping and innovation efforts and strategic goals that can be used to guide resource decisions. It will also need to work across funding structures for science and technology and more advanced development work that usually separate certain types of prototyping efforts. The recent increased level of effort and investment in prototyping and innovation comes with the potential for inefficiencies if efforts are not strategic and coordinated. Other high-risk investments in categories such as disruptive technologies may need to be protected from a risk averse culture, as well.\nDOD has taken several steps to adopt aspects of private sector innovation practices and has developed mechanisms to coordinate and review its science and technology investments, but without a more strategic, inclusive, and deliberate approach overall, its new prototyping and experimentation initiatives might not generate the levels and types of innovation the department is seeking.",
"To help ensure DOD takes a strategic approach for its prototyping and innovation initiatives and overcomes funding and cultural barriers, we recommend that the Secretary of Defense direct the Assistant Secretary of Defense for Research and Engineering to take the following four actions:\nDevelop a high-level DOD-wide strategy, in collaboration with the military services and other appropriate DOD components, to communicate strategic goals and priorities and delineate roles and responsibilities among DOD’s prototyping and innovation initiatives.\nTake steps, such as adopting a “strategic buckets” approach, to help ensure adequate investments in innovation that align with DOD-wide strategy.\nReview budget activity 6.4 funding requests to help maintain a level of investment for budget activity 6.4-funded prototyping and innovation efforts that is consistent with DOD-wide strategy.\nExpand the Community of Interest working groups to include budget activity 6.4-funded prototyping and innovation initiatives in their science and technology planning and coordination processes or employ a similar coordination mechanism for budget activity 6.4- funded prototyping and innovation initiatives.",
"We provided a draft of this report to DOD for comment. In its comments, reproduced in appendix X, DOD concurred with our four recommendations. DOD also provided technical comments, which we incorporated as appropriate.\nWe are sending copies of the report to the appropriate congressional committees; the Secretary of Defense; the Secretaries of the Army, Navy, and Air Force; and the Assistant Secretary of Defense for Research and Engineering. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.\nIf you or your staff have any questions about this report, please contact me at 202-512-4841 or sullivanm@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 major contributions to this report are listed in appendix XI.",
"Our objectives were to assess (1) how the Department of Defense (DOD) has used prototyping prior to system development on major defense acquisition programs, and (2) what steps DOD has taken to increase innovation through prototyping activities conducted outside of major defense acquisition programs.",
"To address our first objective, we examined 22 major defense acquisition programs that had a Milestone B decision, which approves entry into system development, between December 2009 and February 2016, or anticipated receiving Milestone B approval by February 2016 when we began our selection process. We selected December 2009 as the starting date because it was when DOD implemented the Weapon System Acquisition Reform Act of 2009 and its associated prototyping provisions. These programs and the dates they entered system development are included in table 5.\nTo determine what prototyping approaches the 22 programs used, if any, and to identify costs, benefits, challenges, and lessons learned from their prototyping efforts, we reviewed program documents, such as technology development strategies, acquisition strategies, prototyping waivers, acquisition decision memorandums, independent cost estimates, and budget requests. We also conducted semi-structured interviews with officials from each of the 22 programs and reviewed prior GAO reports. We also examined prior GAO work related to acquisition program outcomes and the technology development phase.\nTo examine the proportion of research, development, test, and evaluation (RDT&E) funds planned for development prior to each program’s entry into system development, we reviewed program funding stream data obtained from December 2015 Selected Acquisition Reports. We calculated the RDT&E funds planned as of the month prior to the program’s Milestone B approval date, which we obtained from program documents. We then divided the prorated amount by the program’s current RDT&E cost estimates to obtain the proportion of RDT&E funds planned for use prior to system development. We excluded six programs that did not have complete data available. See appendix VII.\nTo examine how these 22 programs fared in terms of cost and schedule performance, technology maturity, and design stability, we compared prototyping programs’ data with non-prototyping programs’ data. Specifically, for programs’ cost outcomes, we examined the difference between programs’ first full and current RDT&E cost estimates. Programs’ first full estimates are typically developed upon program entry into system development at Milestone B. For programs’ schedule outcomes, we examined the growth between when the program entered and completed system development using programs’ first full and current estimates. Completion of system development usually occurs when Milestone C is achieved. For first full estimate data, we leveraged data collected as part of our annual assessment of DOD weapon systems. This included cost, quantity, and schedule data from the Defense Acquisition Management Information Retrieval Purview system, referred to as DAMIR. The team entered this data into a database and verified that the data were entered correctly. We converted all cost information to fiscal year 2017 dollars using conversion factors from the DOD Comptroller’s National Defense Budget Estimates for Fiscal Year 2017 (tables 5-9). To assess the reliability of the data the annual assessment team talked with a DOD official responsible for DAMIR’s data quality control procedures and reviewed relevant documentation. They also confirmed selected data reliability with program offices. For current estimate data, we obtained RDT&E, total acquisition cost, quantity, and schedule estimates from the August 2016 Defense Acquisition Executive Summary reports. We determined that data were sufficiently reliable for the purposes of this report.\nThe selected programs in our review entered system development in December 2009 or after and are generally newer. To address concerns about examining outcomes given the relative newness of many of the programs, we excluded the following six programs from our cost and schedule analyses because they are too recent to have current estimates separate from the program’s baseline or do not have approved first full estimates: Amphibious Combat Vehicle, B-2 Defense Modernization System Modification, Common Infrared Countermeasure, Next Generation Jammer Increment 1, Offensive Anti-Surface Warfare Increment 1, and Three-Dimensional Expeditionary Long-Range Radar. We excluded two additional programs—Enhanced Polar System and Space Fence Increment 1—from our schedule analysis because these programs will not hold a Milestone C.\nTo examine the technology maturity and design stability of programs, we leveraged survey response data provided in support of our annual assessments of selected weapon programs. These assessments rely on data collected from program offices related to the technology readiness levels of their critical technologies and their percentage of completed design drawings.\nOur best-practices work has shown that a technology readiness level (TRL) 7—demonstration of a technology in an operational environment—is the level of technology maturity that constitutes a low risk for starting a product development program. For shipbuilding programs, we have recommended that this level of maturity be achieved by the contract award for detailed design. In our assessment, the technologies that have reached TRL 7, a prototype demonstrated in an operational environment, are referred to as mature or fully mature. Those technologies that have reached TRL 6, a prototype demonstrated in a relevant environment, are referred to as approaching or nearing maturity. Satellite technologies that have achieved TRL 6 are assessed as fully mature due to the difficulty of demonstrating maturity in an operational environment—space. No programs needed to be excluded from the technology maturity analysis. See appendix VIII for TRL definitions.\nOur best practices work shows that completion of at least 90 percent of engineering drawings at critical design review provides tangible evidence that the product’s design is stable. Completed design drawings were defined as the number of drawings released or deemed releasable to manufacturing that can be considered the “build to” drawings. For shipbuilding programs, they asked program officials to provide the percentage of the three-dimensional product model that had been completed by the start of lead ship fabrication, and as of our annual assessment. Five programs were excluded from this analysis. The Joint Light Tactical Vehicle program does not track the percent of releasable drawings and the Combat Rescue Helicopter, Next Generation Jammer Increment 1, Global Positioning System Next Generation Operational Control System, and Three-Dimensional Expeditionary Long-Range Radar programs have not yet held their critical design reviews.\nAlthough the technology maturity and design stability information provided at key knowledge points provide excellent indicators of potential risks, by themselves they do not cover all elements of risk that a program encounters during development, such as funding instability. See appendix V for a summary of program outcomes.",
"To address our second objective, we reviewed fiscal year 2017 budget documentation and interviewed DOD and military service officials responsible for research and development to identify initiatives that DOD started in the past five years with the stated purpose of promoting innovation through prototyping and experimentation. We focused on broad-based initiatives, rather than ones focused on a specific technology area. We also examined key preexisting initiatives for contrast. We only included initiatives funded with budget activities 6.3 and 6.4, advanced technology development and advanced component development and prototypes respectively, because those budget activities fund the development and testing of new concepts and capabilities using higher fidelity prototypes that have the potential for short- or medium-term application. We did not meet with rapid prototyping offices established for direct support to the conflicts in Afghanistan and Iraq because they were designed for a temporary contingency.\nTo identify the initiatives’ goals, focus areas, scope, approaches, funding characteristics, strategies, coordination mechanisms, and barriers, if any, they face, we reviewed documentation from the initiatives, such as budget requests, charters, and briefings. We also interviewed program officials and obtained written responses to questions. To determine what direction and strategy DOD has provided for the initiatives, we analyzed DOD memorandums on the following subjects: Long Range Research and Development Plan, Defense Innovation Initiative, Wargaming and Innovation, and Better Buying Power 3.0 as well as Navy memorandums on: Task Force Innovation, Wargaming, and Innovation Funding within the Naval Research and Development Establishment. We also reviewed DOD’s Long Range Research and Development Planning Program briefing. We examined DOD’s process for coordinating science and technology investments, called “Reliance 21,” to determine the extent to which it addressed prototyping for innovation and whether it has the potential to do so.\nWe also conducted a review of literature on innovation in the commercial sector, including the use of prototyping, to identify enablers that could be applicable in DOD and to identify barriers commercial sector organizations face. The literature was primarily from academic sources, but included some literature from the private sector. Specifically, we began with recognized experts in the field of innovation. We then used a snowball methodology to identify other key authors on innovation through databases such as ProQuest and WorldCat. We also asked DOD officials for recommendations regarding relevant authors and articles. Our literature search covered articles published from 1996 onward, with a majority written between 2005 and 2016. We identified 19 sources that were specific to our work. They primarily relied on interviews, surveys, and case studies. Through the literature search, we identified a number of general themes about spurring innovation across articles and interviews. We then developed a list of key enablers from these themes that could potentially apply to DOD prototyping for innovation activities. We also noted when these sources identified barriers to innovation that aligned with the barriers we identified as existing in DOD. To determine whether DOD’s practices are consistent with these enablers, we compared them with memorandums related to prototyping for innovation, the Navy’s and DOD’s approach to managing funding for innovative research and development as reflected in the Navy Science and Technology Strategy and in DOD briefings, demand pull and supply push emphases of prototyping for innovation initiatives, and initiatives’ approaches to learning quickly as reflected in their documentation. When applicable, we also compared DOD’s approach to its prototyping and innovation initiatives with additional sources including the Standards for Internal Control in the Federal Government (for strategy and goals); GAO work on fragmentation, duplication, and overlap (for coordination); and portfolio management best practices (for funding and prioritization).\nTo inform all assessments for this objective, we interviewed officials from the Office of the Under Secretary of Defense (Comptroller) and officials from each military department’s comptroller’s office; Office of the Assistant Secretary of Defense for Research and Engineering; Office of the Deputy Assistant Secretary of Defense for Emerging Capabilities and Prototyping; Office of the Assistant Secretary of the Air Force for Acquisition; Office of the Assistant Secretary of the Army (Acquisitions, Logistics, and Technology); and Office of the Deputy Assistant Secretary of the Navy for Research, Development, Test, and Evaluation.\nWe conducted this performance audit from September 2015 to June 2017 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.",
"",
"The technology transition-related budget activities 6.3 and 6.4—which received $5.8 billion and $14.6 billion respectively in fiscal year 2016— support numerous entities across the Department of Defense (DOD). In fiscal year 2016, the Defense Advanced Research Projects Agency, the Army, and the Office of the Secretary of Defense received the highest levels of budget activity 6.3 funds—with each component receiving about 20 percent of total funding—and the remaining 38 percent was divided among several organizations (see figure 12). That same year, the Missile Defense Agency received the largest percentage of budget activity 6.4 funds, with 42 percent, while the Navy received 35 percent and the remaining 23 percent was shared among several organizations (see figure 13).",
"",
"Overall, prototyping appears to have reduced risks on more complex programs, as evidenced by the fact that most programs that prototyped had similar cost and schedule outcomes and attained key knowledge at similar rates as non-prototyping programs that were generally considered less complex and risky. See appendix I for the programs included in each of the following analyses. Table 9 below includes individual program outcomes to date.\nOur analysis of cost and schedule performance to date showed that for the programs we reviewed, most prototyping and non-prototyping programs’ outcomes were similar (see figures 14 and 15). Nine of 11 prototyping programs had similar levels of research, development, test and evaluation cost growth as the five non-prototyping programs. Officials from the two prototyping programs with higher levels of cost growth— Global Positioning System Next Generation Operational Control System (GPS OCX) and Integrated Air and Missile Defense (IAMD)—told us that they could have learned more about their prototyping efforts if they produced higher fidelity prototypes or better addressed key risk areas. Six of nine prototyping programs with comparable data experienced similar schedule growth between the start and completion of system development as the five non-prototyping programs. The IAMD and GPS OCX programs were also among the prototyping programs with the largest schedule growth.\nWe also found similar outcomes between prototyping and non-prototyping programs with respect to the technology and design knowledge they had at key points in the acquisition process (see tables 10 and 11). Most programs that prototyped during technology development matured or nearly matured their critical technologies before entering system development and released 90 percent of the system’s drawings at critical design review (see appendix VIII for definitions of technology readiness levels). Demonstrating high levels of technology and design knowledge by critical points in the acquisition process is a GAO best practice that helps to reduce program risk.",
"",
"To get a general sense of the relative cost of programs’ prototyping efforts, we compared programs’ planned research, development, test and evaluation (RDT&E) funding during technology development to their overall RDT&E cost estimate. Table 12 presents the programs’ prototyping approaches and percent of RDT&E acquisition costs planned prior to system development for 16 of the programs we examined. Non- competitive programs ranged from 50 to 80 percent, whereas competitive programs ranged from 10 to 77 percent.",
"",
"Since 2012, DOD has expanded its prototyping and experimentation efforts, in order to increase innovation, rapidly field new technologies, explore operational concepts, and hedge against threats from potential adversaries, among other purposes. Table 13 below includes newer prototyping and innovation initiatives and select older initiatives. We focused on the newer initiatives in the body of the report. Although broadly speaking, these initiatives are all seeking to achieve the same goal of innovating to maintain military superiority, we found that they differ in the types of innovation they are trying to achieve, the scope of their efforts, and their approaches.\nThe initiatives we examined varied in the primary types of innovation they sought to achieve (see table 14). Initiatives that primarily focus on incremental or sustaining innovation gradually improve existing products and capabilities. Initiatives focused on disruptive innovation attempt to shift the balance of military power by providing new capabilities, potentially unforeseen by customers or adversaries. The type of innovation sought should not necessarily be equated with risk. For example, the Strategic Capabilities Office (SCO) considers itself to be focusing on low technical risk solutions that are intended to have potentially disruptive results. We excluded experimentation initiatives from this analysis.\nMost of the prototyping and experimentation initiatives we examined, including all but one of the newer initiatives, were focused on addressing military service specific needs (see table 15). Three initiatives address capabilities that could potentially benefit multiple services or that are seen as “falling through the cracks” of military service efforts. Those initiatives are among the most well-funded, with the SCO requesting $902 million for budget activities 6.3 and 6.4 and Defense Advanced Research Projects Agency (DARPA) requesting $1.2 billion for budget activity 6.3 for fiscal year 2017. We excluded experimentation initiatives from this analysis.\nMost of the initiatives we examined focused on prototyping technologies or systems that address validated customer or warfighter requirements— meaning they have more of a “demand pull” approach to selecting projects (see table 16). In contrast, “supply push” initiatives take on projects without a stated customer need and may not align with existing organizational structures or warfighting concepts. DARPA has historically focused almost exclusively on “supply push” type projects, as does the Navy’s Innovative Naval Prototypes initiative. We excluded experimentation initiatives from this analysis as well as the Marine Corps Rapid Capabilities Office and the Navy’s Rapid Prototyping Experimentation and Demonstration initiative because it is not yet clear which approach they will take.\nDOD’s newer prototyping and innovation initiatives tended to differ from older initiatives in several ways, such as the DOD budget activity used, the transition paths available, and senior leadership involvement.\nThe new initiatives are almost exclusively funded with budget activity 6.4. Budget activity 6.4 funds are viewed as allowing for higher-fidelity prototyping efforts, which are closer to the intended end item. Some previous studies have suggested that maturing technologies outside of acquisition programs to higher readiness levels using budget activity 6.4 can promote innovation and facilitate technology transition. Older initiatives primarily rely on budget activity 6.3 funds.\nThe Army Rapid Capabilities Office and Navy Rapid Prototyping Experimentation and Demonstration plan to conduct rapid prototyping and then oversee a modified acquisition process for the most promising prototypes. These offices may take responsibility for the rapid prototyping pathway called for in the National Defense Authorization Act for Fiscal Year 2016. Older initiatives typically transition technologies to a different organization or acquisition program.\nMany of the new prototyping initiatives report to senior department leaders, which can help maintain support for investments and streamline decision-making, according to the literature on innovation in the private sector. The SCO director reports to the Deputy Secretary of Defense, which provides him flexibility to work throughout the department.\nFurthermore, several new initiatives have unique characteristics or functions that the department is trying to invigorate.\nThe SCO focuses on retooling fielded equipment and technologies to employ them in new ways. This reflects a new tactic in DOD’s innovation efforts because no other initiative has focused on this approach. The office limits its efforts to specific platform-centric solutions with the intention of delivering capabilities quickly. According to SCO’s director, one advantage of this approach is that it can help “buy time” for other initiatives to develop and field the next generation of systems. SCO covers all development costs initially to prove out the idea and develop a prototype, then turns projects over to the services for consideration in their budget deliberation processes. DOD has increased SCO funding since fiscal year 2014 from $140 million to a planned $902 million in fiscal year 2017. This increase is driven by new projects as well as testing and development efforts on existing projects.\nTwo offices—the Air Force’s Experimentation Initiative and the Navy’s Technology Innovation Games—reflect a renewed emphasis on experimentation in DOD to explore how new capabilities being prototyped could be employed in an operational setting, among other purposes. These offices use virtual or conceptual environments to explore early ideas for implementing new technologies. They can also help identify promising concepts, or allow officials to discuss how to adjust tactics, doctrine, and training prior to development of new technologies. For example, the Air Force’s Experimentation Initiative is using experimentation to explore how directed energy could be used in an operational context and plans to use this information to inform decisions about pursuing directed energy systems. The Air Force is also considering conducting hardware prototyping under this initiative to demonstrate the operational value of proposed concepts. The Navy’s Technology Innovation Games employ a progression from workshops and discussions up through wargames and demonstrations.",
"",
"",
"",
"In addition to the contact named above, Ron Schwenn, Assistant Director; Pete Anderson; Leslie Ashton; Lorraine Ettaro; Daniel Glickstein; Laura Holliday; Richard Hung; Katherine Lenane; Loren Lipsey; Michael Sweet; Alyssa Weir; and Robin Wilson made significant contributions to this report."
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"question": [
"Why does DOD use prototyping on its MDAP?",
"What did GAO review with regards to prototyping?",
"What information did prototyping provide?",
"What initiatives has DOD developed?",
"What problems do these initiatives face?",
"What are enablers for DOD's efforts?",
"How is DOD not utilizing all of these enablers?",
"How can DOD address funding issues with its innovations?",
"How was GAO able to review DOD's research and development funds?",
"What does GAO's report address?",
"What did GAO examine?"
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"summary": [
"The Department of Defense (DOD) has used prototyping on its major defense acquisition programs (MDAP) primarily to reduce technical risk, investigate integration challenges, validate designs, mature technologies, and refine performance requirements.",
"Of the 22 programs GAO reviewed, 17 used prototyping before starting system development.",
"For many of those programs, prototyping provided information that helped introduce realism into their business cases by providing information on technology maturity, the feasibility of the design concepts, potential costs, and the achievability of planned performance requirements.",
"DOD has developed new initiatives that are outside of major defense acquisition programs to increase prototyping and further innovation.",
"However, these initiatives face barriers, such as limited funding, a risk averse culture, and competing priorities.",
"Literature on private sector innovation identifies key enablers for these types of efforts, such as developing an innovation strategy, aligning investments with innovation goals, and protecting funding for riskier projects.",
"For example, DOD does not have a department-wide strategy that communicates strategic goals and priorities and delineates roles and responsibilities to guide the prototyping initiatives. This could lead to unproductive or poorly coordinated investments later.",
"One strategy to address funding issues called “strategic buckets” involves allocating resources to different types of projects based on an organization's strategy (see figure).",
"House Conference Report 114-102 accompanying a bill for the fiscal year 2016 National Defense Authorization Act included a provision for GAO to review how DOD's research and development funds are used and whether this approach effectively supports activities such as prototyping.",
"This report assesses (1) how DOD has used prototyping prior to system development on major defense acquisition programs, and (2) what steps DOD has taken to increase innovation through prototyping activities outside of major defense acquisition programs.",
"GAO examined prototyping activities for 22 MDAPs that planned to enter system development between December 2009 and February 2016 and 7 prototyping-focused initiatives with the stated purpose of promoting innovation."
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CRS_R41782
|
{
"title": [
"",
"Procedures",
"Deadlines and Contents",
"Exception for Credit Card and Third Party Network Payments",
"Penalties",
"Civil Penalties for Information Returns Due Before 2011",
"Civil Penalties for Information Returns Due in 2011 or Later",
"Criminal Penalties in Cases of Willful Violations",
"Repealed Amendments",
"Section 9006 of the Patient Protection and Affordable Care Act",
"Section 2101 of the Small Business Jobs Act of 2010"
],
"paragraphs": [
"Taxpayers are seen as more likely to pay taxes on income if the realization of that income has been communicated to the Internal Revenue Service (IRS). To encourage compliance with tax laws, the Internal Revenue Code (IRC) includes a number of information reporting requirements regarding payments that may result in taxable income for the payee.\nOne such reporting requirement, contained in IRC § 6041(a), applies to certain payments made by persons in the course of a trade or business. Under IRC § 6041(a), if the total amount of payments made to a single payee over a year equals at least $600, the payer is required to file an information return with the IRS providing information identifying the payer, the payee, and the total amounts paid to that payee over the past calendar year. The information returns required to be filed under IRC § 6041 are typically versions of Form 1099. A copy of this information return must also be provided to the payee. Although payees may receive copies of information returns, payees are not required to file any information returns under IRC § 6041.\nSection 6041 was amended twice in 2010: once by § 9006 of the Patient Protection and Affordable Care Act (PPACA) and a second time by § 2101 of the Small Business Jobs Act of 2010. Both amendments were subsequently repealed by the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. As a result, the information reporting requirements have been restored to their pre-PPACA scope. They may, however, be subject to stronger enforcement as a result of a surviving provision of the Small Business Jobs Act that revised the penalties for failing to file an accurate 1099 with the IRS or failing to provide an accurate copy of that form to the payee.\nThis report briefly discusses the procedures and penalties under current law applicable to the information reporting requirements under IRC § 6041, and also briefly describes recent amendments that have been repealed. For a more detailed discussion of the repealed amendments, including responses to them by various stakeholders, see CRS Report R41504, 1099 Information Reporting Requirements and Penalties as Modified by the Patient Protection and Affordable Care Act and the Small Business Jobs Act of 2010 , by [author name scrubbed] and [author name scrubbed].",
"The procedures for filing information returns with the IRS were not changed by either PPACA or the Small Business Jobs Act; therefore, the repeal of the amendments to § 6041 has no effect on those procedures.",
"The deadline for filing an information return with the IRS is February 28 of the year following the calendar year in which payments were made, or March 31 if filed electronically. Copies of information returns must be provided to payees no later than January 31 of the year following the calendar year in which the payments were made.\nInformation returns must accurately identify both the payer and the payee of the payments as well as the total amount paid. The payees are required to provide their names, addresses, and taxpayer identification numbers to payers in order to facilitate information reporting. The information return must include all of these as well as the address and telephone number of the payer. It is the payer's obligation to request information from the payee, and the payee is required to provide it. The payer may use Form W-9 to request the information from U.S. persons. If the payee does not provide a taxpayer identification number, the payer is generally required to collect backup withholding from payments due to the payee. For 2010-2012, the backup withholding rate is 28%. A payee is subject to a penalty of $50 for each failure to provide the correct taxpayer identification number to a payer who has requested it.",
"The IRS recently promulgated regulations governing the reporting of credit card and third party network transactions. These regulations are not affected by the repeal described above, and create an exception to the information reporting requirements of § 6041. For payments made after December 31, 2010, Treasury Regulation § 1.6041-1(a)(1)(iv) states that any transaction that is subject to reporting under § 6050W, without regard to the third party network de minimus threshold, will not be reported under § 6041. Thus, if payments are made by credit card or through a third party network, the payer generally will not be required to report them on an information return.",
"Both the failure to submit an accurate information return to the IRS and the failure to provide a copy of the information return to the payee are subject to monetary penalties assessed by the IRS. As a unique information return is required with respect to each payee, penalties are assessed on each deficient information return. Both § 6721 (pertaining to failure to file accurate returns with the IRS) and § 6722 (pertaining to failure to provide payees with correct copies of the information returns) of the IRC have been amended by the Small Business Jobs Act to revise the amounts of the penalties. Section 6722 has been amended to change the structure of the penalty so that it is similar to the structure of the § 6721 penalty. In so doing, the effect is that the amended penalty may be lower than it previously would have been where corrective action is taken. The changes to both sections are scheduled to become effective for returns required to be filed after December 31, 2010. Thus, the new penalty amounts are expected to apply to returns that report payments made during calendar year 2010.",
"For information returns that are due before the amendments take effect, the penalty for failing to file a correct and timely return with the IRS is $50 for each defective return not to exceed $250,000 for a single payer. If the deficiency is corrected within 30 days of the due date, the penalty is reduced to $15 per return, not to exceed $75,000. If corrected later than 30 days, but before August 1, the penalty is $30 per return, not to exceed $150,000. No penalty will be assessed against a person if defects are corrected by August 1, and the total number of defective returns does not exceed the greater of 10 or one-half percent of the total number of information returns required to be filed by the person.\nSome small businesses may be able to take advantage of reduced ceilings on aggregate penalties for payers with gross receipts of less than $5 million. For these payers, the ceilings are $100,000 (for uncorrected violations), $25,000 (if corrected within 30 days), and $50,000 (if corrected after 30 days, but on or before August 1). Higher penalties may also be assessed where persons intentionally disregard their duty to file an information return. (See Table 1 .)\nFailure to provide a correct and timely statement to a payee is also subject to a $50 penalty per return, not to exceed $100,000 per payer. Higher penalties may also be assessed where persons intentionally disregard their duty to provide a payee with a copy of an information return. (See Table 2 .)",
"Section 2102 of the Small Business Jobs Act modified the penalties for failing to provide information returns to the IRS or to the appropriate payee in a timely fashion. These amendments have not been repealed by the 112 th Congress. The penalties for failing to file information returns with the IRS were increased across the board, as described in Table 1 . These amounts will also be updated in 2017, and every five years after, to account for inflation.\nSection 2102 of the Small Business Jobs Act also modified the penalty scheme for failures to provide copies of information returns to payees. As described in Table 2 , the amended penalties mirror the amounts that would be assessed for a failure to file information returns with the IRS and are similarly indexed for inflation. In addition to raising the base penalty, the amendments also provide reduced penalties if corrective actions are taken. Because the prior penalty scheme did not take corrective action into account, penalties under the amended provision may actually be less than what would have been assessed under the old scheme if corrective action is taken.",
"It is a misdemeanor for any person to willfully fail to make an information return as required by law. Persons convicted of this offense may be punished by a fine of up to $25,000, imprisonment for up to one year, or both. A willful violation occurs when there is \"a voluntary, intentional violation of a known legal duty.\" However, a violation that results from a good-faith misunderstanding of the requirements of the IRC is not a willful violation, as that term has been interpreted by the courts. Neither the Small Business Jobs Act nor PPACA changed the criminal penalties applicable to the willful failure to make an information return.",
"Section 6041 was amended twice in 2010: once by § 9006 of PPACA and a second time by § 2101 of the Small Business Jobs Act of 2010. Both amendments were subsequently repealed by the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. Each repealed amendment is described below. For a more detailed discussion of the repealed expansions, including responses to them by various stakeholders, see CRS Report R41504, 1099 Information Reporting Requirements and Penalties as Modified by the Patient Protection and Affordable Care Act and the Small Business Jobs Act of 2010 , by [author name scrubbed] and [author name scrubbed].",
"For payments made after December 31, 2011, § 9006 of PPACA amended the reporting requirement in IRC § 6041 in two principal ways. First, payments to corporations would no longer be automatically exempt from reporting requirements by virtue of the payee's corporate status, superseding existing regulations to the contrary. Second, the types of payments that could trigger the reporting requirement were expanded to include amounts paid in consideration of property and other gross proceeds. Although now repealed, the effect of this amendment would have been to require those engaged in a trade or business to report a broader range of payments made to a broader range of payees in order to encourage the voluntary reporting of taxable income and also to facilitate the enforcement and collection of taxes on income that is not voluntarily reported.",
"Section 2101 of the Small Business Jobs Act expanded the payers who would be required to comply with the section's reporting requirements to include landlords. Generally, those receiving rental income from real estate have not been considered to be engaged in a trade or business; however, the recent amendment of § 6041 would have changed this. Solely for purposes of § 6041(a), most landlords would have been considered to be engaged in the trade or business of renting real estate and, therefore, might have been required to file Forms 1099 to report payments made in conjunction with their rental properties."
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"question": [
"Why might taxpayers be more likely to report items of income on their tax returns?",
"What is a problem with expanding reporting requirements?",
"How was this problem highlighted recently?",
"What was the result of the objections?",
"What is required by IRC § 6041?",
"What is the required return?",
"How is the form filed?",
"What is the form required for?"
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"summary": [
"Taxpayers are seen as more likely to report items of income on their tax returns if they know that a third party has reported it to the Internal Revenue Service (IRS); if follows, therefore, that expanding information reporting requirements under the Internal Revenue Code (IRC) can improve the collection of federal tax revenue.",
"However, as those requirements are expanded, those who must comply with the requirements generally will face an increased administrative burden.",
"This tension between the desire to improve tax compliance and the concomitant burden imposed on taxpayers was recently highlighted after expansions of the reporting requirements in IRC § 6041 were met by protests that the changes imposed too great a burden, particularly on small businesses.",
"As a result of these objections, the expansions to the information reporting requirement were repealed shortly after they were enacted.",
"IRC § 6041 requires payments totaling at least $600 in a single calendar year to a single recipient to be reported to the IRS.",
"The required return is generally a Form 1099, which is prepared by the entity making the payment and identifies to whom payment was made, the amount of the payment, and the general reason for the payment.",
"The form is filed with the IRS and a copy is provided to the payee.",
"The form is required only when the payer is considered to be engaged in a trade or business and has made the payment in connection with that trade or business."
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{
"title": [
"",
"Recent Developments",
"Introduction",
"Cuba's Political and Economic Situation",
"Brief Historical Background1",
"Political Conditions",
"Human Rights Conditions",
"Economic Conditions and Reform Efforts",
"Cuba's Foreign Relations",
"North Korean Ship Incident59",
"U.S. Policy Toward Cuba",
"Background on U.S.-Cuban Relations76",
"Clinton Administration's Easing of Sanctions",
"Bush Administration's Tightening of Sanctions",
"Obama Administration Policy",
"Background on the First Six Years of U.S. Policy Under President Obama",
"President Obama Unveils a New Policy Approach Toward Cuba",
"Debate on the Direction of U.S. Policy",
"Issues in U.S.-Cuban Relations",
"U.S. Restrictions on Travel and Remittances106",
"U.S. Agricultural Exports and Sanctions",
"Trademark Sanction116",
"U.S. Funding to Support Democracy and Human Rights",
"Oversight of U.S. Democracy Assistance to Cuba",
"Imprisonment and Ultimate Release of USAID Subcontractor Alan Gross",
"Radio and TV Marti",
"Funding for Cuba Broadcasting",
"Oversight of Radio and TV Martí",
"Terrorism Issues161",
"Migration Issues172",
"Cuba Alters Its Policy Regarding Exit Permits",
"Anti-Drug Cooperation",
"Cuba's Offshore Oil Development",
"Cooperation on Oil Spill Prevention, Preparedness, and Response",
"Cuban Spies",
"Cuban Five—Remaining Three Released",
"Legislative Initiatives in the 113th Congress",
"Enacted Measures",
"Additional Measures"
],
"paragraphs": [
"",
"On December 17, 2014, after the end of the 113 th Congress, President Obama announced major developments in U.S.-Cuban relations. First, the Cuban government released Alan Gross, the U.S. Agency for International Development subcontractor imprisoned in Cuba for five years, on humanitarian grounds. Second, in a separate action, the Cuban government released an important U.S. intelligence asset imprisoned for almost two decades in exchange for three Cuban intelligence agents who had been imprisoned in the United States since 1998. Finally, with the release of Gross and the U.S. intelligence asset, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy aimed at isolating Cuba to a policy of engagement. The President outlined three major steps to move toward normalization: (1) reestablishment of diplomatic relations with Cuba (relations were severed in 1961); (2) a review of Cuba's designation by the Department of State as a state sponsor of international terrorism (Cuba has been on the list since 1982); and (3) an increase in travel, commerce, and the flow of information to and from Cuba. The President maintained that the United States would continue to speak out on human rights and democracy issues, but stressed that more could be done to support the Cuban people through engagement. (See \" President Obama Unveils a New Policy Approach Toward Cuba \" below.)\nOn December 16, 2014, President Obama signed into law the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), which provided FY2015 funding for Cuba democracy projects and Cuba broadcasting. With regard to democracy funding, the law measure stated that Economic Support Funds should be made available for programs in Cuba, but did not specify an amount (the Administration had requested $20 million). The explanatory statement to the measure provides for $27.130 million to be provided for Cuba broadcasting (the Administration had requested $23.130 million), but also indicated that funds may be transferred to the Office of Cuba Broadcasting (OCB) of the Broadcasting Board of Governors from appropriated Economic Support Funds to restore OCB program reductions. (See \" U.S. Funding to Support Democracy and Human Rights \" and \" Radio and TV Marti \" below).\nOn December 9, 2014, Cuba released from prison Ladies in White member Sonia Garro Alfonso, her husband Ramón Alejandro Muñoz González, and a neighbor, Eugenio Hernández, who had been held since March 2012. Upon release, the three reportedly were placed under house arrest while awaiting trial. Amnesty International expressed concern that the three will not receive a fair trial in accordance with international standards. (See \" Human Rights Conditions \" below.)\nOn December 3, 2014, the independent Havana-based Cuban Commission on Human Rights and National Reconciliation reported that there were 8,410 short-term detentions for political reasons in the first 11 months of 2014, far higher than the same period over the past several years. In June 2014, the group also reported that there were 102 political prisoners in the country, not including 12 released on parole who are not allowed to leave the country. (See \" Human Rights Conditions \" below.)\nFor developments earlier in 2014 and 2013, see Appendix B .",
"Political and economic developments in Cuba and U.S. policy toward the island nation, located just 90 miles from the United States, have been significant congressional concerns for many years. Since the end of the Cold War, Congress has played an active role in shaping U.S. policy toward Cuba, first with the enactment of the Cuban Democracy Act of 1992 ( P.L. 102-484 , Title XVII) and then with the Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ). Both of these measures strengthened U.S. economic sanctions on Cuba that had first been imposed in the early 1960s, but the measures also provided roadmaps for a normalization of relations dependent upon significant political and economic changes in Cuba. A decade ago, Congress partially modified its sanctions-based policy toward Cuba when it enacted the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 , Title IX) allowing for U.S. agricultural exports to Cuba that led to the United States becoming a major source for Cuba's food imports.\nOver the past decade, much of the debate over U.S. policy in Congress has focused on U.S. sanctions, especially over U.S. restrictions on travel to Cuba. The George W. Bush Administration initially liberalized U.S. family travel to Cuba in 2003, but subsequently tightened restrictions on family and other categories of travel in 2004 because of Cuba's crackdown on political dissidents. In 2009, Congress took legislative action in an appropriations measure ( P.L. 111-8 ) to ease restrictions on family travel and travel for the marketing of agricultural exports, marking the first congressional action easing Cuba sanctions in almost a decade. The Obama Administration took further action in April 2009 by lifting all restrictions on family travel and on cash remittances by family members to their relatives in Cuba and restarting semi-annual migration talks that had been curtailed in 2004. In January 2011, the Administration announced the further easing of restrictions on educational and religious travel to Cuba and on non-family remittances, and it also expanded eligible airports in the United States authorized to serve licensed charter flights to and from Cuba. In December 2014, just after the adjournment of the 113 th Congress, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy aimed at isolating Cuba to a policy of engagement and a normalization of relations. As announced, part of the President's initiative is to increase travel, commerce, and the flow of information to Cuba.\nThis report is divided into three major sections analyzing Cuba's political and economic situation, U.S. policy toward Cuba, and selected issues in U.S.-Cuban relations. The first section includes a brief historical political background on Cuba; a discussion on the current political situation under Raúl Castro, including human rights conditions; an examination of economic conditions and policy changes that have occurred to date under Raúl Castro; and Cuba's foreign relations. The second section on U.S. policy provides a broad overview of U.S. policy historically through the George W. Bush Administration and then a discussion of current policy under the Obama Administration. It then provides a brief discussion on the general policy debate regarding the direction of U.S. policy toward Cuba. The third section analyzes many of the key issues in U.S.-Cuban relations that have been at the forefront of the U.S. policy debate on Cuba and have often been the subject of legislative initiatives. While legislative initiatives are noted throughout the report where appropriate, a final section of the report provides a listing of enacted measures and bills and resolutions introduced in the 113 th Congress. An appendix also provides links to selected executive branch reports and web pages on Cuba.",
"",
"Cuba did not become an independent nation until 1902. From its discovery by Columbus in 1492 until the Spanish-American War in 1898, Cuba was a Spanish colony. In the 19 th century, the country became a major sugar producer with slaves from Africa arriving in increasing numbers to work the sugar plantations. The drive for independence from Spain grew stronger in the second half of the 19 th century, but it only came about after the United States entered the conflict when the USS Maine sank in Havana Harbor after an explosion of undetermined origin. In the aftermath of the Spanish-American War, the United States ruled Cuba for four years until Cuba was granted its independence in 1902. Nevertheless, the United States still retained the right to intervene in Cuba to preserve Cuban independence and maintain stability in accordance with the Platt Amendment that became part of the Cuban Constitution of 1901. The United States subsequently intervened militarily three times between 1906 and 1921 to restore order, but in 1934, the Platt Amendment was repealed.\nCuba's political system as an independent nation was often dominated by authoritarian figures. Gerardo Machado (1925-1933), who served two terms as President, became increasingly dictatorial until he was ousted by the military. A short-lived reformist government gave way to a series of governments that were dominated behind the scenes by military leader Fulgencio Batista until he was elected President in 1940. Batista was voted out of office in 1944 and was followed by two successive Presidents in a democratic era that ultimately became characterized by corruption and increasing political violence. Batista seized power in a bloodless coup in 1952 and his rule progressed into a brutal dictatorship. This fueled popular unrest and set the stage for Fidel Castro's rise to power.\nCastro led an unsuccessful attack on military barracks in Santiago, Cuba, on July 26, 1953. He was jailed, but subsequently freed and went into exile in Mexico where he formed the 26 th of July Movement. Castro returned to Cuba in 1956 with the goal of overthrowing the Batista dictatorship. His revolutionary movement was based in the Sierra Maestra and joined with other resistance groups seeking Batista's ouster. Batista ultimately fled the country on January 1, 1959, leading to more than 45 years of rule under Fidel Castro until he stepped down from power provisionally in July 2006 because of poor health.\nWhile Castro had promised a return to democratic constitutional rule when he first took power, he instead moved to consolidate his rule, repress dissent, and imprison or execute thousands of opponents. Under the new revolutionary government, Castro's supporters gradually displaced members of less radical groups. Castro moved toward close relations with the Soviet Union while relations with the United States deteriorated rapidly as the Cuban government expropriated U.S. properties (see \" Background on U.S.-Cuban Relations \" below). In April 1961, Castro declared that the Cuban revolution was socialist, and in December 1961, he proclaimed himself to be a Marxist-Leninist. Over the next 30 years, Cuba was a close ally of the Soviet Union and depended on it for significant assistance until the dissolution of the Soviet Union in 1991.\nFrom 1959 until 1976, Castro ruled by decree. In 1976, however, the Cuban government enacted a new Constitution setting forth the Cuban Communist Party (PCC) as the leading force in state and society, with power centered in a Political Bureau headed by Fidel Castro. Cuba's Constitution also outlined national, provincial, and local governmental structures. Since then, legislative authority has been vested in a National Assembly of People's Power that meets twice annually for brief periods. When the Assembly is not in session, a Council of State, elected by the Assembly, acts on its behalf. According to Cuba's Constitution, the president of the Council of State is the country's head of state and government. Executive power in Cuba is vested in a Council of Ministers, also headed by the country's head of state and government, that is, the president of the Council of State.\nFidel Castro served as head of state and government through his position as president of the Council of State from 1976 until February 2008. While he had provisionally stepped down from power in July 2006 because of poor health, Fidel still officially retained his position as head of state and government. National Assembly elections were held on January 20, 2008, and Fidel Castro was once again among the candidates elected to the now 614-member legislative body. (As in the past, voters were only offered a single slate of candidates.) On February 24, 2008, the new Assembly was scheduled to select from among its ranks the members of the Council of State and its president. Many observers had speculated that because of his poor health, Fidel would choose not to be reelected as president of the Council of State, which would confirm his official departure from heading the Cuban government. Statements from Castro himself in December 2007 hinted at his potential retirement. That proved true on February 19, 2008, when Fidel announced that he would not accept the position as president of the Council of State, essentially confirming his departure as titular head of the Cuban government.",
"After Fidel stepped down from power, Cuba's political succession from Fidel to Raúl Castro was characterized by considerable stability. After two and one half years of provisionally serving as President, Raúl Castro officially became Cuba's President on February 24, 2008, when Cuba's legislature selected him as president of the 31-member Council of State.\nWhile it was not a surprise to observers for Raúl to succeed his brother Fidel officially as head of government, the selection of José Ramón Machado Ventura as the Council of State's first Vice President in February 2008 was a surprise. Born in 1930, Machado was part of the older generation of so-called históricos of the 1959 Cuban revolution along with the Castro brothers (Fidel Castro was born in August 1926, while Raúl Castro was born in June 1931). Described as a hard-line communist party ideologue, Machado reportedly was a close friend and confident of Raúl for many years. The position of first vice president of the Council of State is significant because, according to the Cuban Constitution, the person holding the office is the official successor to the president.\nWhile Raúl Castro began implementing some economic reforms in 2008, there has been no change to his government's tight control over the political system and few observers expect there to be, with the government backed up by a strong security apparatus. Under Raúl, who served as defense minister from the beginning of the Cuban revolution until 2008, the Cuban military has played an increasing role in government with several key military officers and confidants of Raúl serving as ministers.\nThe Cuban Communist Party (PCC) held its sixth congress in April 2011. While the party concentrated on making changes to Cuba's economic model, some political changes also occurred. As expected, Fidel was officially replaced by Raúl as first secretary of the PCC, and First Vice President José Ramón Machado became the party's second secretary. The party's Political Bureau or Politburo was reduced from 23 to 15 members, with 3 new members, Marino Murrillo, Minister of Economy Adel Yzquierdo Rodriguez, and the first secretary of the party in Havana, Mercedes Lopez Acea. The party's Central Committee also was reduced from 125 to 115 members, with about 80 of those being new members of the committee.\nAt the April 2011 party congress, Raúl Castro proposed two five-year term limits for top positions in the party and in the government, calling for systematic rejuvenation, a change that was confirmed by a January 2012 national PCC conference. Cuba's revolutionary leadership has been criticized by many observers for remaining in party and government positions far too long, and for not passing leadership opportunities to a younger generation. Some observers had expected leadership changes and more significant reforms at the January 2012 PCC conference. While this did not occur, the PCC approved a resolution by which its Central Committee would be allowed to replace up to 20% of its 115 members within its five-year mandate.\nOn February 3, 2013, Cuba held elections for over 600 members of the National Assembly of People's Power, the national legislature, as well as over 1,600 provincial government representatives, both for five-year terms. Under Cuba's one-party system, the overwhelming majority of those elected are PCC members. Critics maintain that elections in Cuba are a sham and entirely controlled by the PCC.\nThe new National Assembly met on February 24, 2013, to select the next president of the Council of State, Cuba's head of government. As expected, Raúl Castro was selected for a second five year-term as president (until February 2018, when Raúl will be 86 years old), but Castro also indicated that this would be his last term in conformity with the new two-term limit for top officials. Most significantly, First Vice President José Ramón Machado, 82 years old, was replaced by 52-year old Miguel Díaz-Canel Bermúdez, who was serving as one of the Council of State's vice presidents. Díaz-Canel's appointment as the official constitutional successor to President Castro represents a move toward bringing about generational change in Cuba's political system. Díaz-Canel became a member of the Politburo in 2003 and also held top PCC positions in the provinces of Villa Clara and Holguín. He became education minister in 2009 until he was tapped to be a vice president of the Council of State. Díaz-Canel has been described in media reports as an experienced manager with good relations with the military and as someone that worked his way up through the party.\nIn another significant move in February 2013, the National Assembly appointed Esteban Lazo Hernández as the new president of Cuba's National Assembly. Lazo, who is the Cuban government's highest ranking official of Afro-Cuban descent, replaced long-time National Assembly President Ricardo Alarcón, who was not a candidate in this year's National Assembly elections. Lazo has held top party positions in several provinces and has served as a vice president of the Council of State.\nWhile generational change already appears to be underway in Cuba's political system, this does not signify an easing of Cuba's tightly controlled regime. In speaking on the 60 th anniversary of the start of the Cuban revolution on July 26, 2013, President Castro asserted that a generational transfer of power had already begun, stating that \"there is a slow and orderly transfer of the leadership of the revolution to the new generations.\" Some observers maintain that while the leadership transition in 2018 (or earlier, given that Raúl Castro's is 82 years old) will likely be smooth, there is a greater likelihood for a growth in factionalism within the system without Castro at the helm.\nOn September 15, 2013, Cuba's Conference of Catholic Bishops issued a pastoral letter maintaining that, just as economic changes were occurring, Cuba's political order also needed to be updated. The bishops maintained that there should be the right of diversity with respect to thought, creativity, and the search for truth, and maintained that out this diversity arises the need for dialogue among diverse social groups. In his March 2012 pastoral visit to Cuba, Pope Benedict VI had urged Cubans \"to build a renewed and open society.\"",
"The Cuban government has a poor record on human rights, with the government sharply restricting freedoms of expression, association, assembly, movement, and other basic rights since the early years of the Cuban revolution. The government has continued to harass members of the Ladies in White ( Damas de Blanco ) human rights group that was formed in 2003 by the female relatives of the so-called \"group of 75\" dissidents arrested that year in a massive crackdown (for more, see text box below). Two Cuban political prisoners conducting hunger strikes have died in recent years, Orlando Zapata Tamayo in February 2010 and Wilman Villar Mendoza in January 2012. Tamayo died after an 85-day hunger strike that he had initiated to protest inhumane conditions in Cuba's prisons. Villar Mendoza died following a 50-day hunger strike after he was convicted of \"contempt\" of authority and sentenced to four years in prison.\nAmnesty International (AI) published a report in March 2012 maintaining that \"the Cuban government wages a permanent campaign of harassment and short-term detentions of political opponents to stop them from demanding respect for civil and political rights.\" The report maintained that the release of dozens of political prisoners in 2011 \"did not herald a change in human rights policy.\" AI asserted that \"the vast majority of those released were forced into exile, while in Cuba the authorities were determined to contain the dissidence and government critics with new tactics,\" including intimidation, harassment, surveillance, and \"acts of repudiation,\" or demonstrations by government supporters targeting government critics.\nAI has called attention to several prisoners of conscience in Cuba. These currently include Iván Fernández Depestre, convicted of \"dangerousness\" (a pre-emptive measure defined as the special proclivity of a person to commit crimes) in early August 2013 after participating in a peaceful protest and sentenced to three years in prison; and brothers Alexeis, Django, and Vianco Vargas Martín, members of the Patriotic Union of Cuba (UNPACU), who were detained in late 2012 in Santiago and convicted in June 2014 after a summary trial in which they were charged with \"public disorder of a continuous nature.\" AI believed their arrest and detention was in response to their peaceful exercise of freedom of expression and intended to intimidate other government critics; there three were supposed to be sentenced on July 1, 2014, but the sentencing was postponed. AI also reported on other cases of arbitrary detention by the Cuban government, including the continued detention since March 2012 of Ladies in White member Sonia Garro Alfonso, her husband Ramón Alejandro Muñoz González, and a neighbor, Eugenio Hernández; all three were released from prison on December 9, 2014, and placed under house arrest while awaiting trial. AI expressed concern that the three will not receive a fair trial in accordance with international standards.\nBeyond AI's more narrow definition of prisoners of conscience, the Cuban government holds a larger number of political prisoners, generally defined as a person imprisoned for his or her political activities. While the Cuban government released numerous political prisoners in recent years, including more than 125 released in 2010-2011 with the help of Cuba's Catholic Church (down from more than 200 estimated at the beginning of 2010) the number of political prisoners has reportedly increased since 2012, according to the Havana-based Cuban Commission on Human Rights and National Reconciliation (CCDHRN). In June 2014, the group estimated that Cuba held at least 102 political prisoners, not including a dozen individuals arrested in Cuba's 2003 crackdown that were released on parole, but are prevented from leaving the country. This is up from an estimated 50 political prisoners in April 2012. In December 2014, Cuba reportedly agreed to release, as requested by the United States, 53 political prisoners as part of the overall deal to restore bilateral relations, but the names of the 53 prisoners have not been released.\nShort-term detentions for political reasons have increased significantly over the past several years, a reflection of the government's change of tactics in repressing dissent. The CCDHRN reports that there were at least 2,074 such detentions in 2010, 4,123 in 2011, 6,602 in 2012, and 6,424 in 2013. The number spiked in March 2012 surrounding the visit of Pope Benedict XVI to Cuba. It also spiked in December 2013 when there were at least 1,123 short-term detentions for political reasons. From January through November 2014, the number of short-term detentions for political reasons amounted to at least 8,410 detentions, far higher than the same period over the past several years.\nInternationally known Cuban democracy and human rights activist Oswaldo Payá was killed in a car accident in July 2012 in the eastern province of Granma along with another Cuban human rights activist Harold Cepero. Payá, whose death prompted expressions of sympathy from around the world, is probably best known for his work founding the Varela Project in 1996. Two Europeans accompanying Payá were also in the crash: Jens Aron Modig, president of the Swedish Christian Democrats youth wing, who was a passenger; and Angel Carromero Barrios, a leader of the Spanish Popular Party's youth organization, who was driving. Carromero was convicted in October 2012 of vehicular manslaughter for speeding and sentenced to four years in prison; after diplomatic efforts by Spain, he was released in late December 2012 to serve the rest of his term in Spain. In early March 2013, however, Carromero maintained in an interview with the Washington Post that the car he was driving was struck from behind just before the accident and that he was heavily drugged when he admitted to driving recklessly. Payá's daughter has called for the United Nations to conduct an independent investigation into the crash. Modig maintains that he was asleep at the time of the accident and does not remember any details. In July 2012, the U.S. Senate approved S.Res. 525 (Nelson), calling for an impartial third-party investigation of the crash. The U.S. Department of State issued a statement on March 28, 2013, calling for an independent international investigation into the circumstances leading to the death of Payá and Cepero.\nOver the past several years, numerous independent Cuban blogs have been established that are often critical of the Cuban government. The Cuban government has responded with its own team of official bloggers to counter and disparage the independent bloggers. Cuban blogger Yoani Sánchez has received considerable international attention since late 2007 for her website, Generación Y, which includes commentary critical of the Cuban government. (Sánchez's website is available at http://generacionyen.wordpress.com/ , and has links to numerous other independent blogs and websites . ) In May 2014, Sánchez launched an independent digital newspaper in Cuba, available on the Internet ( http://www.14ymedio.com/ ), distributed through a variety of methods in Cuba, including CDs, USB flash drives, and DVDs. In the 113 th Congress, H.Res. 121 (Hastings, FL), introduced in March 2013, would honor Sánchez \"for her ongoing efforts to challenge political, economic, and social repression by the Castro regime.\"\nWhile the human rights situation in Cuba remains poor, the country has made some advances in recent years. In 2008, Cuba lifted a ban on Cubans staying in hotels that previously had been restricted to foreign tourists in a policy that had been pejoratively referred to as \"tourist apartheid.\" In recent years, as the government has enacted limited economic reforms, it has been much more open to debate on economic issues. The Catholic Church, which played a prominent role in the release of political prisoners in 2010, has been active in broadening the debate on social and economic issues through its publications Palabra Nueva (New World) and Espacio Laical (Space for Laity). In June 2014, the two editors of Espacio Laical , Roberto Veiga and Lenier Gonzalez, resigned from their positions, maintaining that they had been pressured from inside the Church from those who did not want the Church to be involved in politics, but on July 1, 2014, they announced that they would launch a new online forum in the future known as Cuba Posible .\nIn January 2013, Cuba took the significant step of eliminating its long-standing policy of requiring an exit permit and letter of invitation for Cubans to travel abroad (see \" Cuba Alters Its Policy Regarding Exit Permits \" below). The change has allowed prominent dissidents and human rights activists to travel abroad and return to Cuba. However, those Cubans subject to ongoing legal proceedings, including political prisoners who have been released on parole, have been restricted from traveling abroad.\nProminent dissident economist Oscar Espinosa Chepe died in Spain on September 23, 2013, after battling chronic liver disease and cancer. Espinosa had been imprisoned in March 2003 as one of the \"group of 75\" dissidents, but was released on medical parole in November 2004. The Department of State issued a statement after Espinosa Chepe's death maintaining that \"he was a tireless champion for improving economic policy and human rights in Cuba\" and that \"he remained optimistic that the country he loved would experience economic prosperity and democratic governance.\" Espinosa Chepe traveled to Madrid in March 2013 for medical treatment. He is survived by Miriam Leiva, a longtime human rights activist and independent journalist who helped found the Ladies in White.\nIn June 2014, the State Department released its 2014 Trafficking in Persons Report. As it has since 2003, Cuba remained on the Tier 3 list of countries whose governments do not comply with the minimum standards for combatting trafficking against Cuba. The report noted, however, that for the first time Cuba released and reported concrete action against sex trafficking, and that the Cuban government maintained that it would be amending its criminal code to ensure conformity with the 2000 United Nations Trafficking in Persons Protocol.",
"Cuba's economy is largely state-controlled, with the government owning most means of production and employing almost 80% of the workforce. Key sectors of the economy that generate foreign exchange include the export of professional services (largely medical personnel to Venezuela); tourism, which has grown significantly since the mid-1990s, with 2.8 million tourists visiting Cuba in 2013 (below a goal of 3 million tourists); nickel mining, with the Canadian mining company Sherritt International involved in a joint investment project; and a biotechnology and pharmaceutical sector that supplies the domestic healthcare system and has fostered a significant export industry. Remittances from relatives living abroad, especially from the United States, have also become an important source of hard currency, and are estimated to be between $1.4 billion and $2 billion annually. The once-dominant sugar industry has declined significantly over the past 20 years; in 1990, Cuba produced 8.4 million tons of sugar while in 2014 it produced just 1.6 million tons.\nCuba is highly dependent on Venezuela for its oil needs. In 2000, the two countries signed a preferential oil agreement that provides Cuba with some 100,000 barrels of oil per day, about two-thirds of its consumption. Cuba's goal of becoming a net oil exporter with the development of its offshore deepwater oil reserves was set back significantly in 2012 when three exploratory oil drills were unsuccessful. (For more, see \" Cuba's Offshore Oil Development \" below.) The setback in Cuba's offshore oil development combined with political and economic difficulties in Venezuela have raised concerns among Cuban officials about the security of the support received from Venezuela. Cuba is increasingly focusing on the need to diversify its trading partners and to seek alternative energy suppliers in the case of a cutback or cutoff of Venezuelan oil.\nOver the years, Cuba has expressed pride for the nation's accomplishments in health and education. According to the U.N. Development Program's 2014 Human Development Report, Cuba is ranked 44 out of 187 countries worldwide and is characterized as having \"very high human development,\" with life expectancy in Cuba in 2013 at 79.3 years and adult literacy was estimated at almost 100%. The World Bank estimates that Cuba's per capita income level was in the upper middle income range ($4,086-$12,615) in 2012 (latest available), higher than a number of countries in the Americas.\nIn terms of economic growth, Cuba experienced severe economic deterioration from 1989 to 1993, with an estimated decline in gross domestic product ranging from 35% to 50% when the Soviet Union collapsed and Russian financial assistance to Cuba practically ended. Since then, however, there has been considerable improvement. From 1994 to 2000, as Cuba moved forward with some limited market-oriented economic reforms, economic growth averaged 3.7% annually. Economic growth was especially strong in the 2004-2007 period, registering an impressive 11% and 12%, respectively, in 2005 and 2006 (see Figure 2 ). The economy benefitted from the growth of the tourism, nickel, and oil sectors, and support from Venezuela and China in terms of investment commitments and credit lines. However, the economy was hard hit by several hurricanes and storms in 2008 and the global financial in 2009, with the government having to implement austerity measures. As a result, economic growth slowed significantly.\nSince 2010, however, growth has improved modestly, with 2.4% growth in 2010, 2.8% in 2011, 3% in 2012, and 2.7% in 2013, according to the Economist Intelligence Unit (EIU). The forecast for 2014, however, is for 1.2% growth, downgraded from EIU's original forecast of 2.1% growth because of Cuba's challenges in shifting from a centrally planned to a more decentralized economy. Cuban officials downgraded their own economic growth forecast for 2014 to 1.4% from 2.2%. The EIU projects stronger growth rates averaging 4% in the 2015-2019 period, but notes that the withdrawal of support from Venezuela would jeopardize these forecasts. Some economists maintain that Cuba needs a growth rate of at least 5% to 7% in order to develop the economy and create new jobs—increasing internal savings and attracting foreign investment reportedly are keys to achieving such growth rates.\nThe government of Raúl Castro has implemented a number of economic policy changes, but there has been some disappointment that more far-reaching reforms have not been forthcoming. As noted above, the government employs a majority of the labor force, almost 80%, but it has been allowing more private sector activities. In 2010, the government opened up a wide range of activities for self-employment and small businesses. There are now almost 200 categories of work allowed, and the number of self-employed has risen from some 156,000 at the end of 2010 to some 440,000 today. In 2013, some 125 non-agricultural cooperatives were established and the government announced that 20 state-run restaurants would be converted to cooperatives in a pilot project that could eventually lead to the conversion of hundreds of other state-run restaurants.\nAnalysts contend, however, that the government needs to do more to support the development of the private sector, including an expansion of authorized activities to include more white-collar occupations and state support for credit to support small businesses. A major challenge for the development of the private sector is the lack of money in circulation. Most Cubans do not make enough money to support the development of small businesses; those private sector activities catering to tourists and foreign diplomats have fared better than those serving the Cuban market. The government's decisions in 2013 to crack down on privately run movie and video game salons and on private sales of imported clothes and hardware raised questions about its commitment to the development of the private sector. In late December 2013, Raúl Castro issued a warning against those engaging in economic activities not strictly authorized by the state, maintaining that it creates an environment of impunity.\nWhen the Cuban Communist Party held its sixth congress in April 2011, it approved over 300 economic guidelines that, if implemented, include some potentially significant economic reforms. These include the liquidation of state enterprises with financial losses, the creation of special development zones for foreign investment, the gradual development of a tax system as a means to distribute income, and a gradual elimination of the ration system. Some economic analysts, however, maintained that the proposed changes were too limited and late to deal with the severity of Cuba's difficult economic situation.\nAmong Cuba's significant economic challenges are low wages (whereby workers cannot satisfy basic human needs) and the related problem of how to unify Cuba's two official currencies circulating in the country. Most people are paid in Cuban pesos (CUPs) and the minimum monthly wage in Cuba is about 225 pesos (about $9 U.S. dollars), but for increasing amounts of consumer goods, convertible pesos (CUCs) are used. (For personal transactions, the exchange rate for the two currencies is CUP24/CUC1.) Cubans with access to foreign remittances or who work in jobs that give them access to convertible pesos are far better off than those Cubans who do not have such access.\nIn October 2013, the Cuban government announced that it would move toward ending its dual-currency system and move toward monetary unification. In March 2014, the government provided insight about how monetary unification would move forward when it published instructions for when the CUC is removed from circulation; no date was provided, but it was referred to as day zero ( día cero ). There is significant uncertainty about the actual date and the exchange rate system that will replace it. The currency reform is ultimately expected to lead to productivity gains and improve the business climate, but the adjustment will create winners and losers.\nA significant reform effort under Raúl Castro has focused on the agricultural sector, a vital issue because Cuba reportedly imports some 60% of its food needs. In an effort to boost food production, the government has turned over idle land to farmers and given farmers more control over how to use their land and what supplies to buy. Despite these and other efforts, overall food production has been significantly below targets. In 2012, Cuba's coffee sector was hard hit by Hurricane Sandy in October, and overall agricultural production reportedly underperformed for the year. In November 2013, the Cuban government unveiled a new pilot program for the provinces of Havana, Artemisa, and Mayabeque that will end the government's monopoly on food distribution in an effort to boost production.\nIn March 2014, Cuba approved a new foreign investment law with the goal of attracting needed foreign capital to the country. The law cuts taxes in profits by half to 15% and exempts companies from paying taxes for the first eight years of operation. Employment or labor taxes are also eliminated, although companies still must hire labor through state-run companies, with agreed upon wages. A fast-track procedure for small projects reportedly will streamline the approval process, and the government has agreed to improve the transparency and time of the approval process for larger investments. It remains to be seen, however, to what extent the new law will actually attract investment. Over the past several years, Cuba has closed a number of joint ventures with foreign companies and has arrested several executives of foreign companies reportedly for corrupt practices. According to some observers, investors will want evidence, not just legislation, that the government is prepared to allow foreign investors to make a profit in Cuba. In October 2014, the Cuban government issued a list of some 246 projects in which it was seeking some $8.7 billion in investment in such sectors as energy, tourism, agriculture, and industry.\nIn April 2014, the Cuban government loosened restrictions on hundreds of its largest state-run companies that reportedly will be allowed to keep 50% of their profits after taxes, design their own wage systems, sell excess product on the open market after meeting state quotas, and have more flexibility in production and marketing decisions.\nA number of Cuba's economists reportedly are pressing for the government to enact more far-reaching reforms and embrace competition for key parts of the economy and state-run enterprises. They criticize the government's continued reliance on central planning and its monopoly in foreign trade.",
"During the Cold War, Cuba had extensive relations with and support from the Soviet Union, with billions of dollars in annual subsidies to sustain the Cuban economy. This subsidy system helped fund an activist foreign policy and support for guerrilla movements and revolutionary governments abroad in Latin America and Africa. With an end to the Cold War, the dissolution of the Soviet Union, and the loss of Soviet financial support, Cuba was forced to abandon its revolutionary activities abroad.\nAs its economy reeled from the loss of Soviet support, Cuba was forced to open up its economy and economic relations with countries worldwide, and it developed significant trade and investment linkages with Canada, Spain, other European countries, and China. Over the past decade, Venezuela—under populist President Hugo Chávez—became a significant source of support for Cuba, providing subsidized oil (some 100,000 barrels per day) and investment. For its part, Cuba has sent thousands of medical personnel to Venezuela. In the aftermath of Chávez's death in early March 2013, the very close Venezuela presidential election in April 2013 won by Nicolás Maduro of the ruling Socialist party, and Venezuela's mounting economic challenges in 2014 because of the rapid decline in oil prices, Cuban officials are concerned about the future of Venezuelan support in the medium to longer term.\nIn 2012, Cuba's leading trading partners in terms of Cuban exports were Venezuela, the Netherlands, Canada, and China (see Figure 3 ), while the leading sources of Cuba's imports were Venezuela, China, Spain, Brazil, and the United States (see Figure 4 ).\nRelations with Russia, which had diminished significantly in the aftermath of the Cold War, have been strengthened somewhat over the past several years. In 2008, then-Russian President Dmitry Medvedev visited Havana while Raúl Castro visited Russia in 2009 and again in 2012. Current Russian President Vladimir Putin visited Cuba in July 2014 on his way to attend the BRICS summit in Brazil. Just before arriving in Cuba, Putin signed into law an agreement writing off 90% of Cuba's $32 billion Soviet-era debt, with some $3.5 billion to be paid back by Cuba over a 10-year period that would fund Russian investment projects in Cuba. In the aftermath of Putin's trip, there were press reports alleging that Russia would reopen its signals intelligence facility at Lourdes, Cuba, which had closed in 2002, but President Putin denied reports that his government would reopen the facility.\nWhile trade relations between Russia and Cuba are not significant, two Russian energy companies have been involved in oil exploration in Cuba, and a third announced its involvement in 2014. Gazprom had been in a partnership with the Malaysian state oil company Petronas that conducted unsuccessful deepwater oil drilling off of Cuba's western coast in 2012. The Russian oil company Zarubezhneft began drilling in Cuba's shallow coastal waters east of Havana in December 2012, but stopped work in April 2013 because of disappointing results (also see \" Cuba's Offshore Oil Development \" below). During President Putin's July 2014 visit to Cuba, Russian energy companies Rosneft and Zarubezhneft signed an agreement with Cuba's state oil company CubaPetroleo (Cupet) for the development of an offshore exploration block, and Rosneft agreed to cooperate with Cuba in studying ways to optimize existing production at mature fields. Some energy analysts are skeptical about the prospects for the offshore project given the unsuccessful attempts by foreign oil companies drilling wells in Cuba's deepwaters. (Also see \" Cuba's Offshore Oil Development \" below.)\nRelations with China have also increased in recent years. During the Cold War, the two countries did not have close relations because of Sino-Soviet tensions, but bilateral relations have grown close in recent years with Chinese trade and investment in Cuba increasing. Chinese President Hu Jintao visited Cuba in 2004 and again in 2008, while Chinese Vice President Xi Jinping visited Cuba in June 2011 and again in July 2014 as President after attending the BRIC summit in Brazil. Raúl Castro had also visited China in 2012 on a four day visit, in which the two countries reportedly signed cooperation agreements focusing on trade and investment issues. During Xi Jinping's 2014 visit, the two countries reportedly signed 29 trade, debt, credit, and other agreements. While in Cuba, the Chinese President said that \"China and Cuba being socialist countries, we are closely united by the same missions, ideals, and struggles.\"\nThe European Union (EU) and Cuba held two rounds of talks in 2014—in April and August—on a framework agreement for cooperation covering political, trade, and development issues, and reports indicate that the two sides have made significant progress. In 1996, the EU adopted a Common Positon on Cuba, stating that the objective of EU relations with Cuba includes encouraging \"a process of transition to pluralist democracy and respect for human rights and fundamental freedoms.\" The position also stipulated that full EU economic cooperation with Cuba would depend upon improvements in human rights and political freedom.\nWith El Salvador's restoration of relations with Cuba in June 2009, all Latin American nations now have official diplomatic relations with Cuba. Cuba has increasingly become more engaged in Latin America beyond the already close relations with Venezuela. Cuba is a member of the Bolivarian Alliance for the Americas, (ALBA), a Venezuelan-led integration and cooperation scheme founded in 2004. In August 2013, Cuba began deploying thousands of doctors to Brazil in a program aimed at providing doctors to rural areas of Brazil, with Cuba earning some $225 million a year for supplying the medical personnel. Brazil also has been a major investor in the development of the port of Mariel west of Havana.\nCuba became a full member of the Rio Group of Latin American and Caribbean nations in November 2008, and a member of the succeeding Community of Latin American and Caribbean States (CELAC) that was officially established in December 2011 to boost regional cooperation, but without the participation of the United States or Canada. In January 2013, CELAC held its first summit in Chile, and Raúl Castro assumed the presidency of the organization for one year. Cuba hosted the group's second summit on January 28-29, 2014, in Havana, attended by leaders from across the hemisphere as well as U.N. Secretary General Ban Ki-moon and OAS Secretary General José Miguel Insulza. The U.N. Secretary General reportedly raised human rights issues with Cuban officials, including the subject of Cuba's ratification of U.N. human rights accords and \"arbitrary detentions\" by the Cuban government. Dozens of dissidents were arrested or detained in the lead-up to the summit. At the summit, Latin American nations approved a joint declaration emphasizing nonintervention and pledging to respect \"the inalienable right of every state to choose its political, economic, social and cultural system.\"\nCuba had expressed interest in attending the sixth Summit of the Americas in April 2012 in Cartagena, Colombia, but ultimately was not invited to attend. The United States and Canada expressed opposition to Cuba's participation. Previous summits have been limited to the hemisphere's 34 democratically elected leaders, and the OAS (in which Cuba does not participate) has played a key role in summit implementation and follow-up activities. Several Latin American nations vowed not to attend the next Summit of the Americas to be held in Panama in April 2015 unless Cuba was allowed to participate, and as a result, Panama announced in August 2014 that it would invite Cuba to attend. Cuba's participation was a looming challenge for the Obama Administration, but in December 2014, when President Obama announced a new policy approach toward Cuba, he said that the United States was prepared to have Cuba join the next summit. He emphasized, however, that human rights and democracy would be key summit themes.\nCuba was excluded from participation in the OAS in 1962 because of its identification with Marxism-Leninism, but in early June 2009, the OAS overturned the 1962 resolution in a move that could eventually lead to Cuba's reentry into the regional organization in accordance with the practices, purposes, and principles of the OAS. While the Cuban government welcomed the OAS vote to overturn the 1962 resolution, it asserted that it would not return to the OAS.\nCuba is an active participant in international forums, including the United Nations and the controversial United Nations Human Rights Council. Since 1991, the U.N. General Assembly has approved a resolution each year criticizing the U.S. economic embargo and urging the United States to lift it. Cuba also has received support over the years from the United Nations Development Programme (UNDP) and the United Nations Educational, Scientific, and Cultural Organization (UNESCO), both of which have offices in Havana. The U.N. has played a significant role in providing relief and recovery from Hurricane Sandy that struck in October 2012. In November 2012, the U.N. system launched a Plan of Action (developed in cooperation with the Cuban government) for $30.6 million to address the urgent needs of the population in the following sectors: shelter and recovery, water sanitation and hygiene, food security, health, and education.\nAmong other international organizations, Cuba was a founding member of the World Trade Organization, but it is not a member of the International Monetary Fund, the World Bank, or the Inter-American Development Bank. Cuba hosted the 14 th summit of the Non-aligned Movement (NAM) in 2006, and held the Secretary Generalship of the NAM until its July 2009 summit in Egypt.",
"On July 10, 2013, Panamanian authorities detained a North Korean freighter known as the Chong Chon Gang , which made stops in Cuba, as it prepared to enter the Panama Canal because of suspicion that the ship was carrying illicit narcotics. The ship, which had stops Cuba at Havana and Puerto Padre (a major sugar export point), was taken to Panama's international container port of Manzanillo in Panama's Colón province. When Panamanian authorities attempted to detain and search the ship, the 35-member North Korean crew tried to prevent them, and the captain attempted to commit suicide. Panama's initial search of the ship found weapons hidden aboard along with sugar. Panama's then-President Ricardo Martinelli made a public radio broadcast to that effect on July 15 and also tweeted a photo of some of the military equipment found.\nCuba's Ministry of Foreign Affairs subsequently issued a statement on July 16 acknowledging that the ship was loaded with 10,000 tons of sugar and 240 metric tons of \"obsolete defensive weapons\" that had been manufactured in the mid-20 th century and were to be \"repaired and returned to Cuba\" in order to maintain the country's defensive capability. Cuba maintained that the weapons being transported on the ship were \"two anti-aircraft missiles complexes Volga and Pechora, nine missiles in parts and spares, two MiG-21 Bis and 15 motors for this type of airplane.\"\nCuba's statement raised questions as to why Cuba would make such an effort to repair what it described as \"obsolete defensive equipment.\" Some press reports indicated that Cuba was attempting to have the missile systems upgraded by North Korea. Jeffrey Lewis from the Monterey Institute for International Studies maintains that the explanation that North Korea was refurbishing Cuba's anti-aircraft missiles was plausible since it clears up a mystery as to how Cuba had been able to introduced new missile launchers in 2006 for two types of missiles. The sugar could have been Cuba's payment—essentially a barter arrangement for the repair/upgrade of the weapons. For some analysts, however, the inclusion of the MiGs in the shipment raises skepticism as to whether the MiGs and engines were going to be returned to Cuba. In 2011, North Korea had attempted to acquire parts of MiG-21 jets from Mongolia, according to a June 2013 report by the U.N. Security Council's Panel of Experts.\nIn late August 2013, the Stockholm International Peace Research Institute (SPRI) issued a report maintaining that key parts of Cuba's military shipment to North Korea \"seem intended for Pyongyang's own use in its conventional military defenses, not to be repaired and returned to Cuba.\" In addition to the materiel that Cuba publicly acknowledged, the SPPRI report maintained that the North Korean \"ship also was transporting a variety of small arms and light weapons (SALW) ammunition and conventional artillery ammunition for anti-tank guns and howitzer artillery as well as generators, batteries, and night vision equipment, among other items.\" Some of this materiel was reported to be in \"mint condition\" and \"clearly were not to be repaired and returned to Cuba.\"\nThe discovery of the Chong Chon Gang shipment of weapons also raises questions about the potential previous shipment of weapons from Cuba to North Korea and more broadly about the nature of Cuban-North Korean relations. According to press reports, North Korean ships have made several other trips to Cuba since 2009. The Wisconsin Project on Nuclear Arms Control reports that two North Korean vessels, the O Un Chong Nyon Ho and the Mu Du Bong , traveled to Cuba in May 2012 and May 2009 respectively. In particular, the O Un Chong Nyon Ho was reported to have visited the same two Cuban ports as the Chong Chon Gang —Havana and the sugar export center of Puerto Padre. Another North Korean ship, the Po Thong Gang , also reportedly docked at Puerto Padre in April 2012, and at the ports of Havana and Santiago de Cuba in 2011.\nRelations between Cuba and North Korea traditionally have not been thought to be significant. During the Cold War, North Korea was an ideological partner of Cuba since both countries sided with the Soviet Union, but the relationship was not thought to go beyond political and ideological relations. Former Cuban President Fidel Castro acknowledged that North Korea had provided 100,000 Kalashnikov assault weapons to Cuba in the early 1980s. While North Korea has a history of buying and selling arms around the world, it was not thought to have a significant arms trade relationship with Cuba. Nevertheless, the recent visit of a high-level North Korean military delegation to Cuba in early July 2013, less than 10 days before the detention of the Chong Chon Gang , might provide some insight into the bilateral military relationship between the two countries. The North Korean delegation, led by General Kim Kyok Sik, Chief of the Korean People's Army General Staff, met with Cuban President Raúl Castro, who stressed the historic ties between the two countries and efforts to boost cooperative relations.\nPanama asked the U.N. Security Council to investigate the shipment and determine whether Cuba violated U.N. sanctions banning weapons transfers to North Korea. In response, the U.N. Panel of Experts for North Korea visited Panama August 13-15, 2013. In late August 2013, Panamanian officials maintain that they were given a preliminary version that reportedly concluded that the Cuban weapons found on the Chong Chon Gang \"without doubt\" violated U.N. sanctions.\nIn early March 2014, the U.N. Security Council issued the Panel of Experts report, which stated that the panel had concluded in its incident report that both the shipment itself and the transaction between Cuba and North Korea were sanctions violations. The panel found that the \"hidden cargo ... amounted to six trailers associated with surface-to-air missile systems and 25 shipping containers loaded with two disassembled MiG-21 aircraft, 15 engines for MiG-21 aircraft, components for surface to air missile systems, ammunition and miscellaneous arms-related material.\" The panel found that the \"extraordinary and extensive efforts to conceal the cargo of arms and related material ... and the contingency instructions ... found onboard the vessel for preparing a false declaration for entering the Panama Canal ... point to a clear and conscious intention to circumvent the resolutions.\"\nOn July 28, 2014, the U.N. Security Council imposed sanctions on the operator of the Chong Chon Gang , Ocean Maritime Management Company, Ltd, (OMM), which \"played a key role in arranging the shipment of the concealed cargo of arms and related material.\" The company is now subject to an international asset freeze. U.S. Ambassador to the United Nations Samantha Power described the North Korean ship incident as a \"cynical, outrageous and illegal attempt by Cuba and North Korea to circumvent United Nations sanctions.\"",
"",
"In the early 1960s, U.S.-Cuban relations deteriorated sharply when Fidel Castro began to build a repressive communist dictatorship and moved his country toward close relations with the Soviet Union. The often tense and hostile nature of the U.S.-Cuban relationship is illustrated by such events and actions as U.S. covert operations to overthrow the Castro government culminating in the ill-fated April 1961 Bay of Pigs invasion; the October 1962 missile crisis in which the United States confronted the Soviet Union over its attempt to place offensive nuclear missiles in Cuba; Cuban support for guerrilla insurgencies and military support for revolutionary governments in Africa and the Western Hemisphere; the 1980 exodus of around 125,000 Cubans to the United States in the so-called Mariel boatlift; the 1994 exodus of more than 30,000 Cubans who were interdicted and housed at U.S. facilities in Guantanamo and Panama; and the February 1996 shootdown by Cuban fighter jets of two U.S. civilian planes operated by the Cuban American group Brothers to the Rescue, which resulted in the death of four U.S. crew members.\nSince the early 1960s, U.S. policy toward Cuba has consisted largely of isolating the island nation through comprehensive economic sanctions, including an embargo on trade and financial transactions. President Kennedy proclaimed an embargo on trade between the United States and Cuba in February 1962, citing Section 620(a) of the Foreign Assistance Act of 1961 (FAA), which authorizes the President \"to establish and maintain a total embargo upon all trade between the United States and Cuba.\" At the same time, the Department of the Treasury issued the Cuban Import Regulations to deny the importation into the United States of all goods imported from or through Cuba. The authority for the embargo was later expanded in March 1962 to include the Trading with the Enemy Act (TWEA).\nIn July 1963, the Treasury Department revoked the Cuban Import Regulations and replaced them with the more comprehensive Cuban Assets Control Regulations (CACR)—31 C.F.R. Part 515—under the authority of TWEA and section 620(a) of the FAA. The CACR, which include a prohibition on most financial transactions with Cuba and a freeze of Cuban government assets in the United States, remain the main body of Cuba embargo regulations, and have been amended many times over the years to reflect changes in policy. They are administered by the Treasury Department's Office of Foreign Assets Control (OFAC), and prohibit financial transactions as well as trade transactions with Cuba. The CACR also require that all exports to Cuba be licensed by the Department of Commerce, Bureau of Industry and Security, under the provisions of the Export Administration Act of 1979, as amended.\nThese sanctions were made stronger with the Cuban Democracy Act (CDA) of 1992 ( P.L. 102-484 , Title XVII) and with the Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ), the latter often referred to as the Helms/Burton legislation. The CDA prohibits U.S. subsidiaries from engaging in trade with Cuba and prohibits entry into the United States for any sea-borne vessel to load or unload freight if it has been involved in trade with Cuba within the previous 180 days. The Cuban Liberty and Democratic Solidarity Act, enacted in the aftermath of Cuba's shooting down of two U.S. civilian planes in February 1996, combines a variety of measures to increase pressure on Cuba and provides for a plan to assist Cuba once it begins the transition to democracy. Most significantly, the law codified the Cuban embargo, including all restrictions under the CACR. This provision is noteworthy because of its long-lasting effect on U.S. policy options toward Cuba. The executive branch is circumscribed in lifting the economic embargo without congressional concurrence until certain democratic conditions are met, although the CACR includes licensing authority that provides the executive branch with administrative flexibility (e.g., travel-related restrictions in the CACR have been eased and tightened on numerous occasions). Another significant sanction in the law is a provision in Title III that holds any person or government that traffics in U.S. property confiscated by the Cuban government liable for monetary damages in U.S. federal court. Acting under provisions of the law, however, Presidents Clinton, Bush, and now Obama have suspended the implementation of Title III at six-month intervals.\nIn addition to sanctions, another component of U.S. policy, a so-called second track, consists of support measures for the Cuban people. This includes U.S. private humanitarian donations, medical exports to Cuba under the terms of the Cuban Democracy Act of 1992, U.S. government support for democracy-building efforts, and U.S.-sponsored radio and television broadcasting to Cuba. In addition, the 106 th Congress approved the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 , Title IX) that allows for agricultural exports to Cuba, albeit with restrictions on financing such exports. This led to the United States becoming one of Cuba's largest suppliers of agricultural products.",
"The Clinton Administration made several changes to U.S. policy in the aftermath of Pope John Paul II's 1998 visit to Cuba, which were intended to bolster U.S. support for the Cuban people. These included the resumption of direct flights to Cuba (which had been curtailed after the February 1996 shootdown of two U.S. civilian planes), the resumption of cash remittances by U.S. nationals and residents for the support of close relatives in Cuba (which had been curtailed in August 1994 in response to the migration crisis with Cuba), and the streamlining of procedures for the commercial sale of medicines and medical supplies and equipment to Cuba.\nIn January 1999, President Clinton announced several additional measures to support the Cuban people. These included a broadening of cash remittances to Cuba, so that all U.S. residents (not just those with close relatives in Cuba) could send remittances to Cuba; an expansion of direct passenger charter flights to Cuba from additional U.S. cities other than Miami (direct flights later in the year began from Los Angeles and New York); and an expansion of people-to-people contact by loosening restrictions on travel to Cuba for certain categories of travelers, such as professional researchers and those involved in a wide range of educational, religious, and sports activities.",
"The George W. Bush Administration essentially continued the two-track U.S. policy of isolating Cuba through economic sanctions while supporting the Cuban people through a variety of measures. However, within this policy framework, the Administration emphasized stronger enforcement of economic sanctions and further tightened restrictions on travel, remittances, and humanitarian gift parcels to Cuba. The Administration established an interagency Commission for Assistance to a Free Cuba in late 2003 tasked with identifying means \"to help the Cuban people bring about an expeditious end of the dictatorship\" and to consider \"the requirements for United States assistance to a post-dictatorship Cuba.\" In issuing its first report in May 2004, the commission made recommendations to tighten restrictions on family visits and other categories of travel and on private humanitarian assistance in the form of remittances and gift parcels. The Administration subsequently issued these tightened restrictions in June 2004, while in February 2005, it tightened restrictions on payment terms for U.S. agricultural exports to Cuba. The commission issued a second and final report in July 2006 that made recommendations to hasten political change in Cuba toward a democratic transition and led to a substantial increase in U.S. funding to support democracy and human rights efforts in Cuba.\nThe Bush Administration continued to emphasize a continuation of the sanctions-based approach toward Cuba pending political change in Cuba. When Raúl Castro officially became head of state in February 2008, then-Secretary of State Condoleezza Rice issued a statement urging \"the Cuban government to begin a process of peaceful, democratic change by releasing all political prisoners, respecting human rights, and creating a clear pathway towards free and fair elections.\" In remarks on Cuba policy in March 2008, President Bush maintained that in order to improve U.S.-Cuban relations, \"what needs to change is not the United States; what needs to change is Cuba.\" The President asserted that Cuba \"must release all political prisoners ... have respect for human rights in word and deed, and pave the way for free and fair elections.\"",
"During its first six years, the Obama Administration continued the dual-track policy approach toward Cuba in place for many years. It largely maintained U.S. economic sanctions and it continued measures to support the Cuban people, such as U.S. government-sponsored radio and television broadcasting and funding for democracy and human rights projects. At the same time, however, the Obama Administration initiated a significant shift in policy toward Cuba beginning in 2009 with its efforts to reach out to the Cuban people through the easing of restrictions on family travel and remittances. New measures were introduced in 2011 to further reach out to the Cuban people through increased purposeful travel and an easing of restrictions on non-family remittances. The Administration also sought to engage Cuba in an effort to improve relations, although Cuba's imprisonment of USAID subcontractor Alan Gross in December 2009 was an impediment to improved relations.\nJust after the adjournment of the 113 th Congress, however, President Obama announced on December 17, 2014, that Cuba was releasing Alan Gross on humanitarian grounds and unveiled major changes in U.S. policy toward Cuba, including a restoration of diplomatic relations and new efforts toward engagement. The President maintained that the United States would continue to raise concerns about democracy and human rights in Cuba, but stated that \"we can do more to support the Cuban people and promote our values through engagement.\" According to the President: \"After all, these 50 years have shown that isolation has not worked. It's time for a new approach.\"",
"In April 2009, the Obama Administration fulfilled a campaign pledge and announced it would lift all restrictions on family travel and remittances. The Administration went further in January 2011 when it announced new measures to ease travel restrictions and to allow all Americans to send remittances to Cuba. The measures increased purposeful travel to Cuba related to religious, educational, and journalistic activities, including people-to-people travel exchanges; authorized any U.S. person to send remittances to non-family members in Cuba; made it easier for religious institutions to send remittances for religious activities; and allowed all U.S. international airports to apply to provide flights to and from Cuba.\nIn 2012 congressional testimony, Assistant Secretary of State for Western Hemisphere Affairs Roberta Jacobson asserted that \"the Obama Administration's priority is to empower Cubans to freely determine their own future.\" She maintained that \"the most effective tool we have for doing that is building connections between the Cuban and American people, in order to give Cubans the support and tools they need to move forward independent of their government.\" The Assistant Secretary maintained that \"the Administration's travel, remittance and people-to-people policies are helping Cubans by providing alternative sources of information, taking advantage of emerging opportunities for self-employment and private property, and strengthening civil society.\"\nWhen the Obama Administration took office in 2009, it initiated a policy to engage with the Cuban government in an effort to improve relations. At the April 2009 Summit of the Americas, President Obama announced that \"the United States seeks a new beginning with Cuba.\" While recognizing that it would take time to \"overcome decades of mistrust,\" the President said \"there are critical steps we can take toward a new day.\" He stated that he was prepared to have his Administration \"engage with the Cuban government on a wide range of issues—from drugs, migration, and economic issues, to human rights, free speech, and democratic reform.\" The President maintained that he was \"not interested in talking just for the sake of talking,\" but said that he believed that U.S.-Cuban relations could move in a new direction. In the aftermath of the Summit, there appeared to be some momentum toward improved relations. In July 2009, Cuba and the United States restarted the semi-annual migration talks that had been suspended by the United States five years earlier. In September 2009, the United States and Cuba held talks in Havana on resuming direct mail service between the two countries that included discussion on issues related to the transportation, quality, and security of mail service.\nRelations took a turn for the worse in December 2009, however, when Alan Gross, an American subcontractor working on Cuba democracy projects funded by the U.S. Agency for International Development (USAID) was arrested in Havana state for providing Internet communications equipment to Cuba's Jewish community. Gross was convicted in March 2011, and sentenced to 15 years in prison. U.S. officials and Members of Congress repeatedly raised the issue with the Cuban government and asked for his release. In the aftermath of Gross's conviction, the United States and Cuba continued to cooperate on such issues as antidrug efforts and oil spill prevention, preparedness, and response, but improvement of relations in other areas appeared to have been stymied because of the Gross case.\nBeginning in mid-2013, there was renewed engagement with Cuba on several fronts, including direct mail service talks, resumed migration talks, and a preliminary agreement on air and maritime search and rescue.\nTalks for direct mail service between the United States on Cuba were held in June 2013 in Washington, DC, and September 2013 in Havana. As noted above, previous talks in 2009 did not lead to a resumption of direct mail service. The State Department reportedly characterized the September talks as \"fruitful,\" and maintained in a statement that \"the goal of the talks is for the United States and Cuba to work out the details for a pilot program to directly transport mail between the two countries.\" After an 18-month hiatus, the Obama Administration resumed semi-annual migration talks in July 2013, while two more rounds were held in January and July 2014. U.S. and Cuban officials issued positive statements after each round (for more details on the talks, see \" Migration Issues \" below). In September 2013, the United States and Cuba reportedly agreed to a preliminary procedure on air and maritime search and rescue. The U.S. Coast Guard led the U.S. delegation in Havana, and the talks reportedly stressed the importance of such cooperation to save lives of people in danger. The January 2014 migration talks also included discussion of aviation safety and maritime search and rescue protocols. At the July 2014 migration talks, the Cuban delegation said that both governments had agreed earlier in the month to enforce procedures for search and rescue operations in order to saves lives. (See \" Migration Issues \" below.)\nIn November 2013, President Obama and Secretary of State John Kerry both delivered remarks regarding U.S. policy toward Cuba. At a Democratic Party fundraising event on November 8 in Miami, President Obama maintained that with regard to policy toward Cuba, \"we have to be creative ... we have to be thoughtful ... and we have to continue to update our policies.\" He contended that \"the notion that the same polices that we put in place in 1961 would somehow still be as effective as they are today in the age of the Internet and Google and world travel doesn't make sense.\" In a November 18, 2013, address on U.S.-Latin American relations at the Organization of American States, Secretary of State Kerry reiterated the President's remarks. He also maintained that the United States and Cuba \"are finding some cooperation on common interests at this point in time,\" and that \"we also welcome some of the changes that are taking place in Cuba which allow more Cubans to be able to travel freely and work for themselves.\" At the same time, however, the Secretary cautioned that changes in Cuba \"should absolutely not blind us to the authoritarian reality of life for ordinary Cubans.\" He contended that \"in a hemisphere where people can criticize their leaders without fear of arrest or violence, Cubans cannot. And if more does not change soon, it is clear that the 21 st century will continued, unfortunately, to leave the Cuban people behind.\"\nConsiderable international press focused on the handshake between President Obama and President Castro on December 10, 2013, at the memorial service for Nelson Mandela in South Africa. U.S. officials maintain that the handshake was not planned, but rather, that the focus of President Obama was on Mandela. Some analysts contended that the handshake could portend a sign of thawing relations while others maintained that sometimes a handshake is just a handshake. Critics of the Cuban government, including some Members of Congress, criticized the President for shaking hands with a leader with such a poor human rights record.\nHuman rights violations have remained a fundamental concern regarding Cuba under the Obama Administration. President Obama and the State Department continued to issue statements expressing concern about violations as they occur, including the death of hunger strikers in 2010 and 2012 and targeted repression against dissidents and human rights. U.S. officials lauded the release of dozens of Cuban political prisoners in 2010 and 2011, but maintained that their release did not change the government's poor human rights record as it continued to resort to repeated short-term detentions. In October 2013, Under Secretary of State for Political Affairs Wendy Sherman met with Berta Soler, spokesperson for the Ladies in White, and expressed concern over Cuba's \"continued suppression of peaceful activities carried out by Damas de Blanco and other civil society groups.\" In November 2013, President Obama met Berta Soler and another prominent Cuban dissident, Guillermo Fariñas, at an event in Miami, Florida, and Secretary of State Kerry, as noted above, addressed the OAS and reiterated concerns about human rights and freedom of expression in Cuba. In December 2013, the State Department issued a statement deploring \"the Cuban government's harsh tactics to impede Cuban civil society's peaceful recognition of Human Rights Day.\"\nThe State Department's statements on the human rights situation in Cuba in 2014 included:\nIn February 2014, the State Department issued a statement expressing deep concern about the \"recent increase in arbitrary detentions, physical violence, and other abusive actions carried out by the Cuban government against peaceful human and civil rights advocates.\" In June 2014, the State Department released a statement in response to the latest arbitrary detentions by Cuban authorities of dozens of civil society members and activists and the violent assault of an independent journalist, Roberto de Jesus Guerra. The State Department condemned \"the Cuban government's systematic use of physical violence and arbitrary detention.\" On July 14, 2014, the State Department issued a statement condemning the detention of more than 100 members of the Ladies in White who were seeking to commemorate the 20-year anniversary of the loss of life when the Cuban government sank a tugboat known as the \"13 de Marzo\" as it attempted to leave Cuba.\nSecuring the release of Alan Gross from prison in Cuba also remained a top U.S. priority. The State Department maintained that it was using every appropriate channel to press for his release, including the Vatican. As noted by the State Department in early May 2014, Gross's continued well-being remained an impediment to more constructive bilateral relations.",
"On December 17, 2014, President Obama announced major developments in U.S.-Cuban relations. First, he announced that the Cuban government had released USAID subcontractor Alan Gross on humanitarian grounds after five years imprisonment. (For background, see \" Imprisonment and Ultimate Release of USAID Subcontractor Alan Gross \" below.) As noted above, Gross's continued imprisonment was an impediment to an improvement in U.S.-Cuban relations.\nThe President also announced that, in a separate action, the Cuban government released \"one of the most important intelligence assets that the United States has ever had in Cuba\" in exchange for three Cuban intelligence agents who had been imprisoned in the United States since 1998 (for background, see \" Cuban Five—Remaining Three Released \" below). Media reports identified the U.S. intelligence asset as Rolando Sarraff Trujillo, a cryptographer in Cuba's Directorate of Intelligence, who reportedly provided information that helped the FBI dismantle three Cuban spy networks in the United States.\nMost significantly, in the aftermath of having secured the release of Gross and the U.S. intelligence asset, President Obama announced a major shift in U.S. policy toward Cuba, moving away from a sanctions-based policy aimed at isolating Cuba to a policy of engagement. The President said that his Administration \"will end an outdated approach that, for decades, has failed to advance our interests, and instead we will begin to normalize relations between our two countries.\" The President maintained that the United States would continue to speak out on human rights and democracy issues, but stressed that more could be done to support the Cuban people through engagement.\nThe President outlined three major steps to move toward normalization:\nreestablishment of diplomatic relations with Cuba (relations were severed in 1961); a review of Cuba's designation by the Department of State as a state sponsor of international terrorism (Cuba has been on the list since 1982; see \" Terrorism Issues \" for background ); and an increase in travel, commerce, and the flow of information to and from Cuba.\nA White House fact sheet listed numerous policy changes to implement the third step. These include:\nfacilitating an expansion of travel by authorizing general licenses for the existing 12 categories of travel authorized by law; increasing permissible remittances by U.S. persons to Cuban nationals from $500 to $2,000 per quarter; expanding commercial sales/exports to Cuba of certain goods and services to empower Cuba's nascent private sector, including authorization for certain building materials for private residential construction, goods for use by private sector Cuban entrepreneurs, and agricultural equipment for small farmers; authorizing licensed travelers to import $400 worth of goods from Cuba, with no more than $100 for tobacco products and alcohol combined; permitting U.S. financial institutions to open correspondent accounts at Cuban financial institutions to facilitate authorized transactions; revising the definition of \"cash in advance\" for authorized trade with Cuba to specify that it means \"cash before transfer of title\" for payment (for background, see \" U.S. Agricultural Exports and Sanctions \" below); permitting the use of U.S. credit and debit cards by authorized travelers to Cuba; permitting the commercial sale of certain consumer communication devices, related software, applications, hardware, and services, and items for the establishment and update of communications-related systems; permitting telecommunications providers to establish the necessary mechanisms in Cuba, including infrastructure, to provide commercial telecommunications and Internet services; and providing a general license for U.S.-owned or controlled entities in third countries to provide services to, and engage in financial transactions with, Cuban individuals in third countries.\nThese actions will require changes to U.S. embargo regulations administered by the Department of the Treasury, Office of Foreign Assets Control (Cuban Assets Control Regulations; 31 CFR Part 515 ) and the Department of Commerce, Bureau of Industry and Security (Export Administration Regulations; 15 CFR Parts 730-774 ).\nWhile the changes to the embargo regulations have not yet been issued (Administration officials expect the changes within the next several weeks), they appear—as described by the White House—to be within the scope of the President's discretionary licensing authority to make changes to the embargo regulations, and somewhat similar to various policy changes made by President Obama and his predecessors to ease or strengthen the embargo restrictions. The new policy changes build upon previous changes that President Obama took in 2009, when he lifted all restrictions on family travel and remittances to family in Cuba, and in 2011, when he took action to increase purposeful travel to Cuba, such as people-to-people educational trips.\nThe President acknowledged that he does not have the authority to lift the embargo because it was codified into legislation (Section 102(h) of the Cuban Liberty and Democratic Solidarity [LIBERTAD] Act of 1996, P.L. 104-114 ). The President maintained that he looks forward to engaging Congress in a debate about lifting the embargo. The LIBERTAD Act ties the lifting of the embargo to conditions in Cuba (including that a democratically elected government is in place). Lifting the overall economic embargo at this time would require amending or repealing that law as well as other statutes, such as the Cuban Democracy Act of 1992 (Title XVII of P.L. 102-484 ) and the Trade Sanctions Reform and Export Enhancement Act of 2000 ( P.L. 106-387 ), that have provisions impeding normal economic relations with Cuba.\nThe President also indicated that his Administration was prepared to have Cuba join the Summit of the Americas to be held in Panama in April 2015. The White House emphasized that human rights and democracy will be key themes of the summit, and asserted that Cuban civil society must be allowed to participate with civil society from other countries participating in the summit. Cuba's participation in the summit was a looming challenge for the Administration since it had opposed Cuba's participation in the 2012 Summit of the Americas in Colombia. Several Latin American nations had vowed not to participate in the 2015 summit if Cuba was not invited. (For background, also see \" Cuba's Foreign Relations \" below.)",
"Over the years, although U.S. policy makers have agreed on the overall objectives of U.S. policy toward Cuba—to help bring democracy and respect for human rights to the island—there have been several schools of thought about how to achieve those objectives. Some have advocated a policy of keeping maximum pressure on the Cuban government until reforms are enacted, while continuing efforts to support the Cuban people. Others argue for an approach, sometimes referred to as constructive engagement, that would lift some U.S. sanctions that they believe are hurting the Cuban people, and move toward engaging Cuba in dialogue. Still others call for a swift normalization of U.S.-Cuban relations by lifting the U.S. embargo. Legislative initiatives introduced over the past decade have reflected these three policy approaches.\nOver the past decade, there have been efforts in Congress to ease U.S. sanctions, with one or both houses at times approving amendments to appropriations measures that would have eased U.S. sanctions on Cuba. Until 2009, these provisions were stripped out of final enacted measures, in part because of presidential veto threats. In March 2009, Congress took action to ease some restrictions on travel to Cuba, marking the first time that Congress has eased Cuba sanctions since the approval of the Trade Sanctions Reform and Export Enhancement Act of 2000.\nIn light of Fidel Castro's departure as head of government and the gradual economic changes being made by Raúl Castro, some observers called for a reexamination of U.S. policy toward Cuba. In this new context, two broad policy approaches have been advanced to contend with change in Cuba: an approach that maintains the U.S. dual-track policy of isolating the Cuban government while providing support to the Cuban people; and an approach aimed at influencing the attitudes of the Cuban government and Cuban society through increased contact and engagement.\nIn general, those who advocate easing U.S. sanctions on Cuba make several policy arguments. They assert that if the United States moderated its policy toward Cuba—through increased travel, trade, and dialogue—then the seeds of reform would be planted, which would stimulate forces for peaceful change on the island. They stress the importance to the United States of avoiding violent change in Cuba, with the prospect of a mass exodus to the United States. They argue that since the demise of Cuba's communist government does not appear imminent, even without Fidel Castro at the helm, the United States should espouse a more pragmatic approach in trying to bring about change in Cuba. Supporters of changing policy also point to broad international support for lifting the U.S. embargo, to the missed opportunities for U.S. businesses because of the unilateral nature of the embargo, and to the increased suffering of the Cuban people because of the embargo. Proponents of change also argue that the United States should be consistent in its policies with the world's few remaining communist governments, including China and Vietnam.\nOn the other side, opponents of changing U.S. policy maintain that the two-track policy of isolating Cuba, but reaching out to the Cuban people through measures of support, is the best means for realizing political change in Cuba. They point out that the Cuban Liberty and Democratic Solidarity Act of 1996 sets forth the steps that Cuba needs to take in order for the United States to normalize relations. They argue that softening U.S. policy without concrete Cuban reforms would boost the Castro government, politically and economically, and facilitate the survival of the communist regime. Opponents of softening U.S. policy argue that the United States should stay the course in its commitment to democracy and human rights in Cuba, and that sustained sanctions can work. Opponents of loosening U.S. sanctions further argue that Cuba's failed economic policies, not the U.S. embargo, are the causes of Cuba's difficult living conditions.\nPublic opinion polls show a majority of Americans support normalizing relations with Cuba, although the number is more closely split among Cuban Americans in Miami-Dade County in Florida. A February 2014 poll by the Atlantic Council found that 56% of respondents nationwide supported normalizing or engaging more directly in Cuba and that 63% or respondents in Florida supported such a change. Since the early 1990s, Florida International University (FIU) has conducted polling on the Cuban American community in Miami-Dade County regarding U.S. policy toward Cuba. FIU's 2014 poll, issued in June 2014, showed a slight majority of Cuban Americans in Miami-Dade County, 52%, opposed the embargo, although that support dropped to 51% among registered voters. The FIU poll also showed that a large majority of Cuban Americans in Miami Dade, 69%, supported the lifting of travel restrictions for all Americans to travel to Cuba.\nWith regard to President Obama's announcement of a new direction for U.S. policy toward Cuba in December 2014, some Members of Congress lauded the Administration's actions as in the best interests of the United States and a better way to support change in Cuba, while other Members strongly criticized the President for not obtaining concessions from Cuba to advance human rights. With some Members vowing to oppose the Administration's efforts toward normalization, the direction of U.S.-Cuban relations is likely to be hotly debated in the 114 th Congress.",
"For many years, Congress has played an active role in U.S. policy toward Cuba through the enactment of legislative initiatives and oversight on the many issues that comprise policy toward Cuba. These include U.S. restrictions on travel and remittances to Cuba; U.S. agricultural exports to Cuba with conditions; funding and oversight of U.S.-government sponsored democracy and human rights projects; the imprisonment of USAID subcontractor Alan Gross in Cuba since December 2009; funding and oversight for U.S.-government sponsored broadcasting to Cuba (Radio and TV Martí); terrorism issues; migration issues; bilateral anti-drug cooperation; and the status of Cuba's offshore oil development, including efforts to ensure adequate oil spill prevention, preparedness, and response efforts.",
"Restrictions on travel to Cuba have been a key and often contentious component of U.S. efforts to isolate the communist government of Fidel Castro for much of the past 50+ years. Over time there have been numerous changes to the restrictions and for five years, from 1977 until 1982, there were no restrictions on travel. Restrictions on travel and remittances to Cuba are part of the CACR, the overall embargo regulations administered by the Treasury Department's Office of Foreign Assets Control (OFAC).\nUnder the George W. Bush Administration, enforcement of U.S. restrictions on Cuba travel increased, and restrictions on travel and on private remittances to Cuba were tightened. In 2003, the Administration eliminated travel for people-to-people educational exchanges that had begun under the Clinton Administration. In 2004, the Administration imposed further restrictions on travel, especially family travel and the provision of private humanitarian assistance to Cuba in the form of remittances and gift parcels.\nUnder the Obama Administration, Congress took legislative action in March 2009 easing restrictions on family travel (restoring the restrictions to as they were under the Clinton Administration) and on travel related to U.S. agricultural and medical sales to Cuba ( P.L. 111-8 , Sections 620 and 621 of Division D). In April 2009, the Obama Administration went further when the President announced that he was lifting all restrictions on family travel as well as restrictions on cash remittances to family members in Cuba.\nIn January 2011, the Obama Administration made a series of changes further easing restrictions on travel and remittances to Cuba. The measures (1) increased purposeful travel to Cuba related to religious, educational, and journalistic activities, including people-to-people travel exchanges; (2) allowed any U.S. person to send remittances to non-family members in Cuba (up to $500 per quarter) and made it easier for religious institutions to send remittances for religious activities; and (3) allowed U.S. international airports to become eligible to provide services to licensed charter flights to and from Cuba.\nIn most respects, these new measures were similar to policies that were undertaken by the Clinton Administration in 1999, but were subsequently curtailed by the Bush Administration in 2003 and 2004. An exception is the expansion of airports to service licensed flights to and from Cuba. While the new travel regulations immediately went into effect for those categories of travel falling under a general license category, OFAC delayed processing applications for new travel categories requiring a specific license (such as people-to-people exchanges) until it updated and issued guidelines in April 2011.\nThe first people-to-people trips began in August 2011. In May 2012, the Treasury Department tightened its restrictions on people-to-people travel by making changes to its license guidelines. The revised guidelines require an organization applying for a people-to-people license to describe how the travel \"would enhance contact with the Cuban people, and/or support civil society in Cuba, and/or promote the Cuban people's independence from Cuban authorities.\" The revised guidelines also require specification on how meetings with prohibited officials of the Cuban government would advance purposeful travel by enhancing contact with the Cuban people, supporting civil society, or promoting independence from Cuban authorities. In September 2012, various press reports cited a slowdown in the Treasury Department's approval or reapproval of licenses for people-to-people travel since the agency had issued new guidelines in May. Companies conducting such programs complained that the delay in the licenses was forcing them to cancel trips and even to lay off staff. By early October 2012, however, companies conducting the people-to-people travel maintained that they were once again receiving license approvals.\nIn early April 2013, some Members of Congress strongly criticized singers Beyoncé Knowles-Carter and her husband Shawn Carter, better known as Jay-Z, for traveling to Cuba. Members were concerned that the trip, as described in the press, was primarily for tourism, which would be contrary to U.S. law and regulations. Some Members also criticized the singers for not meeting with those who have been oppressed by the Cuban government. The Treasury Department stated that the two singers were participating in an authorized people-to-people exchange trip organized by a group licensed by OFAC to conduct such trips (pursuant to 31 C.F.R. 515.565(b)(2) of the Cuban Assets Control Regulations), and OFAC determined there was no apparent violations of U.S. sanctions. An August 2014 report by the Treasury Department's Office of Inspector General concurred with OFAC's determination that the trip did not violate U.S. sanctions.\nOn April 30, 2013, 59 House Democrats sent a letter to President Obama lauding the President for his 2009 action lifting restrictions on family travel and remittances, and for his 2011 action easing restrictions on some categories of travel, including people-to-people travel. The Members also called for the President to further use his \"executive authority to allow all current categories of permissible travel, including people-to-people travel,\" to be carried out under a general license (instead of having to apply to Treasury Department for a specific license). Such an action, according to the Members, would increase opportunities for engagement and help Cubans create more jobs and opportunities to expand their independence from the Cuban government.\nAs noted above, just after the adjournment of the 113 th Congress, President Obama announced major changes in U.S. policy toward Cuba on December 17, 2014. These changes included the provision for general licenses for the 12 existing categories of travel to Cuba and an increase in the amount of remittances to Cuba by any U.S. person to non-family members in Cuba to $2,000 per quarter (up from $500 per quarter). U.S. credit and debit cards will also be permitted for use by authorized travelers to Cuba. Regulations implementing these changes reportedly will be issued in several weeks.\nMajor arguments made for lifting the Cuba travel ban altogether are that it abridges the rights of ordinary Americans to travel; it hinders efforts to influence conditions in Cuba and may be aiding Castro by helping restrict the flow of information; and Americans can travel to other countries with communist or authoritarian governments. Major arguments in opposition to lifting the Cuba travel ban are that more American travel would support Castro's rule by providing his government with potentially millions of dollars in hard currency; that there are legal provisions allowing travel to Cuba for humanitarian purposes that are used by thousands of Americans each year; and that the President should be free to restrict travel for foreign policy reasons.\nLegislative Activity. In the first session of the 113 th Congress, both the House and Senate versions of the FY2014 Financial Services and General Government appropriations measure, H.R. 2786 and S. 1371 , had different provisions that would have tightened and eased travel restrictions respectively, but none of these provisions were included in the FY2014 omnibus appropriations measure, H.R. 3547 ( P.L. 113-76 ), signed into law January 17, 2014. The House version of the FY2014 Financial Services and General Government appropriations measure, H.R. 2786 ( H.Rept. 113-172 ), would have prohibited FY2014 funding used \"to approve, license, facilitate, authorize, or otherwise allow\" people-to-people travel to Cuba, which the Obama Administration authorized in 2011. In contrast, the Senate version of the measure, S. 1371 ( S.Rept. 113-80 ), would have expanded the current general license for professional research and meetings in Cuba to allow U.S. groups to sponsor and organize conferences in Cuba, but only if specifically related to disaster prevention, emergency preparedness, and natural resource protection. (For additional information see CRS Report R43352, Financial Services and General Government (FSGG): FY2014 Appropriations .)\nIn the second session of the 113 th Congress, the House version of the FY2015 Financial Services and General Government Appropriations Act ( H.R. 5016 , H.Rept. 113-508 ), approved July 16, 2014, includes two provisions related to U.S. restrictions on travel to Cuba. Section 126 of the bill would prevent any funds in the act from being used to approve, license, facilitate, authorize or otherwise allow people-to-people travel. Section 127 would require a joint report from the Secretary of the Treasury and the Secretary of Homeland Security with information for each fiscal year since FY2007 on the number of travelers visiting close relatives in Cuba; the average duration of these trips; the average amount of U.S. dollars spent per family traveler (including amount of remittances carried to Cuba); the number of return trips per year; and the total sum of U.S. dollars spent collectively by family travelers for each fiscal year. Ultimately Congress did not complete action on H.R. 5016 , and the FY2015 omnibus appropriations measure approved in December 2014 ( P.L. 113-235 ) did not include the provisions on Cuba in H.R. 5016 .\nSeveral legislative initiatives were introduced in the 113 th Congress that would have lifted all travel restrictions: H.R. 871 (Rangel) would lift travel restrictions; H.R. 873 (Rangel) would lift restrictions on U.S. agricultural exports as well as travel restrictions; and H.R. 214 (Serrano), H.R. 872 (Rangel), and H.R. 1917 (Rush) would lift the overall embargo on Cuba, including travel restrictions.",
"U.S. commercial agricultural exports to Cuba have been allowed for more than a decade, but with numerous restrictions and licensing requirements. The 106 th Congress passed the Trade Sanctions Reform and Export Enhancement Act of 2000 or TSRA ( P.L. 106-387 , Title IX) that allows for one-year export licenses for selling agricultural commodities to Cuba, although no U.S. government assistance, foreign assistance, export assistance, credits, or credit guarantees are available to finance such exports. TSRA also denies exporters access to U.S. private commercial financing or credit; all transactions must be conducted in cash in advance or with financing from third countries.\nCuba has purchased about $5 billion in products from the United States since 2001, largely agricultural products. U.S. exports to Cuba rose from about $7 million in 2001 to $404 million in 2004 and to a high of $712 million in 2008, far higher than in previous years, in part because of the rise in food prices and because of Cuba's increased food needs in the aftermath of several hurricanes and tropical storms that severely damaged the country's agricultural sector. From 2002 through 2010, the United States was the largest supplier of food and agricultural products to Cuba. In 2011, Brazil became Cuba's largest agricultural supplier, but this shifted back again to the United States in 2012.\nU.S. exports to Cuba declined considerably from 2009 through 2011, amounting to $363 million in 2010 and 2011 (see Figure 5 ), while in 2012, they rose to $464 million, a 28% increase. Part of the increase in 2012 can be attributed to an increase in Cuba's import needs because of damage to the agricultural sector in eastern Cuba caused by Hurricane Sandy in October. In 2013, U.S. exports to Cuba fell to $359 million, a decline of about 23% from the previous year. In the first nine months of 2014, U.S. exports to amounted to $243 million, about 18% less than the same period in 2013. Looking at the composition of U.S. exports to Cuba in recent years, the leading products have been poultry, soybean oilcake, corn, and soybeans.\nAmong the reasons for the overall decline in U.S. exports to Cuba in recent years, analysts cite Cuba's shortage of hard currency; credits and other arrangements offered by other governments to purchase their countries' products; and Cuba's perception that its efforts to motivate U.S. companies, organizations, local and state officials, and Members of Congress to push for change in U.S. sanctions policy toward Cuba have been ineffective.\nThe U.S. International Trade Commission (USITC) produced a study in 2007 analyzing the effects of both U.S. government financing restrictions for agricultural exports to Cuba and U.S. travel restrictions on the level of U.S. agricultural sales to Cuba. At the time of the study, the U.S. share of various Cuban agricultural imports was estimated to range from 0% to 99% depending on the commodity. If U.S. financing restrictions were lifted, the study estimated that the U.S. share of Cuban agricultural, fish, and forest products imports would rise to between one-half and two-thirds. According to the study, if travel restrictions for all U.S. citizens were lifted, the influx of U.S. tourists would be significant in the short term and would boost demand for imported agricultural products, particularly high-end products for the tourist sector. If both financing and travel restrictions were lifted, the study found that the largest gains in U.S. exports to Cuba would be for fresh fruits and vegetables, milk powder, processed foods, wheat, and dry beans.\nIn 2009, the USITC issued a working paper that updated the agency's 2007 study on U.S. agricultural sales to Cuba. The update concluded that if U.S. restrictions on financing and travel were lifted in 2008, U.S. agricultural exports to Cuba would have increased between $216 million and $478 million and the U.S. share of Cuba's agricultural imports would have increased from 38% to between 49% and 64%. Among the U.S. agricultural products that would have benefited the most were wheat, rice, beef, pork, processed foods, and fish products.\nIn general, some groups favor further easing restrictions on agricultural exports to Cuba. U.S. agribusiness companies that support the removal of restrictions on agricultural exports to Cuba believe that U.S. farmers are unable to capitalize on a market so close to the United States. Those who support the lifting of financing restrictions contend such an action would help smaller U.S. companies increase their exports to Cuba more rapidly. Opponents of further easing restrictions on agricultural exports to Cuba maintain that U.S. policy does not deny such sales to Cuba, as evidenced by the large amount of sales since 2001.\nAs noted above, just after the adjournment of the 113 th Congress, President Obama announced major changes in U.S. policy toward Cuba on December 17, 2014. These changes included the measures to expand commercial sales/exports to boost Cuba's nascent private sector, including agricultural equipment for small farmers, certain building materials for private residential construction, and goods for use by private sector Cuban entrepreneurs. U.S. institutions will be permitted to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, and the definition of the term \"cash in advance\" will be revised to specify that it means \"cash before transfer of title.\" Regulations implementing these changes reportedly will be issued in several weeks.\nLegislative Activity. Over the past several years, there have been legislative efforts to further ease restrictions on agricultural exports to Cuba. For FY2010 and FY2011, Congress included a provision in omnibus appropriations measures (Division C, Section 619 of P.L. 111-117 , and continued by reference in Division B, Section 1101 of P.L. 112-10 ) that temporarily overturned OFAC's 2005 clarification that TSRA's requirement for \"payment of cash in advance\" meant that the payment for the agricultural goods had to be received prior to the shipment of the goods from the port at which they were loaded in the United States. U.S. agricultural exporters and some Members of Congress had objected that OFAC's 2005 action constituted a new sanction that violated the intent of TSRA, and jeopardized millions in agricultural sales. The legislative provisions cited above redefined payment of cash in advance for FY2010 and FY2011 to mean that payment was to be received before the transfer of title to, and control of, the exported items to the Cuban purchaser. This essentially meant that payment could occur before a shipment was offloaded in Cuba, rather than before an export shipment left a U.S. port.\nFor FY2012, Congress did not include a similar provision in the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ). While the Senate Appropriations Committee-approved version of the FY2012 Financial Services appropriations measure ( S. 1573 ) had a provision that would have continued the definition of \"payment of cash in advance\" utilized in FY2010 and FY2011, this was not included in the final omnibus legislation. The Senate bill also contained another Cuba provision that would have prohibited restrictions on direct transfers from a Cuban financial institution to a U.S. financial institution in payment for licensed exports to Cuba. This provision as well was not included in the omnibus appropriations legislation.\nIn the 113 th Congress, one bill was introduced that included measures to facilitate the export of U.S. agricultural products to Cuba, H.R. 873 (Rangel), while three other bills that would have lifted the overall embargo— H.R. 214 (Serrano), H.R. 872 (Rangel), and H.R. 1917 (Rush)—would have lifted restrictions and licensing requirements on U.S. agricultural exports to Cuba. In other action, a July 2014 draft report by the Senate Appropriations Committee, Subcommittee on Financial Services and General Government to the Senate version of the FY2015 Financial Services appropriations measure (not introduced) would have directed the Treasury Department to coordinate with the Departments of Commerce and Agriculture to conduct a review of the extent to which the prohibition on U.S. private financing or credit for sales of U.S. agricultural commodities negatively affects small U.S. exporters and farmers.",
"For some 15 years, the United States has imposed a trademark sanction specifically related to Cuba. A provision in the FY1999 omnibus appropriations measure (§211 of Division A, Title II, P.L. 105-277 , signed into law October 21, 1998) prevents the United States from accepting payment for trademark registrations and renewals from Cuban nationals that were used in connection with a business or assets in Cuba that were confiscated, unless the original owner of the trademark has consented. The provision prohibits U.S. courts from recognizing such trademarks without the consent of the original owner. The measure was enacted because of a dispute between the French spirits company, Pernod Ricard, and the Bermuda-based Bacardi Ltd. Pernod Ricard entered into a joint venture in 1993 with the Cuban government to produce and export Havana Club rum. Bacardi maintains that it holds the right to the Havana Club name because in 1995 it entered into an agreement for the Havana Club trademark with the Arechabala family, who had originally produced the rum until its assets and property were confiscated by the Cuban government in 1960. Although Pernod Ricard cannot market Havana Club in the United States because of the trade embargo, it wants to protect its future distribution rights should the embargo be lifted.\nThe European Union initiated World Trade Organization (WTO) dispute settlement proceedings in June 2000, maintaining that the U.S. law violates the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). In January 2002, the WTO ultimately found that the trademark sanction violated WTO provisions on national treatment and most-favored-nation obligations in the TRIPS Agreement. On March 28, 2002, the United States agreed that it would come into compliance with the WTO ruling through legislative action by January 3, 2003. That deadline was extended several times since no legislative action had been taken to bring Section 211 into compliance with the WTO ruling. On July 1, 2005, however, in an EU-U.S. bilateral agreement, the EU agreed that it would not request authorization to retaliate at that time, but reserved the right to do so at a future date, and the United States agreed not to block a future EU request. In June 2013, EU officials reportedly raised the issue of U.S. compliance at a WTO Dispute Settlement Body meeting, maintaining that there has been enough time for the United States to settle the issue, while U.S. officials maintained that relevant bills were before the U.S. Congress.\nOn August 3, 2006, the U.S. Patent and Trademark Office announced that Cuba's Havana Club trademark registration was \"cancelled/expired,\" a week after OFAC had denied a Cuban government company the license that it needed to renew the registration of the trademark. On March 29, 2011, the U.S. Court of Appeals of the District of Columbia upheld the decision to deny the renewal of the trademark, while in May 2012, the U.S. Supreme Court declined to hear the case, effectively letting stand the denial to renew the trademark.\nBacardi began marketing Havana Club rum in the United States in 2006 in limited quantities in Florida, and Pernod Ricard filed suit that the representation of the origin of the rum was misleading. In April 2010, a U.S. District Court in Delaware ruled in Bacardi's favor that the labeling was not misleading, and this was reaffirmed by a U.S. Court of Appeals on August 4, 2011.\nLegislative Activity. In Congress, two different approaches have been advocated for a number of years to bring Section 211 into compliance with the WTO ruling. Some want a narrow fix in which Section 211 would be amended so that it applies to all persons claiming rights in trademarks confiscated by Cuba, whatever their nationality, instead of being limited to designated nationals, meaning Cuban nationals. Advocates of this approach argue that it would treat all holders of U.S. trademarks equally. Others want Section 211 repealed altogether. They argue that the law endangers over 5,000 trademarks of over 500 U.S. companies registered in Cuba. The House Committee on the Judiciary held a March 3, 2010, hearing on the \"Domestic and International Trademark Implications of HAVANA CLUB and Section 211 of the Omnibus Appropriations Act of 2009,\" which featured proponents of both legislative approaches. (See http://judiciary.house.gov/hearings/hear_100303.html .)\nSeveral legislative initiatives were introduced during the 112 th Congress reflecting these two approaches to bring Section 211 into compliance with the WTO ruling, but no action was taken on these measures. In the 113 th Congress, identical bills H.R. 778 (Issa) and S. 647 (Nelson) would have applied the narrow fix so that the trademark sanction would apply to all nationals, while four broader bills lifting U.S. sanctions on Cuba— H.R. 214 (Serrano); H.R. 872 (Rangel); H.R. 873 (Rangel); and H.R. 1917 (Rush)—each have a provision that would have repealed the trademark sanction. The July 2005 EU-U.S. bilateral agreement, in which the EU agreed not to retaliate against the United States, but reserved the right to do so at a later date, has reduced pressure on Congress to take action to comply with the WTO ruling.",
"Since 1996, the United States has provided assistance—through the U.S. Agency for International Development (USAID), the State Department, and the National Endowment for Democracy (NED)—to increase the flow of information on democracy, human rights, and free enterprise to Cuba.\nUSAID and State Department efforts are largely funded through Economic Support Funds (ESF) in the annual foreign operations appropriations bill. From FY1996 to FY2014, Congress appropriated some $264 million in funding for Cuba democracy efforts. In recent years, this included $45.3 million for FY2008 and $20 million in each fiscal year from FY2009 through FY2012, $19.3 million in FY2013, and $20 million in FY2014. The Administration's FY2015 request is for $20 million.\nGenerally, as provided in appropriations measures, ESF has to be obligated within two years. In earlier years, USAID received the majority of this funding, but the State Department also received funding beginning in FY2004 and in recent years has been allocated slightly more funding than USAID. The State Department generally has transferred a portion of the Cuba assistance that it administers to NED. For FY2014, however, Congress stipulated that not less than $7.5 million shall be provided directly to NED while not more than $10 million shall be administered by the State Department; Congress also stipulated that no ESF appropriated under the Act may be obligated by USAID for any new programs or activities in Cuba ( P.L. 113-76 ).\nUSAID's Cuba program has supported a variety of U.S.-based non-governmental organizations with the goals of promoting a rapid, peaceful transition to democracy, helping develop civil society, and building solidarity with Cuba's human rights activists. USAID maintains on its website that current USAID program partners are Foundation for Human Rights in Cuba, $3.4 million (2011-2014); Grupo de Apoyo a la Democracia, $3.5 million (2012-2015); International Relief and Development, $3.5 million (2011-2014); International Republican Institute, $3 million (2012-2015); National Democratic Institute, $2.3 million (2011-2014); New America Foundation, $4.3 million (2012-2015); and Pan-American Development Foundation, $3.9 million (2011-2014). (See USAID's Cuba program website at http://www.usaid.gov/where-we-work/latin-american-and-caribbean/cuba .)\nFY2012. The Administration requested $20 million in ESF for FY2012 with the promotion of democratic principles as the core goal of assistance, and Congress supported the full amount in the conference report to the FY2012 Consolidated Appropriations Act ( H.Rept. 112-331 to H.R. 2055 , P.L. 112-74 ). The budget request stated that there was an increased effort to manage programs more transparently, focus efforts on Cuba, and widen the scope of the civic groups receiving supports. According to the Administration's request, U.S. assistance would strengthen a range of independent elements of Cuban civil society, including associations and labor groups, marginalized groups, youth, legal associations, and women's networks. The programs would be designed to increase the capacity for community involvement of civil society organizations and networking among the groups. The program would also support Cuban efforts to document human rights violations, provide humanitarian assistance to political prisoners and their families, and build leadership skills of civil society leaders. Finally, the budget request maintained that U.S. assistance also would support the dissemination of information regarding market economies and economic rights.\nThe Senate Appropriations Committee-reported version of the FY2012 Department of State, Foreign Operations, and Related Programs Appropriations bill, S. 1601 ( S.Rept. 112-85 ), would have provided $15 million in ESF for Cuba ($5 million less than the request), including humanitarian and democracy assistance, support for economic reform, private sector initiatives, and human rights. In its report to the bill, the committee maintained that it expected that funds would be made available, and programs carried out, in a transparent manner. The committee also would have directed that the USAID Administrator provide regular updates to the committee on the number of Cubans who receive assistance and the types of assistance. In contrast to the Senate bill, a draft House Appropriations Committee bill and report (marked up by the Subcommittee on State, Foreign Operations, and Relations Programs on July 27, 2011) would have recommended $20 million in ESF for Cuba (the full Administration's request), and would have directed that the funds be used only for democracy-building, and not for business promotion, economic reform, social development or other purposes expressly authorized by Section 109(a) of the Cuban Liberty and Democratic Solidarity Act of 1996 ( P.L. 104-114 ). (See the draft committee report, available at http://appropriations.house.gov/UploadedFiles/FY12-SFOPSCombinedReport-CSBA.pdf .)\nAs notified to Congress in May 2013, of the $20 million in Cuba projects for FY2012, USAID will administer $9.45 million; the State Department's Bureau of Democracy, Human Rights, and Labor will administer $9.85 million (of which $4 million will be transferred to NED); and the State Department's Bureau of Western Hemisphere Affairs will administer $0.7 million. In terms of the types of programs funded, $2.96 million will be used to support human rights initiatives; $13.07 million will be used for civil society and media programs; and $3.97 million for be used for program support.\nFY2013. For FY2013, the Administration requested $15 million in ESF for human rights and democracy programs for Cuba. According to the request, \"U.S. assistance will continue to support human rights and civil society initiatives that promote basic freedoms, particularly freedom of expression. Programs will continue to provide humanitarian assistance to prisoners of conscience and their families, as well as strengthen independent Cuban civil society, and promote the flow of uncensored information to, from, and within the island.\"\nThe Senate Appropriations Committee-reported version of the FY2013 State Department, Foreign Operations, and Related Programs Appropriations Act, S. 3241 ( S.Rept. 112-172 ), would have provided $15 million in ESF for Cuba (the same as the Administration's request), including \"for humanitarian assistance, support for economic reform, private sector initiatives, democracy, and human rights.\" In contrast, the House Appropriations Committee-reported version of the bill, H.R. 5857 ( H.Rept. 112-94 ), would have provided $20 million in ESF ($5 million more than the Administration's request), but would transfer and merge the aid with funds available to the National Endowment for Democracy \"to promote democracy and strengthen civil society in Cuba.\" The report to the House bill maintained that assistance \"shall not be used for business promotion, economic reform, social development, or other purposes not expressly authorized by section 109(a)\" of the Cuban Liberty and Democratic Solidarity Act ( P.L. 104-114 ).\nCongress did not complete action on FY2013 appropriations before the beginning of the fiscal year, but in September 2012, it approved a continuing resolution ( H.J.Res. 117 , P.L. 112-175 ) that continued FY2013 funding through March 27, 2013, at the same rate for projects and activities in FY2012, plus an across-the-board increase of 0.612%, although specific country accounts were left to the discretion of responsible agencies. On March 21, 2013, Congress completed action on full-year FY2013 appropriations with the approval of H.R. 933 ( P.L. 113-6 ). This continued FY2013 funding for Cuba democracy programs but funding was also affected by budget sequestration cutbacks set forth in the Budget Control Act of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act ( P.L. 112-240 ). Ultimately, $19.283 million was appropriated for FY2013 Cuba democracy funding.\nAs notified to Congress in July 2014, of the $19.283 million appropriated, the State Department will administer $17.783 million (with the Bureau of Democracy, Human Rights, and Labor administering $15.433 million and the Bureau of Western Hemisphere Affairs administering) and the Broadcasting Board of Governors (pursuant to a separate notification) will administer $1.5 million. Of the $17.783 million administered by the State Department, $4.028 million will be dedicated to the program area of rule and human rights; $12.079 million will be used to support civil society programs (with $4 million transferred to the National Endowment for Democracy); and $1.675 million will be used for program management and oversight.\nFY2014. For FY2014, the Administration again requested $15 million in ESF for Cuba human rights and democracy projects. According to the budget request, U.S. aid will strengthen independent Cuban civil by supporting initiatives that promote democracy, human rights, and fundamental freedoms, particularly freedom of expression. Programs will also provide humanitarian assistance to victims of political repression and their families and promote the flow of uncensored information to, from, and within Cuba.\nThe Senate Appropriations Committee version of the FY2014 Department of State, Foreign Operations, and Related Programs Appropriations Act, S. 1372 ( S.Rept. 113-81 , reported July 25, 2013), would have provided that ESF assistance appropriated for Cuba only be made available \"for humanitarian assistance and to support the development of private business.\" The House Appropriations Committee version of the bill, H.R. 2855 ( H.Rept. 113-185 , reported July 30, 2013) would have provided that $20 million in ESF assistance ($5 million more than the Administration's request) be transferred to the National Endowment for Democracy \"to promote democracy and strengthen civil society in Cuba.\" The report to the House bill stated that such assistance provided for Cuba \"shall not used for business promotion, economic reform, social development, or other purposes not expressly authorized by section 109(a)\" of the of the Cuban Liberty and Democratic Solidarity Act ( P.L. 104-114 ).\nCongress ultimately completed action on FY2014 appropriations in January 2014 when it enacted the Consolidated Appropriations Act, 2014, H.R. 3547 ( P.L. 113-76 ), signed into law January 17, 2014. As noted above, the law stated that up to $17.5 million should be made available in ESF for programs and activities in Cuba and stipulated that no ESF appropriated under the act may be obligated by USAID for any new programs or activities in Cuba. The joint explanatory statement to the bill states that of the $17.5 million, not less than $7.5 million shall be provided directly to NED, and not more than $10 million shall be administered by the State Department's Bureau of Democracy, Human Rights, and Labor and Bureau of Western Hemisphere Affairs. Ultimately, however, the Administration is providing an estimated $20 million in ESF for FY2014 Cuba democracy programs, $5 million more than requested and $2.5 million more than the $17.5 million implied by P.L. 113-76 and its joint explanatory statement.\nFY2015. The Administration requested $20 million in ESF for Cuba democracy program in 2015, the same as being provided in FY2014. According to the foreign aid budget request: \"U.S. assistance will support civil society initiatives that promote democracy, human rights and fundamental freedoms, particularly freedom of expression. Programs will provide humanitarian assistance to victims of political repression and their families, strengthen independent Cuban civil society, and promote the flow of uncensored information to, from, and within the island.\" The request described three key aspects of the program: (1) working with independent elements of civil society to increase the capacity for community involvement, build networking among civil society organizations, and build the leadership skills of a future generation of civil society leaders; (2) facilitating information sharing into and out of Cuba, as well as among civil society groups on the island, including through the use of new technology; and (3) supporting Cuban-led efforts to document human rights violations, and providing humanitarian assistance to victims of political repression and their families.\nThe House Appropriations Committee-reported FY2015 Department of State, Foreign Operations, and Related Programs Appropriations bill, H.R. 5013 ( H.Rept. 113-499 ), would have made available $20 million in ESF \"to promote democracy and strengthen civil society in Cuba.\" The report to the bill directed that funds shall not be used for business promotion or economic reform, and that the criteria used for selecting grantees include \"pro-democracy experience inside Cuba.\" The Senate Appropriations Committee-reported version of the measure, S. 2499 ( S.Rept. 113-195 ), would have provided up to $10 million in ESF for programs in Cuba and an additional $5 million for USAID programs to provide technical and other assistance to support the development of private businesses in Cuba.\nCongress ultimately completed action on FY2015 appropriations when it enacted a FY2015 omnibus appropriations measure ( P.L. 113-235 ) in December 2015. The measure stated that ESF assistance appropriated by the law should be made available for Cuba, but did not specify an amount.\nNational Endowment for Democracy. NED is not a U.S. government agency but an independent nongovernmental organization that receives U.S. government funding. Its Cuba program is funded by the organization's regular appropriations by Congress as well as by funding from the State Department. Until FY2008, NED's democratization assistance for Cuba had been funded largely through the annual Commerce, Justice, and State (CJS) appropriations measure, but is now funded through the State Department, Foreign Operations and Related Agencies appropriations measure. As noted above, for FY2014, Congress stipulated that not less than $7.5 million of democracy assistance for Cuba be provided directly to NED for activities and programs in Cuba. Depending on how much actually flows to NED, this would be at least two times the $3.4 million that NED spent for its Cuba projects in FY2013.\nAccording to NED, its Cuba funding in recent years has been as follows: $1.4 million in FY2008; $1.5 million in FY2009; $2.4 million in FY2010; $1.65 million in FY2011; and $2.6 million in FY2012. In FY2013, NED provided $3.4 million as follows: Afro-Cuban Alliance, Inc. (two projects); Asociación de Iberoamericanos por la Libertad; Asociación Diario de Cuba; Center for a Free Cuba; Centro de Investigación y Capacitación de Emprendedores Sociales Asociación Civil; Centro Democracia y Comunidad; Centro para la Apertura y el Desarrollo de América Latina; Clovek v tisni, o.p.s.—People in Need; Committee for Free and Democratic Cuban Unions, Incorporated; Cuban Democratic Directorate; Cuban Soul Foundation; Cubanet News Inc.; Fundación Hispano Cubana; Global Rights (two projects); Grupo Internacional para la Responsibilidad Social Corporativa en Cuba (two projects); Instituto Cubano por la Libertad de Expresión y Prensa; Instituto Político para La Libertad Perú; International Platform for Human Rights in Cuba; Lech Walesa Institute; Observatorio Cubano de Derechos Humanos; Outreach Aid to the Americas, Inc.; People in Peril Association, CVO; Plataforma de Integración Cubana; Civic Education (three projects); Human Rights; and Rule of Law (two projects).",
"The U.S. Government Accountability Office (GAO) has issued several reports since 2006 examining USAID and State Department democracy programs for Cuba. In 2006, GAO issued a report examining programs from 1996 through 2005, and concluded that the U.S. program had significant problems and needed better management and oversight. According to GAO, internal controls, for both the awarding of Cuba program grants and oversight of grantees, \"do not provide adequate assurance that the funds are being used properly and that grantees are in compliance with applicable law and regulations.\" Investigative news reports on the program maintained that high shipping costs and lax oversight had diminished its effectiveness.\nGAO issued a second report in 2008 examining USAID's Cuba democracy program. The report lauded the steps that USAID had taken since 2006 to address problems with its Cuba program and improve oversight of the assistance. These included awarding all grants competitively since 2006, hiring more staff for the program office since January 2008, and contracting for financial services in April 2008 to enhance oversight of grantees. The GAO report also noted that USAID had worked to strengthen program oversight through pre-award and follow-up reviews, improving grantee internal controls and implementation plans, and providing guidance and monitoring about permitted types of assistance and cost sharing. The 2008 GAO report also maintained, however, that USAID had not staffed the Cuba program to the level needed for effective grant oversight. GAO recommended that USAID (1) ensure that its Cuba program office is staffed at the level that is needed to fully implement planned monitoring activities; and (2) periodically assess the Cuba program's overall efforts to address and reduce grantee risks, especially regarding internal controls, procurement practices, expenditures, and compliance with laws and regulations.\nMore recently, in January 2013, GAO issued its third report on Cuba democracy programs. The report concluded that USAID had improved its performance and financial monitoring of implementing partners' use of program funds, but found that the State Department's financial monitoring had gaps. Both agencies were reported to be taking steps to improve financial monitoring. GAO recommended that the Secretary of State take two actions to strengthen the agency's ability to monitor the use of Cuba democracy program funds: use a risk-based approach for program audits that considers specific indicators for program partners; and obtain sufficient information to approve implementing partners' use of subpartners.\nIn early April 2014, an Associated Press investigative report alleged that USAID, as part of its democracy promotion efforts for Cuba, had established a \"Cuban Twitter\" known as ZunZuneo, a communications network designed as a \"covert\" program \"to undermine\" Cuba's communist government built with \"secret shell companies\" and financed through foreign banks. According to the press report, the project, which was used by thousands of Cubans, lasted more than two years until it ended in 2012. USAID, which strongly contested the report, issued a statement and facts about the ZunZuneo program. It maintained that program was not \"covert,\" but rather that, just as in other places where it is not always welcome, the agency maintained a \"discreet profile\" on the project to minimize risk to staff and partners and work safely. Some Members of Congress strongly criticized USAID for not providing sufficient information to Congress about the program when funding was appropriated, while other Members strongly defended the agency and the program.\nIn August 2014, the Associated Press reported on another U.S.-funded democracy program for Cuba in which a USAID contractor sent about a dozen youth from several Latin American countries (Costa Rica, Peru, and Venezuela) in 2010 and 2011 to Cuba to participate in civic programs, including an HIV-prevention workshop, with the alleged goal to \"identify potential social-change actors\" in Cuba. The AP report alleged that \"the assignment was to recruit young Cubans to anti-government activism under the guise of civic programs. USAID responded in a statement maintaining that the AP report \"made sensational claims against aid workers for supporting civil society programs and striving to give voice to these democratic aspirations.\"",
"As noted earlier, USAID subcontractor Alan Gross was imprisoned in Cuba from December 2009 until December 2014 for his work on a Cuba democracy project designed to provide Cuba's Jewish community with communication equipment for wireless Internet connectivity. In March 2011, he was convicted by a Cuban court in March 2011 and sentenced to 15 years in prison. Gross has remained in prison despite numerous calls for his release on humanitarian grounds by Members of Congress, the Obama Administration, and many other religious and human rights groups. His continued imprisonment was impediment to an improvement in U.S.-Cuban relations. In 2012, Cuba began linking the release of Alan Gross to the release of the so-called \"Cuban five\", who were convicted in the United States for espionage in 2001 (see \" Cuban Five \" below). The United States rejected such linkage, maintaining there was no equivalence between the cases.\nGross was working as a USAID subcontractor for Development Alternatives Inc. (DAI), a Bethesda-based company that had received a contract from USAID to help support Cuban civil society organizations. As part of the project, Gross installed broadband Internet connections for three Jewish communities in the cities of Havana, Camagüey, and Santiago de Cuba. He was arrested on December 4, 2009, at Jose Martí International Airport in Havana when he was planning to leave the country after his fifth trip to Cuba under his subcontract with DAI. According to a statement at the time by DAI, Gross \"was working with a peaceful, non-dissident civic group—a religious and cultural group recognized by the Cuban government—to improve its ability to communicate with its members across the island and overseas.\"\nAfter 14 months in prison, a Cuban court in Havana officially charged Gross on February 4, 2011, with \"actions against the independence and territorial integrity of the state\" pursuant to Article 91 of Cuba's Penal Code. After a two-day trial in March 2011, Gross was convicted and sentenced to 15 years in prison. Gross's lawyer had asked for the Cuban government to release Gross as a humanitarian gesture, maintaining that his health continued to deteriorate and noting that his elderly mother had been diagnosed with lung cancer, and his daughter was recovering from cancer treatment. Cuba's Supreme Court heard arguments for Gross's appeal on July 22, 2011, but the court rejected the appeal on August 5, 2011.\nThere had been some hope in April 2012 that Cuba would positively respond to a humanitarian request by Alan Gross to visit his elderly sick mother in the United States for a period of two weeks, but this did not occur. In contrast, a U.S. federal judge in Florida granted René González, one of the so-called \"Cuban five\" convicted in 2001, the right to visit his dying brother in Cuba for two weeks.\nIn September 2012, Judy Gross, the wife of Alan Gross, expressed concern in media reports about the health of her husband, who had lost more than 100 pounds while in prison, and fears that he would not survive continued imprisonment. In early October 2012, Judy Gross expressed concern that her husband could have cancer. In November 2012, the Cuban government maintained that Gross was in normal health and that a biopsy on a lesion showed that he did not have cancer.\nIn November 2012, Alan and Judy Gross filed a suit in U.S. District Court against the U.S. government and his employer, DAI, alleging that they \"failed to disclose adequately to Mr. Gross, both before and after he began traveling to Cuba, the material risks that he faced due to his participation in the project.\" DAI ultimately reached an undisclosed settlement with Alan and Judy Gross on May 16, 2013, while on May 28, 2013, a U.S. federal judge dismissed the lawsuit against the U.S. government. Gross's lawyers reportedly will appeal the judge's dismal. On December 23, 2014, USAID agreed to pay $3.2 million to DAI to resolve pending claims before the Civilian Board of Contract Appeals under a cost-reimbursement contract; press reports indicate that Gross will receive much of the settlement.\nIn the five years that Gross was imprisoned, numerous U.S. officials and Members of Congress repeatedly raised the issue of his detention with the Cuban government and called for his release. In late November 2012, Judy Gross urged President Obama to give the case top priority and to designate a special envoy to meet with the Cuban government for her husband's release. On December 3, 2012, the third anniversary of Gross's imprisonment, the State Department issued a statement again calling for his release, and asked the Cuban government to grant Gross's request to travel to the United States to visit his gravely ill 90-year-old mother. On December 5, 2012, the Senate approved S.Res. 609 (Moran) by voice vote, marking the first congressional vote on the issue since Gross's detention. With 31 cosponsors, the resolution called for the immediate and unconditional release of Gross, and urged the Cuban government in the meantime to provide all appropriate diagnostic and medical treatment to address the full range of medical issues facing Mr. Gross and to allow him to choose a doctor to provide him with an independent medical assessment. (In August 2013, Cuba allowed a U.S. doctor to visit and examine Gross.)\nDuring his incarceration, the State Department maintained that securing the release of Alan Gross remained a top U.S. priority. On December 3, 2013, the fourth anniversary of Gross's imprisonment, the State Department maintained that it was using every appropriate diplomatic channel, both publicly and privately, to press for Gross's release. The State Department also reiterated its call for the Cuban government to release Gross immediately, as did National Security Adviser Susan Rice. On January 14, 2014, in a meeting with the Vatican, Secretary of State Kerry asked for their assistance in securing the release of Gross. The State Department issued a press statement on May 2, 2014, Gross's 65 th birthday, expressing deep concern about his well-being and again calling on the Cuban government to release him and allow him to be reunited with his family. The statement also asserted that Gross's \"detention remains an impediment to more constructive relations between Cuba and the United States.\" In June 2014, President Obama asked visiting Uruguayan President José Mujica to raise the issue of Gross's release with Raúl Castro. Gross's incarceration has been raised by the United States at semi-annual migration talks with Cuba, including those held in July 2014.\nIn early April 2014, Gross went on an nine-day hunger strike in which he was protesting his treatment by the Cuban and U.S. governments. He maintained that there would be further protests to come, and that his 91-year old mother had urged him to resume eating. Later in April, Gross's lawyer, Scott Gilbert, maintained that his client planned to return from Cuba to his family within the year, and that his 65 th birthday in Cuba—on May 2, 2014—would be his last because he would renew a hunger strike if he was not released within the year. Gilbert maintained that Gross's imprisonment had taken a toll on his health, with some lost vision in his right eye, a missing tooth, a limp because of his hips, and weight loss of nearly 110 pounds. He maintained that Cuban Foreign Minister Bruno Rodriguez has reiterated Cuba's \"strong interest in sitting down with officials of the United States at the highest levels to resolve this issue with no preconditions.\"\nIn the aftermath of the May 31, 2014, release of five Taliban members from the Guantanamo Bay detention facility in order to effectuate the release of U.S. prisoner of war Sergeant Bowe Bergdahl held captive by the Taliban since 2009, some observers and Members of Congress called for the Administration to consider similar efforts to secure the release of Alan Gross while others rejected such an action.\nGross's elderly mother died on June 18, 2014, after battling lung cancer, and the United States urged Cuba to release Gross temporarily so that he could be with his family. Gross's lawyer and his wife expressed concern in late June 2014 that Gross might try to end his life.\nAs noted above, Gross ultimately was released by Cuba on humanitarian grounds on December 17, 2014, and returned to the United States.",
"U.S.-government sponsored radio and television broadcasting to Cuba—Radio and TV Martí—began in 1985 and 1990 respectively. According to the Broadcasting Board of Governors (BBG) FY2015 Congressional Budget Request , Radio and TV Martí \"inform and engage the people of Cuba by providing a reliable and credible source of news and information.\" The BBG's Office of Cuba Broadcasting uses \"a mix of media, including shortwave, medium wave, direct-to-home satellite, Internet, flash drives, and DVDs to help reach audiences in Cuba.\"\nUntil October 1999, U.S.-government funded international broadcasting programs had been a primary function of the United States Information Agency (USIA). When USIA was abolished and its functions were merged into the Department of State at the beginning of FY2000, the BBG became an independent agency that included such entities as the Voice of America (VOA), Radio Free Europe/Radio Liberty (RFE/RL), Radio Free Asia, and the Office of Cuba Broadcasting (OCB), which manages Radio and TV Marti. OCB is headquartered in Miami, FL. Legislation in the 104 th Congress ( P.L. 104-134 ) required the relocation of OCB from Washington, DC, to South Florida. The move began in 1996 and was completed in 1998. (In the 113 th Congress, H.R. 4490 , approved by the House in July 2014, would abolish the BBG and create a new United States International Communications Agency, and the OCB would be a part of the new agency. For more information, see CRS Report R43521, U.S. International Broadcasting: Background and Issues for Reform , by [author name scrubbed].)\nTV Martí programming has been broadcast through multiple transmission methods over the years. Its broadcasts are transmitted via the Internet and satellite television 24 hours a day, seven days per week. From its beginning in 1990 until July 2005, TV Martí was broadcast via an aerostat (blimp) from facilities in Cudjoe Key, FL, for four and one-half hours daily, but the aerostat was destroyed by Hurricane Dennis. From mid-2004 until 2006, TV Martí programming was transmitted for several hours once a week via an airborne platform known as Commando Solo operated by the Department of Defense utilizing a C-130 aircraft. In August 2006, OCB began to use contracted private aircraft to transmit prerecorded TV Martí broadcasts, and by late October 2006 the OCB inaugurated an aircraft-broadcasting platform known as AeroMartí with the capability of transmitting live broadcasts. In recent years, AeroMartí transmitted broadcasts two and one-half hours for five days weekly, but beginning in May 2013, AeroMartí flights were curtailed because of the FY2013 budget sequestration. Moreover, as noted below, the BBG proposed eliminating AeroMartí in its FY2013 and FY2014 budget requests because of decreases in its cost effectiveness, and it was ultimately eliminated in FY2014, according to the BBG.\nAccording to the BBG, the OCB uses multiple web domains and anti-censorship tools such as web-based proxies to reach Internet users in Cuba. Since 2011, the OCB has used SMS messaging to communicate with audiences in Cuba, allowing OCB to \"push\" information to mobile phone users in Cuba in a manner that is difficult to filter. The OCB's website, martinoticias.com, began streaming Radio and TV Martí programming 24 hours a day in 2013. It has also launched a YouTube Channel, Facebook page, and Twitter feed.",
"From FY1984 through FY2014, Congress appropriated about $770 million for broadcasting to Cuba. In recent years, funding amounted to $27.977 million in FY2012, $26.293 million in FY2013, and an estimated $27.043 million in FY2014. The FY2015 request was for $23.130 million, and Congress ultimately appropriated $27.130 million, but also provided that additional funding may be transferred to the Office of Cuba Broadcasting from appropriated Economic Support Funds to restore program reductions.\nFY2012. The Administration requested $28.475 million for Cuba broadcasting in FY2012. The Senate Appropriations Committee version of the FY2012 State Department, Foreign Operations, and Related Programs Appropriations measure, S. 1601 ( S.Rept. 112-85 ), recommended $28.181 million in funding for Cuba broadcasting, $294,000 less than the request. In contrast, a draft House Appropriations Committee report and bill (marked up by the House Appropriations Committee's Subcommittee on State, Foreign Operations, and Related Programs on July 27, 2011) recommended $30.175 million for Cuba broadcasting, $1.7 million more than the request. (See the draft committee report, available at http://appropriations.house.gov/UploadedFiles/FY12-SFOPSCombinedReport-CSBA.pdf .) In final action on the FY2012 Consolidated Appropriations Act ( H.R. 2055 , P.L. 112-74 ), Congress approved full funding of the Administration's $28.475 million request for broadcasting to Cuba. The BBG's actual spending for FY2012 funding was $27.977 million.\nFY2013. The Administration requested $23.594 million for Cuba broadcasting in FY2013, almost $4.5 million lower than FY2012 funding. According to the BBG's budget request, program reductions are possible because of OCB's planned streamlining in the planning and execution of news coverage and reliance on additional technical support from the BBG's International Broadcasting Bureau. The BBG proposed eliminating the AeroMartí platform for a savings of $2 million because of decreases in its cost effectiveness.\nThe Senate Appropriations Committee-reported FY2013 State Department, Foreign Operations, and Related Programs Appropriations Act, S. 3241 ( S.Rept. 112-172 ), would have provided $23.4 million ($194,000 less than the Administration's request). The committee's report to the bill expressed its support for \"the proposed reduction in TV Martí operating costs, including the termination of the Aeromartí contract, as long as such action will not reduce its current broadcast schedule of 166 weekly hours.\" The House Appropriations Committee-reported bill, H.R. 5857 ( H.Rept. 112-494 ), would have provided $28.062 million ($4.468 million more than the Administration's request and the same amount provided in FY2012).\nAs already noted, Congress did not complete action on FY2013 appropriations before the end of the fiscal year, but in September 2012 it approved a continuing resolution ( P.L. 112-175 ) that continued funding through March 27, 2013, at the same rate for projects and activities in FY2012 plus an across-the-board increase of 0.612%. On March 21, 2013, Congress completed action on FY2013 appropriations with the approval of H.R. 933 ( P.L. 113-6 ), but it did not stop funding reductions caused by sequestration set forth in the Budget Control Act of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act ( P.L. 112-240 ). In its FY2014 Congressional Budget Request, the BBG maintained that the FY2013 enacted level for Cuba broadcasting was $28.266 million, but this did not reflect the funding reduction caused by sequestration. (In May 2013, because of sequestration, the OCB curtailed AeroMartí flights that transmitted TV Martí broadcasts.) The BBG's actual spending for OCB in FY2013 was $26.293 million.\nFY2014. The Administration requested $23.804 million for Cuba broadcasting, about $4.5 million less than that provided in FY2013, although roughly similar to the FY2013 budget request for Cuba broadcasting. In terms of program reductions, the BBG again proposed eliminating AeroMartí an aircraft-based broadcast system targeting Havana and surrounding areas, because of decreases in cost effectiveness. The BBG maintains that the signal is heavily jammed by the Cuban government, significantly limiting its reach and impact in Cuba. (As noted above, the OCB curtailed AeroMartí flights beginning in May 2013 because of the FY2013 budget sequestration.) The OCB would also eliminate the use of two shortwave frequencies at night. The BBG is also proposing to eliminate seven OCB positions working in a unit that served as a clearinghouse for research and information on issues related to Cuba. It also proposed reducing contractors and up to 50 OCB positions. According to the BBG's budget request, the agency will seek to execute inter-agency agreements with the Department of State and the U.S. Agency for International Development to utilize some existing unobligated resources allocated for Cuba democracy, human rights, and entrepreneurship programs; the BBG would use the resources to fund OCB's special TV programming and to maintain a 24 hours per day broadcast schedule.\nThe House Appropriations Committee version of the FY2014 Department of State, Foreign Operations, and Related Programs Appropriations Act, H.R. 2855 ( H.Rept. 113-185 , reported July 30, 2013), would have provided $28.266 million for Cuba broadcasting, about $4.5 million more than the Administration's request. In contrast, the Senate Appropriations Committee version, S. 1372 ( S.Rept. 113-81 , reported July 25, 2013), would have provided $23.804 million, the same amount as the Administration's request.\nCongress ultimately appropriated $27.043 million for Cuba broadcasting when it enacted the FY2014 omnibus appropriations measure, H.R. 3547 ( P.L. 113-76 ), signed into law January 17, 2014. This amounted to about $3.24 million above the Administration's request.\nFY2015. The Administration requested $23.130 million in FY2015 for the OCB, about $3.9 million less than the estimated amount planned for FY2014. According to the request, the BBG anticipates that OCB may receive up to a $5 million transferred from the ESF foreign aid spending account originally appropriated for Cuba democracy programs. According to the BBG, this would \"leverage the well-established relationships on the island by OCB to conduct activities\" in accordance with the Cuban Liberty and Democratic Solidarity Act of 1996.\nThe House Appropriations Committee-reported version of the FY2015 Department of State, Foreign Operations, and Related Programs Appropriations Act, H.R. 5013 ( H.Rept. 113-499 ) would have provided not less than $28.266 million for the OCB, about $5.1 million more than the request and about $1.2 million more than the FY2014 program level. According to the report to the bill, the increase above the FY2014 OCB program level \"is intended to mitigate the impact of absorbing transmission and personnel costs.\" The Senate Appropriations Committee-reported version of the appropriations measure, S. 2499 ( S.Rept. 113-195 ), would have provided $23.130 million for the OCB, the same amount requested by the Administration.\nUltimately Congress appropriated $27.130 million for Cuba broadcasting in the FY2015 omnibus appropriations measure ( P.L. 113-235 ) enacted in December 2014. The explanatory statement to the measure also indicated that funds may be transferred to the OCB from appropriated ESF to restore OCB program reductions.",
"Both Radio and TV Martí have at times been the focus of controversies, including questions about adherence to broadcast standards. There have been various attempts over the years to cut funding for the programs, especially for TV Martí, which has not had much of an audience because of Cuban jamming efforts. From 1990 through 2008, there were numerous government studies and audits of the OCB, including investigations by the GAO, by a 1994 congressionally established Advisory Panel on Radio and TV Martí, by the State Department Office Inspector General (OIG), and by the combined State Department/BBG Office Inspector General.\nIn January 2009, GAO issued a report asserting that the best available research suggests that Radio and TV Martí's audience is small, and cited telephone surveys since 2003 showing that less than 2% of respondents reported tuning in to Radio or TV Martí during the past week. With regard to TV Martí viewership, according to the report, all of the IBB's telephone surveys since 2003 show that less than 1% of respondents said that they had watched TV Martí during the past week. According to the GAO report, the IBB surveys show that there was no increase in reported TV Martí viewership following the beginning of AeroMartí and DirecTV satellite broadcasting in 2006.The GAO report also cited concerns with adherence to relevant domestic laws and international standards, including the domestic dissemination of OCB programming, inappropriate advertisements during OCB programming, and TV Martí's interference with Cuban broadcasts. GAO testified on its report in a hearing held by the House Subcommittee on International Organizations, Human Rights, and Oversight of the Committee on Foreign Affairs on June 17, 2009.\nIn April 2010, the Senate Foreign Relations Committee majority issued a staff report that concluded that Radio and TV Martí \"continue to fail in their efforts to influence Cuban society, politics, and policy.\" The report cited problems with adherence to broadcast standards, audience size, and Cuban government jamming. Among its recommendations, the report called for the IBB to move the Office of Cuba Broadcasting back to Washington and integrate it fully into the Voice of America.\nIn December 2011, GAO issued a report examining the extent to which the BBG's strategic plan for broadcasting required by the conference report to the FY2010 Consolidated Appropriations measure ( H.Rept. 111-366 to H.R. 3288 / P.L. 111-117 ) met the requirements established in the legislation. The BBG strategic plan was required to include (1) an analysis of the current situation in Cuba and an allocation of resources consistent with the relative priority of broadcasting to Cuba as determined by the annual Language Service Review and other factors; (2) the estimated audience sizes in Cuba for Radio and TV Martí and the sources and relative reliability of the data; (3) the cost of any and all types of TV transmission and the effectiveness of each in increasing such audience size; (4) the principal obstacles to increasing audience size; (5) an analysis of other options for disseminating news and information to Cuba and the cost effectiveness of each option; and (6) an analysis of the program efficiencies and effectiveness that can be achieved through shared resources and cost saving opportunities in radio and television production between Radio and TV Martí and the Voice of America. GAO found that the BBG's strategic plan lacked key information. Of the six requirements set forth in the conference report, the GAO found that the BBG's strategic plan fully addressed item (4) regarding the principal obstacles to increasing audience sized, but only partially addressed the other five items. The GAO report stated that the BBG can develop and provide more information to Congress, including an analysis of the cost savings opportunities of sharing resources between Radio and TV Martí and the Voice of America's Latin America Division.\nIn May 2012, a controversy occurred involving an editorial by OCB Director Carlos García-Pérez in which he strongly criticized Cuban Cardinal Jaime Ortega and referred to the Cardinal as a \"lackey\" of the Cuban government. The strong language was criticized by several Members of Congress, who called for the Administration to reject the comments against Cardinal Ortega. The editorial raised significant questions about the editorial policy of OCB as well as OCB's adherence to broadcast standards. Such an editorial, authored by the director of OCB, could lead one to conclude that the views articulated were those of the U.S. government. BBG's Director of Communications and External Affairs Lynne Weil maintained that such \"editorials, unless otherwise stated, represent the views of the broadcasters only and not necessarily those of the U.S. government.\"",
"Cuba was added to the State Department's list of states sponsoring international terrorism in 1982 (pursuant to Section 6(j) of the Export Administration Act (EAA) of 1979; P.L. 96-72 ; 50 U . S . C . A ppendix 2504(j) ) because of its alleged ties to international terrorism and support for terrorist groups in Latin America, and it has remained on the list since that time. Under various provisions of law, certain trade benefits, most foreign aid, support in the international financial institutions, and other benefits are restricted or denied to countries named as state sponsors of international terrorism. Under the authority of Section 6(j) of the Export Administration Act, validated licenses are required for exports of virtually all items to countries on the terrorism list, except items specially allowed by public law, such as informational materials, humanitarian assistance, and food and medicine.\nCuba had a long history of supporting revolutionary movements and governments in Latin America and Africa, but in 1992, Fidel Castro said that his country's support for insurgents abroad was a thing of the past. Cuba's change in policy was in large part due to the breakup of the Soviet Union, which resulted in the loss of billions of dollars in annual subsidies to Cuba, and led to substantial Cuban economic decline.\nCritics of retaining Cuba on the terrorism list maintain that it is a holdover from the Cold War. They argue that domestic political considerations keep Cuba on the terrorism list and maintain that Cuba's presence on the list diverts U.S. attention from struggles against serious terrorist threats. Those who support keeping Cuba on the terrorism list argue that there is ample evidence that Cuba supports terrorism. They point to the government's history of supporting terrorist acts and armed insurgencies in Latin America and Africa. They point to the government's continued hosting of members of foreign terrorist organizations and U.S. fugitives from justice.\nIn its C ountry Reports on Terrorism 2013 report (issued April 30, 2014), the State Department stated that Cuba has long provided safe haven to members of the Basque Fatherland and Liberty (ETA) and the Revolutionary Armed Forces of Colombia (FARC). The report noted, however, that Cuba's ties to ETA have become more distant and that about eight of the two dozen ETA members in Cuba were relocated with the cooperation of the Spanish government. With regard to the FARC, the terrorism report noted that throughout 2012, the Cuban government supported and hosted peace negotiations between the FARC and the Colombian government. As in its 2011 and 2012 reports, the State Department stated in the 2013 terrorism report that \"there was no indication that the Cuban government provided weapons or paramilitary training to terrorist groups.\"\nAnother issue noted in the 2013 terrorism report that has been mentioned for many years in the annual report is Cuba's harboring of fugitives wanted in the United States. The report maintained that Cuba provided such support as housing, food ration books, and medical care for these individuals. U.S. fugitives from justice in Cuba include convicted murderers and numerous hijackers, most of whom entered Cuba in the 1970s and early 1980s. For example, Joanne Chesimard, also known as Assata Shakur, was added to the FBI's Most Wanted Terrorist list on May 2, 2013. Chesimard was part of militant group known as the Black Liberation Army. In 1977, she was convicted for the 1973 murder of a New Jersey State Police officer and sentenced to life in prison. Chesimard escaped from prison in 1979, and according to the FBI, lived underground before fleeing to Cuba in 1984. In addition to Chesimard and other fugitives from the past, a number of U.S. fugitives from justice wanted for Medicare and other types of insurance fraud reportedly have fled to Cuba in recent years. On November 6, 2013, William Potts, an American citizen who had hijacked an airplane from New Jersey to Havana in 1984, returned to the United States to face air-piracy charges; he had served 14 years in a Cuban jail for his crime. In the 113 th Congress, H.Res. 262 (King, NY), introduced in June 2013, calls for the immediate extradition or rendering of convicted felon William Morales and all other fugitives from justice who are receiving safe harbor in Cuba in order to escape prosecution or confinement for criminal offenses committed in the United States.\nCuba in recent years has returned wanted fugitives to the United States on a case by case basis. For example, in 2011, U.S. Marshals picked up a husband and wife in Cuba who were wanted for a 2010 murder in New Jersey, while in April 2013, Cuba returned a Florida couple who had allegedly kidnapped their own children (who had been in the custody of the mother's parents) and fled to Havana. However, Cuba has generally refused to render to U.S. justice any fugitive judged by Cuba to be \"political,\" such as Chesimard, who they believe could not receive a fair trial in the United States. Moreover, Cuba in the past has responded to U.S. extradition requests by stating that approval would be contingent upon the United States returning wanted Cuban criminals from the United States. These include the return of Luis Posada Carriles, whom Cuba accused of plotting the 1976 bombing of a Cuban jet that killed 73 people. Cuba had also long sought the return of a militant Cuban exile, Orlando Bosch, whom Cuba also accused of responsibility for the 1976 airplane bombing (Bosch died in Florida in 2011).\nThe 2012 terrorism report, issued in May 2013, had noted that Cuba became a member of the Financial Action Task Force of South America (GAFISUD), a regional group associated with the multilateral Financial Action Task Force (FATF), in December 2012. As such, Cuba has committed to adopting and implementing the 40 recommendations of the FATF pertaining to international standards on combating money laundering and the financing of terrorism and proliferation. Cuba is scheduled to undergo a GAFISUD mutual evaluation in 2014 examining its compliance and implementation of the FATF recommendations.\nAs set forth in Section 6(j) of the EAA, a country's retention on the state sponsors of terrorism list may be rescinded by the President in two ways. The first option is for the President to submit a report to Congress certifying that there has been a fundamental change in the leadership and policies of the government and that the government is not supporting acts of international terrorism and is providing assurances that it will not support such acts in the future. The second option is for the President to submit a report to Congress, at least 45 days in advance justifying the rescission and certifying that the government has not provided any support for international terrorism during the preceding six-months, and has provided assurances that it will not support such acts in the future.\nIn addition to Section 6(j) of the EAA, there are two other provisions of law that authorize the designation of a foreign government as a state sponsor of acts of international terrorism: Section 620A of the Foreign Assistance Act (FAA) of 1961 ( 22 U . S . C . 2371 ) and Section 40 of the Arms Export Control Act (AECA) ( 22 U . S . C . 2780 ). Of the three statutes, only the AECA has an explicit provision allowing Congress to block, via the enactment of a joint resolution, a removal of a country on the list. (For further background, see CRS Report R43835, State Sponsors of Acts of International Terrorism—Legislative Parameters: In Brief , by [author name scrubbed].)\nAnother potential option to remove Cuba from the state sponsors of terrorism list was set forth in H.R. 1917 (Rush) introduced in the 113 th Congress. Section 10 of the bill would have rescinded any determination of the Secretary of State in effect on the date of enactment of the Act that Cuba has repeatedly provided support for acts of international terrorism. The bill referenced all three statutes authorizing the designation of a country as a sponsor of acts of international terrorism: Section 6(j) of the EAA; Section 620A of the FAA; and Section 40 of the AECA.\nAs noted above, President Obama announced on December 17, 2014, that he instructed Secretary of State Kerry to review Cuba's designation as a state sponsor of terrorism, with the review \"guided by the facts and the law.\" The President stated that \"at a time when we are focused on threats from al Qaeda to ISIL, a nation that meets our conditions and renounces the use of terrorism should not face this sanction.\" A White House fact sheet indicated that the Secretary of State was to provide a report to the President within six months regarding Cuba's support for international terrorism.",
"Cuba and the United States reached two migration accords in 1994 and 1995 designed to stem the mass exodus of Cubans attempting to reach the United States by boat. On the minds of U.S. policy makers was the 1980 Mariel boatlift in which 125,000 Cubans fled to the United States with the approval of Cuban officials. In response to Fidel Castro's threat to unleash another Mariel, U.S. officials reiterated U.S. resolve not to allow another exodus. Amid escalating numbers of fleeing Cubans, on August 19, 1994, President Clinton abruptly changed U.S. migration policy, under which Cubans attempting to flee their homeland were allowed into the United States, and announced that the U.S. Coast Guard and Navy would take Cubans rescued at sea to the U.S. naval base at Guantanamo Bay, Cuba. Despite the change in policy, Cubans continued fleeing in large numbers.\nAs a result, in early September 1994, Cuba and the United States began talks that culminated in a September 9, 1994, bilateral agreement to stem the flow of Cubans fleeing to the United States by boat. In the agreement, the United States and Cuba agreed to facilitate safe, legal, and orderly Cuban migration to the United States, consistent with a 1984 migration agreement. The United States agreed to ensure that total legal Cuban migration to the United States would be a minimum of 20,000 each year, not including immediate relatives of U.S. citizens.\nIn May 1995, the United States reached another accord with Cuba under which the United States would parole the more than 30,000 Cubans housed at Guantanamo into the United States, but would intercept future Cuban migrants attempting to enter the United States by sea and would return them to Cuba. The two countries would cooperate jointly in the effort. Both countries also pledged to ensure that no action would be taken against those migrants returned to Cuba as a consequence of their attempt to immigrate illegally. On January 31, 1996, the Department of Defense announced that the last of some 32,000 Cubans intercepted at sea and housed at Guantanamo had left the U.S. Naval Station, most having been paroled into the United States.\nSince the 1995 migration accord, the U.S. Coast Guard has interdicted thousands of Cubans at sea and returned them to their country. Those Cubans who reach shore are allowed to apply for permanent resident status in one year, pursuant to the Cuban Adjustment Act of 1966 (P.L. 89-732). In short, most interdictions, even in U.S. coastal waters, result in a return to Cuba, while those Cubans who touch shore are allowed to stay in the United States. This so-called \"wet foot/dry foot\" policy has been criticized by some as encouraging Cubans to risk their lives in order to make it to the United States and as encouraging alien smuggling. Others maintain that U.S. policy should welcome those migrants fleeing communist Cuba whether or not they are able to make it to land.\nThe number of Cubans interdicted at sea by the U.S. Coast Guard rose from 666 in FY2002 to a high of 2,868 in FY2007. In the three subsequent years, maritime interdictions declined significantly to 422 by FY2010 (see Figure 6 ). Major reasons for the decline were reported to include the U.S. economic downturn, more efficient coastal patrolling, and more aggressive prosecution of migrant smugglers by both the United States and Cuba.\nFrom FY2011 to FY2014, however, the number of Cubans interdicted by the Coast Guard increased each year, from 985 in FY2011 to 2,059 in FY2014. Speculation on the reasons for the increase included Cuba's poor economic and political situation; the Coast Guard's more efficient methods of interdiction; and the easing of the economic situation in the United States, making it easier for the payment of fees to migrant smugglers. The U.S. State Department reports that timely and clear communication between the U.S. Coast Guard and the Cuban Border Guard (TGF) also has been a factor in increasing the rate of migrant interdiction (from 39% in FY2010 to 60% in FY2013), with the TGF providing more operationally relevant information than in the past.\nDespite the U.S. Coast Guard's maritime interdiction program, thousands of unauthorized Cubans reach the United States each year, either by boat or, especially, at land ports of entry. U.S. Border Patrol apprehensions between ports of entry (largely coastal Florida) of unauthorized Cubans were 910 in FY2009, 712 in FY2010, 959 in FY2011, and 606 in FY2012. These statistics are significantly lower than the FY2005-FY2008 period when Border Patrol apprehensions of Cubans averaged over 3,700 each year.\nAccording to the State Department, Cubans continue to favor land-based entry at U.S. ports of entry, especially from Mexico, even though Mexico and Cuba negotiated a migration accord in 2008 an attempt to curb the irregular flow of Cuban migrants through Mexico. In FY2012, 11,383 Cubans presented themselves at land border ports of entry (with more than 90% at the southwest border), while in FY2013, that figure rose to 14,251 Cubans (with 85% at the southwest border). Press reports indicate that the number of Cubans entering the United States via the southwest border is increasing further in FY2014, with more than 13,500 as of July 2014.\nSemi-annual U.S.-Cuban talks alternating between Cuba and the United States were held on the implementation of the 1994/1995 migration accords until they were suspended by the United States in 2004. The Obama Administration re-started the talks in 2009, and there were four rounds of talks until January 2011. In addition to migration issues, the talks became a forum to raise other issues of concern, including, for U.S. officials, the imprisonment of Alan Gross.\nAfter an 18-month hiatus, another round of migration talks was held on July 17, 2013, in Washington, DC. After the talks, the State Department issued a statement maintaining that the agenda reflected long-standing U.S. priorities on Cuba migration issues and highlighted areas of successful cooperation in migration, including advances in aviation safety and visa processing and identifying needed actions to ensure that the goals of the accord are fully met, especially with regard to safeguarding the lives of intending immigrants. The State Department also reiterated the call for the immediate release of Alan Gross. The Cuban delegation maintained that the meeting took place in a climate of respect and reviewed joint actions to deter illegal migration and alien smuggling. The delegation also noted that Cuba had recently (June 20, 2013) ratified the \"Protocol Against the Smuggling of Migrants by Land, Sea, and Air,\" and the \"Protocol to Prevent, Suppress, and Punish Trafficking in Persons, especially Women and Children,\" both supplements to the U.N. Convention against Transnational Organized Crime. The delegation also said that alien smuggling could not be eliminated as long as the U.S. \"wet foot/dry foot policy\" and the Cuban Adjustment Act were in place encouraging illegal immigration.\nSince then, two more rounds of migration talks have been held—on January 9, 2014, and July 9, 2014. Following the talks, both sides issued positive statements noting the issues covered. The State Department noted that the agenda for the meetings included cooperation on aviation security, search and rescue, consular document fraud, and visa processing. Cuba's Ministry of Foreign Affairs reported that it expressed concern about difficulties with its consular services in the United States because of the interruption of its banking services. The Cuban delegation also expressed satisfaction that both governments had agreed earlier in July to enforce technical operation procedures for search and rescue operations in order to saves lives.\nOn two occasions since late 2013, Cuba had suspended its consular services (e.g., passports, passport renewals, visas) in the United States because it has not been able to find a replacement financial institution to replace M&T Bank, which had decided to stop offering bank services to Cuba's diplomatic missions. According to press reports, the State Department has maintained that it has been working with Cuba to help resolve the issue. The first suspension of services began November 26, 2013, but the services were restored on December 9 after M&T Bank postponed closing the accounts of its diplomatic missions in Washington, DC, and New York until March 1, 2014. The second suspension of services began on February 14, 2014, but Cuba's diplomatic missions in the United States reportedly had again resumed all consular services by mid-May 2014 even though Cuba had reportedly still not found a bank to replace M&T.",
"In October 2012, the Cuban government announced that it would be updating its migration policy, effective January 14, 2013, by eliminating the long-standing policy of requiring an exit permit and letter of invitation from abroad for Cubans to travel abroad. Cubans are now able to travel abroad with just an updated passport and a visa issued by the country of destination, if required. Under the change in policy, Cubans can travel abroad for up to two years without forgoing their rights as Cuban citizens. The practice of requiring an exit permit had been extremely unpopular in Cuba and the government had been considering doing away with the practice for some time.\nThe Cuban government said that it would fight against \"brain drain,\" and that the new policy would not apply to scientists, athletes, and other professionals. In early January 2013, however, the Cuban government announced that the new travel policy would also apply to health care professionals, including doctors.\nWhen the new policy went into effect on January 14, 2013, thousands of Cubans lined up at government migration offices and travel agencies. Travel under the new policy requires an updated passport as well as any visas required by the receiving countries. A U.S. State Department spokesman said that it welcomed any changes that would allow Cubans to depart from and return to their country freely. According to the State Department, Cuba's announced change is consistent with the Universal Declaration of Human Rights in that everyone should have the rights to leave any country, including their own, and return.\nAs noted above, Internet blogger Yoani Sánchez and several other prominent dissidents and human rights activists have traveled abroad because of Cuba's new migration policy. In light of Cuba's new travel policy, some analysts have raised the question as to whether the United States should review its policy toward Cuban migrants, as set forth in the Cuban Adjustment Act of 1966 (P.L. 89-732), in which those Cubans arriving in the United States are allowed to apply for permanent resident status in one year.\nEffective August 1, 2013, the State Department made non-immigrant B-2 visas issued to Cubans for family visits, tourism, medical treatment, or other personal travel valid for five years with multiple entries. Previously these visas had been restricted to single entry for six months, and an extensive visa interview backlog had developed at the U.S. Interests Section in Havana. State Department officials maintain that the change increases people-to-people ties and removes procedural and financial burdens on Cuban travelers.",
"Cuba is not a major producer or consumer of illicit drugs, but its extensive shoreline and geographic location make it susceptible to narcotics smuggling operations. Drugs that enter the Cuban market are largely the result of onshore wash-ups from smuggling by high-speed boats moving drugs from Jamaica to the Bahamas, Haiti, and the United States or by small aircraft from clandestine airfields in Jamaica. For a number of years, Cuban officials have expressed concerns over the use of their waters and airspace for drug transit and about increased domestic drug use. The Cuban government has taken a number of measures to deal with the drug problem, including legislation to stiffen penalties for traffickers, increased training for counternarcotics personnel, and cooperation with a number of countries on anti-drug efforts.\nAccording to the State Department's 2014 International Narcotics Control Strategy Report (INCSR) , issued February 28, 2014, Cuba has a number of anti-drug-related agreements in place with other countries, including 35 bilateral agreements for counterdrug cooperation and 27 policing cooperation agreements. Since 1999, Cuba's Operation Hatchet has focused on maritime and air interdiction and the recovery of narcotics washed up on Cuban shores. As reported in the INCSR , Cuba reported interdicting 3.05 metric tons of illegal narcotics in 2012, with the overwhelming majority consisting of wash ups. Since 2003, Cuba has aggressively pursued an internal enforcement and investigation program against its incipient drug market with an effective nationwide drug prevention and awareness campaign.\nOver the years, there have been varying levels of U.S.-Cuban cooperation on anti-drug efforts. In 1996, Cuban authorities cooperated with the United States in the seizure of 6.6 tons of cocaine aboard the Miami-bound Limerick , a Honduran-flag ship. Cuba turned over the cocaine to the United States and cooperated fully in the investigation and subsequent prosecution of two defendants in the case in the United States. Cooperation has increased since 1999 when U.S. and Cuban officials met in Havana to discuss ways of improving anti-drug cooperation. Cuba accepted an upgrading of the communications link between the Cuban Border Guard and the U.S. Coast Guard as well as the stationing of a U.S. Coast Guard Drug Interdiction Specialist (DIS) at the U.S. Interests Section in Havana. The Coast Guard official was posted to the U.S. Interests Section in September 2000, and since that time, coordination has increased.\nAccording to the 2014 INCSR , the Coast Guard shares tactical information related to narcotics trafficking on a case by case basis, and responds to Cuban information on vessels transiting through Cuban territorial seas suspected of smuggling. The report maintained that law enforcement communication gradually increased in frequency and transparency in 2013, especially concerning efforts to target drug trafficking at sea. The United States and Cuba held a \"professional exchange between experts\" on maritime drug interdiction that included tours of facilities, unit capabilities, and possible future joint coordination.\nCuba maintains that it wants to cooperate with the United States to combat drug trafficking, and on various occasions has called for a bilateral anti-drug cooperation agreement with the United States. In the 2011 INCSR (issued in March 2011) the State Department acknowledged that Cuba had presented the U.S. government with a draft bilateral accord for counternarcotics cooperation that is still under review. According to the State Department in the INCSR : \"Structured appropriately, such an accord could advance the counternarcotics efforts undertaken by both countries.\" The report maintained that greater cooperation among the United States, Cuba, and its international partners—especially in the area of real-time tactical information-sharing and improved tactics, techniques, and procedures—would likely lead to increased interdictions and disruptions of illegal trafficking. These positive U.S. statements regarding a potential bilateral anti-drug cooperation agreement and greater multilateral cooperation in the region with Cuba were reiterated in the 2012, 2013, and 2014 INCSR s .\nAt a February 1, 2012, hearing before the Senate Caucus on International Narcotics Control on U.S.-Caribbean security cooperation, Caucus Chairman Senator Dianne Feinstein stated that \"this limited cooperation we do have between our Coast Guard and Cuban authorities has been very useful, and I hope we can find ways to increase our counternarcotics cooperation with Cuba.\" The caucus released a report on September 13, 2012, in which Senator Feinstein recommended that the Obama Administration consider taking four steps to increase U.S. collaboration with Cuba on counternarcotics: (1) expand the U.S. Coast Guard and law enforcement presence at the U.S. Interests Section in Havana; (2) establish protocols for direct ship-to-ship communication between the U.S. Coast Guard and the Cuban Border Guard; (3) negotiate a bilateral counternarcotics agreement with Cuba; and (4) allow for Cuba's participation in the U.S.-Caribbean Security Dialogue.",
"Cuba suffered setbacks in 2012 in working toward development of its offshore oil resources when three attempts by foreign oil companies drilling wells were unsuccessful. While the country has proven oil reserves of just 0.1 billion barrels, the U.S. Geological Survey estimates that offshore reserves in the North Cuba Basin could contain an additional 4.6 billion barrels of undiscovered technically recoverable crude oil. If oil is found, some experts estimate that it would take at least three to five years before production would begin.\nWhile it is unclear whether eventual offshore oil production could result in Cuba becoming a net oil exporter, it could reduce Cuba's current dependence on Venezuela for oil supplies. As noted above, Venezuela provides Cuba with some 100,000 barrels of oil per day. In 2012, Cuba produced about 51,000 barrels of oil per day on its own, with most production occurring onshore, and consumed 171,000 barrels of oil per day, according to the U.S. Energy Information Administration.\nCuba has had several offshore deepwater oil projects involving foreign companies in some 23 exploration blocs.\nThe Spanish oil company Repsol, in a consortium with Norway's Statoil and India's Oil and Natural Gas Corporation (ONGC), began offshore exploratory drilling in late January 2012, using an oil rig known as the Scarabeo-9 (owned by an Italian oil services provider, Saipem, a subsidiary of the Italian oil company ENI). On May 18, 2012, however, Repsol announced that its exploratory well came up dry, and the company subsequently departed Cuba in 2013. In late May 2012, the Scarabeo-9 oil rig was used by the Malaysian company Petronas in cooperation with the Russian company Gazprom to explore for oil in a block off the coast of western Cuba. On August 6, 2012, however, Cuba announced that that the well was found not to be commercially viable because of its compact geological formation. In September 2012, the Venezuelan oil company, PdVSA, announced that it had started exploring for oil off the coast of western Cuba, but on November 2, 2012, Cuba announced that the well was not commercially viable. Brazil's Petrobras signed an agreement in 2008 for the development of an offshore block, but announced its withdrawal in March 2011. Other foreign oil companies that have had exploration agreements for offshore blocks include PetroVietnam, Sonangol (Angola), and ONGC (India). Russian energy companies Rosneft and Zarubezhneft signed an agreement with Cuba's state oil company CubaPetroleo (Cupet) on July 11, 2014, reportedly for the same exploration block that Petrobras had been involved in.\nAs a result of the three unsuccessful wells in 2012, the Scarabeo-9 oil rig left Cuba in November 2012. Most observers maintain that the failure of the three wells was a significant setback for the Cuban government's efforts to develop its deepwater offshore hydrocarbon resources. Some oil experts maintain that it could be years before companies decide to return to drill again in Cuba's offshore deepwaters. While Russian energy companies Rosneft and Zarubezhneft agreed in July 2014 to work jointly on an offshore block, some observers are skeptical about the prospects for the project.\nIn December 2012, Zarubezhneft began drilling an exploratory oil well in a north coastal block (in shallow waters, not deepwater exploration) east of Havana off Cayo Coco, a Cuban tourist resort area. The project was expected to be completed by June 2013, but because of technical problems with the rig and difficult geology, the oil rig being used (known as the Songa Mercur operated by Songa Offshore, a Norwegian oil rig company) stopped work in early April 2013, and left Cuba in June 2013.",
"In the aftermath of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, some Members of Congress and others expressed concern about Cuba's development of its deepwater petroleum reserves so close to the United States. They were concerned about oil spill risks and about the status of disaster preparedness and coordination with the United States in the event of an oil spill. Dealing with these challenges is made more difficult because of the long-standing poor state of relations between Cuba and the United States. If an oil spill did occur in the waters northwest of Cuba, currents in the Florida Straits could carry the oil to U.S. waters and coastal areas in Florida, although a number of factors would determine the potential environmental impact. If significant amounts of oil did reach U.S. waters, marine and coastal resources in southern Florida could be at risk.\nThe final report of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, issued in January 2011, maintained that since Mexico already drills in the Gulf of Mexico and Cuba has expressed an interest in deepwater drilling in the Gulf of Mexico, that it is in the U.S. national interest to negotiate with these countries to agree on a common, rigorous set of standards, a system of regulatory oversight, and operator adherence to an effective safety culture, along with protocols to cooperate on containment and response strategies in case of a spill.\nWith regard to disaster response coordination, while the United States and Cuba are not parties to a bilateral agreement on oil spills, both countries are signatories to multilateral agreements that commit the two parties to prepare for and cooperate on potential oil spills. Under the auspices of the International Maritime Organization (IMO), the United States and Cuba have participated in regional meetings every few months since 2011 regarding oil spill prevention, preparedness, and response that have allowed information sharing among nations, including the United States and Cuba. Other countries participating have included Mexico, the Bahamas, and Jamaica. After numerous rounds of meetings, in March 2014, the countries finalized a document known as the Wider Caribbean Region Multilateral Technical Operating Procedures for Offshore Oil Pollution Response (MTOP), which consists of information of what would need to be done and coordinated in the case of international response to an oil spill.\nU.S. oil spill mitigation companies can be licensed by the Treasury and Commerce Departments to provide support and equipment in the event of an oil spill. In addition, the U.S. Coast Guard has obtained licenses from Treasury and Commerce that allow it \"to broadly engage in preparedness and response activities, and positions\" the agency \"to direct an immediate response in the event of a catastrophic oil spill.\" Some energy and policy analysts, however, have called for the Administration to ease regulatory restrictions on private companies for the transfer of U.S. equipment and personnel to Cuba needed to prevent and combat a spill if it occurs.\nInterest in Cuba's offshore oil development was strong in the 112 th Congress, particularly over concerns about a potential oil spill, with three congressional hearings held and eight legislative initiatives introduced taking different approaches, none of which were enacted. The various policy approaches included sanctioning foreign companies investing in or supporting Cuba's oil development; requiring the Secretary of the Interior to make recommendations on a joint contingency plan with Mexico, Cuba, and the Bahamas to ensure an adequate response to oil spills; and authorizing U.S. companies to engage in oil spill prevention and clean-up activities in Cuba's offshore oil sector as well as broader exploration and extraction activities.",
"Since 2000, some 15 individuals, including two U.S. government officials, have been convicted in the United States on charges involving spying for Cuba. In June 2009, the FBI arrested a retired State Department employee and his wife, Walter Kendall Myers and Gwendolyn Steingraber Myers, for spying for Cuba for three decades. The two were accused of acting as agents of the Cuban government and of passing classified information to the Cuban government. In November 2009, the Myerses pled guilty to the spying charges, and in July 2010 Kendall Myers was sentenced to life in prison while Gwendolyn Myers was sentenced to 81 months.\nIn 2006, Florida International University (FBI) professor Carlos Alvarez pled guilty to conspiring to be an unregistered agent who had reported on the Cuban exile community, while his wife Elsa Prieto Alvarez, an FIU counselor, pled guilty to being aware of and failing to disclose her husband's activities. Carlos Alvarez received a five-year sentence, while his wife received three years.\nIn May 2003, the Bush Administration ordered the expulsion of 14 Cuban diplomats (7 from New York and 7 from Washington, DC), maintaining that they were involved in monitoring and surveillance activities. The U.S. intelligence community reportedly had been incensed that Cuba's spies had been stealing information on preparations for the U.S. invasion of Iraq and passing them to the Iraqi government.\nOn September 21, 2001, Defense Intelligence Agency (DIA) analyst Ana Montes was arrested on charges of spying for the Cuban government. Montes reportedly supplied Cuba with classified information about U.S. military exercises and other sensitive operations. Montes ultimately pled guilty to spying for the Cuban government for 16 years, during which she divulged the names of four U.S. government intelligence agents working in Cuba and information about a \"special access program\" related to U.S. national defense. She was sentenced in October 2002 to 25 years in prison in exchange for her cooperation with prosecutors as part of a plea bargain. In response to the espionage case, the State Department ordered the expulsion of four Cuban diplomats (two from Cuba's U.N. Mission in New York and two from the Cuban Interests Section in Washington, DC) in November 2002.\nIn another case related to that of Ana Montes, in April 2013, the Department of Justice unsealed a 2004 indictment charging a former USAID official, Marta Rita Velazquez, with espionage stemming from her role in introducing Montes to the Cuban Intelligence Service in 1984, facilitating Montes's recruitment by Cuban intelligence, and helping Montes gain employment at the DIA. Velazquez joined USAID in 1989 serving as a legal office with responsibilities encompassing Central America, and was also posted to U.S. Embassies in Nicaragua and Guatemala. She resigned from USAID in June 2002 when it was announced that Montes had pled guilty, and moved to Sweden where she remains.",
"In June 2001, five members of the so-called \"Wasp Network\" originally arrested in September 1998 were convicted on espionage charges by a U.S. Federal Court in Miami. Sentences handed down for the \"Cuban five\" in December 2001 ranged from 15 years to life in prison for three of the five. The group of five Cuban intelligence agents—Gerardo Hernández, Ramón Labañino, Antonio Guerrero, Fernando González, and René González—penetrated Cuban exile groups and tried to infiltrate U.S. military bases.\nAll five were convicted for various offenses, including acting and conspiring to act as unregistered Cuban intelligence agents in the United States; fraud and misuse of identity documents; and in the case of three (Hernández, Labañino, and Guerrero), conspiracy to gather and transmit national defense information. The five did not deny acting as unregistered Cuban agents, but maintain that their role was to focus on Cuban exile groups responsible for hostile acts against Cuba and potential signs of U.S. military action against Cuba.\nGerardo Hernández, who received two life sentences, also was convicted for conspiracy to commit murder for the alleged role he played in the deaths of four pilots of the Cuban American group, Brothers to the Rescue (BTTR), when two small planes they were flying were shot down by the Cuban Air Force in February 1996. The group was known primarily for its humanitarian mission of spotting Cubans fleeing their island nation on rafts, but had also become active in flying over Cuba and dropping anti-government leaflets.\nThe Cuban government vowed to work for the return of the \"Cuban five,\" who have been dubbed \"Heroes of the Republic\" by Cuba's National Assembly. In December 2008, Cuban President Raúl Castro offered to exchange some imprisoned Cuban political dissidents for the \"Cuban five,\" an offer that was rejected by the State Department, which maintained that the dissidents should be released immediately without any conditions.\nIn June 2009, the U.S. Supreme Court chose not to hear an appeal of the case of the \"Cuban five\" in which their lawyers were asking for a new trial outside Miami before an unbiased jury. Later in 2009, however, sentences for three of the five were reduced: Ramón Labañino had his life sentence reduced to 30 years; Antonio Guerrero had his life sentence reduced to 21 years and 10 months; and Fernando González had his 19-year sentence reduced to 17 years and 9 months. The sentence of two life terms for Gerardo Hernández, however, was not reduced.\nDuring the 113 th Congress, two of the \"Cuban five\" were released from prison after serving their sentences (with time off for good behavior) and returned to Cuba. René González, who received a 15-year sentence, was released from prison in October 2011 because of time off for good behavior, but still faced three years of probation; a judge ruled that he had to serve it in the United States. In March 2012, González was allowed by a federal judge in Florida to visit his dying brother in Cuba for a period of two weeks, after which he returned to the United States. González was permitted to return to Cuba on April 22, 2013, for a period of two weeks in the aftermath of his father's death, but a U.S. federal judge ruled in early May 2013 that González could stay in Cuba if he renounced his U.S. citizenship (he was a dual national), which he subsequently did at the U.S. Interests Section in Havana. Fernando González was released on February 27, 2014, and was swiftly returned to Cuba a day later, where he received a hero's welcome. Of the three remaining members of the \"Cuban five,\" Antonio Guerrero and Ramón Labañino potentially could have been released in 2017 and 2024, respectively, while Gerardo Hernández continued to face two life terms.\nOn December 17, 2014, President Obama announced that the remaining three Cuban spies in U.S. prison were released in exchange for Cuba's release of \"one of the most important intelligence assets that the United States has ever had in Cuba\" who was imprisoned in Cuba for nearly two decades. Media reports identified the U.S. intelligence asset as Rolando Sarraff Trujillo, a cryptographer in Cuba's Directorate of Intelligence, who reportedly provided information that helped the FBI dismantle three Cuban spy networks in the United States.\nIn 2012, Cuba had begun linking the release of the \"Cuban five\" to the release of Alan Gross, the U.S. government subcontractor detained in 2009 and sentenced to 15 years in prison for his work on U.S. government-sponsored democracy projects. The United States rejected such linkages, maintaining there was no equivalence between the cases, and U.S. officials repeatedly called for Gross's release on humanitarian grounds. As noted above, this occurred on December 17, 2014, at the same time that the remaining Cuban spies were released in exchange for the U.S. intelligence asset. (Also see \" Imprisonment and Ultimate Release of USAID Subcontractor Alan Gross \" above.)",
"For information on legislative initiatives on Cuba in the 112 th Congress, see CRS Report R41617, Cuba: Issues for the 112 th Congress .",
"P.L. 113-6 ( H.R. 933 ). Consolidated and Further Continuing Appropriations Act, 2013. Provides continued funding for Cuba democracy and human rights projects and Cuba broadcasting (Radio and TV Martí) for FY2013. Signed into law March 26, 2013.\nP.L. 113-76 ( H.R. 3547 ) . Consolidated Appropriations Act, 2014. (Joint explanatory statement available from the House Committee on Rules, http://rules.house.gov/bill/113/hr-3547-sa ). Signed into law January 17, 2014. Provides funding for Cuba democracy and human rights projects and Cuba broadcasting (Radio and TV Martí) for FY2014. With regard to democracy and human rights funding, Division K, Title VII, Section 7045(b) of the law provides up to $17.5 million in Economic Support Funds (ESF) for programs and activities in Cuba and stipulates that no ESF appropriated under the act may be obligated by USAID for any new programs or activities in Cuba. The joint explanatory statement to the bill states that of the $17.5 million, not less than $7.5 million shall be provided directly to the National Endowment for Democracy, and not more than $10 million shall be administered by the State Department's Bureau of Democracy, Human Rights, and Labor and Bureau of Western Hemisphere Affairs. With regard to Cuba broadcasting, the joint explanatory statement provides (pursuant to Section 7019 of the law) $27.043 million. Also see H.R. 2786 , S. 1371 , H.R. 2855 , and S. 1372 below.\nP.L. 113-235 ( H.R. 83 ). Consolidated and Further Continuing Appropriations Act, 2015. Signed into law December 16, 2014. Division J provides funding for Cuba democracy projects and Cuba broadcasting for FY2015. With regard to democracy funding, the law measure stated that Economic Support Funds should be made available for programs in Cuba, but did not specify an amount (the Administration had requested $20 million). The explanatory statement to the measure provides for $27.130 million to be provided for Cuba broadcasting (the Administration had requested $23.130 million), but also indicated that funds may be transferred to the Office of Cuba Broadcasting (Broadcasting Board of Governors) from appropriated Economic Support Funds to restore OCB program reductions.",
"H.R. 214 (Serrano). Cuba Reconciliation Act. Would have lifted the trade embargo on Cuba. Introduced January 4, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, Energy and Commerce, Financial Services, the Judiciary, Oversight and Government Reform, and Agriculture.\nH.R. 215 (Serrano). Baseball Diplomacy Act. Would have waived certain prohibitions with respect to nationals of Cuba coming to the United States to play organized professional baseball. Introduced January 4, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committee on the Judiciary.\nH.R. 778 (Issa) / S. 647 (Nelson). No Stolen Trademarks Honored in America Act. Identical bills would have modified a 1998 prohibition (Section 211 of Division A, Title II, P.L. 105-277 ) by U.S. courts of certain rights relating to certain marks, trade names, or commercial names. The 1998 prohibition or sanction prevents trademark registrations and renewals from Cuban or foreign nations that were used in connection with a business or assets in Cuba that were confiscated, without the consent of the original owner. The bill would have applied a fix so that the sanction would have applied to all nationals and would bring the sanction into compliance with a 2002 World Trade Organization dispute settlement ruling. H.R. 778 introduced February 15, 2013; referred to the Committee on the Judiciary. S. 647 introduced March 21, 2013; referred to the Committee on the Judiciary.\nH.R. 871 (Rangel). Export Freedom to Cuba Act of 2013. Would have allowed travel between the United States and Cuba. Introduced February 27, 2013; referred to the Committee on Foreign Affairs.\nH.R. 872 (Rangel). Free Trade with Cuba Act. Would have lifted the trade embargo on Cuba. Introduced February 27, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, Energy and Commerce, the Judiciary, Financial Services, Oversight and Government Reform, and Agriculture.\nH.R. 873 (Rangel). Promoting American Agriculture and Medical Exports to Cuba Act of 2013. Would have facilitated the export of U.S. agricultural products to Cuba, removed impediments to the export of medical devices and medicines to Cuba, allowed travel to Cuba by U.S. legal residents, and established an agricultural export promotion program with respect to Cuba. Introduced February 27, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, the Judiciary, Agriculture, and Financial Services.\nH.R. 1917 (Rush). United States-Cuba Normalization Act of 2013. The bill would have lifted the U.S. trade embargo on Cuba; repealed a 1998 trademark sanction (Section 211 of Division A, Title II, P.L. 105-277 ); prohibited restrictions on travel to Cuba; called on the President to conduct negotiations with Cuba to settle property claims of U.S. nationals for confiscated property and secure the protection of internationally recognized human rights; extended nondiscriminatory trade treatment to the products of Cuba; prohibited any limitations on annual remittances to Cuba; removed Cuba from the state sponsors of terrorism list; and called for the immediate and unconditional release of Alan Gross and, until then, would have urged Cuba to allow Mr. Gross to choose a doctor to provide him with an independent medical assessment. The amendments made by this Act would have taken effect 60 days after its enactment or 60 days after the President certified to Congress that Alan Gross had been released by Cuba, whichever occurred later. Introduced May 9, 2013; referred to the Committee on Foreign Affairs, and in addition to the Committees on Ways and Means, Energy and Commerce, the Judiciary, Financial Services, Oversight and Government Reform, and Agriculture.\nH.R. 2786 (Crenshaw )/ S. 1371 (Udall, NM). FY2014 Financial Services and General Government Appropriations Act. Both bills had contrasting provisions regarding U.S. travel to Cuba, but none of these provisions were included in the FY2014 omnibus appropriations measure, P.L. 113-76 , noted above.\nH.R. 2786 introduced and reported by the House Appropriations Committee ( H.Rept. 113-172 ) July 23, 2013. Section 124 would have prohibited FY2014 funding used \"to approve, license, facilitate, authorize, or otherwise allow\" travel-related or other transactions related to nonacademic educational exchanges (i.e., people-to-people travel) to Cuba set forth in 31 C . F . R . 515.565(b)(2) of the CACR. Section 125 of the House bill would have required a Treasury Department report within 90 days of the bill's enactment with information for each fiscal year since FY2007 on the number of travelers visiting close relatives in Cuba; the average duration of these trips; the average amount of U.S. dollars spent per family traveler (including amount of remittances carried to Cuba); the number of return trips per year; and the total sum of U.S. dollars spent collectively by family travelers for each fiscal year.\nS. 1371 introduced and reported by the Senate Appropriations Committee ( S.Rept. 113-80 ) July 25, 2013. Section 628 would have provided for a new general license for travel-related transactions for full-time professional research; attendance at professional meetings if the sponsoring organization was a U.S. organization; and the organization and management of professional meetings and conferences in Cuba if the sponsoring organization was a U.S. professional organization— if the travel was related to disaster prevention, emergency preparedness, and natural resource protection, including for fisheries, coral reefs, and migratory species.\nH.R. 2855 (Granger)/ S. 1372 (Leahy). FY2014 Department of State, Foreign Operations, and Related Programs Appropriations Act. H.R. 2855 introduced and reported ( H.Rept. 113-185 ) July 30, 2013. S. 1372 introduced and reported ( S.Rept. 113-81 ) July 25, 2013. The House version would have provided that $20 million in ESF assistance ($5 million more than the Administration's request) be transferred to the National Endowment for Democracy \"to promote democracy and strengthen civil society in Cuba,\" while the Senate version would have provided that ESF assistance appropriated for Cuba only be made available \"for humanitarian assistance and to support the development of private business.\" The House version would also have provided $28.266 million for Cuba broadcasting (Radio and TV Martí), while S. 1372 would have provided $23.804 million, the same amount as the Administration's request. For final action, see the FY2014 omnibus appropriations measure, P.L. 113-76 , described above.\nH.R. 3585 (Smith, NJ). Walter Patterson and Werner Foerster Justice and Extradition Act. Would have required the President, within 270 days after enactment of the Act and each year after that, to submit a report to the appropriated congressional committees on fugitives currently residing in other countries whose extradition is sought by the United States. Introduced November 21, 2013; referred to the House Committee on Foreign Affairs.\nH.R. 4194 (Issa) / S. 2109 (Warner)/. Government Reports Elimination Act of 2014. As introduced, Section 1501 of the House bill and Section 2413 of the Senate bill would have repealed a reporting requirement regarding commerce with, and assistance to, Cuba from other foreign countries set forth in Section 108 of the Cuban Liberty and Democratic Solidarity Act of 1996 ( 22 U . S . C . 6038 ). S. 2109 introduced March 11, 2014; referred to the Committee on Homeland Security and Governmental Affairs. H.R. 4194 introduced March 11, 2014; reported by the House Committee on Oversight and Government Reform ( H.Rept. 113-419 ) and passed House by voice vote April 28, 2014, with the Cuba report elimination provision in Section 1401; Senate passed H.R. 4194 , amended, without the Cuba report elimination provision, by Unanimous Consent on September 16, 2014; House agreed to the amended Senate version by a vote of 382-0 on November 12, 2014.\nH.R. 5013 (Granger)/ S. 2499 (Leahy). FY2015 Department of State, Foreign Operations, and Related Programs Appropriations Act. H.R. 5013 introduced and reported ( H.Rept. 113-499 ) by the House Committee on Appropriations June 27, 2014. S. 2499 introduced and reported ( S.Rept. 113-195 ) June 19, 2014. As reported, H.R. 5013 would have made available $20 million in Economic Support Funds (ESF) \"to promote democracy and strengthen civil society in Cuba\" while S. 2499 , as reported, would have provided up to $10 million in for programs in Cuba an additional $5 million for USAID programs to provide technical and other assistance to support the development of private businesses in Cuba; the Administration had requested $20 million for Cuba democracy programs. With regard to Cuba broadcasting, H.R. 5013 would have provided not less than $28.266 million for the Office of Cuba Broadcasting (OCB) while S. 2499 would provide $23.130 million, the same amount requested by the Administration. The report to the Senate bill would also encourage the Secretary of State to work with Secretary of the Treasury and the Secretary of Commerce to explore options for increased engagement with Cuban scientists to help protect the Gulf of Mexico and U.S. shorelines from environmental harm caused by oil and gas exploration and to promote scientific advances beneficial to both countries and the region. For final action, see Division J of the FY2015 omnibus appropriations measure, P.L. 113-235 , described above.\nH.R. 5016 (Crenshaw). FY2015 Financial Services and General Government Appropriations Act. Introduced and reported by the House Committee on Appropriations ( H.Rept. 113-508 ) July 2, 2014. House passed (228-195) July 16, 2014. As approved, Section 126 of the bill would have prevented any funds in the Act from being used to approve, license, facilitate, authorize or otherwise allow people-to-people travel set forth in 31 C . F . R . 515.565(b)(2) of the CACR; Section 127 would have required a joint report from the Secretary of the Treasury and the Secretary of Homeland Security within 90 days of the bill's enactment with information for each fiscal year since FY2007 on the number of travelers visiting close relatives in Cuba; the average duration of these trips; the average amount of U.S. dollars spent per family traveler (including amount of remittances carried to Cuba); the number of return trips per year; and the total sum of U.S. dollars spent collectively by family travelers for each fiscal year. Ultimately, Congress did not complete action on H.R. 5016 , but included FY2015 funding for the Department of the Treasury in the FY2015 omnibus appropriations measure, P.L. 113-235 , described above; the law did not include the provision in H.R. 5016 that would have prevented funding related to people-to-people travel.\nH.Res. 121 (Hastings, FL). Would have honored Cuban blogger Yoani Sánchez \"for her ongoing efforts to challenge political, economic, and social oppression by the Castro regime.\" Introduced March 15, 2013; referred to the Committee on Foreign Affairs and in addition to the Committee on the Judiciary.\nH.Res. 262 (King, NY). Would have called for the immediate extradition or rendering to the United States of convicted felon William Morales and all other fugitives from justice who are receiving safe harbor in Cuba in order to escape prosecution or confinement for criminal offenses committed in the United States. Introduced June 14, 2013; referred to the Committee on Foreign Affairs.\nS. 1681 (Feinstein). Intelligence Authorization Act for Fiscal Year 2014. As reported, Section 325 of the bill would have repealed a reporting requirement on commerce with, and assistance to, Cuba from other foreign countries set forth in Section 108 of the Cuban Liberty and Democratic Solidarity Act of 1996 ( 22 U . S . C . 6038 ). Introduced November 12, 2013; reported by Select Committee on Intelligence November 13, 2013 ( S.Rept. 113-120 ). Senate passed, amended, by voice vote on June 11, 2014, without the provision repealing the reporting requirement on Cuba. (The House subsequently approved the bill on June 24, 2014, by voice vote, and the President signed the measure into law as P.L. 113-126 on July 7, 2014.)\nAppendix A. Selected Executive Branch Reports and Web Pages\nU.S. Relations with Cuba, Fact Sheet, State Department Date: August 30, 2013 Full Text: http://www.state.gov/r/pa/ei/bgn/2886.htm\nCongressional Budget Justification, Department of State, Foreign Operations and Related Programs, FY2015, State Department Date: March 4, 2014 Full Text: http://www.state.gov/documents/organization/222898.pdf\nCongressional Budget Justificati on for Foreign Operations FY2015 , Annex 3 : Re gional Perspectives (pp.646-647 ), State Department Date: April 18, 2014 Full Text: http://www.state.gov/documents/organization/224070.pdf\nCountry Report s on Human Rights Practices 2013 , Cuba, State Department Date: February 27, 2014 Full Text: http://www.state.gov/documents/organization/220646.pdf\nC ountry Reports on Terrorism 2013 (State Sponsors of Terrorism chapter), State Department Date: April 2014 Full Text : http://www.state.gov/j/ct/rls/crt/2013/224826.htm\nCuba Country Page, State Department Full Text: http://www.state.gov/p/wha/ci/cu/\nCuba Country Page , U.S. Agency for International Development Full Text: http://www.usaid.gov/where-we-work/latin-american-and-caribbean/cuba\nCuba Sanctions, Treasury Department Full Text: http://www.treasury.gov/resource-center/sanctions/Programs/pages/cuba.aspx\nCuba: What You Need to Know About U.S. Sanctions Against Cuba, Treasury Department, Office of Foreign Assets Control Date: January 24, 2012 Full Text: http://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba.pdf\nFiscal Year 2015 Congressional Budget Request, Broadcasting Board of Governors (Office of Cuba Broadcasting, pp. 51-54) Date: March 25, 2014 Full Text: http://www.bbg.gov/wp-content/media/2014/03/FY-2015-BBG-Congressional-Budget-Request-FINAL-21-March-2014.pdf\nInterna tional Religious Freedom Report for 2013, Cuba, State Department Date: July 28, 2014 Full Text : http://www.state.gov/j/drl/rls/irf/religiousfreedom/index.htm?year=2013&dlid=222371\nInternational Narcoti cs Control Strategy Report 2014, Vol. I, Cuba , State Department Date: March 2014 Full Text: http://www.state.gov/j/inl/rls/nrcrpt/2014/vol1/222869.htm\nTr afficking in Persons Report 2014 (Cu ba, pp. 144-145 of pdf), State Department Date: June 20, 2014 Full Text: http://www.state.gov/j/tip/rls/tiprpt/countries/2014/226708.htm\nAppendix B. Earlier Developments in 2014 and 2013\nSee \" Recent Developments \" above for entries in late 2014.\nOn July 28, 2014, the U.N. Security Council imposed sanctions on Ocean Maritime Management Company, Ltd., the operator of the North Korean ship known as the Chong Chon Gang that was interdicted by Panama in July 2013 after stopping in Cuba and found to be carrying a concealed cargo of arms and related material.\nOn July 16, 2014, the House passed (228-195) the FY2015 Financial Services and General Government Appropriations Act, H.R. 5016 ( H.Rept. 113-508 ), with two provisions related to U.S. restrictions on travel to Cuba. The first, in Section 126, would prevent any funds in the Act from being used for people-to-people travel. The second, in Section 127, would require an Administration report with specific information on family travel to Cuba since FY2007.\nOn July 14, 2014, the State Department issued a statement condemning the detention of more than 100 members of the Ladies in White human rights group seeking to commemorate the 20-year anniversary of the loss of life when the Cuban government sank a hijacked tugboat as it attempted to leave Cuba.\nOn July 9, 2014, the United States and Cuba held semi-annual migration talks in Washington, DC, to discuss implementation of the 1994 and 1995 migration accords. Both sides issued positive statements that noted the issues covered. The State Department noted that the talks included aviation security, search and rescue at sea, and visa processing, and that the United States again called for the release of Alan Gross.\nOn June 30, 2014, the French bank BNP Paribas, SA (BNPP) agreed to plead guilty for violating U.S. sanctions against Sudan, Iran, and Cuba by processing financial transactions involving those countries through the U.S. financial system. The company agreed to pay $8.97 billion in penalties, a record U.S fine. (For background on the settlement from the Department of Justice, see http://www.justice.gov/opa/pr/2014/June/14-ag-686.html .)\nOn June 20, 2014, the State Department released its 2014 Trafficking in Persons Report, with Cuba remaining on the Tier 3 list of countries whose governments do not comply with the minimum standards for combatting trafficking. The report also noted that Cuba had, for the first time, reported concrete action against sex trafficking, and that the Cuban government maintained that it would be amending its criminal code to ensure conformity with the 2000 United Nations Trafficking in Persons Protocol.\nOn June 17, 2014, Florida International University (FIU) issued its 2014 poll on the Cuban American community in Miami-Dade County regarding U.S. policy toward Cuba. The poll showed a slight majority of Cuban Americans in Miami-Dade County, 52%, opposed the embargo, and that 69% supported the lifting of travel restrictions for all Americans to travel to Cuba.\nOn April 30, 2014, the State Department released Country Reports on Terrorism 201 3 , which noted that Cuba has long provided safe haven to members of the Basque Fatherland and Liberty (ETA) and the Revolutionary Armed Forces of Colombia (FARC), but that there was no indication that the Cuban government provided weapons or paramilitary training to terrorist groups. The report also noted that the Cuban government continued to harbor fugitives from U.S. justice.\nOn April 3, 2014, an Associated Press investigative report alleged that the U.S. Agency for International Development (USAID) had established a \"Cuban Twitter\" known as ZunZuneo from 2010 to 2012 that was designed as a \"covert\" program \"to undermine\" Cuba's communist government. USAID strongly contested the facts presented in the report and asserted that it was not a covert program.\nOn March 29, 2014, Cuba approved a new foreign investment law (to go into effect in 90 days) with the goal of attracting needed foreign capital to the country. While the law cuts taxes for foreign investors significantly, it remains to be seen to what extent the new law will actually attract investment.\nDuring the second week of March 2014, the United States along with the Bahamas, Cuba, and Jamaica released a document known as the Wider Caribbean Region Multilateral Technical Operating Procedures for Offshore Oil Pollution Response (MTOP) that consists of information of what would need to be done and coordinated in the case of an oil spill.\nOn March 6, 2014, the U.N. Security Council issued the Panel of Experts for North Korea report, which concluded that July 2013 attempted shipment of weapons to North Korea from Cuba that was intercepted by Panama were violations of U.N. sanctions banning weapons transfers to North Korea. The report maintained that there was a \"clear and conscious intention to circumvent the [U.N. Security Council] resolutions.\"\nOn February 28, 2014, the State Department released its 2014 International Narcotics Control Strategy Report, which noted that law enforcement communication with Cuba \"gradually increased in frequency and transparency over the course of 2013, especially concerning efforts to target drug trafficking at sea.\" As in past years, the report noted that a bilateral counternarcotics accord could advance the efforts undertaken by both countries.\nOn February 27, 2014, Fernando González—one of the \"Cuban five\" intelligence agents convicted in 2001 on espionage charges by a U.S. Federal Court—was released from prison after serving his sentence and swiftly returned to Cuba. Three of the \"Cuban five\" remain in the United States serving their sentences.\nOn January 28-29, 2014, Cuba hosted the second annual summit of the Community of Latin American and Caribbean Nations (CELAC). The U.N. Secretary General attended and reportedly raised human rights issues with Cuban officials. In a joint declaration, Latin American nations committed to nonintervention and pledged to respect \"the inalienable right of every state to choose its political, economic, social, and cultural system.\"\nOn January 17, 2014, President Obama signed into law the FY2014 omnibus appropriation measure, H.R. 3547 ( P.L. 113-76 ), which stated that up to $17.5 million should be provided for democracy and human rights programs and activities in Cuba and $27.043 million for Cuba broadcasting (Radio and TV Martí). The measure did not include any provisions tightening or easing U.S. restrictions on travel to Cuba that had been in the House and Senate versions of the FY2014 Financial Services appropriations bill, H.R. 2786 and S. 1371 , respectively.\nOn January 9, 2014, U.S. and Cuban officials met in Havana for semi-annual migration talks. The U.S. delegation again raised the issue of Cuba's continued imprisonment of Alan Gross.\nOn December 10, 2013, a handshake between President Obama and President Raúl Castro at the memorial service for Nelson Mandela in South Africa generated considerable international press attention.\nOn December 10, 2013, Cuba cracked down on protests and gatherings planned to commemorate International Human Rights Day and detained more than 150 dissidents.\nOn December 9, 2013, Cuba announced that it had temporarily reopened its consular services in the United States after the New York-based M&T Bank postponed closing the accounts of Cuba's diplomatic missions in Washington, DC, and New York until March 1, 2014. Cuba had suspended its U.S. consular services on November 26 because M&T Bank had decided to stop offering banking services to Cuba's diplomatic missions in the United States. Cuba is continuing to search for a replacement for M&T Bank.\nOn November 18, 2013, in remarks at the Organization of American States, Secretary of State John Kerry maintained that the United States and Cuba \"are finding some cooperation on common interests at this point in time\" and noted that the Administration welcomes \"some of the changes that are taking place in Cuba.\" However, the Secretary also cautioned that changes in Cuba \"should absolutely not blind us to the authoritarian reality of life for ordinary Cubans.\"\nOn November 8, 2013, in Miami, Florida, President Obama stated, in commenting about U.S. policy toward Cuba, that \"we have to be creative ... we have to be thoughtful ... and we have to continue to update our policies.\"\nOn October 22, 2013, Cuba announced that it would move toward ending its dual-currency system and move toward monetary unification, although it did not provide details or a timetable for the process.\nOn September 26, 2013, the House Foreign Affairs Committee's Subcommittee on the Western Hemisphere held a hearing on Panama's July 2013 interdiction of a North Korean ship, the Chong Chon Gang , that had made stops in Cuba and was found to have weapons hidden aboard on its way back to North Korea.\nOn September 23, 2013, prominent dissident economist Oscar Espinosa Chepe died in Spain after battling chronic liver disease and cancer.\nOn September 20, 2013, the United States and Cuba reached a preliminary agreement on air and maritime search and rescue.\nOn September 16-17, 2013, the United States and Cuba held talks in Havana on restoring direct mail service that had been curtailed in the early 1960s. Talks also were held in Washington, DC, on June 18-19, 2013.\nOn September 15, 2013, Cuba's Conference of Catholic Bishops issued a pastoral letter maintaining that Cuba's political order needed to be updated and that there should be the right of diversity with respect to thought.\nOn August 2, 2013, Cuban human rights activist Iván Fernández Depestre, who had been arrested on July 30 after participating in a peaceful protest, was convicted of \"dangerousness\" in a summary trial and sentenced to three years in prison. Amnesty International considers him a prisoner of conscience along with five other imprisoned Cubans.\nOn August 1, 2013, the State Department made non-immigrant visas issued to Cubans for family visits, tourism, medical treatment, or other personal travel valid for five years with multiple entries (instead of single entry for six months).\nOn July 17, 2013, the United States and Cuba held migration talks in Washington, DC, with both sides issuing positive statements after the meeting; the last round of migration talks had been in January 2011.\nOn June 1, 2013, an oil rig that had been drilling an exploratory well in a north coastal block east of Havana for the Russian energy company Zarubezhneft was redeployed to Asia. Zarubezhneft said that it experience technical problems with the rig and difficult geology in the area. The action effectively ended offshore drilling in Cuba for now, although Zarubezhneft contends that it will return next year to drill in Cuba.\nOn May 30, 2013, the State Department issued its Country Reports on Terrorism 2012 report, which provides information related to Cuba being on the department's state sponsors of terrorism list. In the report, the State Department stated that there was no indication that the Cuban government provided weapons or paramilitary training to terrorist groups, but it noted that Cuba continues to provide safe haven to some members of the Basque Fatherland and Liberty (ETA) terrorist group as well as U.S. fugitives from justice.\nOn May 16, 2013, imprisoned U.S. Agency for International Development subcontractor Alan Gross reached an undisclosed settlement against his employer, Development Alternatives Inc. Gross and his wife had filed suit in November 2012 in U.S. District Court for failing to disclose the risk that he faced while participating in a project in Cuba. Subsequently, on May 28, 2013, a U.S. federal judge dismissed Gross's lawsuit against the U.S. government.\nOn May 3, 2013, a U.S. federal judge ruled that René González, one of the so-called \"Cuban five\" spies convicted in the United States in 2001, could stay in Cuba if he renounced his U.S. citizenship, which he subsequently did. González, who had been released from prison in October 2011 but still faced three more years of probation in Florida, had been permitted to visit Cuba for two weeks in the aftermath of his father's death in April 2013.\nOn April 25, 2013, the Department of Justice unsealed a 2004 indictment charging a former U.S. government official, Marta Rita Velazquez, with espionage stemming from her role in introducing Ana Montes (former U.S. government official who pled guilty in 2002 of spying for Cuba) to the Cuban intelligence service.\nOn April 19, 2013, the State Department issued its Country Reports on Human Rights Practices for 2012 , which stated that Cuba's \"principal human rights abuses were: abridgement of the rights of citizens to change the government; government threats, intimidation, mobs, harassment, and detentions to prevent free expression and peaceful assembly; and a record number of politically motivated and at times violent short-term detentions.\"\nOn April 10, 2013, the State Department released its FY2014 budget request for international programs, which included $15 million in Cuba democracy and human rights projects, $5 million less than appropriated in FY2012. On the same day, the Broadcasting Board of Governors released the details of its FY2014 budget request, including $23.804 million for Cuba broadcasting (Radio and TV Martí), about $4.5 million less than that provided in FY2013, although roughly similar to the FY2013 budget request.\nOn March 28, 2013, the U.S. Department of State called for an \"investigation with independent international observers into the circumstances leading to the death of [Cuban human rights activists] Oswaldo Payá and Harold Cepero\" in July 2012.\nOn March 14, 2013, internationally known Cuban blogger Yoani Sánchez (on a multi-nation trip after receiving a new passport under Cuba's new travel policy) arrived in the United States, with stops in New York City and Washington, DC (including Capitol Hill), through March 21. She then traveled to Europe, but returned to the United States March 28, arriving in Miami.\nOn March 14, 2013, Amnesty International issued an urgent action appeal for prisoner of conscience Calixto Ramón Martínez Arias who began a hunger strike in early March. Calixto was imprisoned in September 2012 for reporting on a cholera outbreak.\nOn March 12, 2013, the State Department released its 2013 International Narcotic s Control Strategy Report , which stated that Cuba maintained a significant level of anti-drug cooperation with the United States in 2012. The report also indicated that the U.S. government was still reviewing a draft bilateral counternarcotics cooperation accord that Cuba presented in 2011, and that such an accord, if structured appropriately, could advance counternarcotics efforts taken by both countries.\nOn March 6, 2013, the Washington Post published an interview with Spanish politician Angel Carromero, who was convicted by a Cuban court in October 2012 for vehicular manslaughter in the death of two human rights activists, including internationally known dissident Oswaldo Payá. Carromero asserted in the interview that the car he was driving was struck from behind and that he had been heavily drugged when he admitted to driving recklessly. Many observers have called for an independent investigation into the accident. In July 2012, the U.S. Senate approved S.Res. 525 (Nelson) calling for an impartial third-party investigation of the crash.\nOn March 5, 2013, Venezuelan President Hugo Chávez died after battling several recurrences of cancer since mid-2011. Under President Chávez, Venezuela became a strong political and financial supporter of Cuba over the past decade, providing the island with some 100,000 barrels of oil per day.\nOn February 24, 2013, Cuba's National Assembly, as expected, appointed Raúl Castro to a second five-year term as President. Most significantly, the Assembly also appointed 52-year old Miguel Díaz-Canel as First Vice President, making him Castro's constitutional successor. Díaz-Canel replaced outgoing 82-year old First Vice President José Ramón Machado Ventura.\nOn January 14, 2013, Cuba's new travel policy went into effect whereby Cubans wanting to travel abroad no longer need an exit permit and letter of invitation. Under the new policy, travel requires only an updated passport and a visa issued by the country of destination, if required. Thousands of Cubans lined up at government migration offices and travel agencies on the first day."
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"question": [
"How has Cuba's political succession changed?",
"What did Raúl Castro implement?",
"What did a party congress in 2011 lay out?",
"Why are these goals not expected to be achieved?",
"How did Obama Administration continue dual-track approach in Cuba?",
"What did the Administration do with regards to human rights?",
"What did the Administration call for?",
"What was attention in 113th Congress on Cuba focused on?",
"What was a key concern for 113th Congress?",
"What did Congress do to continue funding Cuba democracy projects and Cuba broadcasting?",
"What did FY2014 and FY2015 have that were not included in the omnibus appropriations measure?",
"What initiatives would lift or erase U.S. economic sanctions on Cuba?",
"What would H.R. 215 do?",
"What would H.R. 1917 do?",
"What would H.Res. 121 do?",
"What would H.Res. 262 do?"
],
"summary": [
"The country's political succession in 2006 from the long-ruling Fidel Castro to his brother Raúl was characterized by a remarkable degree of stability. In February 2013, Castro was reappointed to a second five-year term as President (until 2018, when he would be 86 years old), and selected 52-year old former Education Minister Miguel Díaz-Canel as his First Vice President, making him the official successor in the event that Castro cannot serve out his term.",
"Raúl Castro has implemented a number of gradual economic policy changes over the past several years, including an expansion of self-employment.",
"A party congress held in April 2011 laid out numerous economic goals that, if implemented, could significantly alter Cuba's state-dominated economic model.",
"Few observers, however, expect the government to ease its tight control over the political system. While the government reduced the number of political prisoners in 2010-2011, the number increased in 2012; moreover, short-term detentions and harassment have increased significantly over the past several years.",
"While the Administration lifted all restrictions on family travel and remittances in 2009, eased restrictions on other types of purposeful travel in 2011, and moved to reengage Cuba on several bilateral issues, it also maintained most U.S. economic sanctions in place.",
"On human rights, the Administration welcomed the release of many political prisoners in 2010 and 2011, but it also criticized Cuba's continued harsh repression of political dissidents through thousands of short-term detentions and targeted violence.",
"The Administration continued to call for the release of U.S. government subcontractor Alan Gross, imprisoned in Cuba in 2009, and maintained that Gross's detention remained an impediment to more constructive relations.",
"Strong interest in Cuba continued in the 113th Congress with attention focused on economic and political developments, especially the human rights situation, and U.S. policy toward the island nation, including sanctions.",
"The continued imprisonment of Alan Gross remained a key concern for many Members.",
"In March 2013, Congress completed action on full-year FY2013 appropriations with the approval of H.R. 933 (P.L. 113-6); in January 2014, it completed action on a FY2014 omnibus appropriations measure, H.R. 3547 (P.L. 113-76); and in December 2014, it completed action on a FY2015 omnibus appropriations measure (H.R. 83; P.L. 113-235)—all of these measures continued funding for Cuba democracy projects and Cuba broadcasting (Radio and TV Martí).",
"Both the House and Senate versions of the FY2014 Financial Services and General Government appropriations measure, H.R. 2786 and S. 1371, had provisions that would have tightened and eased travel restrictions respectively, but none of these provisions were included in the FY2014 omnibus appropriations measure (P.L. 113-76). The House version of the FY2015 Financial Services and General Government Appropriation bill, H.R. 5016 (H.Rept. 113-508), had a provision that would have prohibited the use of funds to approve, license, facilitate, or allow people-to-people travel, but the provision was not included in the FY2015 omnibus appropriations measure (P.L. 113-235).",
"Several would have lifted or eased U.S. economic sanctions on Cuba: H.R. 214 and H.R. 872 (overall embargo); H.R. 871 (travel); and H.R. 873 (travel and agricultural exports).",
"H.R. 215 would have allowed Cubans to play organized professional baseball in the United States.",
"H.R. 1917 would have lifted the embargo and extended nondiscriminatory trade treatment to the products of Cuba after Cuba released Alan Gross from prison.",
"H.Res. 121 would have honored the work of Cuban blogger Yoani Sánchez.",
"H.Res. 262 would have called for the immediate extradition or rendering of all U.S. fugitives from justices in Cuba."
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CRS_R41664
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{
"title": [
"",
"Overview of Health Reform Law",
"Coverage Expansions and Market Reforms: Pre-2014",
"Coverage Expansions and Market Reforms: Beginning in 2014",
"Health Care Quality and Payment Incentives",
"Estimated Costs and Impact of Health Reform",
"Implementation and Oversight",
"Rules and Guidance Documents",
"Congressional Oversight",
"Legal Challenges",
"U.S. Supreme Court Decision"
],
"paragraphs": [
"The 111 th Congress passed major health reform legislation, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 ), which was substantially amended by the health provisions in the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ). Several other laws that were subsequently enacted made more targeted changes to specific ACA provisions. All references to ACA in this report refer to the law as amended. The report provides a brief summary of major ACA provisions, implementation and oversight activities, and current legal challenges. For more detailed information on ACA's provisions, CRS has produced a series of more comprehensive reports, which are available at http://www.crs.gov . The information provided in these reports ranges from broad overviews of ACA provisions, such as the law's Medicare provisions, to more narrowly focused topics, such as dependent coverage for children under age 26.",
"The primary goal of ACA is to increase access to affordable health insurance for the millions of Americans without coverage and make health insurance more affordable for those already covered. In addition, ACA makes numerous changes in the way health care is financed, organized, and delivered. Among its many provisions, ACA restructures the private health insurance market, sets minimum standards for health coverage, creates a mandate for most U.S. residents to obtain health insurance coverage, and provides for the establishment by 2014 of state-based insurance exchanges for the purchase of private health insurance. Certain individuals and families will be able to receive federal subsidies to reduce the cost of purchasing coverage through the exchanges. The new law also expands eligibility for Medicaid; amends the Medicare program in ways that are intended to reduce the growth in Medicare spending; imposes an excise tax on insurance plans found to have high premiums; and makes numerous other changes to the tax code, Medicare, Medicaid, the State Children's Health Insurance Program (CHIP), and many other federal programs.\nACA is projected to have a significant impact on federal spending and revenues. The law includes spending to subsidize the purchase of health insurance coverage through the exchanges, as well as increased outlays for the expansion of the Medicaid program. ACA also includes numerous mandatory appropriations to fund temporary programs to increase access and funding for targeted groups, provide funding to states to plan and establish exchanges, and support many other research and demonstration programs and activities. The costs of expanding public and private health insurance coverage and other spending are offset by revenues from new taxes and fees, and by savings from payment and health care delivery system reforms designed to reduce spending on Medicare and other federal health care programs.\nWhile most of the major provisions of the law do not take effect until 2014, some provisions are already in place, with others to be phased in over the next few years.",
"The law creates several temporary programs to increase access and funding for targeted groups. They include (1) temporary high-risk pools for uninsured individuals with preexisting conditions; (2) a reinsurance program to reimburse employers for a portion of the health insurance claims' costs for their 55- to 64-year-old retirees; and (3) small business tax credits for firms with fewer than 25 full-time equivalents (FTEs) and average wages below $50,000 that choose to offer health insurance. Additionally, prior to 2014, states may choose voluntarily to expand their Medicaid programs.\nSome private health insurance market reforms have already taken effect, such as extending dependent coverage to children under age 26, and not allowing children under age 19 to be denied insurance and benefits based on a preexisting health conditions. Major medical plans can no longer impose any lifetime dollar limits on essential health benefits, and plans may only restrict annual dollar limits on essential benefits to defined amounts (such annual limits will be prohibited altogether beginning in 2014). Plans must cover preventive care with no cost-sharing, and they cannot rescind coverage, except in cases of fraud. They must also establish an appeals process for coverage and claims. Insurers must also limit the ratio of premiums spent on administrative costs compared to medical costs, referred to as medical loss ratios, or MLRs.",
"The major expansion and reform provisions in ACA take effect beginning in 2014. States are expected to establish health insurance exchanges that provide access to private health insurance plans with standardized benefit and cost-sharing packages for eligible individuals and small employers. In 2017, states may allow larger employers to purchase health insurance through the exchanges, but are not required to do so. The Secretary of Health and Human Services (HHS) will establish exchanges in states that do not create their own approved exchange. Premium credits and cost-sharing subsidies will be available to individuals who enroll in exchange plans, provided their income is generally at or above 100% and does not exceed 400% of the FPL and they meet certain other requirements.\nAlso beginning in 2014, most individuals will be required to have insurance or pay a penalty (an individual mandate). Certain employers with more than 50 employees who do not offer health insurance may be subject to penalties. While most of these employers who offer health insurance will meet the law's requirements, some also may be required to pay a penalty if any of their full-time workers enroll in exchange plans and receive premium tax credits.\nACA's market reforms are further expanded in 2014, with no annual dollar limits allowed on essential health benefits, and no coverage exclusions for preexisting conditions allowed regardless of age. Plans offered within the exchanges and certain other plans must meet essential benefit standards and cover emergency services, hospital care, physician services, preventive services, prescription drugs, and mental health and substance use treatment, among other services. Premiums for individual and small group coverage may vary by limited amounts, but only based on age, family size, geographic area, and tobacco use. Additionally, plans must sell and renew policies to all individuals and may not discriminate based on health status.\nIn addition to the expanding private health insurance coverage, ACA, as enacted, requires state Medicaid programs to expand coverage to all eligible non-pregnant, non-elderly legal residents with incomes up to 133% of the federal poverty level (FPL), or risk losing their federal Medicaid matching funds. The federal government will initially cover all the costs for this group, with the federal matching percentage phased down to 90% of the costs by 2020. The law also requires states to maintain the current CHIP structure through FY2019, and provides federal CHIP appropriations through FY2015 (thus providing a two-year extension on CHIP funding).\nIn National Federation of Independent Business v. Sebelius , the Supreme Court found that the Medicaid expansion violated the Constitution by threatening states with the loss of their existing federal Medicaid matching funds if they fail to comply with the expansion (see discussion below under \"U.S. Supreme Court Decision\").",
"ACA incorporates numerous Medicare payment provisions intended to reduce the rate of growth in spending. They include reductions in Medicare Advantage (MA) plan payments and a lowering of the annual payment update for hospitals and certain other providers. ACA established an Independent Payment Advisory Board (IPAB) to make recommendations for achieving specific Medicare spending reductions if costs exceed a target growth rate. IPAB's recommendations will take effect unless Congress overrides them, in which case Congress would be responsible for achieving the same level of savings. Also, ACA provides tools to help reduce fraud, waste, and abuse in both Medicare and Medicaid.\nOther provisions establish pilot, demonstration, and grant programs to test integrated models of care, including accountable care organizations (ACOs), medical homes that provide coordinated care for high-need individuals, and bundling payments for acute-care episodes (including hospitalization and follow-up care). ACA creates the Center for Medicare and Medicaid Innovation (CMMI) to pilot payment and service delivery models, primarily for Medicare and Medicaid beneficiaries. The law also establishes new pay-for-reporting and pay-for-performance programs within Medicare that will pay providers based on the reporting of, or performance on, selected quality measures.\nAdditionally, ACA creates incentives for promoting primary care and prevention; for example, by increasing primary care payment rates under Medicare and Medicaid, covering some preventive services without cost-sharing, and funding community-based prevention and employer wellness programs, among other things. The law increases funding for community health centers and the National Health Service Corps to expand access to primary care services in rural and medically underserved areas and reduce health disparities. Finally, ACA requires the HHS Secretary to develop a national strategy for health care quality to improve care delivery, patient outcomes, and population health.",
"The February 2011 baseline budget projections, prepared by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT), estimated that ACA implementation will reduce federal deficits by $210 billion over the 10-year period FY2012-FY2021.\nCBO and JCT estimated that the law's insurance coverage expansion will result in gross costs of $1,390 billion over the FY2012-FY2021 period. Gross costs include the exchange subsidies and related spending, increased spending on Medicaid and CHIP, and tax credits for certain small employers. CBO and JCT further estimated that those costs will be partially offset by an estimated $348 billion from penalties paid by uninsured individuals and employers, an excise tax on high-premium insurance plans, and net savings from other effects that coverage expansion is expected to have on tax revenues and outlays. Thus, CBO and JCT projected in the February 2011 baseline that ACA's insurance coverage provisions will result in net costs of $1,042 billion over the FY2012-FY2021 period.\nThe projected net costs of coverage expansion under ACA are offset by (1) direct spending savings from payment and delivery system reform provisions (described in the previous section) that are designed to slow the rate of growth of federal health care spending, primarily for Medicare, and improve outcomes and the quality of care; and (2) new revenue sources from taxes and fees (other than those related to insurance coverage, mentioned above). Overall, CBO and JCT projected that the new revenues and direct spending savings will total $1,252 billion over the FY2012-FY2021 period. ACA raises a large share of its revenue from taxes on high-income households, such as an additional Medicare payroll tax on those with incomes over $200,000 (single) and $250,000 (married), and by imposing fees on insurers and on manufacturers and importers of pharmaceuticals and medical devices. The law also limits the annual contribution to Flexible Spending Accounts (FSAs) to $2,500, and excludes over-the-counter medications (except insulin) from reimbursement by FSAs and other health tax savings accounts.\nCBO and JCT's recently released March 2012 baseline projections include updated estimates of the gross and net costs of insurance coverage expansion under ACA, but do not include an update of the February 2011 estimates of the law's offsetting revenues and direct spending savings. The March 2012 baseline now projects gross costs of $1,496 billion, an increase of $106 billion over the February 2011 estimate. It also projects higher offsets, resulting in estimated net costs of $1,083 billion for insurance coverage expansion over the 10-year period FY2012-FY2021, which is $41 billion more than the February 2011 estimate.\nIn the March 2012 baseline, CBO and JCT also estimate that ACA will increase the number of nonelderly Americans with health insurance by about 33 million in 2021. They project that the share of legal nonelderly U.S. residents with insurance coverage in 2021 will be about 93%, up from 82% this year. Expansion of the Medicaid and CHIP programs is expected to enroll 17 million additional individuals in 2021, accounting for roughly half of the increase in coverage. The other half is due to a projected increase in private health insurance coverage. An estimated 23 million people will purchase their own coverage through insurance exchanges in 2021. However, about 6 million fewer people are projected to purchase individual coverage directly from insurers or obtain coverage through their employers, resulting in an estimated net increase in the number of people with private insurance coverage of about 16 million.\nImportantly, CBO and JCT's projections do not reflect the Supreme Court's decision in National Federation of Independent Business v. Sebelius , which precludes the Secretary from penalizing states that choose not to participate in the Medicaid expansion (see discussion below under \"U.S. Supreme Court Decision\").",
"Implementation of ACA, which began upon the law's enactment in 2010 and will continue to unfold over the next few years, involves all the major health care stakeholders, including the federal and state governments, as well as employers, insurers, and health care providers. The HHS Secretary is tasked with implementation and oversight of many of ACA's key provisions. Other federal agencies, notably the Internal Revenue Service (IRS), also have substantial regulatory and administrative responsibilities under the new law. For many of ACA's most significant reform provisions, the HHS Secretary and other federal officials are required to take certain actions, such as issuing regulations or interim final rules, by a specific date. As already noted, many of the key components of market reform and coverage expansion do not take effect until 2014. Implementing some parts of the law will entail extensive rulemaking and other actions by federal agencies; other changes will be largely self-executing, pursuant to the new statutory requirements. ACA also creates a variety of new commissions and advisory bodies, some with substantial decision-making authority (e.g., IPAB).\nUnder ACA, states are required to expand Medicaid coverage—though some may now elect not to do so without risk of losing federal matching funds for their existing Medicaid program—and are expected to take the lead in establishing the exchanges, even as many of them struggle with budget shortfalls and weak economies. Employers, too, have a key role to play in ACA implementation. The law made changes to the employer-based system under which more than half of all Americans get health insurance coverage. Many small employers will face decisions on whether to use the new incentives to provide coverage to their employees, while larger employers must weigh the benefits and costs of continuing to offer coverage or paying the penalties for not doing so.\nThe federal subsidies and outlays for expanding insurance coverage represent mandatory spending under the new law. In addition, ACA included numerous mandatory appropriations (and transfers from the Medicare trust funds) that provide billions of dollars over the coming years to support new and existing grant programs and other activities authorized under the law. For example, funding is provided for states to plan and establish exchanges (once established, exchanges must become self-sustaining), and for CMMI to test innovative payment and service delivery models. ACA funded three multi-billion dollar trust funds to support health centers and health workforce programs, comparative effectiveness research, and public health programs. It also established the Health Insurance Reform Implementation Fund (HIRIF) and appropriated $1 billion to the Fund to cover federal regulatory and other administrative costs associated with ACA's implementation. The HIRIF funds, which have largely been used by HHS and the IRS, will all have been obligated by the end of FY2012. Consequently, the President's FY2013 budget requested more than $1 billion in new discretionary funding for HHS and the IRS to pay ACA-related administrative costs. It remains unclear, however, whether congressional appropriators will provide some or all of those funds.\nFinally, the law established many new grant programs and provided for each an authorization of appropriations, and reauthorized funding for numerous existing programs whose authorization of appropriations had expired. Obtaining funding for all these discretionary programs requires action by the congressional appropriators.",
"ACA is being implemented in a variety of ways, including new agency programs, grants, demonstration projects, guidance documents, and regulations. Whereas regulations or rules have the force and effect of law, agency guidance documents do not. The federal rulemaking process is governed by the Administrative Procedure Act (APA), other statutes, and executive orders. Under the APA's informal rulemaking procedures, agencies generally are required to publish notice of a proposed rulemaking, provide opportunity for the submission of comments by the public, and publish a final rule and a general statement of basis and purpose in the Federal Register at least 30 days before the effective date of the rule. Agencies' compliance with the APA is subject to judicial review. The APA's rulemaking requirements do not apply to guidance documents. More than 40 provisions in ACA require or permit agencies to issue rules, with some allowing the agencies to \"prescribe such regulations as may be necessary.\"",
"Congress has a range of options as it oversees the implementation of ACA, including oversight hearings, confirmation hearings for agency officials, letters to and meetings with agency officials and the Office of Information and Regulatory Affairs regarding particular rules, comments on proposed rules, and new legislation regarding specific rules. Congress, committees, and individual Members can also request that the Government Accountability Office or federal offices of inspectors general (OIGs) evaluate agencies' actions to implement, or agency decisions not to implement, certain provisions of ACA. Congress can also include provisions in the text of agencies' appropriations bills directing or preventing the development or enforcement of particular regulations, or use the Congressional Review Act to disapprove an agency rule implementing ACA.",
"Following enactment of ACA, state attorneys general and others brought a number of lawsuits challenging provisions of the act on constitutional grounds. While some of these cases were dismissed for procedural reasons, others moved forward, eventually reaching the U.S. Supreme Court. During the last week of March 2012, the Court heard arguments in HHS v. Florida , a case in which attorneys general and governors in 26 states as well as others brought an action against the Administration, seeking to invalidate the individual mandate and other provisions of ACA.",
"On June 28, 2012, the United States Supreme Court issued its decision in National Federation of Independent Business v. Sebelius , finding that the individual mandate in ACA is a constitutional exercise of Congress's authority to levy taxes. However, the Court held that it was not a valid exercise of Congress's power under the Commerce Clause or the Necessary and Proper Clause.\nWith regard to the Medicaid expansion provision, the Court, in an opinion written by Chief Justice Roberts, accepted an argument that the scope of the changes imposed by the Medicaid expansion transformed the ACA requirements into a \"new\" Medicaid benefit program. As this \"new\" program was to be enforced by the threat of withholding of existing federal Medicaid matching funds, the Court found that the states were being \"coerced\" in violation of the Tenth Amendment into administering this new program. Chief Justice Roberts' opinion, however, went on to note that the Medicaid requirement in question was subject to other statutory language providing for severance of unconstitutional provisions. Since it was only the withholding of existing federal Medicaid matching funds that was unconstitutional, the Chief Justice held that severance under the statute could be limited to termination of those funds. Thus the federal government would still be allowed, under the statute and the Tenth Amendment, to provide federal matching funds associated with the expansion. In other words, states can now decline to participate in the Medicaid expansion without financial penalty, but, if they wish to participate, must comply with the new requirements in order to receive the expansion-related funds.\nIt is unclear how many states may now decide not to participate in the Medicaid expansion. In so doing, they would forgo a substantial amount of federal funding. As already noted, the federal government will provide 100% of the costs of the expansion for the first three years, phasing down to 90% in the years thereafter. Moreover, if a state were to decide not to implement the Medicaid expansion, low-income adults below the poverty line (i.e., 100% FPL) who were not covered by, or eligible for, the state's existing Medicaid program would in general be ineligible for the exchange subsidies."
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"question": [
"What was the response to ACA?",
"How did the individual mandate play out in these challenges?",
"How did Medicaid play out in these challenges?",
"What did the Supreme Court find in National Federation of Independent Business v. Sebelius?",
"How did the Court qualify this decision?",
"What did the Court find regarding Medicaid?",
"What is the status of other provisions of ACA?"
],
"summary": [
"Following the enactment of ACA, individuals, states, and other entities challenged various provisions of ACA on constitutional grounds.",
"Many of these suits addressed ACA's requirement for individuals to have health insurance (i.e., the individual mandate), and claimed that it is beyond the scope of Congress's enumerated powers.",
"The expansion of the Medicaid program was also challenged, as state plaintiffs contended that the expansion impermissibly infringes upon states' rights, coercing them into accepting onerous conditions in exchange for federal funds.",
"On June 28, 2012, the Supreme Court issued its decision in National Federation of Independent Business v. Sebelius, finding that the individual mandate is a constitutional exercise of Congress's authority to levy taxes.",
"However, the Court held that it was not a valid exercise of Congress's power under the Commerce Clause or the Necessary and Proper Clause.",
"With regard to the Medicaid expansion provision, the Court further held that the federal government cannot terminate current Medicaid program federal matching funds if a state refuses to expand its Medicaid program. If a state accepts the new ACA Medicaid expansion funds, it must abide by the new expansion coverage rules, but, based on the Court's opinion, it appears that a state can refuse to participate in the expansion without losing any of its current federal Medicaid matching funds.",
"All other provisions of ACA, as amended by HCERA, remain intact."
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{
"title": [
"",
"Introduction",
"Criteria Used by Senators to Evaluate Nominees",
"Professional Qualifications",
"Judicial Philosophy or Ideology",
"Views of Peers, Constituents, Interest Groups, and Others",
"Diversity Considerations",
"Senate Institutional Factors or Prerogatives",
"Floor Procedures for Considering the Nomination",
"Bringing the Nomination to the Floor30",
"Filibusters and Motions to End Debate40",
"Final Vote on Whether to Confirm the Nomination",
"Number of Days from Nomination to Final Vote",
"Number of Days from Committee Report to Final Vote",
"Type of Vote",
"Vote Outcome and Number of Nay Votes",
"Percentage of Nays",
"Reconsideration of the Confirmation Vote",
"Calling Upon the Judiciary Committee to Further Examine the Nomination",
"Recommittals of Supreme Court Nominations",
"Delay for Additional Committee Hearings Without Recommitting the Nomination",
"After Senate Confirmation"
],
"paragraphs": [
"",
"The procedure for appointing a Justice to the Supreme Court of the United States is provided for by the Constitution in only a few words. The \"Appointments Clause\" (Article II, Section 2, clause 2) states that the President \"shall nominate, and by and with the Advice and Consent of the Senate, shall appoint ... Judges of the supreme Court.\" The process of appointing Justices has undergone changes over two centuries, but its most basic feature—the sharing of power between the President and Senate—has remained unchanged. To receive an appointment to the Court, a candidate must first be nominated by the President and then confirmed by the Senate. This report provides information and analyses related to the debate and consideration of Supreme Court nominations by the full Senate once nominations are reported by the Judiciary Committee.",
"Once the full Senate begins debate on a Supreme Court nomination, many Senators typically will take part in the debate. Some, in their remarks, underscore the importance of the Senate's \"advice and consent\" role, and the consequent responsibility to carefully determine the qualifications of a nominee before voting to confirm. Typically, each Senator who takes the floor states his or her reasons for voting in favor of or against a nominee's confirmation.\nThe criteria used to evaluate a Supreme Court nominee are an individual matter for each Senator. In their floor remarks, some Senators may cite a nominee's professional qualifications or character as the key criterion, others may stress the importance of the nominee's judicial philosophy or views on constitutional issues, while still others may indicate that they are influenced in varying degrees by all of these criteria.",
"Just as most Presidents want their Supreme Court nominees to have unquestionably outstanding legal qualifications, most Senators also look for a high degree of merit in nominees to the Court. Consequently, floor remarks by Senators often focus, in part, on the professional qualifications of a nominee—both in recognition of the demanding nature of the work that awaits an appointee to the Court, but also because of the public's expectations that a Supreme Court nominee be highly qualified.\nWith such expectations of excellence, floor remarks by Senators often highlight the various ways in which nominees have distinguished themselves in the law (as lower court judges, legal scholars, or attorneys in private practice), or in other types of professional positions (such as elective office). Given the importance of a nominee's professional qualifications in the selection and confirmation process, Senators have on occasion questioned—either directly or indirectly in their floor remarks—whether a nominee has the requisite professional qualifications or experience to be appointed to the Court.",
"In recent decades, Senate debate on virtually every Supreme Court nomination has focused to some extent on the nominee's judicial philosophy, ideology, constitutional values, or known positions on specific legal controversies. Many highly controversial decisions of the Court in recent decades have been closely decided, by 5-4 votes, appearing to underscore a long-standing philosophical or ideological divide in the Court between its more so-called liberal and so-called conservative members. A new appointee to the Court, Senators recognize, could have a potentially decisive impact on the Court's currently perceived ideological \"balance\" and on whether past rulings of the Court will be upheld, modified, or overturned in the future. Announcements by the Court of 5-4 decisions, a journalist covering the Court in 2001 wrote, had \"become routine, a familiar reminder of how much the next appointment to the court will matter.\"\nSenators sometimes will indicate in their floor statements whether they believe the views of a particular nominee, although not in complete accord with their own views, nonetheless, fall within a broad range of acceptable legal thinking. Senators' concerns with a nominee's judicial philosophy or ideology may become heightened, and their positions more polarized relative to other Senators', if a nominee's philosophical orientation is seen as controversial, or if the President is perceived to have made the nomination with the specific intention of changing the Court's ideological balance.\nDuring the George W. Bush presidency, a Senate Judiciary subcommittee examined the question of what role ideology should play in the selection and confirmation of federal judges. In his opening remarks, the chair of the subcommittee, Senator Charles E. Schumer (D-NY), stated that it was clear that \"the ideology of particular nominees often plays a significant role in the confirmation process.\" The current era, he said, \"certainly justifies Senate opposition to judicial nominees whose views fall outside the mainstream and who have been selected in an attempt to further tilt the courts in an ideological direction.\"\nBy contrast, Senator Orrin G. Hatch (R-UT), in testimony before the subcommittee, declared that there \"are myriad reasons why political ideology has not been—and is not—an appropriate measure of judicial qualifications. Fundamentally,\" he continued, \"the Senate's responsibility to provide advice and consent does not include an ideological litmus test because a nominee's personal opinions are largely irrelevant so long as the nominee can set those opinions aside and follow the law fairly and impartially as a judge.\"\nMore recently, Senators of both parties have based, at least in part, their opposition to particular Supreme Court nominations on the belief that a nominee's ideological disposition or views on specific issues fall outside the mainstream of legal thought or public opinion.",
"Other factors also may figure importantly into a Senator's confirmation decisions. One, it has been suggested, is peer influence in the Senate (especially, perhaps, when the nomination is viewed as controversial). Particularly influential, for instance, might be Senate colleagues who are championing a nominee or spearheading the opposition, or who played prominent roles in the Judiciary Committee hearings stage. Another consideration for Senators will be the views of their constituents, especially if many voters back home are thought to feel strongly about a nomination. Other influences may be the views of a Senator's advisers, family, and friends, as well as the position taken on the nomination by advocacy groups that the Senator ordinarily trusts or looks to for perspective.",
"Just as Presidents are assumed to do when considering prospective nominees for the Supreme Court, Senators may evaluate the suitability of a Supreme Court nominee according to whether certain groups, constituencies, or individuals with certain characteristics are adequately represented on the Court. Among the representational criteria commonly considered have been the nominee's party affiliation, geographic origin, ethnicity, religion, and gender.",
"When considering Supreme Court nominations, Senators may also take Senate institutional factors into account. For instance, the role, if any, that Senators from the home state of a nominee played in the nominee's selection, as well as their support for or opposition to the nominee, may be of interest to other Senators. At the same time, Senators may be interested in the extent to which the President, prior to selecting the nominee, sought advice from other quarters in the Senate—for instance, from Senate party leaders and from the chair, ranking minority Member, and other Senators on the Judiciary Committee. A President's prior consultation with a wide range of Senators concerning a nominee may be a positive factor for other Members of the Senate, by virtue of conveying presidential respect for the role of Senate advice, as well as Senate consent, in the judicial appointments process.\nSometimes, Senators may find themselves debating whether the Senate, in its \"advice and consent\" role, should defer to the President and give a nominee the \"benefit of the doubt.\" This issue received particular attention during Senate consideration of the Supreme Court nomination of Clarence Thomas in 1991. In that debate, some Thomas supporters argued that the Senate, as a rule, should defer to the President's judgment concerning a nominee except when unfavorable information is presented overcoming the presumption in the nominee's favor. Opponents, by contrast, rejected the notion that there was a presumption in favor of a Supreme Court nominee at the start of the confirmation process or that the President, in his selection of a nominee, is owed any special deference.",
"After the Judiciary Committee has reported a nomination, it is placed on the Executive Calendar and assigned a calendar number by the executive clerk of the Senate. As with other nominations listed in the Executive Calendar , information about a Supreme Court nomination includes the name and office of the nominee; the name of the previous holder of the office; whether the committee reported the nomination favorably, unfavorably, or without recommendation; and, if there is a printed report, the report number.\nBusiness on the Executive Calendar , which consists of treaties and nominations, is considered in executive session. Unless voted otherwise by the Senate, executive sessions are open to the public. Floor debate on a Supreme Court nomination, in contemporary practice, invariably has been conducted in public session, open to the public and press and, since 1986, to live nationwide television coverage.",
"The Senate's executive business is composed of nominations and treaties. The Senate considers such business in executive session. Since the Senate typically begins its day in legislative session on any day it sits, the decision to proceed to executive session and consider a specific nomination is made while the Senate is in legislative session.\nConsideration of a nomination is scheduled by the majority leader, who typically consults with the minority leader and all interested Senators. In previous Congresses, the typical practice in calling up a Supreme Court nomination was for the majority leader to consult with the minority leader and interested Senators and to ask for unanimous consent that the Senate proceed to executive session and consider the nomination. The leader asked for unanimous consent to proceed to executive session to consider the nomination immediately, or at some specified time in the future.\nA unanimous consent request also could include a limit on the time that will be allowed for debate and specify the date and time on which the Senate will vote on a nomination. Typically, the amount of time agreed upon for debate is divided evenly between the majority and minority parties, who usually have as their respective floor managers the chair and ranking minority Member of the Judiciary Committee. If agreed to, a time limit on debate, with a date and time set for final Senate vote on the nomination, precludes unlimited debate or delay in considering a nomination and the possibility of a filibuster. Conversely, if the Senate agrees by unanimous consent to consider a nomination, but does not provide for a time limit on debate or specify when, or under what circumstances, a Senate vote will take place, extended debate is possible, although not necessarily inevitable.\nWhen unanimous consent to call up a nomination has not been secured, the majority leader may make a motion that the Senate proceed to consider the nomination. As already explained, such a motion is made while the Senate is in legislative session. The motion is not debatable. Since 1980, the Senate has explicitly established the precedent that a nondebatable motion may be made to go into executive session to take up a specified nomination . One congressional scholar observed that the precedent limits a potential filibuster to the nomination itself.",
"Senate rules place no limits on how long floor consideration of a nomination may last. With time limits lacking, Senators opposing a Supreme Court nominee may seek, if they are so inclined, to use extended debate or delaying actions to postpone or prevent a final vote from occurring. The use of dilatory actions for such a purpose is known as a filibuster.\nBy the same token, however, supporters of a Court nomination have available to them a procedure for placing time limits on consideration of a matter—the motion to invoke cloture. When the Senate agrees to a cloture motion, further consideration of the matter being debated is limited to 30 hours. The majority required for cloture on nominations, including Supreme Court nominations, is a majority of Senators voting, a quorum being present. By invoking cloture, the Senate ensures that a nomination may ultimately come to a vote and be decided by a voting majority.\nThe Senate reinterpreted its cloture rule to allow a majority of Senators voting to invoke cloture on a Supreme Court nomination on April 6, 2017. Shortly thereafter the Senate was able to invoke cloture on the nomination of Neil M. Gorsuch to be a Supreme Court Justice by a vote of 55-45.\nPrior to the 2017 precedent, a supermajority was required to invoke cloture on a Supreme Court nomination. Motions to bring debate on Supreme Court nominations to a close under the previous procedures were made on four prior occasions. The first use occurred in 1968, when Senate supporters of Justice Abe Fortas tried unsuccessfully to end debate on the motion to proceed to his nomination to be Chief Justice. After the motion was debated at length, the Senate failed to invoke cloture by a 45-43 vote, prompting President Lyndon Johnson to withdraw the nomination. The 45 votes in favor of cloture fell far short of the supermajority required—then two-thirds of Senators present and voting, a quorum being present.\nA cloture motion to end debate on a Court nomination occurred again in 1971, when the Senate considered the nomination of William H. Rehnquist to be an Associate Justice. Although the cloture motion failed by a 52-42 vote, Rehnquist was confirmed later the same day. In 1986, a cloture motion was filed on a third Supreme Court nomination, this time of sitting Associate Justice Rehnquist to be Chief Justice. Supporters of the nomination mustered more than the three-fifths majority needed to end debate (with the Senate voting for cloture 68-31), and Justice Rehnquist subsequently was confirmed as Chief Justice.\nA cloture motion was presented to end consideration of a Supreme Court nomination a fourth time, during Senate consideration of the nomination of Samuel A. Alito Jr. in January 2006. The motion was presented on January 26, after two days of Senate floor debate on the nomination. On January 30, the Senate voted to invoke cloture by a 72-25 vote, and the next day it confirmed the Alito nomination by a final vote of 58-42.\nAs one news analysis at the time observed, Senators \"are traditionally hesitant to filibuster\" Supreme Court nominations. Indicative of this, the article noted, was the fact that some of the \"most divisive Supreme Court nominees in recent decades, including Associate Justice Clarence Thomas, have moved through the Senate without opponents resorting to that procedural weapon.\" In 1991, five days of debate on the Thomas nomination concluded with a 52-48 confirmation vote. The 48 opposition votes would have been more than enough to defeat a cloture motion if one had been filed. In three earlier episodes, Senate opponents of Supreme Court nominations appear to have refrained from use of the filibuster, even though their numbers would have been sufficient to defeat a cloture motion. In 1969, 1970, and 1987 respectively, lengthy debate occurred on the unsuccessful nominations of Clement F. Haynsworth, G. Harrold Carswell, and Robert H. Bork. In none of these episodes, however, was a cloture motion filed, and in each case debate ended with a Senate vote rejecting the nomination.",
"",
"Historically, there has been variation in the length of time from a President nominating a person for a vacancy on the Supreme Court to a final Senate vote on that person's nomination. For nominees since 1975 who have received a final floor vote, Figure 1 shows the number of calendar days that elapsed from the date on which the nomination was formally submitted to the Senate to the date on which the Senate voted whether to approve the nomination.\nOf the 15 nominees listed in the figure, Robert Bork waited the greatest number of days (108) from nomination to a final Senate vote—followed by Clarence Thomas (99), while John Paul Stevens waited the fewest number of days (19)—followed by Sandra Day O'Connor (33).\nOverall, the average number of days from nomination to final Senate vote is 69.6 days (or approximately 2.3 months), while the median is 69.0 days.\nOf the eight Justices currently serving on the Court, the average number of days from nomination to final Senate vote is 72.0 days (or approximately 2.4 months), while the median is 69.5 days. Among the current Justices, Ruth Bader Ginsburg waited the fewest number of days from nomination to confirmation (42), while Clarence Thomas waited the greatest number of days (99).",
"There has also been variation in the length of time nominees to the Court have waited for a final vote after being reported by the Judiciary Committee. Figure 2 shows, for nominees since 1975 who received a final floor vote, the number of calendar days that elapsed from the date on which the nomination was reported by the Judiciary Committee to the date on which the Senate voted whether to approve the nomination.\nOf the 15 nominees listed in the figure, William Rehnquist and Antonin Scalia waited the greatest number of days (34) from committee report to a final Senate vote, while Neil Gorsuch waited the fewest number of days (4). The nominations of Rehnquist (to be Chief Justice) and Scalia (to be Associate Justice) were reported by the committee the day before the start of the August recess in 1986, which likely lengthened the amount of time from committee report to final vote for both nominations.\nOverall, the average number of days from committee report to final Senate vote is approximately 12 days, while the median is 7 days.\nOf the eight Justices currently serving on the Court, the average number of days from committee report to final Senate vote is 9.5 days, while the median is 8.0 days. Among the current Justices, Neil Gorsuch waited the fewest number of days from committee report to confirmation (4), while Clarence Thomas waited the greatest number of days (18).",
"When floor debate on a nomination comes to a close, the presiding officer puts the question of confirmation to a vote. In doing so, the presiding officer typically states, \"The question is, Will the Senate advise and consent to the nomination of [nominee's name] of [state of residence] to be an Associate Justice [or Chief Justice] on the Supreme Court?\"\nA roll-call vote to confirm requires a simple majority of Senators present and voting, a quorum being present. Since 1967, every Senate vote on whether to confirm a Supreme Court nomination has been by roll call. Prior to 1967, by contrast, fewer than half of all of Senate votes on whether to confirm nominees to the Court were by roll call, with the rest by voice vote.\nFor roll-call votes on Supreme Court nominations, the formal procedure by which Senators cast their votes on the floor has varied over the years. In recent decades prior to 1991, it was the usual practice for Senators, during the calling of the roll, to be free to come and go, and not have to be present in the Senate chamber for the entire calling of the roll. However, for several recent Supreme Court nominations to receive final Senate votes on confirmation the majority leader or the presiding officer, immediately prior to the calling of the roll, has asked all of the Senate's Members to remain seated at their desks during the entire vote—with each Senator rising and responding when his or her name is called. Voting from the desk during roll calls is in keeping with a standing order of the Senate, which rarely, however, is actually enforced; nevertheless, the rule has been applied by Senate leaders, in recent years, to roll-call votes on Supreme Court nominations, to mark the special significance for the Senate of deciding whether to confirm an appointment to the nation's highest court.",
"Historically, vote margins on Supreme Court nominations have varied considerably. Most votes have been overwhelmingly in favor of confirmation. Some recorded votes, however, either confirming or rejecting a nomination, have been close.\nFor nominations receiving a final floor vote since 1975, Figure 3 shows whether the nomination was approved by the Senate (identified in columns with blue dots) or not approved. For nominations approved, the level of support among Senators voting on the nomination is indicated as follows: (1) unanimous support (i.e., no nay votes cast on the nomination); (2) some opposition (fewer than 10 nay votes cast on the nomination); (3) some opposition (more than 10 nay votes cast on the nomination, but at least half of the Senators not belonging to the President's party still voted aye on the nomination); and (4) party opposition (a majority of Senators not belonging to the President's party cast nay votes on the nomination). The number of dots at the top of each column indicates the number of nominees in each category.\nOf the 15 nominations receiving a final floor vote, 14 were confirmed. Of the 14 nominations approved by the Senate, 6 were approved despite receiving nay votes from a majority of Senators not belonging to the President's party. These six include the four most recent nominations to the Court, those of Neil Gorsuch (2017), Elena Kagan (2010), Sonia Sotomayor (2009), and Samuel Alito (2006). Additionally, a majority of Senators not belonging to the President party's voted against the Clarence Thomas nomination (1991), as well as the nomination of William Rehnquist to be Chief Justice (1986).\nIn only one of the six cases identified above did the President's party not also hold a majority of seats in the Senate. Specifically, in 1991, President George H. W. Bush (a Republican) nominated Thomas—who was opposed by a majority of Democratic Senators (and whose party was also the majority party in the Senate). In each of the other five cases, the majority of Senators opposed to the nomination belonged to the minority party in the Senate (i.e., Democrats were the minority party in 1986, 2006, and 2017, while Republicans were the minority party in 2009 and 2010).\nOf the 15 nominations presented in Figure 3 , 7 were approved by the Senate either unanimously or with fewer than 10 nay votes—but the last nomination to fall into either one of these categories was that of Stephen Breyer (nominated by President Clinton in 1994).\nFigure 4 provides some historical context for the number of nay votes received by the five most recent nominations to the Court (Gorsuch, Kagan, Sotomayor, Alito, and Roberts). Specifically, the figure identifies, of the 34 nominations since 1945 that received a final floor vote, the 10 nominations that received the greatest number of nay votes.\nOf the 10 nominations listed in the figure, 7 were confirmed by the Senate and 3 were rejected (the Bork, Haynsworth, and Carswell nominations).\nOf the seven nominations that were approved, five were for individuals currently serving on the Court—including the four most recent nominees (Gorsuch, Kagan, Sotomayor, and Alito). The relatively high number of nay votes received by recent nominations approved by the Senate for the Supreme Court is atypical historically (see further discussion below). The relatively high number of nay votes received by recent nominations reflects greater opposition than in the past by Senators not belonging to a President's party to nominations to the Court.",
"The level of opposition to Supreme Court nominations approved by the Senate, as measured by the percentage of Senators voting against a nomination, has been relatively greater in recent years than in the past. Since 1789 there have been 50 nominations that received an up-or-down roll call vote on the Senate floor that also resulted in the nomination being approved by the Senate Of these 50 nominations, Figure 5 identifies the 10 for which the greatest percentage of Senators voted to oppose it.\nOf the 10 individuals listed in the figure, 4 are currently serving on the Court. The nominations of Justices Thomas, Gorsuch, Alito, and Kagan were opposed by 48.0%, 45.5%, 42.0%, and 37.0% of Senators, respectively. Additionally, the nominations of two other current Justices, Sonia Sotomayor and John Roberts Jr., rank among the 20 nominations (of 50) that received the most opposition (at 31.3% and 22.0%, respectively).\nFor the 50 nominations, the median percentage of Senators voting \"nay\" on a nomination was 16.6% (with 6 of the nominations that were approved by roll call not receiving any nay votes).",
"After a Senate vote to confirm a Supreme Court nomination, a Senator who voted on the prevailing side may, under Senate Rule XXXI, move to reconsider the vote. Under the rule, only one such motion to reconsider is in order on each nomination, and the tabling of the motion prevents any subsequent attempt to reconsider. The Senate typically deals with a motion to reconsider a Supreme Court confirmation in one of two ways. Immediately following the vote to confirm, a Senator may move to reconsider the vote, and the motion is promptly laid upon the table by unanimous consent. Alternatively, well before the vote to confirm, in a unanimous consent agreement, the Senate may provide that, in the event of confirmation, the motion to reconsider be tabled. The Senate, it should be noted, has never adopted a motion to reconsider a Supreme Court confirmation vote.",
"Sometimes, after a Supreme Court nomination has been reported, the Senate may delay considering or voting on the nomination, in order to have the Senate Judiciary Committee address new issues concerning the nominee or more fully examine issues that it addressed earlier. Opponents of a nomination may also seek such delay, through recommittal of the nomination to the committee, to defeat the nomination indirectly, by burying it in committee.",
"Although the Senate has never adopted a motion to reconsider a Supreme Court nomination after a confirmation vote, there have been at least eight pre-confirmation vote attempts to recommit Supreme Court nominations to the Judiciary Committee. Only two of those were successful. In the first of these two instances, in 1873-1874, the nomination, after being recommitted, stalled in committee until it was withdrawn by the President. In the second instance, in 1925, the Judiciary Committee re-reported the nomination, which the Senate then confirmed.\nOn December 15, 1873, on the second day of its consideration of the nomination of Attorney General George H. Williams to be Chief Justice, the Senate ordered the nomination to be recommitted to the Judiciary Committee. The nomination had been favorably reported by the committee only four days earlier. During that four-day interval, however, various allegations were made against Williams, including charges that while Attorney General he had used his office to influence decisions profiting private companies in which he held interests. In ordering the nomination to be recommitted, the Senate authorized the Judiciary Committee \"to send for persons and papers\" —in evident reference to the new allegations made against the nominee. Although the Judiciary Committee held hearings after the recommittal, it did not re-report the nomination back to the Senate. Amid press reports of significant opposition to the nomination both in the Judiciary Committee and the Senate as a whole, the nomination, at Williams's request, was withdrawn by President Ulysses S. Grant on January 8, 1874.\nOn January 26, 1925, the Senate recommitted the Supreme Court nomination of Attorney General Harlan F. Stone to the Judiciary Committee. Earlier, on January 21, the Judiciary Committee had favorably reported the nomination to the Senate. However, one historian wrote, \"Stone's unanimous Judiciary Committee approval ran into trouble when it reached the Senate floor.\" A principal point of concern to some Senators was the decision made by Stone as Attorney General in December 1924 to expand a federal criminal investigation of Senator Burton K. Wheeler (D-MT)—an investigation initiated by Stone's predecessor as Attorney General, Harry Daugherty. Stone's most prominent critic on this point, Montana's other Democratic Senator, Thomas J. Walsh, demanded that the nomination be returned to the Judiciary Committee. By unanimous consent the Senate agreed, ordering the nomination to be \"rereferred to the Committee on the Judiciary with a request that it be reported back to the Senate as soon as practicable.\" Two days after the recommittal, on January 28, the Judiciary Committee held hearings, with the nominee, at the committee's invitation, taking the then-unprecedented step of appearing before the committee. Under lengthy cross examination by Senator Walsh and several other Senators, the nominee defended his role in the Wheeler investigation. On February 2, 1925, the Judiciary Committee again reported the Stone nomination favorably to the Senate, \"by voice vote, without dissent,\" and on February 5, 1925, the Senate confirmed Stone by a 71-6 vote.",
"In 1991, during debate on Supreme Court nominee Clarence Thomas, the Senate—without recommitting the nomination to the Judiciary Committee—delayed its scheduled vote on the nomination specifically to allow the committee time for additional hearings on the nominee. On October 8, 1991, after four days of debate, the Senate, by unanimous consent, rescheduled its vote on the Thomas nomination, from October 8 to October 15. The purpose of this delay was to allow the Judiciary Committee to hold hearings on sexual harassment allegations made against the nominee by law professor Anita Hill, which had come to public light only after the Judiciary Committee had ordered the Thomas nomination to be reported, without recommendation, on September 27. Following three days of hearings, on October 11, 12, and 13, 1991, at which the Judiciary Committee heard testimony from Judge Thomas, Professor Hill, and other witnesses, the Senate, pursuant to its unanimous consent agreement, voted on the Thomas nomination as scheduled, on October 15, 1991, confirming the nominee by a 52-48 vote.",
"Under the Constitution, the Senate alone votes on whether to confirm presidential nominations, the House of Representatives having no formal involvement in the confirmation process. If the Senate votes to confirm the nomination, the Secretary of the Senate then attests to a resolution of confirmation and transmits it to the White House. In turn, the President signs a document, called a commission, officially appointing the individual to the Court. Next, the signed commission \"is returned to the Justice Department for engraving the date of appointment (determined by the actual day the president signs the commission) and for the signature of the attorney general and the placing of the Justice Department seal.\" The department then arranges for expedited delivery of the commission document to the new appointee.\nOnce the President has signed the commission, the incoming Justice may be sworn into office. In fact, however, the new Justice actually takes two oaths of office—a judicial oath, as required by the Judiciary Act of 1789, and a constitutional oath, which, as required by Article VI of the Constitution, is administered to Members of Congress and all executive and judicial officers.\nUntil recently, the most common practice of new appointees had been to take their judicial oath in private, usually within the Court, and, as desired by the Presidents who nominated them, to take their constitutional oaths in nationally televised ceremonies at the White House. In 2009, however, in a departure from that practice, Supreme Court nominee Sonia Sotomayor, after Senate confirmation, took both her constitutional and judicial oaths of office at the Supreme Court—with the constitutional oath administered in a private ceremony, and the judicial oath broadcast on television (\"marking the first live coverage of such a ceremony in the institution's history\"). This break from the practice of administering one of the oaths at the White House was attributed, in one report, to President Obama \"heeding concerns expressed by some justices—most recently John Paul Stevens—that a White House ceremony sends the inappropriate message that justices are beholden to their appointing president.\" Following Sonia Sotomayor's example, President Obama's second Supreme Court nominee, Elena Kagan, took both her constitutional and judicial oaths of office at the Supreme Court as well. More recently, in contrast, Neil Gorsuch took the judicial oath of office at a public ceremony at the White House and the constitutional oath of office in a private ceremony in the Justices' conference room at the Supreme Court building.\nSubsequently, the Court itself, in its courtroom, also affords public recognition to the new Justice's appointment, in a formal ceremony called an \"investiture,\" at which the Justice is sworn in yet again. This invitation-only event, for which reserved press seating is made available, is attended by the Court's other Justices, by family, friends, and former associates of the new Justice, and by outside dignitaries who may include the President and the Attorney General. The investiture typically occurs before the new Justice publicly takes his or her courtroom seat alongside the other members of the Court."
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"question": [
"How does the Constitution establish the procedure for appointing a Supreme Court Justice?",
"What does the \"Appointments Clause\" state?",
"Has this process changed since the writing of the Constitution?",
"What does this report concern?",
"Why is the appointment of a Supreme Court Justice important for presidents?",
"Why is the appointment of a Supreme Court Justice important for the Senate?",
"How does the Senate typically respond to the President in his choice of Supreme Court Justices?",
"What is the explanation for this exacting standard?",
"How does the Justices' lifetime term come into play here?"
],
"summary": [
"The procedure for appointing a Justice to the Supreme Court is provided for in the U.S. Constitution in only a few words.",
"The \"Appointments Clause\" in the Constitution (Article II, Section 2, clause 2) states that the President \"shall nominate, and by and with the Advice and Consent of the Senate, shall appoint ... Judges of the supreme Court.\"",
"While the process of appointing Justices has undergone some changes over two centuries, its most essential feature—the sharing of power between the President and the Senate—has remained unchanged: to receive lifetime appointment to the Court, one must first be formally selected (\"nominated\") by the President and then approved (\"confirmed\") by the Senate.",
"This report provides information and analysis related to the final stage of the confirmation process for a nomination to the Supreme Court—the consideration of the nomination by the full Senate, including floor debate and the vote on whether to approve the nomination.",
"For the President, the appointment of a Supreme Court Justice can be a notable measure by which history will judge his Presidency.",
"For the Senate, a decision to confirm is a solemn matter as well, for it is the Senate alone, through its \"Advice and Consent\" function, without any formal involvement of the House of Representatives, which acts as a safeguard on the President's judgment.",
"Traditionally, the Senate has tended to be less deferential to the President in his choice of Supreme Court Justices than in his appointment of persons to high executive branch positions.",
"The more exacting standard usually applied to Supreme Court nominations reflects the special importance of the Court, coequal to and independent of the presidency and Congress.",
"Senators are also mindful that Justices—unlike persons elected to legislative office or confirmed to executive branch positions—receive the opportunity to serve a lifetime appointment during good behavior."
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CRS_R43343
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{
"title": [
"",
"Introduction",
"Coal and Existing U.S. Coal Power Plants",
"Coal and Greenhouse Gas Emissions",
"Types of U.S. Coal-Fired Power Plants",
"U.S. Coal Power Plants Are Aging",
"Efficiency of Power Plants and Power Plant Systems",
"Efficiency Improvements to Reduce GHG Emissions",
"National Energy Technology Laboratory Studies",
"Environmental Protection Agency Study",
"International Energy Agency Study",
"Using Renewables to Improve Coal Plant Efficiency",
"Potential Barriers to Implementing Efficiency Upgrades",
"New Source Review",
"Fuel Prices for Electricity and Regulatory Uncertainty",
"Possible Approaches to Encourage Efficiency Improvement",
"Conclusions and Policy Options"
],
"paragraphs": [
"",
"Coal has long been the major fossil fuel used to produce electricity. However, the Environmental Protection Agency (EPA) lists coal-fired electric power plants as one of the largest sources of air pollution in the United States, with greenhouse gas (GHG) emissions from burning fossil fuels believed to be the largest contributor to global climate change.\nRegulations under development at EPA would impose new requirements on power plants to control GHG emissions. First, in September 2013 EPA proposed standards for the control of carbon dioxide (CO 2 ) emissions from new electric generating units burning fossil fuels. EPA has suggested that utilization of carbon capture and storage (CCS) is a viable means for new coal-fired power plants to comply with the proposed standards. But higher efficiency components and processes are unlikely to be sufficient to meet the proposed new plant standards. As requirements for new sources (i.e., new power plants), EPA's proposed standards do not directly apply to existing power plants currently producing electricity. EPA's proposals for control of GHG emissions from existing power plants are expected by June 2014, with many options for reducing GHGs under consideration. EPA may target emissions on a state or plant-by-plant basis, with companies likely given choices for compliance, and increasing coal-fired power plant (CFPP) efficiency may be one of those choices.\nImproving the efficiency of existing coal plants could potentially result in significant reductions of CO 2 emissions per unit of electricity produced. However, certain modifications to power plants to increase power output can potentially increase pollutant emissions, thus triggering new source review (NSR) requirements. Therefore, any modifications made must be shown to reduce pollutants if NSR is to be avoided. Expenditures to increase efficiency would likely be evaluated on a cost vs. benefits approach, with modifications to improve efficiency varying according to many factors, including the type of fuel burned, and the age and the physical condition of the power plant.\nCarbon capture and sequestration (CCS) will not be a focus of improvements discussed in this report, as there are no CCS technologies considered as commercially available for full-scale application to the broad majority of existing coal-fired power plants, and EPA has stated that it does not expect to require CCS at existing plants.\nThis report focuses on efficiency improvements to power plants, and discusses retrofits, technologies, and other modifications to facility operations which offer the potential to improve power plant efficiency and reduce CO 2 emissions. Some in Congress have expressed concerns about the potential impacts on electricity reliability and fuel diversity from retirements of coal plants due to pending and new environmental regulations. Increasing efficiency of coal plants may help to address these concerns by reducing emissions without reducing output. Additionally, Congress may want to consider whether such efficiency improvements could be accelerated if these were implemented in a program focused on increasing the efficiency of the coal-fired power plant sector.",
"For most of the history of power generation in the United States, coal has been the dominant fuel used to produce electricity. In 2012, coal was used to fuel approximately 38% of power generation in the United States, as shown in Figure 1 . Coal has been the fuel of choice for many decades because of its wide availability, and the relatively low cost of producing electricity in large, coal-burning power plants. Coal's low-priced, high energy content enabled the building of power plants able to take advantage of economies of scale in steam-electric production.\nIn a steam power plant, coal (or other combustible fuel) is burned to provide heat for turning water into steam in a boiler. The steam is then forced under pressure into a steam turbine-driven generator which produces electricity. As of 2012, the U.S. coal-powered generation fleet consisted of 1,337 units with a nameplate capacity of almost 313 gigaWatts (GW) of generating capacity.",
"Coal is largely composed of carbon, hydrogen and oxygen, with varying amounts of carbon, sulfur, ash, and moisture content in the different types of coal mined in the United States. Figure 2 shows the use of the four major types (also called \"ranks\") of coal produced in the United States, with bituminous and subbituminous coal dominating electric power generation.\nBituminous is the most abundant form of coal in the United States, and is the type most commonly used to generate electricity. Bituminous coal has a carbon content ranging from 45% to 86%, and a heat value between 10,500 British Thermal Units (BTUs) and 15,500 BTUs per pound.\nSubbituminous coal is mostly found in six western states and Alaska. It has a carbon content of between 35% and 45%, and a heat value of between 8,300 BTUs and 13,000 BTUs. Subbituminous coal generally has a lower sulfur content than other types of coal.\nLignite has the lowest carbon content of the four types of coal generally used for electric power generation, averaging between 25% and 35%, and a high moisture and ash content. It also has the lowest heat value, ranging between 4,000 BTUs and 8,300 BTUs.\nAnthracite has the highest carbon content (between 86% and 98%), and a heat value of about 15,000 BTUs. Anthracite coal is a small part of the electric power market, and is mostly found in the Appalachian region of Pennsylvania.\nThe amount of CO 2 emitted from a coal-fired power plant (CFPP) varies with the type of coal burned. The combustion of coal in the presence of oxygen causes its carbon and hydrogen constituents to react, releasing CO 2 emissions and water, with varying amounts of other products such as oxides of nitrogen and sulfur, carbon monoxide, and fine particulate matter. Carbon dioxide is the primary emission of concern when considering GHG emissions from power plants.\nGenerally, anthracite emits the largest amount of CO 2 per million BTUs (MMBTU) of coal burned, followed by lignite, subbituminous coal, and bituminous coal. Carbon dioxide emissions from coal-fired power plants could thus be reduced by burning a better grade of coal, or by increasing the efficiency of the power plant and reducing overall coal consumption, without a need to completely repower the plant (in, say, a coal to natural gas conversion). Fuel switching may be necessary if a greater degree of CO 2 emissions reduction is desired.",
"Steam turbines are at the heart of coal-fired power plants. As shown in the simplified schematic of a pulverized coal plant in Figure 3 , a steam electric power plant consists of a number of basic components. Coal is crushed and fed into a boiler where it is burned to heat water into steam. The steam is injected under pressure into a turbine which turns a generator (where essentially a magnet turns in a coil of wire causing electrons to flow thus creating an electric current). Steam returning from the turbine is then cooled in a condenser, and the water is fed back by a feedwater pump to the boiler to continue the process. The expansion of water into steam vapor (and condensation back into liquid water) in this manner is called a Rankine Cycle, and is the basis for most electric power generation in the United States.\nA typical coal-fired power plant has multiple generating units, each with its own steam generating boiler. Usually, coal is pulverized by a combination of crushing and grinding until a desired degree of fineness is achieved. The coal is sieved, and dried using heated air before it is conveyed to a furnace where it is burned to produce steam. Steam pressure and temperature are specifically related, as steam's temperature rises with increasing steam pressure. The pressure and temperature of the steam produced have been rising steadily over the years, ranging from yesterday's sub-critical units to today's ultra-super critical units.\nSubcritical steam generation units operate at pressures such that water boils first and then is converted to superheated steam. At supercritical pressures, water is heated to produce superheated steam without boiling. Due to the improved thermodynamics of expanding higher pressure and temperature steam through the turbine, a supercritical steam generating unit is more efficient than a subcritical unit.\nUltra-supercritical steam (USC) generation currently is the most efficient technology for producing electricity fueled by pulverized coal. A USC unit operates at supercritical pressure and at advanced steam temperatures of 1,100 \"F ...These temperatures and pressures enable more efficient operation of the turbine cycle. This increase in efficiency reduces fuel (coal) consumption, and thereby reduces emissions, solid waste, water use and operating costs.\nWhile pulverized coal units are most common in the United States, coal-fired power plants use other technologies to burn coal including cyclone-fired boilers, fluidized bed combustion, and integrated coal gasification/combined cycle technologies.",
"According to EIA, approximately 73% of U.S. coal-fired power plants were age 30 years or older at the end of 2010. The service life for CFPPs normally averages between 35 and 50 years, and varies according to boiler type, maintenance practices, and the type of coal burned, among other factors.\nVintages of existing power plants can be seen in Figure 4 , which illustrates the age and capacity of coal-fired and other power plants. Most of this generating capacity was built between 1950 and 1990. The aging majority of U.S. coal-fired capacity contrasts against the recent surge in younger wind power and natural gas-fired capacity additions whose generating capacity is mostly less than 10 years old.\nThe efficiency of coal-fired power plants, in particular, decreases with age. While good maintenance practices can keep power plant efficiency high in the early years of life, as the plant ages, power plant performance and efficiency erode after about 25 to 30 years of operation, and substantial work may be required to keep the plant operating efficiently and economically.\nAll power plants are subject to retirement when they reach the end of their useful service life. As power plants age, they are generally upgraded to continue operations, but the least efficient plants may be retired. Other plants may be shifted from base load operations (in which they essentially operate around the clock) to less demanding intermediate or peaking schedules. The cost of building a power plant is generally recovered over the depreciable life of the asset, such that operations and maintenance (O&M) expenses become the major component of an older power plant's continuing costs. A major component of O&M is the cost of fuel, and the expectation of continued lower prices for natural gas is weighing on decisions concerning whether many older, less efficient coal power plants will be mothballed or closed altogether. The costs of modernizing older power plants to meet new regulatory requirements can be relatively high. When the cost of upgrades to meet new environmental requirements is considered along with (perhaps increasing) O&M expenses, many older coal power plants are likely to face outright retirement decisions.",
"Improving the efficiency of existing coal plants could potentially result in large reductions of CO 2 emissions per unit of electricity produced. Since GHG emissions from electricity generation are essentially composed of CO 2 emissions, improvements in efficiency are a direct means of reducing GHG emissions.\nThe performance of a power plant can be expressed by a number of measures, including heat rate (i.e., the efficiency of conversion from fuel energy input to electrical energy output), and thermal efficiency. In its simplest form, a plant's heat rate (for a particular period) can be defined as follows:\nHR = F / E\nwhere,\nHR = heat rate (Btu/kWh)\nF = heat energy input supplied by fuel to the power plant for a period (BTU)\nE = energy output from the power plant in a period (kWh)\nSince the equivalent BTU content of a single kWh of electricity is 3,412 BTU, thermal efficiency can be calculated as:\nTE = (100) ( 3412 ) / HR\nwhere ,\nTE = thermal efficiency (%)\nAs an example, using the average heat rate in 2011 of 10,444 BTU/kWh for coal-fired power plants (i.e., all coal types), the average efficiency for coal-fired plants was 33%.\nA lower heat rate represents a more efficient generating unit, since it requires less heat input to generate a kWh of electric energy. A generating unit can thus improve its efficiency by reducing the fuel it uses relative to a specific amount of electricity generated, thus reducing the amount of CO 2 emitted.\nA percentage improvement in heat rate is nearly equivalent to an equal percentage improvement in the emissions rate in terms of the change in CO 2 emissions. The difference stems from the small variation in carbon per Btu across coal varieties. The heterogeneity in heat rates across coal-fired generation units can partly be explained by technical characteristics determined at the time of plant construction that cannot be changed without a major overhaul. This category includes size, age, firing type, and the technology employed. Higher efficiency is generally associated with plants that are used more heavily because efficient units are less costly to operate.\nA second factor is how the boiler is used. The relationship between the heat rate and utilization is nonlinear, as efficiency tends to be lower at very low and very high levels of utilization ... Units with lower utilization may be ramped up and down more frequently, which requires additional fuel input as temperature in the boiler fluctuates. The result could involve efficiency losses at least partly outside the control of plant decision makers. Plant managers control several other factors that affect heat rates. Techniques, management, or technology may improve the efficiency of the plant by targeting the major components of the coal combustion process: oxygen, temperature, and pressure. Excessive deviations in any of these areas may decrease efficiency through waste or shortfalls ...Maintenance and performance testing are also critical for identifying and preventing losses.\nTherefore, in practical terms, a power plant's heat rate can be affected by a number of factors and power plants systems. Heat rate may present one measure of efficiency, but when considering power plant GHG emissions, measuring carbon dioxide emissions per unit of energy output (i.e., per kWh or per MWh of generation) may provide a more useful measure.\nEach power plant thus presents a unique opportunity when looking at the issue of increasing efficiency, and reducing emissions. Figure 5 illustrates a relationship between efficiency improvement and CO 2 emissions (for CFPPs using bituminous coal) highlighting the lower emissions of higher pressure CFPPs. Upgrading from subcritical operation to supercritical steam conditions (with required pollution technology) could add at least 20 years to a plant's service life, depending on the regulatory and environmental regime in place. A subcritical plant could achieve at best 40% efficiency (on an LHV basis), while a supercritical steam plant could potentially achieve an efficiency two points higher and emit 4% less CO 2 . Advancing the technology from a supercritical to an advanced ultra-supercritical CFPP could see an efficiency of 46% to 48%, which could mean as much as 18% to 22% less CO 2 per MWh generated than an equivalent-sized subcritical PC unit. However, \"[m]ajor plant upgrading involving conversion of subcritical to supercritical or ultra-supercritical ... has seldom progressed beyond studies because of the high cost.\"",
"The overall efficiency of a power plant encompasses the efficiency of the various components of a particular generating unit. Sometimes these systems are unique to a generating unit, while in other instances these systems may be shared between generating units at a power plant site. This section will summarize the results of several U.S. and international studies which present options for improvements to power plant systems capable of increasing system heat rate efficiency and reducing GHG emissions. While the focus of this report is improving the efficiency of U.S. coal-fired power plants, studies from the international community are also presented as suggested improvements apply generally to coal-fired power plants. Further, a key report from an Asia-Pacific Economic Cooperation (APEC) working group report laid the groundwork for several U.S and international studies.\nAs coal-fired power plants age, they lose efficiency. Much of this loss in efficiency is due to mechanical wear on a variety of components resulting in heat losses, as can be seen in Figure 6 . Lower power plant efficiency results in more CO 2 being emitted per unit of electricity generated. The mode of operation (i.e., base load vs. cyclical) also has a large effect on efficiency and fuel use. The options most often considered for increasing the efficiency of CFPPs include equipment refurbishment, plant upgrades, and improved O&M schedules. Cost of the improvements is often compared to the expected return in increased efficiency as a primary determinant of whether to go forward with a program.\nIn 1999, the APEC region was responsible for 59% of the world's carbon dioxide emissions from fossil fuel combustion. Pulverized coal technologies accounted for 94% of coal-fired capacity in the region. The 21 countries comprising APEC include Australia, Canada, China, Japan, the United States, and Russia. According to an Asia-Pacific Economic Cooperation Working Group (APWG) study in 2001, projects to improve combustion, steam cycle, and O&M required low to medium costs, and these expenditures were predicted to produce as much as a 3.5% net overall efficiency improvement. These improvements could also result in the largest overall reduction in CO 2 emissions of all the scenarios considered by the APWG study, since lower cost improvements were more likely to be adopted.\nHowever, if reduction of carbon intensity is the goal (measured in grams of CO 2 emission per kiloWatt-hour of generation), the study found that switching of CFPPs to biomass ranked highest among the options considered (as biomass was considered carbon neutral), followed by fuel-switching to natural gas.\nA subsequent APWG study in 2005 found that many older power plants in the Asia-Pacific region were operating well below their design efficiency. However, the study found that replacing the older CFPPs with new power plants was not practical because the expenditure for a new plant could not be justified by the improved performance. Instead, efficiency and operational improvements were seen as a possible alternative considering a range of equipment upgrades and refurbishment options to various CFPP systems.",
"The APWG results were amplified by a U.S. National Energy Technology Laboratory (NETL) study in 2008 which identified a list of potential methods to improve overall CFPP heat rate efficiency. , The results are shown in Table 1 . The NETL study found that aside from a unit's age and steam cycle type, plant attributes such as location and emissions controls equipment did not account for the variations observed in plant efficiency. NETL then undertook an analysis of the efficiency of U.S. CFPPs, concluding that while the average efficiency was 32% in 2007, the efficiency of the top 10% was five points higher at 37.4%.\nNETL suggested that if GHG emissions reduction was a goal, then heat rate efficiency improvements could enable a power plant to generate the same amount of electricity with lower CO 2 emissions.\nIn 2010, NETL completed a new study of U.S. CFPP efficiency, dividing the results into 10 deciles of equal capacity (see Table 2 ). The generating units in the top 10% are diverse (i.e., they are not all new, large, supercritical plants), which NETL believes indicates an opportunity for overall fleet improvement.\nWhile on average the top decile consisted of units with larger capacities, higher steam pressures, higher load factors, and a higher percentage burning bituminous coal, there was significant overlap with the rest of the fleet. For example, the average steam pressure at the turbine of the top decile is around 3,000 psig, but there are ten units within the top decile with steam pressures in the 1,800 psig to 2,000 psig range. Also, the net nameplate capacity of the units in the top decile, while larger on average, ranged from 114 MW to 1,426 MW, indicating that even small plants can achieve higher than average efficiencies.\nThe fleet generation-weighted average efficiency is 32.5%, while the top performing decile is over five percentage points higher (see Table 3 ). NETL therefore projected that average efficiency of the CFPP fleet could be raised from an average plant heat rate of 32.5% in 2008 to 36% overall.\nNETL sets forth a vision of 36% based on retirements of low efficiency units, and improvements within the best-in-class. Under a scenario where generation from coal is constant at the 2008 level, increasing the average efficiency from 32.5% to 36% reduces U.S. GHG by 175 MMmt/year or 2.5% of total U.S. GHG emissions in 2008.\nAccording to NETL's analysis, retirements of lower efficiency units combined with increased generation from higher efficiency refurbished units, and advanced refurbishments with improved operation and maintenance, would be the key to potentially increasing average fleet efficiency beyond the best-in-class units.\nThe low pressure subcritical units and the 0-200 MW subbituminous units, in the sample studied, had 90 th percentile efficiencies that were significantly lower than the rest of the fleet. Retiring these units and relying on increased generation from the more efficient segments to maintain constant coal generation yields a fleet efficiency target of 35.6%.\nNETL conceded that the fleet efficiency target of 36% did not consider installing scrubbers (to control emissions of sulfur oxides) at facilities without such controls.\nIf efficiency upgrades were done in conjunction with installing sulfur scrubbers on 165-250 GW of the fleet, the efficiency target would be reduced 0.5 to 1 percentage points... NETL expects that the fleet achieving efficiencies approaching the best-in-class will require a combination of improved operational and maintenance practices, capital investments in unit refurbishments, and application of advanced technologies.\nNETL concluded its report on the opportunity to increase CFPP efficiency with the following suggestions on how to improve its analysis:\nVerification of coal generating unit efficiency data. Estimates of the cost of efficiency upgrades. Unit-specific data to enable estimation of the design heat rate for each generating unit. Case studies of efficiency upgrades at generating units, including modeling, to provide concrete examples of the opportunity to improve efficiency. Detailed analyses of scenarios where some of the generating units are retired, some are refurbished and up-rated, and others are fixed with sulfur, oxides of nitrogen, and mercury controls. Analyses of how more efficient coal plants will dispatch, what other generating sources will be displaced, and the overall effect on GHG emissions.",
"The U.S. Environmental Protection Agency (EPA) issued a report in 2010 which affirmed that there was a direct relationship between CFPP efficiency and CO 2 emissions. EPA recognized that the level of CO 2 emissions potentially released from a given coal-fired electric generating unit (EGU) (i.e., power plant) depends on the type of coal burned, the overall efficiency of the power generation process, and use of air pollution control devices.\nIn addition to the lower CO 2 emissions rate per unit of heat input (lbs CO 2 /MMBtu), due to the inherent moisture in subbituminous and lignite coals, all else being equal a bituminous coal-fired boiler is more efficient than a corresponding boiler burning subbituminous or lignite coal. Therefore, switching from a low to a high-rank coal will tend to lower GHG emissions from the utility stack.\nAs the thermal efficiency of a coal-fired power plant is increased, less coal is burned per kWh of electricity generated, and there is a corresponding decrease in CO 2 and other air emissions. The greater the output of electric energy for a given amount of fuel energy input, the higher the efficiency for the electric generation process. Heat rate is another common way to express efficiency. Power plants that are more efficient typically have lower heat rates.\nAlthough EPA states there is a direct relationship between coal-fired EGU efficiency and CO 2 emissions, EPA recognized that other factors must be considered when comparing the effectiveness of GHG control technologies to improve the efficiency of a given coal-fired EGU. The study states that the actual overall efficiency that a given coal-fired EGU achieves is determined by the interaction of a combination of site-specific factors that impact efficiency to varying degrees, including the following.\nEGU thermodynamic cycle—EGU efficiency can be significantly improved by using a supercritical or ultra-supercritical steam cycle.\nEGU coal rank and quality—EGUs burning higher quality coals (e.g., bituminous) tend to be more efficient than EGUs burning lower quality coals (e.g., lignite).\nEGU plant size—The electric-generating capacity of EGUs ranges from approximately 25 to 1,300 MW. Assuming an EGU efficiency of 33% (a typical efficiency for existing coal-fired EGUs), this corresponds to a heat input range of 250 to 13,400 MMBtu/hr.\nEGU efficiency generally increases with size because the boiler and steam turbine losses are lower for larger equipment. However, as equipment size increases [beyond a certain point] the differences in these losses start to taper off.\nEGU pollution control systems—The electric power consumed by air pollution control equipment reduces the overall efficiency of the EGU.\nEGU operating and maintenance practices—The specific practices used by an individual electric utility company [including] combustion optimization, equipment maintenance, can affect EGU efficiency.\nEGU cooling system—The temperature of the cooling water entering the condenser can have impacts on steam turbine performance. Once-through cooling systems can have an efficiency advantage over recirculating cooling systems (e.g., cooling towers). However, once-though cooling systems typically have larger water related ecological concerns than recirculating cooling systems.\nEGU geographic location—The elevation and seasonal ambient temperatures at the facility site ... may have a measureable impact on EGU efficiency. At higher elevations, air pressure is lower and less oxygen is available for combustion per unit volume of ambient air than at lower elevations. Cooler ambient temperatures theoretically could increase the overall EGU efficiency by increasing the draft pressure of the boiler flue gases and the condenser vacuum, and by increasing the efficiency of a condenser recirculating cooling system.\nEGU load generation flexibility requirements—Operating an EGU as a base load unit is more efficient than operating an EGU as a load cycling unit to respond to fluctuations in customer electricity demand.\nEGU equipment manufacturers—The efficiency specifications of major EGU components such as boilers, turbines, and electrical generators provided by equipment manufacturers can affect EGU efficiency.\nEGU plant components—EGUs using the optimum number of feedwater heaters, high efficiency electric motors, variable speed drives, better materials for heat exchangers, etc. tend to be more efficient.\nBased on the factors above, EPA concludes that coal-fired power plants \"identical in design but operated by different utility companies in different locations may have different efficiencies. Thus, the level of effectiveness of a given GHG control technology used to improve the efficiency at one coal-fired EGU facility may not necessarily directly transfer to a coal-fired EGU facility at a different location.\"\nEPA recognized in the study that a number of technologies to improve power plant efficiency are available for application to existing coal-fired EGU projects which can incrementally improve thermal overall efficiency, and expanded on the efficiency improvements reported by NETL in its 2008 report on efficiency improvement projects (shown in Table 1 ).",
"The International Energy Agency released a study in 2013 looking at opportunities to reduce CO 2 emissions using upgrades and efficiency improvements at CFPPs. IEA concluded that substantial improvements (i.e., retrofits) may be seen as cost-effective if these economically restore the efficiency of a power plant.\nDespite involving substantial outlay (typically US$100–200 million), retrofits will provide a payback in restored generation, fuel saving, extended plant life, and, in some countries, CO 2 emissions cost savings. There are also benefits of reduced specific emissions of other pollutants.\nRetrofits include turbine upgrades, condenser optimization, increasing the capacity and efficiency of air-cooled condensers, boiler system improvements, and improvements to other systems where energy losses can occur (as shown in Figure 6 ) .\nHowever, IEA affirmed that major plant retrofits and upgrades (i.e., conversion of subcritical PC units to super- or ultra-supercritical PC units) would raise efficiencies more substantially. IEA used the example of a conversion of a subcritical 500 MW unit in the United Kingdom to a supercritical pressure, which was projected to raise net generation efficiency from 38% to 44% (on a lower heating value basis). The upgrade was projected to reduce CO 2 emissions by 500,000 tonnes per year.",
"Heat rate improvement could potentially be achieved using renewable technologies to either provide heat to reduce heat losses at various points in the steam cycle, or to provide power to the equipment used to curb these heat losses, thus curbing on-site equipment electricity use. One such hybrid coal-solar power plant is already in operation in the United States, at the Xcel Cameo Generating Station in Colorado.\nThe demonstration project is expected to cut the use of coal at the power plant by around two or three percent, and could be scaled up to cut it by 10 percent. The system works through a series of parabolic trough solar collectors made of glass mirrors. On sunny days the mirrors concentrate the solar radiation onto a line of receiver tubes filled with a heat transfer fluid (mineral oil). The solar energy heats the circulating oil to about 300°C (575°F). The heated oil is then fed to a heat exchanger where the heat is transferred to water to heat it to around 200°C (407°F) before it enters the boiler. Having hotter water entering the boiler means less coal is needed to heat it and produce the steam that turns the turbine to generate electricity.\nAlternatively, using biomass has been suggested to co-fire with coal in a CFPP, or to replace coal altogether.\nCombining the use of biomass with coal can be beneficial, particularly from an environmental standpoint although any such process may have its limitations or drawbacks. Each coal type and biomass feedstock has different characteristics although by combining the two, it may be possible to capitalize on the advantages of each, and minimize their individual disadvantages. An effective way is via [gasification and production of syngas, a mixture of hydrogen and carbon monoxide], and useful operating experience has been achieved in a number of large-scale coal-fuelled gasification and IGCC plants ... It also has the potential to form the basis of systems that combine coal and biomass use with other renewable energy technologies to create clean, efficient energy-production systems. Thus, various hybrid energy concepts, some based on coal/biomass [gasification], have been proposed or are in the process of being developed or trialed. Some propose to add yet another element of renewable energy to the system, generally by incorporating electricity generated by intermittent renewables such as wind or solar power. A number also aim to incorporate some form of carbon capture and storage.\nAs biomass is generally considered carbon neutral, co-firing coal with biomass can provide advantages for electric power generation. However, using biomass on a large, commercial scale has a number of potential issues. Since the heating value and bulk density of biomass is lower than coal, the necessary volumes to be harvested and handled can be substantial, and the type and availability of different biomass materials tends to vary considerably with location. A potential source of biomass in the United States could be wastes from the forest products industry.",
"Government regulations, regulatory regimes (i.e., competitive markets or traditional cost of service regulation), and industry factors (such as growth or a lack of growth in demand) all affect the motivation for implementing improvement projects at coal-fired power plants. These external forces add to the internal evaluation of the costs vs. benefits of improvements for a particular unit. This section will look at a few of these external forces which may hamper the implementation efficiency projects.",
"The New Source Review program was designed to prevent the degradation of air quality from the construction of new facilities or modification of existing facilities which have potentially harmful emissions. NSR was established by Congress as part of the 1977 Clean Air Act Amendments ( P.L. 95-95 ).\nThe NSR process requires power plant operators to undergo a review for environmental controls if they build a new power generating unit, and to impose the Best Available Control Technology, as defined by the state permitting authority (or in some cases EPA). Efficiency improvements to power plants that reduce regulated pollutants should not theoretically trigger NSR requirements, unless the improvements result in an increase in emissions (e.g., because the modified plant operates for more hours). Establishment of a pre-improvement emissions baseline before and a post-improvement emissions report after efficiency upgrades seems like a logical step, but may not be easily achievable on a consistent basis. There are also ambiguities in the law which may serve to hamper efficiency projects from going forward.\nPower plants built prior to 1971 are exempted from the limits on criteria pollutant emissions contained in the Clean Air Act, but may lose that exemption and be forced to undergo an NSR if the EPA determines that the plant has undergone non-routine maintenance which increase emissions.\nThe power generation industry widely views the NSR process as an obstacle to power plant efficiency improvement projects. In a 2002 report to the President, the Environmental Protection Agency concurs, stating \"that NSR as applied to existing plants discourages projects that would have provided needed capacity or efficiency improvements.\"\nAccording to NETL, there are two critical issues with respect to the NSR and efficiency improvements:\nThe definition of \"routine maintenance, repair, and replacement\" projects, and Whether a unit's emission rate or its total emissions over a specified time should be used to determine if an efficiency improvement project increases emissions.\nNETL further stated that several developments since the passing of the 1977 Clean Air Act Amendments have failed to clarify these issues and made efficiency improvements risky and less appealing to plant operators. On the other hand, NETL also stated that \"[u]nder future scenarios, the added value of higher efficiency in meeting GHG emissions limits, may prevent the NSR from being utilized as a barrier to capital investments aimed at improving power plant efficiency.\"",
"Increases in the domestic production of natural gas (primarily due to hydraulic fracturing of gas shales) are causing a dramatic change in electric power production decisions. A recent decline in natural gas prices has come with increased production of natural gas, and the resulting decline in coal consumption for power generation. In April 2012, for the first time in U.S. history, the amount of electricity generation from natural gas equaled that of coal, according to EIA statistics, with each representing about 32% of the market.\nHowever, as Figure 7 illustrates, coal has recently rebounded and regained market share for electricity generation as natural gas prices have risen. EIA states that since May 2013, \"a combination of higher prices for natural gas and increased demand for electricity during the summer months led electric systems across much of the country to increase their use of coal-fired units.\"\nGrowth in demand for electricity is expected to be low over the coming decades. By itself, this would ordinarily be expected to reduce new power plant construction, and might prompt some coal plant owners to consider projects to increase efficiency from existing plants. However, lower natural gas prices, higher coal prices, slower economic growth, and the implementation of new environmental rules are all expected to play a role in the level of coal plant retirement decisions.",
"As previously mentioned, EPA has been directed by the President to propose guidelines for GHG emissions reduction from existing coal-fired power plants. The general assumption is that EPA will establish some target for emissions on a state or plant-by-plant basis, with companies free to decide how they will achieve the reduction (i.e., with efficiency, fuel switching, retirement of older units, priority dispatch for cleaner units, etc.), and with emissions averaging, banking, and trading of emissions credits playing a role. Within such a system, efficiency improvements can be an important contributor.\nWhile the details of the proposal are unknown at this time, the proposal may take into account a number of factors (such as the remaining useful life of the existing source), and could be less stringent than the proposal for new sources of power plants emissions of GHGs.\nPower plant efficiency may be another factor which EPA may potentially consider in its guidelines for existing sources. NETL observed in its 2010 report that based on a scenario where CFPP generation was constant at the 2008 level, increasing the average efficiency from 32.5% to 36% could reduce U.S. GHG emissions by 175 MMmt per year or 2.5% of total U.S. emissions in 2008. NETL conceded that barriers existed to achieving a higher average fleet efficiency level, citing the power generation industry's focus on availability (focused on the profitability of coal-fired generating units), inconsistent cost pass through possibilities (some deregulated areas have cost pass through clauses, and zero or negative incentives in many areas for reduced fuel use), fear of triggering New Source Review, and uncertainty about GHG regulations (which could lead to very short payback periods for improvements).\nIf power plant efficiency is an option EPA proposes for state consideration, the question then may be asked how a fleet-wide improvement program could be achieved in United States. One possible approach might be to follow NETL's suggestion of using the top decile of CFPP efficiency as a benchmark for U.S. fleet efficiency, used with an efficiency frontier. Using statistical methods, benchmarks could be used to improve efficiency of the CFPP fleet. NETL observes that while some improvements could be \"relatively inexpensive\" (for example, improved O&M, more frequent or pro-active maintenance), other improvements could be \"very expensive\" (for example, improvements bundled with a new SO 2 scrubber, or turbine overhauls or heat exchanger replacement). But NETL notes that \"if each plant achieved their maximum efficiency each year, 5% reduction in CFPP carbon dioxide emissions\" could result.\nAccording to NETL's analysis, retirements of lower efficiency units combined with increased generation from higher efficiency refurbished units, and advanced refurbishments with improved operation and maintenance, would be the key to increasing average fleet efficiency.\nEfficiency improvements could be incentivized using an efficiency frontier. The selection of appropriate incentives would then encourage CFPP owners to undertake improvements or retire lower efficiency units. Such incentives could include possible tax rate reductions for CFPP owners matched in some manner to the cost of the improvements, or accelerated book depreciation rates for cost recovery. Penalties could perhaps be used to encourage prompt retirement of the lowest efficiency units.\nThe incentives could be in place over a defined period of years, with incentives reduced during the period to encourage action sooner rather than later. The effective period of incentives would have to be sufficiently long enough to allow equipment orders to be satisfied, and simultaneous work to progress at multiple CFPP sites across the country which might seek to make improvements considering equipment lead times and workforce availability. The benchmark could be revised periodically. This could allow newer power plants to live out a service life matched to the most efficient operation achievable for a particular type of CFPP, based on industry statistics. This could allow companies that have made substantial investments in pollution controls an opportunity to recover these investments.\nHowever, EPA's expected proposal on standards for GHG emissions from existing coal-fired power plants will be a primary factor in determining whether efficiency improvements will be cost effective in the near term.",
"The efficiency of coal-fired power plants decreases over time as components and systems degrade with age and use. Good O&M practices can slow down the loss of efficiency, but older power plants will not be as efficient as newer plants with more technologically advanced and newer systems. But simply replacing old power plants with newer plants is rarely cost effective as the relative increase in power output seldom justifies the cost. CFPPs that are more efficient emit less CO 2 per unit of electricity produced because they use less coal. Making improvements to increase the efficiency of CFPPs (while producing the same electrical output) could result in a significant reduction in CO 2 emissions. According to several of the studies summarized in this report, the major improvements in GHG emissions would likely result from major retrofits in technology, or conversions to natural gas (or possibly biomass) as a fuel.\nDetailed information on the actual cost of efficiency-enhancing improvements is not readily available, as concerns over confidentiality and competitiveness with regard to actual projects has largely prevented the sharing of such information. The studies referenced in this report largely show relative information on cost (i.e., high, medium, low), estimate the cost effectiveness of improvements, or mention general cost levels. The case studies have reported costs of efficiency improvements and actual increases in efficiency for specific power plant. But these are considered as useful for estimating a range of costs for improvements rather than actual guides for costs, since each power plant has its own design characteristics and maintenance history. Actual cost information would require a technical evaluation, and a cost vs. benefit analysis to obtain reliable cost estimates for the options under consideration, taking into account site-specific conditions.\nOther potential roles exist for Congress. For example, legislation could use tax incentives to encourage energy efficient upgrades for CFPPs which were placed in-service after a certain date. This would allow newer units with environmental controls to recover the cost of scrubbers and other systems, and allow \"newer\" units to continue operations over a \"reasonable\" service life, and recover the cost of environmental improvements.\nAnother approach might be to use a federal energy efficiency standard to accomplish a similar goal as an efficiency frontier, but allow the states to design the program based on local fuel resources, the age of power plants under their jurisdiction, and other criteria defined in legislation. The efficiency standards could increase over time, and require CFPPs not meeting these standards to retire.\nDeference to state authorities and regional compliance strategies have been suggested by observers with regard to EPA's deliberations over GHG reduction for existing CFPPs. State public utilities commissions (or similar entities) often require utilities to conduct book depreciation studies (either in connection with rate cases or independent of rate cases). Such studies commonly examine the physical condition of power plants, and the utility's recovery of its investment in electric plant. Federal legislation could tie incentives for efficiency improvements to such studies and direct states to meet individual or regional goals for GHG reduction."
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"question": [
"What is coal used for?",
"Why is coal problematic?",
"What efforts have been proposed to curb GHG emissions?",
"What was the first of these requirements?",
"What other requirements are expected?",
"How will EPA likely target its next requirements?",
"How does decreased efficiency in a power plant occur?",
"What are the factors affecting the loss of CFPP efficiency?",
"What occurs as a result of lower power plant efficiency?",
"What are the options for increasing efficiency of CFPPs?",
"How would increased efficiency be achieved?",
"How costly would these upgrades be?",
"What kinds of upgrades are more expensive?",
"What are possible approaches to achieve fleet-wide efficiency?",
"With what other efforts could the \"efficiency frontier\" be combined?",
"What are other approaches to encourage efficiency?",
"What is the overall cost of these programs?"
],
"summary": [
"Coal has long been the major fossil fuel used to produce electricity.",
"However, coal-fired electric power plants are one of the largest sources of air pollution in the United States, with greenhouse gas (GHG) emissions from burning of fossil fuels believed to be the major contributor to global climate change.",
"Regulations under development at the Environmental Protection Agency (EPA) would impose new requirements on fossil-fueled (mostly coal-fired) power plants (CFPPs) to control GHG emissions.",
"The first of these requirements was issued in September 2013 with proposed standards for the control of carbon dioxide (CO2) emissions from new electric generating units burning fossil fuels.",
"EPA's proposals for control of GHG emissions from existing power plants are expected by June 2014, with many options under consideration.",
"EPA may target emissions on a state or plant-by-plant basis, with companies likely given choices for compliance. Within such a system, efficiency improvements can be an important contributor.",
"The overall efficiency of a power plant encompasses the efficiency of the various components of a generating unit.",
"Minimizing heat losses is the greatest factor affecting the loss of CFPP efficiency, and there are many areas of potential heat losses in a power plant.",
"Efficiency of older CFPPs becomes degraded over time, and lower power plant efficiency results in more CO2 being emitted per unit of electricity generated.",
"The options most often considered for increasing the efficiency of CFPPs include equipment refurbishment, plant upgrades, and improved operations and maintenance schedules.",
"According to subsequent analyses, NETL concluded that retirements of lower efficiency units combined with increased generation from higher efficiency refurbished units, and advanced refurbishments with improved operation and maintenance, would be necessary to achieve this goal.",
"These improvements would generally be considered low to medium cost upgrades.",
"However, at the higher cost end are major plant retrofits and upgrades (i.e., conversion of subcritical CFPP units to super- or ultra-supercritical CFPP units), which would raise efficiencies more substantially.",
"One possible approach to achieve fleet-wide efficiency improvement might be to follow NETL's suggestion of using the top decile of CFPP efficiency as a benchmark for the U.S. fleet, and establish an \"efficiency frontier\" that would be revisited periodically to reset the benchmark.",
"This could be combined with possible incentives to improve efficiency or retire less efficient power plants.",
"Other federal approaches could use tax incentives to encourage greater efficiency, or employ energy efficiency standards focused on improving efficiency of CFPPs.",
"The overall cost of these or other programs to increase CFPP efficiency has yet to be determined."
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0,
0,
0,
1,
1,
1,
1,
5,
5,
5,
6,
6,
6,
6
]
}
|
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